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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 4
TO
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER
SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
MANHATTAN SCIENTIFICS, INC.
(Name of Small Business Issuer in its Charter)
Delaware 850460639
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
641 Fifth Avenue, Suite 36F, New York, New York 10022
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(Address of Principal Executive Offices) (Zip Code)
(212) 752-0505
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(Issuer's Telephone Number)
Securities to be registered pursuant to Section 12 (b) of the Act:
Title of Each Class Name of Each Exchange on Which
To be so Registered Each Class is to be Registered
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Securities to be registered pursuant Section 12 (g) of the Act:
Common Stock, $0.001 par value
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(Title of Class)
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TABLE OF CONTENTS
Forward Looking Statements
PART I
Item 1. Description of Business
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Description of Property
Item 4. Security Ownership of Certain Beneficial Owners and Management
Item 5. Directors, Executive Officers, Promoters and Control Persons
Item 6. Executive Compensation
Item 7. Certain Relationships and Related Transactions
Item 8. Description of Securities
PART II
Item 1. Market Price of and Dividends on our Common Equity and Related
Stockholder Matters
Item 2. Legal Proceedings
Item 3. Changes in and Disagreements with Accountants
Item 4. Recent Sales of Unregistered Securities
Item 5. Indemnification of Officers and Directors
PART F/S
Financial Statements
PART III
Index to Exhibits
SIGNATURES
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FORWARD LOOKING STATEMENTS
This Form 10-SB contains forward-looking statements, including
statements regarding our expectations of our future operations. For this
purpose, any statements contained in this Form 10-SB 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 to our successful completion of the
research and development with respect to the micro fuel cell and our other
technologies, successful commercialization of the micro fuel cell and
holographic storage devices for mass production, 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.
We note that the safe harbor contained in the Litigation Reform Act of 1995 is
not applicable to the disclosure in this Form 10-SB.
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PART I
Item 1. Description of Business
Manhattan Scientifics, Inc., a development stage company, is a
technology incubator that seeks to acquire, develop and bring to market
life-enhancing technologies in various fields of endeavor, with emphasis in the
area of consumer and commercial electronics. We identify emerging technologies
through strategic alliances with scientific laboratories, educational
institutions, scientists and leaders in industry and government. We believe that
our scientific and business expertise, resourcefulness and creativity place us
in a position to advance these technologies from the development stage through
commercialization.
We are currently working with four technologies:
o Micro fuel cell technology, which is an ultra efficient miniature
battery that converts alcohol or hydrogen into electricity, for
portable electronic devices, including cellular telephones. We
believe this technology has the potential to significantly increase
battery life over the current state-of-the-art technology;
o Mid-range fuel cell technology, which is an ultra efficient medium
sized battery that converts alcohol or hydrogen into electricity,
with potential applications for cordless appliances, power tools,
wheelchairs, bicycles, boats, home energy fuel cell systems, and
laptop computers.
o Holographic data storage technology, which is technology for the
storage and retrieval of data in the form of light patterns, that we
believe is capable of storing and retrieving large amounts of data
in small spaces. We believe this technology has the potential to
increase the volume of electronic data storage, as well as retrieval
times, over the current state-of-the-art technology; and
o Filtration technology based upon a nanoporous polymer, which is an
ultra efficient filtering material, for consumer and restaurant
water and air purification. Based upon independent research, we
believe this technology has the potential to be up to 100,000 times
more efficient than the carbon filter most commonly in use today.
In addition, Manhattan Scientifics has acquired 5,416,300 shares of
common stock, approximately a 28% interest in NMXS.Com, Inc. (f/k/a New Mexico
Software, Inc.) a public company, that owns and is marketing what it believes to
be a fast and efficient Internet technology for the management of digital
images.
We are also working to identify potential new technologies for possible
acquisition and development although we have no agreements or arrangements for
any other technologies as of the date of this Form 10-SB, other than on April
28, 2000, we paid $100,000 to Novint Technologies, Inc. as an advance for
scientific research and development services to be performed in connection with
a technology we intend to license. A formal research and development agreement
with Novint is being negotiated as of the date of this Form 10-SB and this
payment was made to secure Novint's services pending consummation of the
agreement. If no formal agreement is consummated by May 15, 2000, the funds
advanced shall be repaid and repayment has been guaranteed.
Manhattan Scientifics, Inc. was formed through a reverse merger
involving a public company in January 1998. The public company was incorporated
in the state of Delaware on August 1, 1995 under the name Grand Enterprises,
Inc. Grand was initially organized to market an unrelated patented product, but
subsequently determined that its business plan was not feasible. In January
1998, Grand effected the reverse merger in a transaction involving
Projectavision, Inc., another public company that was co-founded by our CEO.
Projectavision was the owner of approximately 98% of Tamarack Storage Devices,
Inc., a privately held Texas
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corporation formed in 1992 to develop and market products based on the
holographic data storage technology described above. In January 1998, Grand
formed a wholly-owned subsidiary named Grand Subsidiary, Inc. Grand Subsidiary
and Tamarack merged, Tamarack being the surviving corporation, and via the
merger, Tamarack became a subsidiary of Grand. As consideration for merging
Tamarack with Grand Subsidiary, Grand gave Projectavision and the other
shareholders of Tamarack 44,000,000 shares of our common stock. In addition, in
exchange for a note payable of $1.5 million plus accrued interest of $330,000
due to Projectavision from Tamarack, Grand gave Projectavision 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 $0.10 per share, exercisable at any time prior to
January 8, 2003, which warrant as of the date of this Form 10-SB, remains
unexercised and outstanding. The Series A Preferred Stock was subsequently
converted into 9,435,405 shares of our common stock. In connection with this
transaction, new personnel assumed the management of Grand, former management
resigned, and Grand changed its name to Manhattan Scientifics, Inc.
Our Development Model
Manhattan Scientifics, a development stage company, is a technology
incubator that seeks to acquire, develop and bring to market life-enhancing
technologies. Our goal is to influence the future through the development of
technologies in an intense and focused way. We identify emerging technologies
through strategic alliances with various scientific laboratories, educational
institutions, scientists and leaders in industry and government. Technology
development is accomplished using scientific resources and our strategic
alliances. By fostering the development of multiple technologies at the same
time, we believe we increase our likelihood of success while decreasing our risk
through diversification.
We have assembled a team of management and professionals that is
working to achieve our corporate mission. In the highly competitive environment
of emerging technologies, we believe swiftness of identification, evaluation and
acquisition is essential to success. We believe we have the ability to act and
react rapidly as well as comprehensively, and we believe this has enabled us to
acquire technologies notwithstanding competition from larger companies and
government entities.
Manhattan Scientifics has not yet realized any revenue from any of our
technologies, since they are still in their development phase and we do not
anticipate any revenues in the near future. As such, the need for operating and
acquisition capital is a continuous concern and requires and will continue to
require the ongoing efforts of our management. Because we believe the
traditional process of securing capital funding is often cumbersome and slow, we
therefore generally attempt to accelerate the capital financing process. We have
and intend to continue to raise capital on an as needed basis through a series
of private placements. (See "Part II - Item 4 - Recent Sales of Unregistered
Securities")
We also try to coordinate our resources to ensure our technologies have
a promising chance for commercial success. For example, as needed, we intend to
continue to enlist the assistance of experts who we believe will help bring a
particular technology to market.
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We do not have nor do we plan to establish large production facilities.
Rather, we intend to maintain research labs and small pilot production
facilities to produce key components and prototypes of our technologies, and/or
to involve third parties with demonstrated expertise in large-scale
manufacturing and production.
We currently consider ourselves to operate in one business segment.
Our Technologies
Fuel Cell Technologies
Manhattan Scientifics is conducting research efforts to develop both
micro and mid-range fuel cell technologies. A micro fuel cell is an ultra
efficient miniature battery that converts alcohol or hydrogen into electricity.
A mid-range fuel cell is an ultra efficient medium sized battery that converts
alcohol or hydrogen into electricity. Fuel cells, which have no moving parts,
create electricity not by burning fuel, but by the process of electrochemically
arranging the fuel's atoms to produce electric current. Water or water vapor and
carbon dioxide are the only emissions. In addition to producing harmless
emissions, certain fuel cells have the potential to be an alternative to
traditional energy sources because they use methanol and other sources of
hydrogen as fuels. Methanol can be produced inexpensively from a variety of
plant sources and is considered a renewable resource. Methanol is also regarded
to be stable and safe.
We have acquired technologies in the fields of both micro fuel cells
and mid-range fuel cells.
1. Micro Fuel Cell Technology
We believe that micro fuel cell-based power sources have the potential
to replace conventional batteries to provide portable power sources. If
perfected, we believe micro fuel cell technology could supply power to consumer
electronic products such as cellular phones, pagers, and other microelectronic
devices more efficiently than conventional batteries. We believe micro fuel
cells would be refuelable with insignificant amounts of methanol and water and
would significantly increase battery life over current state-of-the-art battery
technology. Until recently, fuel cell technology had not been practical for
consumer electronics because of the size of the devices necessary to produce
electrical energy. We believe that new materials and miniaturization technology
has the potential to make micro fuel cell technology commercially feasible.
Mr. Robert Glenn Hockaday is the inventor of our micro fuel cell. In
January 1998, we acquired the rights to Mr. Hockaday's micro fuel cell
invention, as well as another invention known as a "solar cell," and secured Mr.
Hockaday's continued efforts for a limited period of time, to develop the
invention via a research and development agreement with Mr. Hockaday's company,
Energy Related Devices, Inc. ("Energy Related Devices"). Mr. Hockaday owns
approximately 99% of Energy Related Devices, and that company agreed to provide
Mr. Hockaday's personal services for a limited period of time, as independent
contractor, not as employee to Manhattan Scientifics, along with a $2 million
key man life insurance policy, which we are obligated to pay for, naming
Manhattan Scientifics as the beneficiary.
Mr. Hockaday received, through the merger of DKY, Inc. (see the next
paragraph for a discussion of DKY) into Tamarack, 7,200,000 shares of our common
stock in exchange for 4
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micro fuel cell patents, 2 patent applications, and any resulting patents or
inventions from this technology and his solar cell invention. We also secured
Mr. Hockaday's continued involvement for a limited period of time by agreeing to
fund Mr. Hockaday's research and development efforts in connection with the
technology through Energy Related Devices pursuant to a milestone timetable up
to $1,000,000, which was disbursed as of August 1999. Mr. Hockaday is also to
receive royalties on future revenues and sublicenses from any invention or any
derivative of the acquired technology. In May 1999, we formally established a
milestone timetable for Mr. Hockaday's development of the micro fuel cell and,
subject to certain conditions and limitations, agreed to fund up to an
additional $300,000 for research and development, of which $260,000, not
including legal and travel reimbursements, has been disbursed as of March 15,
2000. We have issued an additional $100,000 since April 14, 2000.
Our arrangements with Mr. Hockaday were effected through a series of
transactions involving Energy Related Devices, Mr. Hockaday, Manhattan
Scientifics, and our wholly owned subsidiary Tamarack Storage Devices, Inc.
Specifically, the shareholders of Energy Related Devices, Mr. Hockaday and one
other individual, formed a new corporation specifically for this transaction
named DKY, Inc., with whom Mr. Hockaday entered into a patent license/assignment
agreement regarding the micro fuel cell and solar cell. Subsequently, Manhattan
Scientifics acquired the agreement via the merger of DKY with and into Tamarack,
for which the shareholders of DKY received the 7,200,000 shares of our common
stock described above. The research and development agreement was entered into
separately and independently by Energy Related Devices, Mr. Hockaday, Manhattan
Scientifics and Tamarack.
Our agreements with Mr. Hockaday also relate to an additional
technology invented by Mr. Hockaday known as a solar cell, with respect to which
there is no activity at present. We are obligated to pay Mr. Hockaday royalties
on future revenues and sublicenses from any invention or any derivative of this
acquired technology.
We believe we have achieved promising results through our research to
date. For example, in the fourth quarter of 1998, we demonstrated a
pre-prototype of our micro fuel cell technology by completing a fuel-cell driven
cellular telephone call. In the first quarter of 1999, we demonstrated that an
eight cell array, which is approximately the size of a credit card, running on
methanol and water, was able to run a pager. As of the date of this Form 10-SB,
we are working to build a power holster battery charger which charges a stand
alone cell phone. Once we have completed initial development of the micro fuel
cell, we will attempt to secure a manufacturing and distribution arrangement
with an established commercial partner. On November 16, 1999, we were informed
that Industry Week Magazine selected us to receive a Technology of the Year
Award in recognition of our work on the micro fuel cell.
2. Mid Range Fuel Cell Technology
In addition to micro fuel cells, we have also begun efforts to develop
mid-range fuel cell technologies. Mid range fuel cell technologies are directed
toward high current, low voltage applications such as laptop computers, cordless
appliances and power tools, wheelchairs, bicycles, boats, and home energy fuel
cell systems. In contrast, micro fuel cell technologies address low current,
high voltage applications such as cellular phones, pagers and other
microelectronics devices.
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In August 1999, we acquired a mid-range fuel cell technology from
Novars Gesellschaft fur neue Technologien, GmbH, a private company based in
Germany, and Dr. Arthur E. Koschany and Petra Koschany, the company's founders
and inventors of the technology. In exchange for the technology, we agreed to
issue 1,000,000 shares of our common stock to Novars and the Koschanys, and to
pay royalties on revenue from the technology. Of the 500,000 shares, we agreed
to issue 250,000 shares to Novars, and 750,000 to Petra Koschany, subject to
escrow release provisions tied to effective transfer of intellectual property.
Pursuant to this agreement, Novars and the Koschanys agreed to further research
and develop the technology for a limited period of time. Funding under this
agreement depends upon the achievement of development milestones. As of the date
of this Form 10-SB, we have paid Novars and the Koschanys $500,000 for research
and development efforts. Novars and the Koschanys have agreed to use their best,
exclusive full-time efforts in conducting research and development for a limited
period of time. In addition, they have agreed to secure $2,000,000 in key-man
life insurance, at our expense, on Dr. Koschany naming Manhattan Scientifics as
the beneficiary.
We also acquired rights of first refusal on new technologies developed
by Novars and the Koschanys.
After execution of agreements in August 1999, Novars and the Koschanys
relocated their operations to eastern Bavaria and completed the set up of
laboratory and administrative facilities. They hired three professional
associates and have begun the research and development. One of the immediate
goals is to develop a lightweight, efficient, easy to handle, fuel cell stack
appropriate for mass production and worldwide distribution in the year 2000.
Holographic Data Storage Technology
Manhattan Scientifics' wholly owned subsidiary, Tamarack Storage
Devices, Inc., (a/k/a/ Holostor(TM)) has conducted research and development
activities relating to holographic data storage technology since approximately
1992. Holographic data storage technology is technology for the storage and
retrieval of data in the form of light patterns. Manhattan Scientifics acquired
Tamarack in 1998 via merger with Grand Subsidiary, Inc. (see "Part I - Item 1 -
Description of Business").
We currently have 23 patents filed relating to holographic
data storage technology, of which 21 patents have been issued or are issuing and
2 are pending. The patents cover a range of concepts from optical design to
media chemistry. Prior to the merger, Tamarack was engaged in the development of
holographic data storage technology both independently and as member of a
consortium of microelectronics companies funded privately and by the United
States government through its Defense Advanced Research Projects Agency
("DARPA"). This research and development has continued independent of the
consortium and DARPA since our acquisition of Tamarack.
We believe holographic storage technology provides significantly
greater storage densities than conventional magnetic surface recording, and
significantly faster retrieval times. The theoretical limits for the holographic
storage density is measured in terabits, that is, millions of bits per cubic
centimeter. Holographic data storage provides greater storage capabilities
because data is stored in three dimensional light patterns. Holographic storage,
which is storing data in the form of light patterns, also makes data retrieval
more efficient. In contrast to single bits of data being stored and retrieved in
a stream
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from conventional magnetic medium, holographic data storage retrieves pages of
information. In addition, the means of reading data is faster than traditional
storage.
We believe a principal disadvantage of holographic data storage is that
presently there is no established industry standard for this new way to record
and retrieve data.
To date, holographic data storage in general has not advanced into the
marketplace as a viable storage method because of technical challenges inherent
in developing a suitable holographic storage medium, which is a substance that
can store data in the form of light patterns. For this reason, we have focused
our research and development work upon the development of a suitable holographic
storage medium that overcomes these technical challenges, specifically in the
field of photopolymers. For this purpose, we previously entered into and
completed a cooperative research and development agreement with the University
of California, a nonprofit educational institution that conducts research
development for the United States Government at facilities located at Los
Alamos, New Mexico ("Los Alamos National Laboratory"), and subsequently hired
who we believe to be one of the foremost polymer scientists in the world. We
believe that our continuing research and development work will eventually result
in the commercialization of holographic data storage technologies, although we
do not expect to be able to commercialize this technology until a suitable
storage medium is developed.
Nanoporous Polymer Filter Technology
In August 1999, we acquired an exclusive option from the Los Alamos
National Laboratory to license and sublicense the exclusive worldwide rights for
nanoporous polymer water and air filtration technology in consumer and
restaurant applications. A nanoporous polymer is an ultra efficient filtering
material. The cost of the option was $10,000, which amount will not be credited
against any future license or sublicense. The option extends to applications
including whole house water filters, water faucet filters, standalone water and
air filters, water fountain and water cooler filters, restaurant applications,
and portable devices to purify water from a lake, pond, river or other source,
for individual consumption. The nanoporous polymer filter technology is a
polymer-based material that forms nanometer-sized pores that absorb and trap
organic contaminants, which is dirt, debris and other small organisms.
Research conducted by scientists at the Los Alamos National Laboratory
indicates that the binding between organic contaminants and the nanoporous
polymer is 100,000 times greater than the binding between contaminants and the
most widely used activated carbon filters, reducing organic compounds to the
parts per trillion range, and that the material is reusable. Unlike activated
carbon, the polymers do not allow leaching of the organic contaminants once they
are trapped. In addition, a simple alcohol rinse releases the collected
contaminants from the polymer, allowing it to be reused numerous times.
The option gives Manhattan Scientifics the right to exclusively license
the technology from the Los Alamos National Laboratory and sublicense the
technology in the United States, and a right of first refusal for such rights in
foreign countries. The initial term of the option expired on February 29, 2000.
We renewed the option and paid the $10,000 renewal fee on February 28, 2000.
This $10,000 payment will not be credited against any future license or
sublicense.
In March 2000, we acquired an exclusive option from Mr. Edward Vanzo to
license and sublicense the exclusive worldwide rights for nanoporous polymer
molecular filter technologies proprietary to Mr. Vanzo. The cost of the option
was $10,000. The initial term of the option expires on September 15, 2000 and
may be extended for an additional six months for an additional option fee of
$10,000.
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We believe there is a growing worldwide market for clean, pure water.
We believe this market is evident at the consumer level through the increasing
sales of bottled water. We are looking to form an alliance with a corporate
partner, well-positioned in the water purification industry that could assist in
successful product development and subsequent market penetration. As of the date
of this Form 10-SB, we have no such agreement or understanding with any partner.
We also believe there may also be applications for the nonoporous polymer filter
for swimming pools, hot tubs, as well as air filtration in homes automobiles and
restaurants.
Digital Image Management Technology (Investment in NMXS.Com, Inc.)
In 1999, Manhattan Scientifics acquired 5,416,300 shares of common
stock, approximately 28%, of NMXS.Com, Inc., a public company located in
Albuquerque, New Mexico, at a cost of $100,000. NMXS.Com markets Internet
technology-based software for the high-speed transmission of high-resolution
graphic images, video clips and audio recordings. NMXS.Com's proprietary
software provides image archiving, asset packaging, data mining and secure
commerce over the internet transaction capabilities.
Our acquisition of shares in NMXS.Com was effected through a
transaction with its predecessor, New Mexico Software, Inc., a privately held
New Mexico corporation. New Mexico Software became public pursuant to a reverse
merger transaction. Prior to the reverse merger, we invested $100,000 in New
Mexico Software and agreed to provide New Mexico Software business and
management consulting services. In return, we contracted for equity, which
equaled the 5,416,300 shares of NMXS.Com, upon consummation of the reverse
merger. The investment agreement also provided that the investment would convert
to a loan in the event that the reverse merger was not consummated. The reverse
merger was consummated in August 1999 and the 5,416,300 shares were issued to
Manhattan Scientifics at such time.
We believe NMXS.Com has mature, market-ready, turnkey products and is
positioned to capitalize on the growing trend of businesses converting their
photographs, drawings, artwork and other visual images into formats that can be
stored and retrieved electronically. The company provides solutions particularly
suited to companies seeking to develop a presence on the internet or become
involved in conducting business over the internet.
Pursuant to contract, NMXS.Com has agreed that Manhattan Scientifics
shall hold at least one of its three board of director seats, and that the size
of its board cannot be increased without our approval. At present, two of our
directors are also directors of NMXS.Com. (Messrs. Maslow and Bach). In
addition, per our contract with NMXS.Com, Manhattan Scientifics provided
NMXS.Com with business and management advice through August 1999. Also, our CEO
receives a salary and a leased car from NMXS.Com as consideration for
independent services to NMXS.Com.
Competition
The markets in which we compete are highly competitive and constantly
evolving. We face competition from leading researchers and manufacturers
worldwide. For example, in the last few years there has been a much greater
interest in using fuel cells as an energy source for practical applications such
as automobiles and portable electronic devices. In addition, Ford
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Motor Company has indicated it will contribute several hundred million dollars
as part of a global alliance with other entities to develop automotive engines
powered by fuel cells.
The markets in which we compete have no substantial barriers to entry.
Accordingly, there are others working toward similar objectives in order to
penetrate these markets and we anticipate additional companies to pursue the
same goals. Those whose efforts of which we are aware include Medis El, Inc. and
Motorola, Inc. in the area of micro fuel cells, H Power Corp. in the area of
mid-range fuel cells, Polaroid in the area of holographic storage media, and
Affiniti Water Technologies in the area of filtration technologies.
We believe that the principal competitive factors in our technology
markets are:
o proprietary technology;
o product quality;
o ability to customize technology to a customer's particular use;
o manufacturing capabilities; and
o price.
Many of our competitors have longer operating histories and
significantly greater financial, marketing and other resources than we have.
Furthermore, our 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.
Intellectual Property
Our ability to compete depends in part on the protection of 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 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.
With respect to the technologies that we are developing, we have 31
patents that have been issued to us and 10 patents pending in the U.S. Patent
and Trademark Office. We also have 7 trademark registration applications
pending. Of these, with respect to the micro fuel cell device, 4 patents have
been issued, 2 are pending, and there are 6 trademark registration applications
pending. With respect to the mid-range fuel cell, we have 6 patents pending and
1 trademark registration application pending. With respect to the holographic
storage technology, we have 21 patents issued and 2 patents pending. In
addition, we continue to evaluate whether to pursue additional applications to
protect our intellectual property.
The success of our business will depend, in part, on our ability to
secure issuance of our pending patents, obtain related patents, protect and
enforce patents once issued and operate
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without infringing 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
and may be required to license additional technologies in the future. We do not
know if these third-party licenses 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. 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 marketing program intended to facilitate the transition
from development to manufacturing and sales. This program consists of
preliminary dialogue with potential strategic partners, investors, and
manufacturers concerning the funding and implementation of manufacturing and
distribution activities.
Employees
As of May 1, 2000, we had 3 full-time employees, including 2
uncompensated employees in general management, and 1 compensated employee in
research and development and two part-time uncompensated employees. None of our
employees is a member of any union or collective bargaining organization. We
consider our relationship with employees to be good.
A significant portion of our research and development is performed by
independent contractors from whom we acquired certain technologies. As of May 1,
2000, we have two independent contractors conducting research and development
for us (as described above, Robert Hockaday performs research and development
under contract through his company Energy Related Devices, Inc., and the
inventor of the mid-range fuel cell technology acquired by Manhattan
Scientifics, Dr. Arthur Koschany, also performs research and development under
contract through his company Novars). Our independent contractors rely upon a
number of their respective personnel to satisfy their research and development
obligations to Manhattan Scientifics.
Reports to Security Holders
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We have voluntarily elected to file this Form 10-SB registration
statement in order to become a reporting company under the Securities Exchange
Act of 1934. As of February 7, 2000, we are required to comply with the
reporting requirements of the Exchange Act. We are required to file annual,
quarterly and other reports with the Securities and Exchange Commission. We are
also subject to the proxy solicitation requirements of the Exchange Act and,
accordingly, will furnish an annual report with audited financial statements to
our stockholders.
Available Information
Copies of this registration statement may be inspected, without charge,
at the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0300 for further information
on the operation of its public reference rooms. In addition, copies of this
material also should be available through the Internet by using the SEC's
Electronic Data Gathering, Analysis and Retrieval System, which is located at
http://www.sec.gov.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction
with our financial statements and accompanying notes appearing elsewhere in this
Form 10-SB.
Overview
In January 1998, Manhattan Scientifics, Inc., then a non-operating
public corporation with nominal net assets, known as Grand Enterprises, Inc.,
acquired all of the outstanding common stock of Tamarack Storage Devices, Inc.
in a transaction that gave the stockholders of Tamarack actual control of the
combined company. For accounting purposes, the acquisition has been treated as a
capital stock transaction rather than a business combination. This transaction
has been recorded as a recapitalization of Tamarack with Tamarack as the
acquiror, reverse acquisition, and no goodwill or other intangible was
recognized. The historical financial statements prior to the date of the reverse
acquisition are those of Tamarack with the accounting acquiror's stockholders
equity prior to the merger retroactively restated i.e., recapitalized, for the
equivalent number of shares received in the transaction and the difference
between the par value of Grand's and Tamarack's stock recorded as an offset to
additional paid-in capital. Historical deficit accumulated during the
development stage of Tamarack is being carried forward after the acquisition.
Loss per share has similarly been restated for all periods prior to the
acquisition to include the number of equivalent shares received by Tamarack's
stockholders.
Since the reverse merger we have been acquiring technologies,
directing, supervising and coordinating our research and development efforts,
raising capital, and initiating marketing activities and dialogue with potential
customers.
Manhattan Scientifics has not received any revenues since the reverse
merger and we have incurred losses. As of December 31, 1998, we have had an
accumulated loss since inception, 1992, of $11,256,000, of which $6,676,000
predated the reverse merger and relates to
13
<PAGE>
the activities of our subsidiary, Tamarack Storage Devices, Inc., and as of
September 30, 1999, we had an accumulated loss since inception of $20,222,000.
We expect operating losses to continue for the foreseeable future because we
will be continuing to fund research and development efforts as well as general
and administrative expenses prior to receiving 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.
We believe that a comparison of our fiscal year 1998 operations to
fiscal year 1999 operations would not be helpful because of the change in our
operations in January 1998 following the reverse merger.
Results of Operations
Comparison of nine months ending September 30, 1999 to nine months ended
September 30, 1998.
Net Loss We reported a net loss of $8,966,000 or $0.09 per common share, basic
and diluted, for operations for the nine months ended September 30, 1999 versus
a net loss of $4,396,000 or $0.07 per common share, basic and diluted, for the
nine months ended September 30, 1998. The increase of $4,570,000 or 104% is
primarily a result of the issuance of options with an exercise price below fair
market value on the date of grant and the issuance of stock for services.
Revenues We had no revenues during the nine months ended September 30, 1999 and
had no revenues during the nine months ended September 30, 1998, although we
received a final payment of $21,700 in August 1999 in connection with research
performed by our subsidiary, Tamarack Storage Devices, Inc., for DARPA.
Costs and Expenses Costs and expenses for the nine months ended September 30,
1999 totaled $8,983,000, an increase of $4,587,000 or 104%, versus costs and
expenses of $4,396,000 for the nine months ended September 30, 1998. These costs
and expenses are detailed below.
Salaries and Employee Benefits Salaries related to research and development and
employee benefits were $9,000 for the nine months ended September 30, 1999 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 nine months ended September 30, 1998. This increase of $9,000 is a
result of paying our Chief Polymer Scientist his first month's salary. We
anticipate an increase in these costs as we intend to enter into employment
agreements with our now uncompensated executive officers and implement certain
employee benefit plans including a healthcare plan.
Consulting Fees Consulting fees were $1,198,000 for the nine months ended
September 30, 1999 which primarily consisted of the granting of options to our
consultants with an exercise price below fair market value on the date of grant,
versus consulting fees of $1,939,000 for the nine months ended September 30,
1998. This decrease of $741,000 or 38% is a result of the
14
<PAGE>
fact that we made a number of one time payments to consultants in 1998. We
intend to continue to rely upon these consultants.
General and Administrative General and administrative expenses were $6,950,000
for the nine months ended September 30, 1999 which consisted of accounting,
legal, travel and other expense reimbursements, rent, telephone and other day to
day operating expenses and the granting of options to our consultants with an
exercise price below fair market value on the date of grant, versus general and
administrative expenses of $1,827,000 for the nine months ended September 30,
1998. This increase of $5,123,000 or 280% is primarily a result of the granting
of options to our officers and directors with an exercise price below fair
market value on the date of grant. We anticipate a decrease of general and
administrative expenses in the future, as we do not presently intend to grant
significant numbers of options with an exercise price below fair market value on
the date of grant, which decrease will be offset by increased costs as we become
a reporting company, expand our operations and effectuate our business plan.
Research and Development Research and development expenses were $835,000 for the
nine months ended September 30, 1999 which consisted of payments to Energy
Related Devices, Inc., Novars, amortization of patents, contract payments
pursuant to cooperative research and development agreements, the nanoporous
polymer license option payment, and salary to our Chief Polymer Scientist,
versus research and development expenses of $630,000 for the nine months ended
September 30, 1998. This increase of $205,000 or 33% is a result of research and
development payments to Novars. We expect research and development costs to
increase in proportion to the pace we develop our technologies.
Year ending December 31, 1998
Net Loss We reported a net loss of $4,580,000 or $0.06 per common share, basic
and diluted, for our operations from the reverse merger to December 31, 1998.
The loss is primarily a result of the fact that we had no revenues and incurred
the costs and expenses detailed below.
Revenues We had no revenues during 1998.
Costs and Expenses Costs and expenses for 1998 totaled $4,580,000. These cost
and expenses are detailed below.
Salaries and Employee Benefits Salaries and employee benefits were $0.00 for
1998. We anticipate an increase in these costs as we intend to enter into
employment agreements with our now uncompensated executive officers and
implement certain employee benefit plans including a healthcare plan.
Consulting Fees Consulting fees were $1,968,000 for 1998 which consisted
primarily of a number of one time payments to various parties for financial,
investor relations, public relations, scientific, strategic, and other business
consulting services. We intend to continue to rely upon these consultants.
General and Administrative General and administrative expenses were $1,949,000
in 1998 which consisted of accounting, legal, travel and other expense
reimbursements, rent, telephone and other day to day operating expenses and
granting options and warrants to our officers, directors, third party service
providers and others with an exercise price below fair market value
15
<PAGE>
on the date of grant. We expect these costs to increase as we become a reporting
company, expand our operations and effectuate our business plan.
Research and Development Research and development expenses were $663,000 in
1998 which consisted primarily of funds used to develop our micro fuel cell
technology and amortization of our fuel cell patents. We expect research and
development costs to increase in proportion to the pace that we develop our
technologies.
Liquidity and Plan of Operations
At present, Manhattan Scientifics is a development stage company and is
in the technology acquisition and development phase of its 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 shareholders of ours. Until there is
revenue from sales and licensing of technology, or a large infusion of cash from
a potential strategic partner, we intend to continue to rely upon these methods
of funding operations during the next year.
The significant assets of Manhattan Scientifics include our portfolio
of intellectual property relating to the various technologies, our contracts
with third parties pertaining to technology development and acquisition, our
holdings of approximately 5.4 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 $2,192,000 on December 31, 1998 and the
working capital was $831,000 on such date. Stockholders' equity totaled
$1,957,000 on September 30, 1999 and the working capital deficit was $457,000 on
such date.
Commencing with the reverse merger transaction in January 1998, there
have been five 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 (see "Part I - Item 1 - Description of Business"), 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 (see "Part II - Item 4 Recent Sales of
Unregistered Securities").
2. On April 16, 1998, in order to raise us additional capital, 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 (see "Part II Item 4 - Recent
Sales of Unregistered Securities").
3. From July 28, 1998 through December 31, 1998, in order to raise us additional
capital, 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
16
<PAGE>
entities between July 28, 1998 and December 31, 1998 (see "Part II - Item 4 -
Recent Sales of Unregistered Securities"). Finders fees aggregating $25,000
were paid to one entity.
4. In December 1999, in order to raise us additional capital, 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, in order to raise us additional capital, we raised $786,000
through the sale of 1,048,000 shares of common stock to 9 accredited
investors at $0.75 per share.
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, Manhattan Scientifics borrowed $500,000 from the
Peters Corporation of Santa Fe, New Mexico. The loan bears interest at the rate
of Citicorp prime plus 1% and matures 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.
Manhattan Scientifics 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 is due together with interest upon the earlier of
(i) eighteen (18) months from August 8, 1999, or (ii) the date we complete a
private placement of a class of our securities aggregating at least $1,500,000.
We may prepay the loan at any time, in whole or in part, without penalty.
Over the next 12 months, we intend to spend significant time and
resources developing each of our technologies.
We do not presently maintain a line of credit with any financial
institution.
On November 24, 1999, Lancer Management Group, LLC, the beneficial
owner of 34.0% of our securities, expressed its willingness to advance us funds
as needed to continue our operations through December 15, 2000, upon reasonable
terms and conditions to be agreed.
We do not expect any significant change in the total number of
employees over the next twelve months. We intend to continue to identify and
target appropriate technologies for possible acquisition over the next twelve
months, although we have no agreements regarding any such technologies as of the
date of this Form 10-SB.
Based upon current projections, our principal cash requirements for the
next 12 months consists of (1) fixed expenses in categories including rent,
payroll, investor relations services, public relations services, bookkeeping
services, graphic design services, consultant services, and reimbursed expenses;
and (2) variable expenses in categories including technology research and
development, milestone payments, intellectual property protection, utilities and
telephone, office supplies, additional consultants, legal and accounting. As of
December 31, 1998, we had $665,000 in cash. As of September 30, 1999, we had
$419,000 in cash. We intend to satisfy our capital requirements for the next 12
months by our cash on hand and continuing to pursue private placements to raise
capital and use our common stock as payment for services in
17
<PAGE>
lieu of cash where appropriate. However, we do not know if those resources will
be adequate to cover our capital requirements.
Year 2000
Many existing software programs may not accurately process dates
arising in the year 2000 and beyond because they use only two digits to identify
a year and assume that the two missing digits are always "19." Year 2000
disruptions could result in system failures or miscalculations that could
temporarily shut down or impede our operations.
We have completed a preliminary review of our computer systems and
operations to determine the extent to which our business will be vulnerable to
potential errors and failures as a result of the year 2000 problem. Based on
this limited review, we have concluded that our computer programs and operations
will not be materially affected by the year 2000 problem. We cannot assure you,
however, that the systems of other companies with whom we may do business will
be in compliance and this could have a material adverse effect on our
operations.
We do not have any material contracts with external contractors to
assist us in completing our year 2000 compliance effort. In addition, no
employees have been hired or reassigned to complete our year 2000 compliance. As
of the date of this Form 10-SB, we have not experienced any material year 2000
problems.
Recently Issued Accounting Standards
We do not believe any recently issued accounting standards have had or
will have a material impact on our operations.
Item 3. Description of Property
Our principal executive facility is located at 641 Fifth Avenue, New
York, New York. We lease approximately 1,200 square feet of space pursuant to a
two-year lease that terminates on December 31, 2001. In 1999, the rental cost
for this space was $5,000 per month, of which Manhattan Scientifics paid 20%
($1,000). The remaining 80% ($4,000) is paid on a month to month basis by
Normandie Capital Corp., a private corporation owned by our Chief Executive
Officer, in consideration of its occasional use of the facility. In 2000, the
rental cost for this space is $5,250 per month, of which Manhattan Scientifics
pays 20% ($1,050) and the remaining 80% ($4,200) is paid on a month by month
basis by Normandie Capital Corp. Our lease provides for renewal at the end of
the initial term for up to an additional two years at the rental cost of $5,500
per month.
In addition to our principal executive facility, we also lease space at
127 Eastgate Industrial Park, Los Alamos, New Mexico. We lease approximately
2,500 square feet pursuant to a three-year lease that terminates on April 30,
2001. In part, the space is used as a laboratory to conduct research and
development of our technologies. The aggregate rental cost for this space in
1999 was $35,640, plus approximately $3,500 to use certain phone services
provided by the landlord, of which Manhattan Scientifics paid approximately 15%.
The other 85% was paid by Energy Related Devices, Inc., a corporation which is
99% owned by Robert Hockaday, who is an independent contractor to us and is
using a portion of the space for research and development of the micro fuel cell
technology (See "Part I Description of Business - Our Technologies - Fuel Cell
Technologies"). The aggregate rental cost for this space in 2000 will be
$47,388, plus approximately $9,000 to use certain phone services provided by the
landlord, of which Manhattan Scientifics will pay approximately 15% and Energy
Related Devices will pay approximately 85%. Our lease provides for renewal at
the end of the initial term for up to an additional two years, subject to
adjustments in the rental rate based on the Consumer Price Index.
18
<PAGE>
We believe our facilities are adequate for our current and planned
business operations.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial
ownership of our common stock as of the date of this Form 10-SB. The information
in this table provides the ownership information for:
o each person known by us to be the beneficial owner of more than 5%
of our common stock;
o each of our directors;
o each of our executive officers; and
o each of our executive officers and directors as a group.
Beneficial ownership has been determined in accordance with the rules
and regulations of the Securities and Exchange Commission and includes voting or
investment power with respect to the shares and may exceed 100%. Unless
otherwise indicated, the persons named in the table have sole voting and
investment power with respect to the number of shares indicated as beneficially
owned by them. The number of shares of common stock outstanding used in
computing beneficial ownership of each person listed below includes shares of
common stock underlying options or warrants held by that person that are
exercisable within 60 days of the date of this Form 10-SB, but excludes shares
of common stock underlying options or warrants held by another person. The
percentage of beneficial ownership is based on 101,687,139 shares of common
stock outstanding as of May 1, 2000.
Unless otherwise indicated, the address of each beneficial owner is c/o
Manhattan Scientifics, Inc., 641 Fifth Avenue, Suite 36F, New York, New York
10022. In addition to the shares outstanding as of the date of this Form 10-SB,
there are 151,500 shares of common stock which we are contractually obligated to
issue but which have not yet been issued to the appropriate recipients. We are
in the process of issuing such shares. These unissued shares are not included in
the aggregate amount of outstanding shares indicated above. However, for
purposes of accurately computing the percentage of beneficial ownership for each
particular individual set forth in the following table, the quantity of unissued
shares owed to each particular individual has been added to the aggregate amount
of outstanding shares.
19
<PAGE>
<TABLE>
<CAPTION>
TABLE I Number of
shares
Name and beneficially
title of beneficial owner owned Percentage
- ------------------------- ----- ----------
<S> <C> <C>
Marvin Maslow, President, Chairman of the
Board, Chief Executive Officer.................... 15,000,000(1) 12.7%
Jack Harrod, Chief Operating Officer.............. 4,750,000(2) 4.5%
Robert Hockaday, Chief Fuel Cell Scientist(3)..... 7,128,000 7.0%
Scott L. Bach, Esq., Secretary and Director....... 1,100,000(4) 1.1%
David A. Teich, CPA, Director .................... 502,000(5) .5%
Lancer Management Group, LLC...................... 33,895,512(6) 33.3%
Lancer Management Group II, LLC................... 22,000,000(7) 19.7%
Lancer Offshore, Inc.............................. 28,150,000(8) 27.7%
Michael Lauer..................................... 55,892,512(9) 50.0%
</TABLE>
- ----------------
(1) Consists of 15,000,000 currently exercisable, "cashless" and assignable
options at an exercise price of 5 cents per share.
(2) Consists of 2 million shares of common stock, and 2,750,000 currently
exercisable ten year options that have an exercise price of 20 cents per share.
(3) Mr. Hockaday is an independent contractor to Manhattan Scientifics through
his company Energy Related Devices, Inc. Though Mr. Hockaday has the title of
Chief Fuel Cell Scientist, Mr. Hockaday is not an employee, officer or director
of Manhattan Scientifics.
(4) Consists of 100,000 shares of common stock and 1,000,000 currently
exercisable ten year options which are "cashless," assignable and have an
exercise price of 5 cents per share. On December 31, 1999, Mr. Bach sold 50,000
shares of common stock in the open market.
(5) Consists of 2,000 shares of common stock and 500,000 currently exercisable
ten year options which are "cashless," assignable and have an exercise price of
5 cents per share.
(6) Consists of the following shareholders of record: Lancer Offshore, Inc.
(28,150,000 million shares), Lancer Voyager Fund (3 million shares), Michael
Lauer (2,245,512 shares), and The Orbiter Fund (500,000 shares). Michael Lauer
is the Managing Member of Lancer Management Group, LLC. Lancer Management Group,
LLC has voting and dispositive power over the shares held by the business
entities listed above, and is thus deemed the beneficial owner of such shares.
We have been informed that Lancer Voyager Fund transferred its 3,000,000 shares
to Lancer Offshore, Inc. As of the date of this Form 10-SB, Lancer Voyager Fund
remains the record owner of such shares.
(7) Consists of 12 million shares and 10 million ten year warrants at an
exercise price of 5 cents per share held by Lancer Partners, L.P. Lancer
Management Group II, LLC has voting and dispositive power over these shares and
thus is deemed the beneficial owner of such shares. Michael Lauer is the
Managing Member of Lancer Management Group II, LLC.
(8) Lancer Management Group, LLC has voting and dispositive power over these
shares and thus is deemed the beneficial owner of such shares.
(9) Consists of shares beneficially owned by Lancer Management Group, LLC and
Lancer Management Group II, LLC. Also consists of shares in Michael Lauer's
name. Michael Lauer is the Managing Member of Lancer Management Group, LLC, and
Lancer Management Group II, LLC, and has voting and dispositive power over these
shares and thus may be deemed the beneficial owner of these shares.
20
<PAGE>
Lancer Partners, L.P.............................. 22,000,000(10) 19.7%
All executive officers and directors as
a group (4 persons)............................... 21,352,000 17.7%
Item 5. Directors, Executive Officers, Promoters and Control Persons
The names and ages of our directors and executive officers are set
forth below. Biographical information for each of these persons is also
presented below. There are no existing family relationships between or among any
of our executive officers or directors.
Name Age Position
- ---- --- --------
Marvin Maslow....................... 62 President, Chief Executive Officer,
Chairman of the Board
Jack Harrod......................... 58 Chief Operating Officer
Scott L. Bach, Esq.................. 37 Secretary, Director
David A. Teich, CPA................. 43 Director
Pursuant to our bylaws, directors are to be elected at each annual meeting and
serve until their successors have been elected. We have not held an annual
meeting since the reverse merger. Officers are appointed by the board of
directors and serve for one year terms.
Marvin Maslow has served as our chief executive officer and chairman of
the board since our reverse merger in January 1998. From June 1990 through
September 1996, prior to joining Manhattan Scientifics, Mr. Maslow served as
chief executive officer of Projectavision, Inc., a company he co-founded to
develop and market video projection technology. Since November 1996, Mr. Maslow
has also served as chief executive officer and chairman of the board of Tamarack
Storage Devices, Inc., a wholly owned subsidiary of Manhattan Scientifics. Since
August 1999, Mr. Maslow has also served as a director of NMXS.Com, Inc., a
company in which Manhattan Scientifics owns approximately 27%. For more than
twenty years, Mr. Maslow has been President of Normandie Capital Corp., a
private investment and consulting company. Mr. Maslow received an A.A.S. degree
from the Rochester Institute of Technology in 1957. While Mr. Maslow has other
business interests, he generally spends 100% of his working time on our
affairs.
Jack Harrod has served as our chief operating officer since August
1998. From November 1966 to March 1998, Mr. Harrod held a variety of executive
positions at Texas Instruments, including executive vice president. Mr. Harrod
received a B.S. in Electrical Engineering from the College of Engineering,
University of Arkansas in 1964. Mr. Harrod generally spends 100% of his working
time on our affairs.
- ---------------------
(10) Consists of 12 million shares and 10 million ten year warrants at an
exercise price of 5 cents per share. Lancer Management Group II, LLC has voting
and dispositive power over these shares and thus is deemed the beneficial owner
of such shares.
21
<PAGE>
Scott L. Bach, Esq. has served as our secretary and as a director of
ours since January 1998. Since November 1996, Mr. Bach has served as secretary
and director of Tamarack Storage Devices, Inc., a wholly owned subsidiary of
Manhattan Scientifics. Since August 1999, Mr. Bach has also served as a director
of NMXS.Com, Inc., a company in which Manhattan Scientifics owns approximately
27%. Mr. Bach founded Bach & Associates in 1995, a law firm specializing in
commercial matters. From 1988 to 1995, he was associated with the law firm of
Robinson Silverman Pearce Aronsohn & Berman. From 1987 to 1988, he was
associated with the law firm of Zalkin, Rodin & Goodman. Mr. Bach received a
B.A. from Queens College, City University of New York in 1984 and a J.D. from
Hofstra Law School in 1987. Mr. Bach generally spends 50% of his working time on
our affairs.
David A. Teich, CPA has served as a director of ours since May 1999 and
is the managing partner of Teich, Beim & Moro, CPA's, P.C. Since January 1999,
Mr. Teich's accounting firm has acted as our internal controller. Mr. Teich
graduated with a B.B.A. degree from Pace University in 1979, became a CPA in
1982, and has been employed by his firm in various capacities including
accountant, manager, partner and managing partner since 1977.
Item 6. Executive Compensation
The following table sets forth information as to the compensation
awarded by us to our executive officers and directors for the fiscal year ended
December 31, 1998, and the fiscal year ended December 31, 1999.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other Restricted
Annual Stock Options Com-
Name Title Year Salary Bonus Compensation(1) Awarded SARs Payouts pensation
- ---- ----- ---- ------ ----- --------------- ------- ---- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marvin Maslow Pres., 1998 $0 $0 $30,000 -0- 2.5mm(2) -0- -0-
CEO, 1999 $0 $0 $69,195(10) -0- 12.5mm(3) -0- -0-
Chrmn
</TABLE>
- ----------------------
(1) Throughout 1998, we granted a monthly non-accountable expense allowance to
our uncompensated full-time CEO (Mr. Maslow) at the rate of $2,500 per month,
and granted a non-accountable expense allowance in the aggregate of $8,000 to
our uncompensated full-time COO (Mr. Harrod). Commencing in January 1999, we
increased the allowance to our CEO and COO at the uniform rate of $4,000 each
per month. Does not include reimbursement of accountable expenses.
(2) On January 8, 1998, Mr. Maslow was granted 7.5 million options at a 20 cent
exercise price. In connection with a private placement to a third party in July,
1998, Mr. Maslow relinquished these options. Five million of these options were
recast as warrants to purchase shares of our common stock at a 5 cent exercise
price and given to the third party as a portion of the consideration for the
private placement. The remaining 2.5 million of these options were also recast
as warrants at a 5 cent exercise price and given to Mr. Maslow. On May 6, 1999,
(1) Mr. Maslow's 2.5 million warrants were recast as 2.5 million options at an
exercise price of 5 cents per share, and (2) we granted Mr. Maslow 12.5 million
additional options at
22
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jack Harrod COO 1998 $0 $0 $ 8,000 -0- 2.75mm(4) -0- -0-
1999 $0 $0 $48,000 -0- -0- -0- -0-
Scott L. Bach Sec'y, 1998 $0 $0 $0 -0- 500k(5) -0- -0-
Dirctr 1999 $0 $0 $0 40,000(11) 500k(6) -0- -0-
David A. Teich Dirctr 1998 $0 $0 $0 -0- -0- -0- -0-
1999 $0 $0 $0 -0- 500k(7)
Martin Holleran Dirctr 1998 $0 $0 $0 -0- 7.5mm(8) -0- -0-
1999 $0 $0 $0 -0- -0- -0- -0-
Jules Zimmerman Dirctr(9) 1998 $0 $0 $0 -0- 500k -0- -0-
1999 $0 $0 $0 -0- -0- -0- -0-
</TABLE>
- ----------------------
an exercise price of 5 cents per share. At that time, it was determined that the
duration of all of Mr. Maslow's options, 15 million in the aggregate, would be
10 years from May 6, 1999, and that the options would be immediately
exercisable, "cashless" and assignable.
(3) See footnote 2, above.
(4) Mr. Harrod's options were granted on August 10, 1998, at the exercise price
of 20 cents per share, and with a life of 10 years.
(5) On January 8, 1998, Mr. Bach was granted 500,000 options for his services as
a director of ours at an exercise price of 20 cents per share. These options
were recast at an exercise price of 5 cents per share on May 6, 1999.
(6) On May 6, 1999, Mr. Bach was granted 500,000 options for his services as an
officer of ours, at the exercise price of 5 cents per share. At that time, it
was determined that the duration of all of Mr. Bach's options, 1 million in the
aggregate, would be 10 years from May 6, 1999, and that the options would be
"cashless" and assignable.
(7) On May 6, 1999, Mr. Teich was granted 500,000 immediately exercisable,
"cashless," assignable options for his services as a director of ours, at the
exercise price of 5 cents per share, and having a duration of 10 years from May
6, 1999.
(8) Resigned as a director of ours during the first quarter of 1999. On January
8, 1998, Mr. Holleran was granted 7.5 million options at a 20 cent exercise
price, with a duration of 10 years. In connection with a private placement to a
third party in 1998, Mr. Holleran relinquished these options. 5 million of these
options were recast as warrants at a 5 cent exercise price and given to the
third party as a portion of the consideration for the private placement. The
remaining 2.5 million options were also recast as warrants at a 5 cent exercise
price and given to Mr. Holleran. Mr. Holleran thus has 2.5 million warrants at
an exercise price of 5 cents per share.
(9) Resigned as a director of ours during the first quarter of 1999. On January
8, 1998, Jules Zimmerman was granted 500,000 options at a 20 cent exercise
price, with a duration of 10 years, for his services as a director of ours.
(10) Includes $20,000 of salary, a car allowance of $1,195 paid by New Mexico
Software, Inc. and the non-accountable expense allowance referred to in footnote
1 above.
(11) Represents 40,000 shares of common stock of New Mexico Software, Inc.
issued by New Mexico Software to Mr. Bach for services as a director of New
Mexico Software.
23
<PAGE>
Compensation of Directors and Officers
Our officers and directors do not presently receive any cash
compensation from us for their service as officers and/or directors. However,
officers and directors do receive equity in the form of stock options in lieu of
cash, at the discretion of the Board of Directors. Also, our officers and/or
directors who are uncompensated full time employees of ours, Messrs. Maslow and
Harrod, each presently receive a $4,000 per month non-accountable expense
allowance.
Employment Agreements
We have entered into an employment agreement with Robert E. Hermes,
Ph.D., our Senior Staff Scientist and polymer expert. This agreement commenced
on September 1, 1999. The initial term is for one year with automatic renewals
for two additional one year terms unless either party provides notice to the
other of intention not to renew. Mr. Hermes receives an annual salary
approximately equal to his compensation at the Los Alamos National Laboratory,
his former employer, and will receive 500,000 stock options, subject to a three
year vesting schedule, of which none have been issued as of the date of this
Form 10-SB.
At present, we have no employment agreements with our other officers or
directors, although we intend to enter into such agreements with our full time
management executives.
Item 7. Certain Relationships and Related Transactions
During 1998, a number of potential accredited investors were introduced
to us by Alan Cohen, a shareholder of ours. Subsequently, during 1998, we sold
2.5 million shares of our common stock to 12 accredited investors at $0.05 per
share. Of the 2.5 million shares sold, 1,250,000 shares were issued to Mr. Cohen
which shares were paid by the 12 private investors.
Our 1999 annual rental for our principal executive offices was $60,000.
80% of the monthly rental was paid by Normandie Capital Corp., a private
corporation owned by our Chief Executive Officer. Our 2000 annual rental for our
principal executive offices is $63,000, 80% of which is paid on a month to month
basis by Normandie Capital Corp.
On November 24, 1999, Lancer Management Group, LLC, the beneficial
owner of 34.9% of our securities, expressed its willingness to advance us funds
as needed to continue our operations through December 15, 2000, upon reasonable
terms and conditions to be agreed.
In August 1999, the Orbiter Fund, a shareholder of ours and an
affiliate of our largest shareholder, granted us a bridge loan in the principal
amount of $500,000 bearing interest at the rate of 13.5%. We retired the loan in
October 1999.
In October 1999, we borrowed $500,000 from the Peters Corporation, a
shareholder of ours. The loan bears interest at the rate of Citicorp prime plus
1% and matures on December 19, 1999. In connection with this loan, we arranged
for the Peters Corporation to receive 150,000 shares of our common stock from a
third party corporation controlled by a stockholder of ours. We subsequently
agreed to issue to the Peters Corporation 150,000 shares
24
<PAGE>
of our common stock in replacement of the shares granted by the third party. As
of the date of this Form 10-SB, we have not yet issued the 150,000 replacement
shares. We used the proceeds of this loan to retire the Orbiter Loan. We repaid
this loan in full plus interest on December 15, 1999 with proceeds from a
private placement.
In 1998, we issued Zuckerman, Gore & Brandeis a total of 500,000
currently exercisable options, each exercisable to purchase one share of our
common stock at $0.20 per share as compensation, in addition to cash
compensation, for legal services rendered to us and to our wholly owned
subsidiary, Tamarack Storage Devices, Inc.
NMXS.Com pays our CEO a yearly salary of $60,000 and leases a car for
our CEO as consideration for his services. NMXS.Com paid Mr. Maslow $20,000 in
salary in 1999 and paid car lease payments of $1,195 in 1999. NMXS.Com issued
Mr. Bach 40,000 shares of its common stock for services as a director in 1999.
During 1998, Bach & Associates, the law firm of Scott L. Bach, our
secretary and a director of ours, received $43,123 as compensation for legal
services rendered to us at a discounted rate.
From January 1, 1999 to December 31, 1999, Bach & Associates received
$84,144 as compensation for legal services rendered to us at a discounted rate.
From January 1, 1999 to December 31, 1999, Teich, Beim & Moro, P.C.,
the accounting firm of David A. Teich, CPA, a director of ours, received $29,439
as compensation for accounting services rendered to us at a discounted rate.
In September 1999, the partners of David A. Teich, a director of ours,
in the firm of Teich, Beim & Moro, P.C., received an aggregate of 200,000
options to purchase our common stock at an exercise price of 5 cents per share
as consideration for Mr. Teich's reduced availability to attend to partnership
duties as a result of his activities on behalf of Manhattan Scientifics. Michael
Beim received 150,000 of such options and Christopher Moro received 50,000 of
such options.
Manhattan Scientifics 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 is due together with interest upon the earlier of
(1) eighteen (18) months from August 8, 1999, or (2) 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. Mr.
Harrod had originally delivered us the $275,000 to exercise options, each
exercisable to purchase our common stock, but such exercise was rescinded and
the options have been treated as if not exercised.
Item 8. Description of Securities
Our authorized stock consists of 150,000,000 shares of common stock,
par value $0.001 per share, and 1,000,000 shares of preferred stock, par value
$0.001 per share.
Common Stock
Each holder of our common stock is entitled to one vote for each share
held on all matters to be voted upon by our stockholders. Holders of our common
stock have no cumulative
25
<PAGE>
voting rights. Holders of our common stock are entitled to receive ratably
dividends, if any, as may be declared from time to time by our board of
directors out of legally available funds, except that holders of preferred stock
may be entitled to receive dividends before the holders of the common stock.
In the event of a liquidation, dissolution or winding up of us, holders
of our common stock would be entitled to share in our assets remaining after the
payment of liabilities and the satisfaction of any liquidation preference
granted the holders of any then outstanding shares of preferred stock. Holders
of our common stock have no preemptive or conversion rights or other
subscription rights. In addition, there are no redemption or sinking fund
provisions applicable to our common stock. All outstanding shares of our common
stock are duly authorized, validly issued, fully paid and nonassessable.
The rights, preferences and privileges of the holders of common stock
may be adversely affected by the rights of the holders of shares of any series
of preferred stock that we designate in the future.
Preferred Stock
Our board of directors is authorized, without stockholder approval, to
issue up to an aggregate of 1,000,000 shares of preferred stock, par value,
$0.001 per share, in one or more series. Each series will have the rights and
preferences as determined by our board of directors, including:
o voting rights;
o sinking fund terms;
o dividend rights;
o dividend rates;
o conversion rights;
o the number of shares constituting any series;
o redemption privileges; and
o liquidation privileges.
Preferred stock may have voting, dividend and liquidation rights superior to our
common stock which may adversely affect the rights of holders of our common
stock.
Series A Preferred Stock
On January 8, 1998, in connection with the reverse merger described in
"Part I - Item 1 - Description of Business," we issued 182,525 shares of Series
A Voting Redeemable, Convertible Preferred Stock to Projectavision, Inc.
Projectavision converted these shares, on a
26
<PAGE>
cashless basis, into 9,435,405 shares of our common stock on July 28, 1998.
Accordingly, as of October 31, 1999, there were no shares of Series A Preferred
Stock outstanding.
Series B Preferred Stock
On October 25, 1999, our Board of Directors authorized 180,000 shares
of Series B Preferred Stock in connection with a private offering of preferred
stock to raise additional capital for us. Our Board of Directors subsequently
increased the size of the Series B Preferred Stock to 250,000 shares. These
shares have voting rights and dividend rights as if each share had been
converted to our common stock.
Upon liquidation, holders of Series B Preferred Stock will be treated
as if each holder converted their shares into shares of our common stock,
immediately prior to such liquidation. The shares of Series B Preferred Stock
may be converted into our common stock at any time on a one for ten basis. If
the average closing bid piece of our common stock shall have for any one hundred
twenty trading days within a period of eight months from the issuance of the
Series B Preferred Stock, equaled or been less than $0.50, then the conversion
ratio shall automatically be adjusted so that each share of Series B Preferred
Stock shall be convertible into twenty shares of our common stock. In the event,
during the 18 month period after any sale of Series B Preferred Stock, we sell
or issue our common stock or any security convertible into our common stock,
other than pursuant to stock options granted pursuant to our stock option plan,
for a cash price (the "Sale Price") or a conversion price, as the case may be,
less than the then applicable conversions ratio, we are obligated to issue or
reserve for issuance, such number of shares of common stock as shall be
necessary to reduce the conversion price of the Series B Preferred Stock to the
Sale Price. The shares of Series B Preferred Stock are not entitled to dividends
and have piggyback registration rights.
As of the date and this Form 10-SB, we have issued 245,165 shares of
Series B Preferred Stock.
Outstanding Options
We have reserved 30,000,000 shares of our common stock for issuance
under our 1998 Stock Option Plan. As of May 1, 2000, we have agreed to issue
23,275,000 options, all of which are immediately exercisable to purchase one
share of our common stock. Of these options, 100,000 have been exercised.
16,700,000 of such options have an exercise price of 5 cents per share.
6,475,000 of such options have an exercise price of 20 cents per share. Some of
our outstanding options have net exercise provisions under which the holder may,
in lieu of payment of the exercise price in cash, surrender the option and
receive a net amount of shares, based on the fair market value of our common
stock at the time of the exercise and the option, after deducting the exercise
price. The foregoing options expire on dates ranging from January 2008 to
September 2009.
Outstanding Warrants
As of May 1, 2000, we have 15,250,000 common stock purchase warrants
outstanding and/or contracted for. Of these 15,250,000 warrants, (a) 10,000,000
are held by one beneficial owner, or his designees, and are exercisable during
the 10-year period commencing July 28, 1998 at the exercise price of 5 cents per
share; (b) 750,000 are held by one beneficial owner and are
27
<PAGE>
exercisable during the 5-year period commencing January 8, 1998 at an exercise
price of 10 cents per share; (c) 1,000,000 are contracted for to one beneficial
owner at an exercise price of 75 cents per share, (d) 1,000,000 are contracted
for to one beneficial owner at an exercise price of 75 cents per share, and (e)
2,500,000 are held by one beneficial owner and are exercisable during the ten
year period commencing July 28, 1998 at an exercise price of 5 cents per share.
Certain shares of common stock underlying the warrants contain piggyback
registration rights.
The Company agreed to issue the warrants referenced in items (c) and (d) of the
previous paragraph in connection with an agreement in which a third party was to
render financial consulting services to the Company. These warrants were valued
as of the date of issuance using the Black-Scholes model. In July 1998, the
Company amended the original consulting agreement dated February 10, 1998 to
incorporate a lock-up provision relating to the common shares of the Company
held by the third party. In addition to the lock-up provision, the Company
amended the agreement to allow for a cashless exercise of these warrants as
consideration for the lock-up provision.
Transfer Agent
Interwest Transfer Company, Inc., of Salt Lake City, Utah, is the
transfer agent and registrar for our shares of common stock.
28
<PAGE>
PART II
Item 1. Market Price of and Dividends of our Common Equity and Related
Stockholder Matters
Market Information. Since February 10, 2000, our commong stock has
traded on the pink sheets. From January 1998 to February 9, 2000, our common
stock traded on the OTC Bulletin Board under the symbol "MHTX." We went public
through a reverse merger transaction on January 8, 1998 (see description of
reverse merger transaction at "Part I - Item 1 - Description of Business").
The following table sets forth, for the periods indicated, the high and
low per share bid information for our common stock on the OTC Bulletin Board or
the pink sheets, as applicable. Such high and low bid information reflects
inter-dealer quotes, without retail mark-up, mark down or commissions and may
not represent actual transactions.
<TABLE>
<CAPTION>
Bid Prices
----------
1998 High Low
- ---- ---- ---
<S> <C> <C>
First Quarter........................................... $0.69 $0.25
Second Quarter.......................................... 0.63 0.16
Third Quarter........................................... 0.52 0.20
Fourth Quarter.......................................... 0.70 0.20
<CAPTION>
Bid Prices
----------
1999 High Low
- ---- ---- ---
<S> <C> <C>
First Quarter........................................... $0.75 $0.31
Second Quarter.......................................... 1.95 0.35
Third Quarter........................................... 2.28 0.81
Fourth Quarter........................................... 5.25 0.94
<CAPTION>
Bid Prices
----------
2000 High Low
- ---- ---- ---
First Quarter........................................... $8.00 $3.50
Second Quarter through May 2, 2000...................... 6.60 3.15
</TABLE>
We are filing this Form 10-SB for the purpose of enabling our shares to
trade on the OTC Bulletin Board. Since the SEC did not come to a position of no
further comment on our Form 10-SB prior to February 9, 2000, were delisted from
the OTC Bulletin Board and have been trading on the pink sheets. Following the
date which the SEC comes to a position of no further comment on our Form 10-SB,
we will file to have our shares quoted again on the OTC Bulletin Board.
Approximate Number of Holders. As of May 1, 2000, we had approximately
292 registered holders of record of our common stock. Some of those registered
holders are brokers who are holding shares for multiple clients in street name.
Accordingly, we believe the
29
<PAGE>
number of actual shareholders of our common stock exceeds the number of
registered holders of record.
Dividends. We have never paid any cash or stock dividends. We presently
intend to reinvest earnings, if any, to fund the development and expansion of
our business and therefore, do not anticipate paying dividends on our common
stock in the foreseeable future. The declaration of 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.
Item 2. Legal Proceedings
We are not currently subject to any legal proceedings. We may from time
to time become a party to various legal proceedings arising in the ordinary
course of business.
Item 3. Changes in and Disagreements with Accountants
On August 2, 1999, we appointed Richard A. Eisner & Company, LLP as our
independent accountants for the purpose of conducting an audit. We have no
disagreements to report.
Item 4. Recent Sales of Unregistered Securities
During the past three years, and subsequent to the reverse merger
transaction through which we came to be, we have issued unregistered securities
in the following transactions:
1. In the fourth quarter of 1999, we agreed to issue 1,048,000 shares
of our common stock to 9 accredited investors and received $786,000 for such
sale. 1,044,000 shares were issued in February 2000 and 4,000 shares were issued
in March 2000.
2. In the fourth quarter of 1999, we agreed to issue 245,165 shares of
Series B Preferred Stock to 10 accredited investors and received proceeds of
$1,470,990 for such sale. These shares were issued in February 2000.
3. On October 15, 1999, we agreed to issue 1,600 shares of our common
stock to Joshua Rigsby as compensation in lieu of cash for computer repair and
crash recovery services rendered to us. These shares were issued in December
1999.
4. On August 5, 1999, we agreed to issue 1,000,000 shares of our common
stock, subject to Rule 144 restrictions, to Novars Gesellschaft fur neu
Technologien GmbH and/or its designees for the acquisition of certain mid-range
fuel cell technologies. 500,000 of these shares were delivered to Novars on or
about September 2, 1999, and the remaining 500,000 are being held in escrow
pending satisfaction of certain conditions to their release.
5. On May 6, 1999, we agreed to issue 10,000 shares of our common stock
to McKee Wallwork, in lieu of cash, for conducting a market survey in connection
with NMXS.Com, Inc. prior to our investing in that company. These shares were
issued in December 1999.
6. On May 6, 1999, we agreed to issue 100,000 shares of our common
stock to the Peters Corporation or its designee, in lieu of cash, as
compensation for corporate furnishings. These shares were issued in December
1999.
7. As of January 4, 1999, we agreed to issue options to Stanton
Crenshaw Communications to purchase 350,000 shares of common stock at a price
per share of $0.20, and having a duration of 10 years. The options were issued
in exchange for public relations services. In addition, we agreed to issue to
Stanton Crenshaw $2,500 worth of our common stock per month, commencing as of
April 1, 1999, also in exchange for ongoing public relations services.
30
<PAGE>
The shares accrue monthly based upon the closing price of our stock on the last
day of each month, and are to be issued quarterly. As of May 1, 2000, we have
issued Stanton Crenshaw Commnications, Inc., in the aggregate, 22,211 shares of
our common stock and owe Stanton Crenshaw Communications, Inc. 1,500 shares of
our common stock.
8. On July 28, 1998, as part of a private placement to raise capital
for us, we agreed to (a) issue to Lancer Partners, L.P. 10,000,000 common stock
purchase warrants at the exercise price of 5 cents per share; (b) arrange for
Lancer to purchase 43,170,512 shares of ours common stock from Projectavision,
Inc. and (c) issue to Lancer 20,000,000 shares of our common stock at a price of
5 cents per share, together with rights to assign the right to acquire such
shares to certain third parties. Between August 1, 1998 and December 31, 1998,
Lancer effectively assigned its right to acquire such shares to 51 individuals
and entities, and accordingly, we issued and sold an aggregate of 20,000,000
shares to such individuals during such time. In connection with these issuances,
we sold an additional 340,000 shares to raise additional capital. Also, finder's
fees aggregating $25,000 were paid to First Internet Capital (see "Part I - Item
7 - Certain Relationships and Related Transactions").
9. On April 16, 1998, in order to raise capital for us, we agreed to
issue 275,000 shares of common stock to Mr. Stephen Guarino at a purchase price
of 18.18 cents per share.
10. On February 10, 1998, we agreed to issue 1,000,000 shares of common
stock to Equilink, L.L.C. in exchange for financial consulting services to be
rendered. We also agreed to issue warrants to purchase up to 2,000,000 shares of
common stock at a price of $0.75, in exchange for financial consulting services
to be rendered. In connection with the cancellation and release of all contracts
with Equilink, LLC, on December 30, 1999, Equilink agreed to sell such warrants
it held to the Company (or to a third party) for the purchase price of $500,000.
On January 4, 2000, the Company advanced $100,000 towards the purchase price,
and the balance was paid in full on February 14, 2000 by a third party, who then
received 1,076,923 shares of our common stock in February 2000. We were
reimbursed by the third party purchaser for the $100,000 advanced.
11. In February 1998, we agreed to issue 10,000 shares of our common
stock to Sherman Langer, in lieu of cash, as compensation for general business
consulting services rendered to us. These shares were issued in December 1999.
12. In February 1998, we agreed to issue 25,000 shares of our common
stock to Owen Coleman, in lieu of cash, as compensation for corporate identity
and logo design services rendered to us. These shares were issued in December
1999.
13. In February 1998, we agreed to issue 3,000 shares of our common
stock to Fred Ferguson, in lieu of cash, as compensation for general business
consulting services rendered to us. These shares were issued in December 1999.
14. In February 1998, we agreed to issue 10,000 shares of our common
stock to Crane Digital Media, Inc. in lieu of cash, as compensation for web
design and maintenance services rendered to us. These shares were issued in
December 1999.
15. In February 1998, we agreed to issue 30,000 shares of our common
stock to Star Tree, Inc., or its designee, in lieu of cash, as compensation for
public relations services rendered to us. These shares were issued in December
1999.
31
<PAGE>
16. On January 14, 1998, in connection with our acquisition of the
intellectual property for the Micro Fuel Cell and Solar Cell inventions, we
issued to Robert G. Hockaday 7,200,000 shares of our common stock.
17. On January 8, 1998, in order to raise our initial $1.0 million
capital, we sold 5,000,000 shares of common stock to 40 individuals/entities at
a purchase price per share of $0.20.
18. On January 8, 1998, in order to consummate the reverse merger
transaction, we agreed to issue (a) 44,000,000 shares of our common stock to the
shareholders of Tamarack Storage Devices, Inc., (b) 182,525 shares of Series A
voting redeemable convertible preferred stock, which was converted into
9,435,405 shares of our common stock on July 28, 1998, to Projectavision, Inc.,
Tamarack's majority shareholder, and (c) a warrant to Projectavision to purchase
750,000 shares of our common stock at $0.10 per share, exercisable at any time
prior to January 8, 2003. These securities were issued in exchange for all of
the issued and outstanding securities of Tamarack , which we acquired through
merger with our subsidiary, Grand Subsidiary, Inc. (see "Part I - Item 1 -
Description of Business").
Exemption from registration for the transactions described above was
claimed pursuant to Section 4(2) of the Securities Act of 1933, as amended,
regarding transactions by the issuer not involving a public offering, in that
these transactions were made without general solicitation or advertising, to
sophisticated investors with all relevant information necessary to evaluate
these investments and who represented to the registrant that the shares were
being acquired for investment.
Item 5. Indemnification
Our certificate of incorporation and bylaws contain provisions
indemnifying our directors and executive officers against liabilities. In our
certificate of incorporation, we have eliminated the personal liability of our
directors and executive officers to Manhattan Scientifics and our stockholders
for monetary damages for breach of their fiduciary duty, including acts
constituting gross negligence. However, in accordance with Delaware law, a
director will not be indemnified for a breach of its duty of loyalty, acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation or any transaction from which the director derived improper personal
benefit. In addition, our bylaws further provide that we may advance to our
directors and officers expenses incurred in connection with proceedings against
them for which they are entitled to indemnification.
We procured directors' and officers' insurance on March 15, 2000.
We have also agreed to indemnify, defend, and hold harmless each of our
officers and directors to the fullest extent permissible by law with regard to
any and all loss, expense or liability, including payment and advancement of
reasonable attorney's fees, arising out of or relating to claims of any kind,
whether actual or threatened, relating in any way to their service to us. We
plan to memorialize these agreements as written contracts.
32
<PAGE>
MANHATTAN SCIENTIFICS, INC.
AND SUBSIDIARY
(a development stage enterprise)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 and 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders Manhattan Scientifics, Inc.
We have audited the accompanying consolidated balance sheet of Manhattan
Scientifics, Inc. (formerly Grand Enterprises, Inc.) (a development stage
enterprise) and subsidiary ("the Company") as of December 31, 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1998 and 1997 and the amounts for each of
the years ended December 31, 1998, 1997, 1996 and 1995, included in the
cumulative amounts for the period from July 31, 1992 (inception) through
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
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 financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Manhattan Scientifics,
Inc. and subsidiary as of December 31, 1998, and the consolidated results of
their operations and their consolidated cash flows for the years ended December
31, 1998 and 1997 and the amounts for each of the years ended December 31, 1998,
1997, 1996 and 1995, included in the cumulative amounts for the period from July
31, 1992 (inception) through December 31, 1998, in conformity with generally
accepted accounting principles.
As described in Note B[9], revised 1998 financial statements have been presented
by the Company to reflect the cost incurred for consulting services based on the
fair value of the warrants issued and to reflect the deemed dividend resulting
from the beneficial conversion feature of the immediately convertible preferred
stock without regard to discounts on the quoted market price of the common
stock.
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
November 5, 1999
With respect to Note B[9]
March 10, 2000
F-1
<PAGE>
[LETTERHEAD OF PRICEWATERHOUSECOOPERS]
PRICEWATERHOUSECOOPERS [LOGO]
PricewaterhouseCoopers LLP
One American Center, Suite 2000
600 Congress Avenue
Austin, TX 78701
Telephone (512) 476 6700
Report of Independent Accountants
To the Board of Directors and Stockholders of
Tamarack Storage Devices, Inc.
In our opinion, the consolidated statements of income, of cash flows and of
changes in stockholder's equity for the period of inception through the year
ended December 31, 1994 (not presented separately herein except for statement of
changes in stockholder's equity appearing on pages F5 and F20 of Manhattan
Scientifics, Inc. Amendment No. 2 to Form 10-SB) present fairly, in all material
respects, the results of operations and cash flows of Tamarack Storage Devices,
Inc. (a development stage enterprise) (the "Company") for the period inception
through December 31, 1994, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit 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, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion expressed
above. We have not audited the consolidated financial statements of Tamarack
Storage Devices, Inc. for any period subsequent to December 31, 1994.
/s/ PricewaterhouseCoopers LLP
Austin, Texas
March 24, 1995
F-2
<PAGE>
<TABLE>
<CAPTION>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Balance Sheet
December 31, 1998
<S> <C>
ASSETS
Current assets:
Cash $ 665,000
Stock subscriptions receivable 260,000
Prepaid expenses 5,000
-----------
Total current assets 930,000
Property and equipment, net 22,000
Other assets:
Patent, net 1,332,000
Security deposit 7,000
-----------
$ 2,291,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 99,000
-----------
Commitments
Stockholders' equity:
Capital stock $.001 par value
Series A convertible, redeemable, preferred stock, 10 percent cumulative;
authorized 182,525 shares; issued and outstanding - none
Preferred stock, authorized 1,000,000 shares;
issued and outstanding - none
Common stock, authorized 150,000,000 shares;
98,250,405 shares issued and outstanding 98,000
Additional paid-in capital 14,370,000
Deficit accumulated during the development stage (12,276,000)
-----------
Total stockholders' equity 2,192,000
-----------
$ 2,291,000
===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period From
Inception
(July 31, 1992)
Year Ended December 31, Through
------------------------- December 31,
1998 1997 1998
----------- --------- ------------
<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 0
---------- --------- ------------
Operating costs and expenses:
Salaries and employee benefits 167,000 4,429,000
Consulting fees 1,968,000 146,000 4,998,000
Materials and supplies 4,000 987,000
General and administrative 1,909,000 89,000 3,001,000
Rent and utilities 40,000 24,000 504,000
Research and development 663,000 663,000
---------- ---------- ------------
Total operating costs and expenses 4,580,000 430,000 14,582,000
----------- ---------- ------------
Loss from operations before other income and
expenses (4,580,000) (430,000) (14,582,000)
Other income and expenses:
Contract revenue 185,000 3,602,000
Interest expense and other (91,000) (338,000)
Interest income 1,000 62,000
----------- ---------- ------------
Net loss/comprehensive loss (4,580,000) (335,000) $(11,256,000)
============
Cumulative preferred dividends (1,020,000)
---------- ----------
Net loss attributable to common stockholders $(5,600,000) $(335,000)
=========== ==========
Basic and diluted loss per share:
Weighted average number of common shares
outstanding 73,634,000 42,801,000
=========== ==========
Basic and diluted loss per share $(.08) $(.01)
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity
(Notes A and D)
For the Cumulative Period From July 31, 1992 (Inception) Through December 31,
1998
<TABLE>
<CAPTION>
Deficit
Common Stock Amounts Accumulated
Series A $.001 Par Value Additional Receivable During the
Preferred ----------------------- Paid-in From Development
Stock Shares Amount Capital Stockholders Stage
--------- ---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <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 (40,000)
Issuance of 1,037,000 shares of Series
A preferred stock, net of issuance costs $ 10,000 1,020,000 (286,000)
Net loss $ (543,000)
--------- ------------ --------- ------------- ---------- -----------
Balance, March 31, 1993 10,000 14,391,627 14,500 1,060,500 (326,000) (543,000)
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 127,000
Net loss (2,292,000)
--------- ------------ --------- ------------- ---------- -----------
Balance, March 31, 1994 10,000 29,262,974 30,000 4,095,000 (199,000) (2,835,000)
Services performed for Series A preferred
stock issued in fiscal 1993 159,000
Issuance of shares at approximately
$.52 per share 345,399 182,000
Net loss (2,250,000)
--------- ------------ --------- ------------- ---------- ------------
Balance, December 31, 1994 10,000 29,608,373 30,000 4,277,000 (40,000) (5,085,000)
Issuance of 163,000 shares of Series A
preferred stock 2,000 161,000
Write-off of amounts receivable
from stockholders (40,000) 40,000
Net loss (972,000)
--------- ------------ --------- ------------- ---------- ------------
Balance, December 31, 1995 12,000 29,608,373 30,000 4,398,000 0 (6,057,000)
Issuance of shares upon exercise of option
for $15,000 14,391,627 14,000 1,000
Net loss (284,000)
--------- ------------ --------- ------------- ---------- ------------
Balance, December 31, 1996 12,000 44,000,000 44,000 4,399,000 0 (6,341,000)
Purchase and retirement of 1,200,000 shares
of Series A preferred stock (12,000) (58,000)
Purchase of 7,195,814 treasury shares
of common stock for $15,000
Net loss/comprehensive loss (335,000)
--------- ------------ --------- ------------- ---------- ------------
Balance, December 31, 1997 (carried forward) 0 44,000,000 44,000 4,341,000 0 (6,676,000)
<CAPTION>
Treasury
Stock Total
------------ ------------
<S> <C> <C>
Initial issuance of shares to founders on
contribution of intangible assets at historic
cost basis $ 15,000
Additional founders' contribution 0
Issuance of 1,037,000 shares of Series
A preferred stock, net of issuance costs 744,000
Net loss (543,000)
------------
Balance, March 31, 1993 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
Net loss (2,292,000)
------------
Balance, March 31, 1994 1,101,000
Services performed for Series A preferred
stock issued in fiscal 1993 159,000
Issuance of shares at approximately
$.52 per share 182,000
Net loss (2,250,000)
------------
Balance, December 31, 1994 (808,000)
Issuance of 163,000 shares of Series A
preferred stock 163,000
Write-off of amounts receivable
from stockholders 0
Net loss (972,000)
------------
Balance, December 31, 1995 (1,617,000)
Issuance of shares upon exercise of option
for $15,000 15,000
Net loss (284,000)
------------
Balance, December 31, 1996 (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)
----------- ------------
Balance, December 31, 1997 (carried forward) (15,000) (2,306,000)
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (continued)
(Notes A and D)
For the Cumulative Period From July 31, 1992 (Inception) Through
December 31, 1998
(continued)
<TABLE>
<CAPTION>
Deficit
Common Stock Amounts Accumulated
Series A $.001 Par Value Additional Receivable During the
Preferred ----------------------- Paid-in From Development
Stock Shares Amount Capital Stockholders Stage
--------- ---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 (brought forward) 0 44,000,000 $ 44,000 $ 4,341,000 $ 0 $ (6,676,000)
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. 346,000
Shares deemed issued in connection
with reverse merger 11,000,000 11,000 (11,000)
Issuance of 182,525 shares of Series A
preferred stock and warrants exercisable
into 750,000 shares of common stock
exercisable at an exercise price of $.10
per share in exchange for note payable of
$1,500,000 and accrued interest of $330,000 2,850,000 (1,020,000)
Issuance of shares at $.20 per share, net of
issuance costs 5,000,000 5,000 970,000
Issuance of shares to purchase intangible
assets 7,200,000 7,000 1,433,000
Issuance of shares at $.58 per share for
consulting services 1,000,000 1,000 579,000
Issuance of warrants to purchase 2,000,000
shares of common stock exercisable at $.75
per share for fair value of services 660,000
Issuance of shares at $.18 per share 275,000 50,000
Issuance of shares on conversion of 182,525
shares of Series A preferred stock 9,435,405 10,000 (10,000)
Issuance of shares at $.05 per share 20,340,000 20,000 997,000
Issuance of stock options and warrants
at fair value for services 2,165,000
Net loss/comprehensive loss (4,580,000)
--------- ---------- ---------- ------------ --------- ------------
Balance, December 31, 1998 0 98,250,405 $ 98,000 $ 14,370,000 $ 0 $(12,276,000)
========= ========== ========== ============ ========= ============
<CAPTION>
Treasury
Stock Total
------------ ------------
<S> <C> <C>
Balance, December 31, 1997 (brought forward) $ (15,000) $(2,306,000)
Purchase of 7,195,813 treasury shares of
common stock for $15,000 (15,000) (15,000)
Special distribution of 14,391,627 shares
of common stock to Projectavision, Inc. 30,000 376,000
Shares deemed issued in connection
with reverse merger 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 1,830,000
Issuance of shares at $.20 per share, net of
issuance costs 975,000
Issuance of shares to purchase intangible
assets 1,440,000
Issuance of shares at $.58 per share for
consulting services 580,000
Issuance of warrants to purchase 2,000,000
shares of common stock exercisable at $.75
per share for fair value of services 660,000
Issuance of shares at $.18 per share 50,000
Issuance of shares on conversion of 182,525
shares of Series A preferred stock 0
Issuance of shares at $.05 per share 1,017,000
Issuance of stock options and warrants
at fair value for services 2,165,000
Net loss/comprehensive loss (4,580,000)
----------- -----------
Balance, December 31, 1998 $ 0 $ 2,192,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period
From
Inception
(July 31, 1992)
Year Ended December 31, Through
------------------------ December 31,
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,580,000) $(335,000) $(11,256,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Common stock issued for services 580,000 580,000
Preferred stock issued for services 598,000
Stock options issued for services 2,165,000 2,165,000
Warrants issued for services 660,000 660,000
Depreciation and amortization 112,000 10,000 492,000
Changes in:
Prepaid expenses (5,000) 19,000 (5,000)
Accounts payable and accrued liabilities (156,000) 284,000 432,000
----------- ---------- ------------
Net cash used in operating activities (1,224,000) (22,000) (6,334,000)
----------- ---------- ------------
Cash flows from investing activities:
Purchase of equipment (24,000) (355,000)
Proceeds from sale of equipment 14,000
---------- ------------
Net cash used in investing activities (24,000) (341,000)
---------- ------------
Cash flows from financing activities:
Purchase of treasury stock (15,000) (85,000) (100,000)
Proceeds from notes payable to stockholders 214,000 1,874,000
Proceeds from issuance of Series A preferred
stock, net of issuance costs 698,000
Proceeds from issuance of common stock, net 1,782,000 5,029,000
Loan repayment to preferred stockholder (148,000)
Capital lease payments (13,000)
----------- ---------- ------------
Net cash provided by financing
activities 1,767,000 129,000 7,340,000
----------- ---------- ------------
Net increase in cash 519,000 107,000 665,000
Cash, beginning of period 146,000 39,000
----------- ---------- ------------
Cash, end of period $ 665,000 $ 146,000 $ 665,000
=========== ========== ============
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 to stockholders in
settlement of stockholder advances $ 376,000 $ 376,000
=========== ============
Issuance of 7,200,000 common shares to
acquire intangible assets $ 1,440,000 $ 1,440,000
=========== ============
Issuance of Series A preferred stock and
warrants in settlement of note payable
and accrued interest $ 1,830,000 $ 1,830,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE A - ORGANIZATION AND OPERATIONS
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 various fields with an emphasis in the area of consumer and
commercial electronics. At December 31, 1998, approximately 44 percent of the
Company's common stock was owned by the Lauer Entities, (see Note D).
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") in a transaction that gave the
stockholders of Tamarack actual control of the combined company. In connection
with this transaction, Tamarack became a wholly-owned subsidiary of Manahattan
Scientifics, Inc. 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. For accounting purposes, the acquisition has been treated as a
capital stock transaction rather than a business combination. This transaction
has been recorded as a recapitalization of Tamarack with Tamarack as the
acquiror ("Reverse Acquisition") and no goodwill or other intangible was
recognized. 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 exchange, Grand issued to stockholders of Tamarack, 44 million shares of
Grand's common stock including approximately 43,120,000 shares issued to
Projectavision, a public company. In addition, Grand issued 182,525 shares
Series A preferred stock and a warrant to purchase 750,000 shares of Grand's
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.
Prior to this transaction, Projectavision owed approximately 98% of Tamarack.
Projectavision through cash investments acquired approximately 65% of Tamarack
through December 31, 1996.
Concurrently with the Grand 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 D).
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 $376,000 as part of the reverse merger transaction.
Since its inception, Tamarack, and more recently the Company, has been engaged
primarily in directing, supervising and coordinating research and development
efforts in the continuing development of its products and raising funds. The
Company conducts its operations primarily in the United States.
F-8
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE A - ORGANIZATION AND OPERATIONS (CONTINUED)
There is no assurance that the Company's research and development and marketing
efforts will be successful, that the Company will ever have commercially
accepted products, or that the Company will achieve significant sales of any
such products. The Company has incurred net losses and negative cash flows from
operations since its inception. In addition, the Company operates in an
environment of rapid change in technology and is dependent upon the services of
its employees and its consultants. If the Company is unable to successfully
bring its technologies to commercialization, it is unlikely that the Company
could continue its business. The Company has obtained a commitment from a major
stockholder to provide sufficient funds if needed to support the Company's
normal operations through December 15, 2000.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
[1] 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.
[2] 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.
[3] 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.
[4] 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.
[5] 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 D) have been excluded from
the computations since they would be antidilutive.
[6] Research and development expenses:
Costs of research and development activities are expensed as incurred.
F-9
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(CONTINUED)
[7] Advertising expenses:
The Company expenses advertising costs which consist primarily of
promotional items and print media, as incurred. Advertising expenses
amounted to $5,000, $7,000 and $12,000 for the years ended December 31,
1998, 1997 and for the cumulative period July 31, 1992 (inception) through
December 31, 1998, respectively.
[8] 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.
[9] Correction of financial statements:
The 1998 financial statements have been restated to give effect to
warrants issuable under an Agreement (See Note D). Previously, certain
warrants issuable to consultants were treated for accounting purposes as
dependent on the achievement of performance conditions and no charge to
operations was recognized. The 1998 financial statements have been
adjusted to reflect the fair value of these fully vested, nonforfeitable
and exercisable equity investments as an expense in accordance with
prescribed measurement principles. Accordingly, net loss and net loss
attributable to common stockholders increased by $660,000 and basic and
diluted net loss per share increased $.01.
In addition, the 1998 financial statements have been restated to give
effect to the beneficial conversion feature of the immediately convertible
preferred stock issued in January 1998 (see Note D). The 1998 financial
statements have been adjusted to reflect the deemed dividend resulting
from the beneficial conversion feature of such securities. Accordingly,
net loss attributable to common stockholders increased by $920,000 and
basic and diluted loss per share increased by $0.02.
[10] 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 significant reimbursements beyond 1997. Amounts reimbursed represent
miscellaneous other income. The Company expects to earn revenues from the
sale or licensing of certain products as they are developed. Revenue from
sales and for licensing of such products will be recognized in accordance
with the terms of the underlying agreements at the time such transations
are consummated.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 consist of the following:
Useful Lives
In Years
------------
Furniture and fixtures 5 $ 8,000
Computers 5 32,000
Equipment 5 113,000
---------
153,000
Less accumulated depreciation 131,000
---------
$22,000
=========
NOTE D - CAPITAL TRANSACTIONS
Common Stock:
The following common stock transactions include the effects of restating of
stockholders' equity for the shares received in the recapitalization as a result
of the reverse merger. The exchange rate of such shares was 9.59 Grand common
shares for each Tamarack common share. Accordingly, the Company's financial
statement presentation indicates that there were 44,000,000 common shares
outstanding immediately prior to consummating the reverse merger.
Effective July 31, 1992, the Company issued 14,391,627 shares of common stock to
the founders for certain intangible assets.
During 1994, the Company effected the following stock transactions:
Issued 14,391,627 shares of common stock to Projectavision, Inc. at
approximately $.21 per share in accordance with a stock purchase agreement.
Issued 479,720 shares of common stock on exercise of options at a price of
approximately $.10 per share.
Issued 345,399 shares of common stock at a price of approximately $.52 per
share.
F-10
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE D - CAPITAL TRANSACTIONS (CONTINUED)
During 1996, the Company issued 14,391,627 shares of common stock for $15,000.
During 1997, the Company repurchased 7,195,814 shares of common stock for
$15,000.
During 1998, the Company effected the following transactions:
In January 1998, repurchased 7,195,813 shares of common stock for $15,000.
In January 1998, the Company made a special distribution to Projectavision of
14,391,627 shares of common shares held in treasury.
In January 1998, in accounting for the reverse merger transaction, the
Company was deemed to have issued 11 million common shares for the net
monetary assets of Grand which was nominal.
In January 1998, issued 5,000,000 shares of its common stock for $.20 per
share in a private placement offering.
In January 1998, issued 7,200,000 shares of its common stock at $.20 per
share to acquire certain intangible assets.
In February 1998, issued 1,000,000 shares of its common stock with a fair
market value of $.58 per share for consulting services.
In April 1998, issued 275,000 shares of its common stock at $.18 per share to
an individual in a private placement offering.
In July 1998, issued 9,435,405 shares of its common stock on conversion of
182,525 shares of Series A convertible preferred stock.
In July 1998, as part of the private placement transaction described below,
the Company issued 10 million common stock purchase warrants at an exercise
price of $.05 per share to the "Lauer Entities". In addition, the Company
arranged for this third party to purchase 43,170,512 shares of the Company's
common stock from Projectavision, Inc. Furthermore, the Company agreed to
issue 20 million shares of common stock to this third party at a price of
$.05 per share, together with rights to assign such shares to certain other
third parties. Such rights were assigned to the certain other third parties
as noted directly below.
From August 1998 through December 1998, issued 20,340,000 shares of its
common stock at $.05 per share in a private placement offering. In January
1999, $250,000 of the stock subscriptions receivable was collected and the
balance of $10,000 was collected in August 1999.
Preferred Stock:
During 1993, in accordance with a Share Purchase Agreement, the Company issued
1,037,000 shares of its Series A preferred stock in exchange for consideration
of $1,037,000 in cash, goods and services provided to the Company by an
unrelated third party.
During 1995, the Company issued an additional 163,000 shares of its Series A
preferred stock in settlement of all amounts due to the above mentioned third
party in exchange for services value at $163,000.
During 1997, the Company repurchased all outstanding shares of its Series A
preferred stock from the above mentioned third party for $70,000. In conjunction
with this transaction, the Board of Directors canceled and retired the then
existing Series A preferred stock.
F-11
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE D - CAPITAL TRANSACTIONS (CONTINUED)
Preferred Stock: (continued)
On January 8, 1998, the Board of Directors of the Company authorized 1,000,000
shares of preferred stock having a par value of $.001 per share to be issued in
such series and to have such rights, preferences and designations as determined
by the Board of Directors.
On January 8, 1998, the Board of Directors of the Company authorized 182,525
shares of Series A convertible redeemable preferred stock having a par value of
$.001. Dividends, which are cumulative, are paid semi-annually in cash or common
stock at the Company's option at a rate of ten percent per share based on a
liquidation value of $10 per share. The Series A shares are convertible at the
rate of fifty shares of the Company's common stock for each Series A preferred
share, are redeemable at the option of the Company at $15 per share, have
preference in case of liquidation, and have voting rights equal to fifty votes
per share.
On January 8, 1998, in connection with the reverse merger transaction, the
Company issued 182,525 shares of its Series A convertible redeemable preferred
stock and a warrant to purchase 750,000 shares of the Company's common stock at
a price of $.10 per share in settlement of a note payable due to Projectavision,
Inc. in the amount of $1,500,000 plus accrued interest of $330,000. The note
required interest at 6% per annum. Interest expense related to this note payable
for 1997 amounted to $90,000. The Company recorded a deemed dividend of
$1,020,000, in accordance with EITF D-60, as a result of the beneficial
conversion feature of such preferred shares at the date of issuance with a
corresponding increase to additional paid in capital. The amount of the deemed
dividend was computed based upon the excess of the market value of equivalent
common shares which approximated $2,737,000 plus the fair value of the warrant
of $113,000 over the deemed proceeds in the exchange for the settlement of the
obligation with Projectavision. The warrant was valued using the Black Scholes
option pricing model. The following assumptions were used computing the fair
value of the warrant; weighted risk free interest rate of 5.49%; zero dividend
yield; volatility of company common stock of 43% and an expected life of the
warrant of ten years.
On July 28, 1998, the holder of the Series A convertible redeemable preferred
stock converted their shares into 9,435,405 shares of the Company's common
stock. At the time of the conversion, cumulative dividends in arrears amounted
to approximately $100,000. 9,126,250 common shares represented the initial
conversion rate of 50 common shares for each preferred share outstanding. The
remaining 309,155 common shares represented the payment of accrued dividend in
common shares in lieu of cash. The number of such additional common shares was
determined by dividing the accrued dividend amount by the closing market value
of the Company's common stock as of July 27, 1998, which approximated $0.34 per
share.
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. Some of
the Company's outstanding options have net exercisable provisions under which
the holder may, in lieu of payment of the exercise price in cash, surrender the
option and receive a net amount of shares based on the fair market value of the
Company's common stock at the time of the exercise and the option after
deducting the exercise price. The Company may incur substantial additional
expenses upon the exercise of such options.
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
Granted 21,325,000 $.20 $.20
Exercised
Canceled (15,000,000) $.20 $.20
------------
Outstanding as of December 6,325,000 $.20 $.20 6,325,000
31,1998 ============ ===========
</TABLE>
All options issued during 1998 vested immediately and expire at various dates
during 2008.
F-12
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE D - CAPITAL TRANSACTIONS (CONTINUED)
Stock Options: (continued)
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 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. 10 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 were 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 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
has been included in the pro-forma net loss calculation below.
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 December 31, 1998 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>
$.20 6,325,000 9.3 $.20 6,325,000 $.20
</TABLE>
The following table summarizes the pro forma operating results of the Company
had compensation costs for the stock options and warrants granted to employees
been determined in accordance with the fair value based method of accounting for
stock based compensation as prescribed by SFAS No. 123.
Pro forma net loss available to common shareholders $(5,238,000)
===========
Pro forma basic and diluted loss per share $(.07)
===========
F-13
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE D - CAPITAL TRANSACTIONS (CONTINUED)
For the purpose of the above pro forma information, the fair value of these
options was estimated at the date of grant using the Black-Scholes option
pricing model. The weighted-average fair value of the options granted during
1998 was $.24. The following weighted-average assumptions were used in computing
the fair value of option grants for 1998: weighted-average risk-free interest
rate of 5.48%; zero dividend yield; volatility of the Company's common stock of
43%; and an expected life of the options of ten years.
WARRANTS:
The Company issued or agreed to issue the following warrants during 1998:
Number of Exercise Contractual Number of Shares
Date Warrants Price Life Exercisable
---- -------- ----- ---- -----------
January 8, 1998 750,000 $.10 10 years 750,000
February 10, 1998 2,000,000 $.75 A 2,000,000
July 28, 1998 15,000,000 $.05 10 years 15,000,000
----------- -----------
17,750,000 17,750,000
=========== ===========
A - Warrants have no stated contractual life. The Company agreed to issue these
warrants in connection with an agreement in which a third party was to render
financial consulting services to the Company. These warrants were valued as of
the date of issuance using the Black-Scholes model. The following assumptions
were used in computing the fair value of these warrants, weighted risk-free
interest rate of 5.49%; zero dividend yield; volatility of the Company's common
stock of 43%, and an expected life of the warrants of ten years. In July 1998,
the Company amended the original consulting agreement dated February 10, 1998
(the "Agreement") to incorporate a lock-up provision relating to the common
shares of the Company held by the third party. In addition to the lock-up
provision, the Company amended the Agreement to allow for a cashless exercise of
these warrants as consideration for the lock-up provision. As a result, the
Company has recorded a $660,000 charge for consulting services for the year
ended December 31, 1998 with a corresponding increase to additional paid-in
capital (see Note H).
In addition to the above, the Company recorded charges to operations of
$1,065,000 for options issued for services rendered to the Company. $453,000 of
such charges were recorded as general and administrative expense and $612,000
was recorded as consulting expense.
The fair value of the options and warrants issued during 1998 with an exercise
price below the market price approximated $2,289,000.
NOTE E - INCOME TAXES
There is no provision for federal, state or local income taxes for the years
ended December 31, 1998 and 1997, since the Company has incurred net operating
losses.
The Company's deferred tax asset as of December 31, 1998 represents benefits
from deferred compensation and net operating loss carryforwards of approximately
$365,000 and $296,000, respectively which is reduced by a valuation allowance of
approximately $661,000 since the future realization of such tax benefit is not
presently determinable.
As of December 31, 1998, the Company has a net operating loss carryforward of
$10,208,000 expiring in 2008 through 2019 for federal income tax purposes and
2003 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
$750,000.
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 years
ended December 31, 1998 and 1997 is summarized as follows:
Year Ended
December 31,
------------------
1998 1997
------- -------
Statutory federal income tax rate 34.0 34.0 %
Increase in valuation allowance (34.0)% (34.0)%
----- -----
0.0% 0.0%
===== ====
F-14
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE F - 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 an 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 year ended December 31, 1998
amounted to $52,000.
On January 11, 1998, the Company entered into a research and development
agreement with Energy Related Devices, Inc. ("ERDI"). The term of the
agreement is for the later of three years from the commencement date as
defined in the agreement or the delivery of a prototype suitable for
commercial sale or license regarding the fuel cell product defined in the
agreement. The Company is obligated to fund up to $1 million in accordance
with certain milestones as defined in the agreement. Upon the delivery of a
prototype suitable for commercial sale or license regarding the fuel cell
product, the Company's obligation will be to pay ERDI $10,000 per month
until the Company funds or determines not to fund the research and
development of ERDI's solar cell invention. Through December 31, 1998, the
Company has provided $500,000 to ERDI for research and development
activities. In addition, the Company will incur insurance expense beginning
in 1999 related to key-man life insurance coverage on the primary
stockholder of ERDI. In May 1999, the Company committed to funding an
additional $300,000 under the ERDI agreement, subject to conditions.
[2] Consulting agreements:
During 1998, the Company entered into a consulting agreement (the
"Agreement") with a former stockholder of Tamarack to provide research
related activities. In connection with the Agreement, the consultant
receives approximately $2,300 per month for such services and is eligible
for a lump sum payment of $50,000 upon the attainment of a revenue
milestone as defined in the Agreement. In accordance with the Agreement,
the Company issued stock options to purchase 250,000 shares of the
Company's common stock at $.20 per share.
200,000 of such options are subject to conditional vesting and are not
currently exercisable. The vesting of these options is based upon the
attainment of certain milestones as follows; 50,000 options upon successful
testing and acceptance by a third party of the holographic storage media;
50,000 options upon commencement of commercial production of devices
incorporating holographic storage media; 100,000 options upon attainment of
$250,000 of gross revenues resulting from sales of devices incorporating
the holographic storage media. These options are subject to variable plan
accounting treatment in accordance with APB No. 25 and as such, the Company
will record a charge to operations if the criteria for vesting is attained.
The measurement date will be determined based upon the vesting.
[3] 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. Rent expense charged to operations was approximately
$37,000 for 1998 and $13,000 in 1997.
Minimum future rental payments under these leases are as follows:
Year Ending
December 31,
-------------
1999 $ 96,000
2000 99,000
2001 12,000
F-15
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE G - RELATED PARTY TRANSACTIONS
The law firm of one director received $43,000 compensation for legal services
rendered to the Company.
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 F[1]).
NOTE H- SUBSEQUENT EVENTS
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 for
5,416,300 shares of common stock. As a result of this investment, the Company
owns approximately 27% of NMXS.com, Inc. The Company expects to account for its
investment in NMXS.com, Inc. under the equity method.
License agreement:
In August 1999, the Company entered into a license option agreement with the
Regents of the University of California for Cyclodextrin Polymer Saporation
materials. The agreement grants the Company an exclusive option to negotiate an
exclusive world-wide license under University's patent rights. The initial term
will expire on February 29, 2000 and may be 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. If the term of the agreement is extended to the
second term, the Company will be obligated to pay an additional $10,000 fee (see
Note F[1]).
Intangible asset acquisition:
On August 6, 1999, the Company entered into an agreement with Novars
Gesellschaft Furneve Technologies mbh ("Novars") to acquire all of the
intellectual property rights of Novars. As compensation, the Company issued
1,000,000 shares of its common stock. 500,000 of such shares will be held in
escrow pending issuance of certain patents in the Company's name, as defined in
the agreement. The initial purchase price was estimated at $1,000,000 based upon
the value of the common shares issued at the date of the transaction as
determined by management. However, the eventual purchase price can not be
determined until such time the shares held in escrow have been released to the
third party. In addition, the Company is obligated to pay a three percent
royalty in perpetuity on the net 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. The Company is obligated to advance an
additional $400,000 based on certain milestones.
F-16
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE H - SUBSEQUENT EVENTS (CONTINUED)
Employment agreement:
On August 30, 1999, the Company entered into an employment and noncompetiton
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.
Bridge financing:
In August 1999, a stockholder provided bridge financing to the Company in the
amount of $500,000. Interest on the loan was at 13.5% per annum. The loan was
repaid in October 1999 with a subsequent borrowing from another stockholder as
described below. The stockholder had the right to convert the loan into
2,000,000 shares of common stock if unpaid by May 18, 2000.
In October 1999, the Company obtained a $500,000 loan from a stockholder (the
"Peters Corporation") with interest at prime plus 1%. The loan is due in
December 1999. In connection with this loan, the Company arranged to have
150,000 common shares 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 the shares provided by the third party. The Company will
recognize a charge for the value of the shares provided offset by a contribution
to additional paid-in capital.
Note payable:
In August 1999, the Company borrowed $275,000 from the Chief Operating Officer.
The loan bears interest at the rate of 5.5% per annum and is due upon the
earlier of 18 months or the date a private placement raising at least $1,500,000
occurs. The loan may be prepaid at any time. The Chief Operating Officer had
originally delivered the Company $275,000 to exercise options each exercisable
to purchase common stock but such exercise was rescinded and the options have
been treated as if not exercised. No shares were delivered as a result of this
transaction.
Preferred stock:
On October 25, 1999, the Board of Directors authorized 180,000 shares of Series
B preferred stock. The preferred shares have voting and dividend rights. The
preferred shares are convertible into common shares at anytime on a one for ten
basis.
Stock options:
In October 1999, one shareholder exercised 100,000 options at $.20 per share
with cash proceeds to the Company of $20,000.
Common stock:
In May 1999, the Company agreed to issue 100,000 shares of common stock valued
at $49,000 in exchange for corporate furnishings.
Warrants:
In August 1999, the Company was notified by the holder of certain warrants that
1,076,923 shares of common stock should be issued pursuant to the terms of the
cashless exercise provisions in an amended consulting agreement. An additional
charge of approximately $1,090,000 will be recognized in 1999 to reflect such
activity.
F-17
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 419,000
Miscellaneous receivable 6,000
-------------
Total current assets 425,000
Property and equipment, net 67,000
Other assets:
Patents, net 2,251,000
Investment -NMXS.Com, Inc. 89,000
Security deposit 7,000
-------------
$ 2,839,000
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 107,000
Notes payable - stockholders' 775,000
-------------
Total current liabilities 882,000
-------------
Commitments
STOCKHOLDERS' EQUITY
Capital stock $.001 par value
Series A convertible redeemable preferred stock, 10 percent cumulative;
authorized, 182,525 shares; issued and outstanding - none
Series B convertible redeemable preferred stock, authorized 250,000 shares;
issued and outstanding - none
Preferred stock, authorized 1,000,000 shares; issued and outstanding - none
Common stock, authorized 150,000,000 shares;
99,250,405 shares issued and outstanding, 141,000 shares issuable 99,000
Additional paid-in capital 22,080,000
Deficit accumulated during development stage (20,222,000)
-------------
Total stockholders' equity 1,957,000
-------------
$ 2,839,000
=============
</TABLE>
The accompanying notes are an integral part of these financial statements F-18
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Period From Inception
--------------------------- July 31, 1992 Through
1999 1998 September 30, 1999
----------- ----------- ---------------------
<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 0
----------- ----------- ------------
Operating costs and expenses:
Salaries and employee benefits 4,429,000
Consulting fees (includes $1,090,000 from
grants of equity based instruments) 1,198,000 1,939,000 6,196,000
Materials and supplies 987,000
General and administrative (includes $6,352,000
from grants of equity based instruments) 6,941,000 1,800,000 9,942,000
Rent and utilities 9,000 27,000 513,000
Research and development 835,000 630,000 1,498,000
----------- ----------- ------------
Total operating costs and expenses 8,983,000 4,396,000 23,565,000
----------- ----------- ------------
Loss from operations before other
income and expenses (8,983,000) (4,396,000) (23,565,000)
Other income and expenses:
Contract revenue 21,700 3,623,700
Interest expense and other (7,700) (345,700)
Interest income 14,000 76,000
Equity in net loss of investment (11,000) (11,000)
----------- ----------- ------------
Net loss/comprehensive loss (8,966,000) (4,396,000) $(20,222,000)
============
Cumulative
preferred dividends 1,020,000
----------- -----------
Net loss attributable to common
stockholders $(8,966,000) $(5,416,000)
=========== ===========
Basic and diluted loss per share:
Weighted average number of
common shares outstanding 98,417,000 68,334,000
=========== ===========
Basic and diluted loss per share: $(.09) $(.08)
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements F-19
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through
September 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Amounts
Series A $.001 Par Value Additional Receivable
Preferred ------------------------ Paid-in From
Stock Shares Amount Capital Stockholders
--------- ----------- --------- ----------- ------------
<S> <C> <C> <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 $ (40,000)
Issuance of 1,037,000 shares of Series A preferred
stock, net of issuance costs $ 10,000 1,020,000 (286,000)
Net loss
--------- ------------ --------- ----------- -----------
Balance, March 31, 1993 10,000 14,391,627 14,500 1,060,500 (326,000)
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 127,000
Net loss
--------- ------------ --------- ----------- -----------
Balance, March 31, 1994 10,000 29,262,974 30,000 4,095,000 (199,000)
Services performed for Series A preferred stock
issued in fiscal 1993 159,000
Issuance of shares at approximately $.52 per share 345,399 182,000
Net loss
--------- ------------ --------- ----------- -----------
Balance, December 31, 1994 10,000 29,608,373 30,000 4,277,000 (40,000)
Issuance of 163,000 shares of Series A
preferred stock 2,000 161,000
Write-off of amounts receivable from stockholders (40,000) 40,000
Net loss
--------- ------------ --------- ----------- -----------
Balance, December 31, 1995 12,000 29,608,373 30,000 4,398,000 0
Issuance of shares upon exercise of option for
$15,000 14,391,627 14,000 1,000
Net loss
--------- ------------ --------- ----------- -----------
Balance, December 31, 1996 12,000 44,000,000 44,000 4,399,000 0
Purchase and retirement of 1,200,000 shares of
Series A preferred stock (12,000) (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) 0 44,000,000 44,000 4,341,000 0
<CAPTION>
Deficit
Accumulated
During the
Development Treasury
Stage Stock Total
----------- -------- ------------
<S> <C> <C> <C>
Initial issuance of shares to founders on
contribution of intangible assets at historic
cost basis $ 15,000
Additional founders' contribution 0
Issuance of 1,037,000 shares of Series A preferred
stock, net of issuance costs 744,000
Net loss $ (543,000) (543,000)
------------ ------------
Balance, March 31, 1993 (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
Net loss (2,292,000) (2,292,000)
------------ ------------
Balance, March 31, 1994 (2,835,000) 1,101,000
Services performed for Series A preferred stock
issued in fiscal 1993 159,000
Issuance of shares at approximately $.52 per share 182,000
Net loss (2,250,000) (2,250,000)
------------ ------------
Balance, December 31, 1994 (5,085,000) (808,000)
Issuance of 163,000 shares of Series A
preferred stock 163,000
Write-off of amounts receivable from stockholders 0
Net loss (972,000) (972,000)
------------ ------------
Balance, December 31, 1995 (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 (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) (6,676,000) (15,000) (2,306,000)
</TABLE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (continued)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through
September 30, 1999
(UNAUDITED)
(continued)
<TABLE>
<CAPTION>
Common Stock Amounts
Series A $.001 Par Value Additional Receivable
Preferred ------------------------ Paid-in From
Stock Shares Amount Capital Stockholders
--------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 (brought forward) 0 44,000,000 $ 44,000 $4,341,000 $ 0
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. (30,000)
Shares deemed issued in connection
with reverse merger 11,000,000 11,000 365,000
Issuance of 182,525 shares of Series A preferred
stock and warrants exercisable into 750,000
shares of common stock exercisable at an
exercise price of $.10 per share in exchange
for note payable of $1,500,0000 and accrued
interest of $330,000 1,830,000
Issuance of shares at $.20 per share, net of
issuance costs 5,000,000 5,000 970,000
Issuance of shares to purchase intangible assets 7,200,000 7,000 1,433,000
Issuance of shares at $.58 per share for
consulting services 1,000,000 1,000 579,000
Issuance of warrants on February 10, 1998 to
purchase 2,000,000 shares of common stock
exercisable at $0.75 per share for fair value of
services resulting from cashless exercise feature 660,000
Issuance of shares at $.18 per share 275,000 50,000
Issuance of shares on conversion of 182,525 shares
of Series A preferred stock 9,435,405 10,000 (10,000)
Issuance of shares at $.05 per share 20,340,000 20,000 997,000
Issuance of stock options and warrants
at fair value for services 2,165,000
Net loss/comprehensive loss
----------- ------------ ---------- ----------- --------------
Balance, December 31, 1998 0 98,250,405 $ 98,000 $13,350,000 $ 0
=========== ============ ========== =========== ==============
<CAPTION>
Deficit
Accumulated
During the
Development Treasury
Stage Stock Total
----------- -------- ------------
<S> <C> <C> <C>
Balance, December 31, 1997 (brought forward) $ (6,676,000) $ (15,000) $(2,306,000)
Purchase of 7,195,813 treasury shares of common
stock for $15,000 (15,000) (15,000)
Special distribution of 14,391,627 shares of
common stock to Projectavision, Inc. 30,000 0
Shares deemed issued in connection
with reverse merger 376,000
Issuance of 182,525 shares of Series A preferred
stock and warrants exercisable into 750,000
shares of common stock exercisable at an
exercise price of $.10 per share in exchange
for note payable of $1,500,000 and accrued
interest of $330,000 1,830,000
Issuance of shares at $.20 per share, net of
issuance costs 975,000
Issuance of shares to purchase intangible assets 1,440,000
Issuance of shares at $.58 per share for
consulting services 580,000
Issuance of warrants on February 10, 1998 to
purchase 2,000,000 shares of common stock
exercisable at $0.75 per share for fair value of
services resulting from cashless exercise feature 660,000
Issuance of shares at $.18 per share 50,000
Issuance of shares on conversion of 182,525 shares
of Series A preferred stock 0
Issuance of shares at $.05 per share 1,017,000
Issuance of stock options and warrants
at fair value for services 2,165,000
Net loss/comprehensive loss (4,580,000) (4,580,000)
------------ ----------- -----------
Balance, December 31, 1998 $(11,256,000) $ 0 $ 2,192,000
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements F-20
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (continued)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (inception) Through
September 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Amounts
Series A $.001 Par Value Additional Receivable
Preferred Paid-in From
Stock Shares Amount Capital Stockholders
--------- ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 0 98,250,405 $ 98,000 $13,350,000 $ 0
Shares issuable at $0.49 per share
for consulting services 20,000
Shares issuable at $0.49 per share 49,000
to purchase property and equipment
Issuance of shares to purchase
intangible assets 1,000,000 1,000 999,000
Issuance of stock options at
fair value for services 6,572,000
Issuance of warrants on February 10,
1998, to purchase 2,000,000 shares
of common stock exercisable at
$.75 per share for fair value of
services resulting from
notification by warrant holder of
intent to exercise 1,090,000
Net loss/comprehensive loss
for the nine months ended
September 30, 1999
--------- ------------- -------- ----------- ----------
Balance September 30, 1999 0 99,250,405 $ 99,000 $22,080,000 $ 0
========= ============= ======== =========== ==========
(unaudited)
<CAPTION>
Deficit
Accumulated
During the
Development Treasury
Stage Stock Total
------------- -------- -----------
<S> <C> <C> <C>
Balance, December 31, 1998 $(11,256,000) $ $ 2,192,000
Shares issuable at $0.49 per share
for consulting services 20,000
Shares issuable at $0.49 per share
to purchase property and equipment 49,000
Issuance of shares to purchase
intangible assets 1,000,000
Issuance of stock options at
fair value for services 6,572,000
Issuance of warrants on February 10,
1998, to purchase 2,000,000 shares
of common stock exercisable at $.75
per share for fair value of
services resulting from notification
by warrant holder of intent to exercise 1,090,000
Net loss/comprehensive loss
for the nine months ended
September 30, 1999 (8,966,000) (8,966,000)
------------ ------- -----------
Balance September 30, 1999 $(20,222,000) $ 0 $ 1,957,000
============ ======= ===========
(unaudited)
</TABLE>
The accompanying notes are an integral part of these financial statements F-21
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Period From Inception
September 30, (July 31, 1992) Through
1999 1998 September 30, 1999
----------- ------------- ----------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(8,966,000) $ (20,222,000) $(20,222,000)
Adjustment to reconcile net loss to net
cash used in operating activities:
Common stock issued for services 580,000 580,000
Preferred stock issued for services 598,000
Stock options issued for services 6,572,000 2,165,000 8,737,000
Warrants issued for services 1,090,000 660,000 1,750,000
Equity in net loss of investment 11,000 11,000
Depreciation and amortization 85,000 85,000 577,000
Changes in:
Prepaid expenses and miscellaneous receivable (1,000) (6,000)
Accounts payable and accrued liabilities 28,000 (200,000) 460,000
----------- ------------- ------------
Net cash used in operating activities (1,181,000) (1,106,000) (7,515,000)
----------- ------------- ------------
Cash flows from investing activities:
Purchase of equipment (24,000) (355,000)
Purchase of investment (100,000) (100,000)
Proceeds from sale of equipment 14,000
----------- ------------- ------------
Net cash used in investing activities (100,000) (24,000) (441,000)
----------- ------------- ------------
Cash flows from financing activities:
Purchase of treasury stock (15,000) (100,000)
Proceeds from notes payable to stockholders 775,000 2,649,000
Proceeds from issuance of Series A preferred stock,
net of issuance costs 698,000
Proceeds from issuance of common stock and collection
of stock subscription receivable, net 260,000 1,620,000 5,289,000
Loan repayment to preferred stockholder (148,000)
Capital lease payments (13,000)
----------- ------------- ------------
Net cash provided by financing activities 1,035,000 1,605,000 8,375,000
----------- ------------- ------------
Net increase (decrease) in cash (246,000) 475,000 419,000
Cash, beginning of period 665,000 146,000
----------- ------------- ------------
Cash, end of period $ 419,000 $ 621,000 $ 419,000
=========== ============= ============
</TABLE>
F-22
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Cash Flows (continued)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Period From Inception
September 30, (July 31, 1992) Through
1999 1998 September 30, 1999
----------- ---------- -----------------------
<S> <C> <C> <C>
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
============
Issuance of 7,200,000 common shares to acquire intangible
assets $1,440,000 $ 1,440,000
========== ============
Issuance of Series A preferred stock and warrants in
settlement of note payable and accrued interest $1,830,000 $ 1,830,000
========== ============
Issuance of 1,000,000 shares to acquire intangible
assets $ 1,000,000 $ 1,000,000
=========== ============
Shares issuable for acquisition of fixed assets $ 49,000 $ 49,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements F-23
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE A - ORGANIZATION AND OPERATIONS
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 various fields with an emphasis in the area of consumer and
commercial electronics. At September 30, 1999, approximately 46 percent of the
Company's common stock was owned by the Lauer Entities, (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") in a transaction that gave the
stockholders of Tamarack actual control of the combined company. In connection
with this transaction, Tamarack became a wholly-owned subsidiary of Manahattan
Scientifics, Inc. 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. For accounting purposes, the acquisition has been treated as a
capital stock transaction rather than a business combination. This transaction
has been recorded as a recapitalization of Tamarack with Tamarack as the
acquiror ("Reverse Acquisition") and no goodwill or other intangible was
recognized. 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 exchange, Grand issued to stockholders of Tamarack, 44 million shares of
Grand's common stock including approximately 43,120,000 shares issued to
Projectavision, a public company. In addition, Grand issued 182,525 shares
Series A preferred stock and a warrant to purchase 750,000 shares of Grand's
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.
Prior to this transaction, Projectavision owed approximately 98% of Tamarack.
Projectavision through cash investments acquired approximately 65% of Tamarack
through December 31, 1996.
Concurrently with the Grand 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 D).
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 $376,000 as part of the reverse merger transaction.
Since its inception, Tamarack, and more recently the Company, has been engaged
primarily in directing, supervising and coordinating research and development
efforts in the continuing development of its products 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
F-24
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE A - ORGANIZATION AND OPERATIONS (CONTINUED)
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, 2000.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
[1] 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.
[2] 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.
[3] 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.
[4] 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.
[5] 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.
[6] Research and development expenses:
Costs of research and development activities are expensed as incurred.
F-25
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(CONTINUED)
[7] Advertising expenses:
The Company expenses advertising costs which consist primarily of
promotional items and print media, as incurred. Advertising expenses
amounted to $9,000, $3,000 and $21,000 for the nine months ended September
30, 1999 and 1998 and for the cumulative period July 31, 1992 (inception)
through September 30, 1999, respectively.
[8] 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.
[9] 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.
[10] Interim financial statements:
Financial statements as of September 30, 1999 and the nine months ended
September 30, 1999 and 1998 and the period from inception July 31, 1992 are
unaudited but in the opinion of management the financial statements include
all adjustments consisted 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 necessarly
indicative of those to be achieved or expected for the entire year.
[11] Correction of financial statements:
The 1999 financial statements have been restated to give effect to warrants
issuable under an agreement (see Note F). Previously, certain warrants
issuable to consultants were treated for accounting purposes as dependent
on the achievement of performance conditions and no charge to operations
was recognized. The 1999 financial statements have been adjusted to reflect
the fair value of these fully vested, nonforfeitable and exercisable equity
instruments as an expense in accordance with prescribed measurement
principles. Accordingly, net loss and net loss attributable to common
stockholders increased by $1,090,000 and basic and diluted loss per share
increased $.01.
[12] 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 significant reimbursements beyond 1997. Amounts reimbursed represent
miscellaneous other income. The Company expects to earn revenues from the
sale or licensing of certain products as they are developed. Revenue from
sales and for licensing of such products will be recognized in accordance
with the terms of the underlying agreements at the time such transations
are consummated.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 1999 consist of the following:
Useful Lives
In Years
-------------
Furniture and fixtures 5 $57,000
Computers 5 32,000
Equipment 5 113,000
--------
202,000
Less accumulated depreciation 135,000
--------
$ 67,000
========
F-26
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
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 for
5,416,300 shares of common stock. As a result of this investment, the Company
owns approximately 27% of NMXS.Com, Inc. For the period from date of
acquisition, June 3, 1999 through September 30, 1999, the Company recorded an
$11,000 loss representing its share of the equity in the loss of the investment.
In addition, per out contract with NMXS.Com, Manhattan Scientifics provided
NMXS.Com with business and management advice through August 1999. Also, our CEO
receives a salary and a leased car from NMXS.Com as consideration for
independent services to NMXS.Com.
NOTE E - NOTES PAYABLE
In August 1999, a stockholder provided bridge financing to the Company in the
amount of $500,000. Interest on the loan was at 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 common shares of the Company delivered to
the Peter Corporations 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 will recognize a charge for the value of the shares provided offset by a
contribution to addition paid-in capital.
In August 1999, the Company borrowed $275,000 from the Chief Operating Officer.
The loan bears interest at the rate of 5.5% per annum and is due upon the
earlier of 18 months or the date of a private placement raising at least
$1,500,000. The loan may be prepaid at any time. The Chief Operating Officer had
originally delivered the Company $275,000 to exercise options each exercisable
to purchase common stock but such exercise was rescinded and the options have
been treated as if not exercised. No shares were delivered as a result of this
transaction.
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 as a result
of the reverse merger. The exchange rate of such shares was 9.59 Grand common
shares for each Tamarack common share. Accordingly, the Company's financial
statement presentation indicates that there were 44,000,000 common shares
outstanding immediately prior to consummating the reverse merger.
Effective July 31, 1992, the Company issued 14,391,627 shares of common stock to
the founders for certain intangible assets.
During 1994, the Company effected the following stock transactions:
Issued 14,391,627 shares of common stock to Projectavision, Inc. at
approximately $.21 per share in accordance with a stock purchase agreement.
Issued 479,720 shares of common stock on exercise of options at a price of
approximately $.10 per share.
Issued 345,399 shares of common stock at a price of approximately $.52 per
share.
During 1996, the Company issued 14,391,627 shares of common stock for $15,000.
F-27
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Common Stock: (continued)
During 1997, the Company repurchased 7,195,814 shares of common stock for
$15,000.
During 1998, the Company effected the following transactions:
In January 1998, repurchased 7,195,813 shares of common stock for $15,000.
In January 1998, the Company made a special distribution to Projectavision
of 14,391,627 shares of common shares held in treasury.
In January 1998, in accounting for the reverse merger transaction, the
Company was deemed to have issued 11 million common shares for the net
monetary assets of Grand which was nominal.
In January 1998, issued 5,000,000 shares of its common stock for $.20 per
share in a private placement offering.
In January 1998, issued 7,200,000 shares of its common stock at $.20 per
share to acquire certain intangible assets.
In February 1998, issued 1,000,000 shares of its common stock with a fair
market value of $.58 per share for consulting services.
In April 1998, issued 275,000 shares of its common stock at $.18 per share
to an individual in a private placement offering.
In July 1998, issued 9,435,405 shares of its common stock on conversion of
182,525 shares of Series A convertible preferred stock.
In July 1998, as part of the private placement transaction described below,
the Company issued 10 million common stock purchase warrants at an exercise
price of $.05 per share to the "Lauer Entities". In addition, the Company
arranged for this third party to purchase 43,170,512 shares of the
Company's common stock from Projectavision, Inc. Furthermore, the Company
agreed to issue 20 million shares of common stock to this third party at a
price of $.05 per share, together with rights to assign such shares to
certain other third parties. Such rights were assigned to the certain other
third parties as noted directly below.
From August 1998 through December 1998, issued 20,340,000 shares of its
common stock at $.05 per share in a private placement offering.
In August 1999, issued 1,000,000 shares of its common stock for $1 per
share to acquire certain intangible assets.
Preferred Stock:
During 1993, in accordance with a Share Purchase Agreement, the Company issued
1,037,000 shares of its Series A preferred stock in exchange for consideration
of $1,037,000 in cash, goods and services provided to the Company by an
unrelated third party.
During 1995, the Company issued an additional 163,000 shares of its Series A
preferred stock in settlement of all amounts due to the above mentioned third
party in exchange for services value at $163,000.
F-28
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Preferred Stock: (continued)
During 1997, the Company repurchased all outstanding shares of its Series A
preferred stock from the above mentioned third party for $70,000. In conjunction
with this transaction, the Board of Directors canceled and retired the then
existing Series A preferred stock.
On January 8, 1998, the Board of Directors of the Company authorized 1,000,000
shares of preferred stock having a par value of $.001 per share to be issued in
such series and to have such rights, preferences and designations as determined
by the Board of Directors.
On January 8, 1998, the Board of Directors of the Company authorized 182,525
shares of Series A convertible redeemable preferred stock having a par value of
$.001. Dividends, which are cumulative, are paid semi-annually in cash or common
stock at the Company's option at a rate of ten percent per share based on a
liquidation value of $10 per share. The Series A shares are convertible at the
rate of fifty shares of the Company's common stock for each Series A preferred
share, are redeemable at the option of the Company at $15 per share, have
preference in case of liquidation, and have voting rights equal to fifty votes
per share.
On January 8, 1998, in connection with the reverse merger transaction, the
Company issued 182,525 shares of its Series A convertible redeemable preferred
stock and a warrant to purchase 750,000 shares of the Company's common stock at
a price of $.10 per share in settlement of a note payable due to Projectavision,
Inc. in the amount of $1,500,000 plus accrued interest of $330,000. The note
required interest at 6% per annum. Interest expense related to this note payable
for 1997 amounted to $90,000. The Company recorded a deemed dividend of
$1,020,000 in accordance with EITF-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 approximate $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 in computing the fair value
of the warrant; weighted risk free interest rate of 5.49%; zero dividend yield;
volatility and 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. At the time of the conversion, cumulative dividends in arrears amounted
to approximately $100,000.9,126,250 common shares represented the initial
conversion rate of 50 common shares for each preferred share outstanding. The
remaining 309,155 common shares represented the payment of accrued dividend in
common shares in lieu of cash. The number of such additional common shares was
determined by dividing the accrued dividend amount by the closing market value
of the Company's common stock as of July 27, 1998, which approximated $0.34 per
share.
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. Some of
the Company's outstanding options have net exercisable provisions under which
the holder may, in lieu of payment of the exercise price in cash, surrender the
option and receive a net amount of shares based on the fair market value of the
Company's common stock at the time of the exercise and the option after
deducting the exercise price. The Company may incur substantial additional
expenses upon the exercise of such options.
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
Weighted
Number of Exercise Average Number of
Common Price Per Exercise Common Shares
Shares Share Price Exercisable
------ ----- ----- -----------
<S> <C> <C> <C> <C>
Outstanding as of December 31, 1998 6,325,000 $.20 $.20 6,325,000
Granted 16,200,000 $.05 $.05 16,200,000
Granted 50,000 $.20 $.20 50,000
---------- ----------
Outstanding as of September 30, 1999 22,575,000 $.09 22,575,000
========== ===========
</TABLE>
F-29
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Stock Options: (continued)
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 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. 10 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 were 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 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
has been included in the pro-forma net loss calculation below.
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 September 30, 1999 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> <C>
$.05 16,200,000 9.30 $.05 16,200,000 $.05
$.20 6,375,000 8.60 $.20 6,375,000 $.20
</TABLE>
The following table summarizes the pro forma operating results of the Company
had compensation costs for the stock options and warrants granted to employees
been determined in accordance with the fair value based method of accounting for
stock based compensation as prescribed by SFAS No. 123.
Pro forma net loss available to common shareholders $(9,264,000)
===========
Pro forma basic and diluted loss per share $(.09)
======
F-30
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Stock Options: (continued)
For the purpose of the above pro forma information, the fair value of these
options was estimated at the date of grant using the Black-Scholes option
pricing model. The weighted-average fair value of the options granted during
1999 was $.48. The following weighted-average assumptions were used in computing
the fair value of option grants for 1999: weighted-average risk-free interest
rate of 5.53%; zero dividend yield; volatility of the Company's common stock of
51%; and an expected life of the options of ten years.
The fair value of the options issued during 1999 with an exercise price below
the market price approximated $6,835,000. The statement of operations reflects
$1,090,000 of consulting expense and $6,572,000 of general and administrative
from equity-based instruments.
WARRANTS:
The following warrants are outstanding at September 30, 1999:
Number of Exercise Contractual Number of Shares
Date Warrants Price Life Exercisable
---- -------- ----- ---- -----------
January 8, 1998 750,000 $.10 10 years 750,000
February 10, 1998 2,000,000 $.75 A 2,000,000
July 28, 1998 12,500,000 $.05 10 years 12,500,000
---------- ----------
15,250,000 15,250,000
========== ==========
A - Warrants have no stated contractual life. The Company agreed to issue these
warrants on February 10, 1998 in connection with an agreement in which a third
party was to render financial consulting services to the Company. In July 1998,
the Company amended the original consulting agreement dated February 10, 1998
(the "Agreement") to incorporate a lock-up provision relating to the common
shares of the Company held by the third party. In addition to the lock-up
provision, the Company amended the Agreement to allow for a cashless exercise of
these warrants as consideration for the lock-up provision. These warrants were
valued as of the date of issuance using the Black Scholes model. The following
assumptions were used in computing the fair value of these warrants, weighted
risk-free interest rate of 5.49%; zero dividend yield; volatility of the
Company's common stock of 43%, and an expected life of the warrants of ten
years. As a result of the amendment, the Company recorded a charge for
consulting services of $660,000 for the year ended December 31, 1998, with a
corresponding increase to additional paid-in capital. In August 1999 the Company
issued 1,076,923 common shares in connection with the warrant exercise when the
market value of the common stock was $1.625 per share. As a result, the company
recorded an additional charge for consulting services of $1,090,000 for the nine
months ended September 30, 1999. (see Note J)
NOTE G - INCOME TAXES
There is no provision for federal, state or local income taxes for the nine
months ended September 30, 1999 and 1998, since the Company has incurred net
operating losses.
The Company's deferred tax asset as of September 30, 1999 represents benefits
from deferred compensation and net operating loss carryforwards of approximately
$3,387,000 and $810,000 which is reduced by a valuation allowance of
approximately $4,197,000 since the future realization of such tax benefit is not
presently determinable.
As of September 30, 1999, the Company has a net operating loss carryforward of
$11,512,000 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
$2,054,000.
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 nine
months ended September 30, 1999 and 1998 is summarized as follows:
Nine Months Ended
September 30,
------------------
1999 1998
---- ----
Statutory federal income tax rate 34.0 34.0 %
Increase in valuation allowance (34.0)% (34.0)%
----- -----
0.0 % 0.0 %
===== =====
F-31
<PAGE>
(UNAUDITED)
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999
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 an 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 nine months ended September
30, 1999 and 1998 for the cumulative period from inception through
September 30, 1999 amounted to $31,000, $47,000 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 regarding research and development
funding will be $10,000 per month until the Company funds, or determines
not to fund the research and development of ERDI's solar cell invention.
Through December 31, 1998, the Company has provided $500,000 to ERDI for
research and development activities. In addition, the Company will incur
insurance expense beginning in 1999 related to key-man life insurance
coverage on the primary stockholder of ERDI. In May 1999, the Company
committed to funding an additional $300,000 under the ERDI agreement of
which none has been paid through September 30, 1999.
In August 1999, the Company entered into a license option agreement with
the Regents of the University of California for Cyclodextrin Polymer
Saporation materials. The agreement grants the Company an exclusive option
to negotate an exclusive world-wide license under University's patent
rights. The initial term will expire on February 29, 2000 and may be
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. If the
terms of the agreement is extended to the second term, the Company will be
obligated to pay an additional $10,000 fee.
[2] Consulting agreements:
During 1998, the Company entered into a consulting agreement (the
"Agreement") with a former stockholder of Tamarack to provide research
related activities. In connection with the Agreement, the consultant
receives approximately $2,300 per month for such services and is eligible
for a lump sum payment of $50,000 upon the attainment of a revenue
milestone as defined in the Agreement. In accordance with the Agreement,
the Company issued stock options to purchase 250,000 shares of the
Company's common stock at $.20 per share.
200,000 of such options are subject to conditional vesting and are not currently
exercisable. The vesting of these options is based upon the attainment of
certain milestones as follows; 50,000 options upon successful testing and
acceptance by a third party of the holographic storage media; 50,000 options
upon commencement of commercial production of devices incorporating holographic
storage media; 100,000 options upon attainment of $250,000 of gross revenues
resulting from sales of devices incorporating the holographic storage media.
These options are subject to variable plan accounting treatment in accordance
with APB No. 25 and as such, the Company will record a charge to operations if
the criteria for vesting is attained. The measurement date will be determined
based upon the vesting.
[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.
F-32
<PAGE>
(UNAUDITED)
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999
NOTE H - COMMITMENTS (CONTINUED)
[4] Intangible asset acquisition:
On August 6, 1999, the Company entered into an agreement with Novars
Gesellschaft Furneve Technologies mbh ("Novars") to acquire all of the
intellectual property rights of Novars. As compensation, the Company issued
1,000,000 shares of its common stock. 500,000 of such shares will be held
in escrow pending issuance of certain patents as defined in the agreement.
The initial purchase price was estimated at $1,000,000 based upon the value
of the common shares issued at the date of the transaction as determined by
management. However, the eventual purchase price can not be determined
until such time the shares held in escrow have been released to the third
party. In addition, the Company is obligated to pay a three percent royalty
in perpetuity on the net 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. The Company is
obligated to advance $400,000 based on certain milestones included in this
three year research and development agreement as amended.
[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 reimbursement of $27,000 against rent
charges for the nine months ended September 30, 1999 from a related party.
Rent expense charged to operations was approximately $9,000 for the nine
months ended September 30, 1999 and $27,000 for 1998.
Minimum future rental payments under these leases are as follows:
Twelve Months
Ending
September 30,
-------------
2000 $ 99,000
2001 12,000
NOTE I - RELATED PARTY TRANSACTIONS
The law firm of one director received $50,100 compensation for legal services
rendered to the Company through September 30, 1999.
The accounting firm of one of our director's received $14,000 compensation for
accounting services rendered to the Company through September 30, 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 to attend to partnership duties as a result of
his activities on behalf of the Company.
F-33
<PAGE>
(UNAUDITED)
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999
NOTE I - RELATED PARTY TRANSACTIONS (CONTINUED)
NMXS.Com pays our CEO a yearly salary of $60,000 and leases a car for our CEO 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
Preferred stock:
On October 25, 1999, the Board of Directors authorized 180,000 shares of Series
B preferred stock. On December 15, 1999, the Board of Directors authorized an
increase in the amount of Series B Preferred Stock by 70,000 shares. The
preferred shares have voting and dividend rights. The preferred shares are
convertible into common shares at anytime on a one for ten basis. As of December
15, 1999, the Company received $750,000 pursuant to preferred stock
subscriptions covering 125,000 Series B Preferred shares.
In December 1999, the Company sold 245,165 shares of immediately convertible
preferred stock at $6.00 per share. Each preferred share is convertible into 10
shares of the Company's common stock. In connection with this transaction, the
Company will record in December 1999 a deemed dividend of $1,471,000 in
accordance with EITF 98-5 in connection with the beneficial conversion feature
associated with this transaction. 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.
Common Stock
In January 2000, the Company sold 1,048,000 shares of common stock at $0.75
per share.
Stock Warrants:
In connection with the cancellation and release of all contracts with Equilink,
LLC, on December 30, 1999, Equilink agreed to sell such warrants it held to the
Company (or to a third party) for the purchase price of $500,000. On January 4,
2000, the Company advanced $100,000 towards the purchase price, and the balance
was paid in full on February 14, 2000 by a third party. The Company was
reimbursed by the third party purchaser for the $100,000 advanced.
Stock options:
In October 1999, one shareholder exercised 100,000 options at $.20 per share
with cash proceeds to the Company of $20,000.
F-34
<PAGE>
PART III
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
2.1 Agreement and Plan of Reorganization*
2.2 Agreement and Plan of Merger*
2.3 Certificate of Incorporation*
2.4 Amendment to Certificate of Incorporation*
2.5 Bylaws*
4.1 Specimen Common Stock Certificate*
10.1 License/Assignment Agreement with Robert*
Glenn Hockaday, and DKY, Inc.*
10.2 Research and Development Agreement with
Energy Related Devices, Inc.*
10.3 Letter Agreement with Energy Related
Devices, Inc. and Robert Glenn Hockaday*
10.4 Intellectual Property Assignment and
Research and Development Agreement with
Novars Gesellschaft fur neue Technologien
GmbH*
10.5 License Option Agreement with The Regents
of the University of California*
10.6 Lease of Executive Offices*
10.7 Lease of New Mexico Facilities*
10.8 1998 Stock Option Plan*
10.9 Employment Agreement with Robert Hermes*
10.10 Agreement with Stanton Crenshaw
Communications*
10.11 Agreement with Equilink*
10.12 Stock Purchase Agreement between Manhanttan
Scientifics, Inc., Projectavision, Inc.,
and Lancer Partners, L.P.*
10.13 License Option Agreement with Mr. Edward
Vanzo*
21.1 List of Subsidiaries*
27.1 Financial Data Schedule*
</TABLE>
* Previously filed
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
MANHATTAN SCIENTIFICS, INC.
Dated: May 4, 2000 By: /s/ Marvin Maslow
-------------------------
Marvin Maslow
Chief Executive Officer
