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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM 10-KSB
(Mark One)
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1999.
[_] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the transition period from ______ to _____.
Commission file number 000 - 28411
MANHATTAN SCIENTIFICS, INC.
(Name of Small Business Issuer in its Charter)
Delaware 850460639
------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
641 Fifth Avenue, Suite 36F, New York, New York 10022
- ----------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(212) 752-0505
---------------------------
(Issuer's Telephone Number)
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 Registered
Pink Sheets
---------------------------- ------------------------------
---------------------------- ------------------------------
Securities to be registered pursuant Section 12 (g) of the Act:
Common Stock, $0.001 par value
------------------------------
(Title of Class)
Check whether the issuer (1) filed all reports to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes No X
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [_]
State issuer's revenues for its most
recent fiscal year $0.00
-----
State the aggregate market value of the Note.--If determining whether a
voting and non-voting common equity held person is an affiliate will involve
by non-affiliates computed by reference an unreasonable effort and expense,
to the price at which the common equity the issuer may calculate the
was sold, or the average bid and asked aggregate market value of the
price of such common equity, as of a common equity held by non-affiliates
specified date within the past 60 days. on the basis of reasonable
(See definition of affiliate in Rule assumptions, if the assumptions are
12b-2 of the Exchange Act.) stated.
$228,180,914.75 ($4.25 closing price on
the Pink Sheets on May 3, 2000. Does
not include the 151,500 shares referred
to below.
(Issuers involved in bankruptcy proceedings during the past five years) Check
whether the issuer has filed all documents and reports required to be filed
by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes No
--- ---
(Applicable only to corporate registrants) State the number of shares
outstanding of each of the issuer's classes of common equity, as of the latest
practicable date 101,687,139
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(In addition to the shares outstanding as of the date of this Form 10-KSB, there
are 151,500 shares of common stock which Manhattan Scientifics is obligated to
issue but has not yet been issued to the appropriate recipients.
Documents incorporated by reference. If the following documents are incorporated
by reference, briefly describe them and identify the part of the Form 10-KSB
(e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any
annual report to security holders; (2) any proxy or information statements; and
(3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of
1933 ("Securities Act"). The listed documents should be clearly described for
identification purposes (e.g., annual report to security holders for fiscal
year ended December 24, 1990).
Transitional Small Business Disclusure
Format (Check one):
Yes No X
--- ---
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TABLE OF CONTENTS
Forward Looking Statements
PART I
Item 1. Description of Business
Item 2. Description of Property
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market Price of and Dividends on our Common Equity and Related
Stockholder Matters
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 7. Financial Statements
Item 8. Changes in and Disagreements with Accountants
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
Item 10. Executive Compensation
Item 11. Security Ownership of Certain Beneficial Owners and Management
Item 12. Certain Relationships and Related Transactions
Item 13. Exhibits and Reports on Form 8-K
SIGNATURES
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FORWARD LOOKING STATEMENTS
This Form 10-KSB contains forward-looking statements, including
statements regarding our expectations of our future operations. For this
purpose, any statements contained in this Form 10-KSB 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-KSB.
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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-KSB, 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 and the date of this Form 10-KSB 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-KSB, 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.
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. Certain of those
shares have been transferred to employees or partners of Mr. Hockaday. 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 31,
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-KSB,
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-KSB, 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.
3. 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.
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.
4. 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 a $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-KSB, 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 through related party relationships; 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.
12
<PAGE>
Item 2. 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.
We believe our facilities are adequate for our current and planned
business operations.
Item 3. 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 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during fiscal year 1999 for a vote of our
securityholders.
13
<PAGE>
PART II
Item 5. 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 1, 2000 ..................... 6.60 3.15
</TABLE>
We filed a 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, we were delisted
from the OTC Bulletin Board and have been trading on the pink sheets. Following
the date that 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
14
<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.
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.
15
<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 2, 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.
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.
16
<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, some of which
were subsequently transferred to employees or partners of Mr. Hockaday.
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.
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.
17
<PAGE>
Item 6. 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-KSB.
Overview
In January 1998, Manhattan Scientifics, Inc., then a non-operating
public corporation with nominal net assets acquired all of the outstanding
common stock of Tamarack Storage Devices, Inc. by issuing 44 million shares of
its common stock including approximately 43,120,000 shares issued to
Projectavision, a public company which gave the stockholders of Tamarack actual
control of the combined company. In addition, Manhattan Scientifics, Inc. issued
182.525 shares Series A preferred stock and a warrant to purchase 750,000 shares
of its common stock at an exercise price of 10 cents per share in exchange for a
note payable of $1.5 million plus accrued interest of $330,000 due to
Projectavision from Tamarack. In connection with the legal form of this
transaction, Tamarack became a wholly-owned subsidiary of Manhattan Scientifics,
Inc. For accounting purposes, the acquisition was treated as a recapitalization
of Tamarack rather than a business combination. Tamarack as the accounting
acquiror of the public shell did not record goodwill or any other intangible
asset for this "Reverse Acquisition". The historical financial statements are
those of Tamarack. Tamarack, a development stage enterprise, was a Texas
corporation formed in July 1992. Since inception, Tamarack has been, and
continues to be, involved in the research and development of products based on
holographic data storage technology. Loss per share has been restated for all
periods prior to the acquisition to include the number of equivalent shares
received by Tamarack's stockholders in the Reverse Acquisition.
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.
18
<PAGE>
As of December 31, 1999, we had an accumulated loss since inception, 1992, of
$21,056,000. 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.
Results of Operations
Comparison of fiscal year ended December 31, 1999 to fiscal year
December 31, 1998.
Net Loss We reported a net loss of $9,800,000 or $0.11 per common share, basic
and diluted, for operations for the 1999 fiscal year versus a net loss of
$4,580,000 or $0.08 per common share, basic and diluted, for the 1998 fiscal
year. The increase of $5,220,000 or 114% 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 1999 fiscal year and had no revenues
during the 1998 fiscal year, 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 1999 fiscal year totaled
$9,537,000, an increase of $4,957,000 or 108.2%, versus costs and expenses of
$4,580,000 for the 1998 fiscal year. These costs and expenses are detailed
below.
Salaries and Employee Benefits Salaries related to research and development and
employee benefits were approximately $39,000 for the 1999 fiscal year 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 1998 fiscal year. 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 $1,199,000 for the 1999 fiscal year 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 $1,968,000 for the 1998 fiscal year. This decrease of $769,000 or 39% is
a result of the fact that we made a number of one time payments to consultants
in 1998. We intend to continue to rely upon these consultants.
19
<PAGE>
We intend to continue to rely upon these consultants.
General and Administrative General and administrative expenses were $7,378,000
for the 1999 fiscal year 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
$1,949,000 for the 1998 fiscal year. This increase of $5,429,000 or 278.5% 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 $960,000 for the
1999 fiscal year 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 $663,000 for the 1998 fiscal year. This increase of
$297,000 or 44.8% is a result of research and development payments to ERD and
Novars. We expect research and development costs to increase in proportion to
the pace we develop our technologies.
20
<PAGE>
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 $3,220,000 on December 31, 1999 and the
working capital was $995,000 on such date. Stockholders' equity totaled
$2,192,000 on December 31, 1998 and the working capital was $831,000 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, we raised $1,000,000 through the sale of 5 million shares of common
stock to 40 investors at a price of 20 cents per share.
2. On April 16, 1998, we raised $50,000 through the sale of 275,000 shares of
common stock to a single individual, Mr. Stephen Guarino, at 18.18 cents
per share.
3. From July 28, 1998 through December 31, 1998, we raised $1,017,000 through
the sale of 20,340,000 shares of common stock to 51 individuals and entities
at 5 cents per share. The right to purchase these shares was originally
granted to one entity (Lancer Partners, L.P.) on July 28, 1998, together
with the right to assign the right to purchase such shares. That entity
effectively assigned its rights to the 51 individuals and
21
<PAGE>
entities between July 28, 1998 and December 31, 1998. Finders fees aggregating
$25,000 were paid to one entity.
4. In December 1999, we raised $1,470,990 through the sale of 245,165 shares of
Series B Preferred Stock to 10 accredited investors at $6.00 per share.
5. In December 1999, we raised $786,000 through the sale of 1,048,000 shares of
common stock to 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 required interest at the
rate of Citicorp prime plus 1% and matured on December 19, 1999. The Peters
Corporation is a shareholder of ours. The proceeds of the loan were used to
retire a bridge loan in the same amount that had been made by the Orbiter Fund
in August 1999. We repaid this loan in full plus interest on December 15, 1999
with proceeds from a private placement. Among other things, interest on the
Orbiter loan had been payable at the rate of 13.5%, and Orbiter had the right to
convert the loan into 2,000,000 shares of common stock if unpaid by May 18,
2000. The Orbiter Fund is a shareholder of ours and an affiliate of our largest
shareholder.
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 January 1, 2001, 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-KSB.
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 December 31, 1999 we had
$1,168,000 in cash. We intend to satisfy our capital requirements for the next
12 months by our cash on hand and continuing to pursue private placements to
raise capital and use our common stock as payment for services in
22
<PAGE>
lieu of cash where appropriate. However, we do not know if those resources will
be adequate to cover our capital requirements.
Recently Issued Accounting Standards
We do not believe any recently issued accounting standards have had or
will have a material impact on our operations.
Item 7. Financial Statements
23
<PAGE>
MANHATTAN SCIENTIFICS, INC.
AND SUBSIDIARY
(a development stage enterprise)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999
<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. (a development stage enterprise) and subsidiary ("the
Company") as of December 31, 1999 and the related consolidated statements of
operations, stockholders' equity (capital deficiency) and cash flows for the
years ended December 31, 1999 and 1998 and the amounts for each of the years
ended December 31, 1999, 1998, 1997, 1996 and 1995, included in the
cumulative amounts for the period from July 31, 1992 (inception) through
December 31, 1999. 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, 1999, and the
consolidated results of their operations and their consolidated cash flows
for the years ended December 31, 1999 and 1998 and the amounts for each of
the years ended December 31, 1999, 1998, 1997, 1996 and 1995, included in the
cumulative amounts for the period from July 31, 1992 (inception) through
December 31, 1999, in conformity with generally accepted accounting
principles.
As described in Note B[11], 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
February 2, 2000
With respect to Note B[11]
March 10, 2000
F-1
<PAGE>
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 page F5 of Manhattan Scientifics,
Inc. Form 10-KSB) 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
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Austin, Texas
March 24, 1995
F-2
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Balance Sheet
December 31, 1999
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 1,168,000
Stock subscriptions receivable (collected in January 2000) 325,000
Note receivable 10,000
---------------
Total current assets 1,503,000
---------------
Property and equipment, net 65,000
Patents, net 2,155,000
Security deposit 7,000
---------------
$ 3,730,000
===============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 233,000
Note payable to stockholder 275,000
---------------
Total current liabilities 508,000
---------------
Commitments
STOCKHOLDERS' EQUITY
Capital stock $.001 par value
Preferred, authorized 1,000,000 shares
Series A convertible, redeemable, 10 percent cumulative, authorized 182,525
shares; issued and outstanding - none
Series B convertible, authorized 250,000 shares; 245,165 shares issued and
outstanding
Common, authorized 150,000,000 shares, 100,090,274 shares issued
and outstanding, 150,000 shares issuable 100,000
Additional paid-in capital 26,669,000
Deficit accumulated during the development stage (23,547,000)
--------------
Total stockholders' equity 3,222,000
---------------
$ 3,730,000
===============
</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,
1999 1998 1999
---------------- --------------- -------------------
<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 0
---------------- -------------- -------------------
Operating costs and expenses:
Salaries and employee benefits 4,429,000
Consulting fees 1,199,000 1,968,000 6,197,000
Materials and supplies 987,000
General and administrative 7,340,000 1,909,000 10,341,000
Rent and utilities 38,000 40,000 542,000
Research and development 960,000 663,000 1,623,000
---------------- --------------- -------------------
Total operating costs and expenses 9,537,000 4,580,000 24,119,000
---------------- --------------- -------------------
Loss from operations before other income and expenses (9,537,000) (4,580,000) (24,119,000)
Other income and expenses:
Contract revenue 3,602,000
Interest and other expense (204,000) (542,000)
Interest income 41,000 103,000
Loss of equity investee (100,000) (100,000)
---------------- --------------- -------------------
Net loss/comprehensive loss (9,800,000) (4,580,000) $ (21,056,000)
===============
Dividends on preferred stock beneficial conversion feature (1,471,000) (1,020,000)
---------------- ---------------
Net loss attributable to common stockholders $ (11,271,000) $ (5,600,000)
================ ===============
Basic and diluted loss per share:
Weighted average number of common shares outstanding 98,892,000 73,634,000
================ ===============
Basic and diluted loss per share $(.11) $ (.08)
================ ===============
</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 (Capital Deficiency)
(Notes A and G)
For the Cumulative Period From July 31, 1992 (Inception) Through December 31,
1999
<TABLE>
<CAPTION>
Preferred Stock
$.001 Par Value
------------------- Common Stock
Series A Series B $.001 Par Value Additional
Preferred ------------------- --------------------- Paid-in
Stock Shares Amount Shares Amount Capital
--------- ------ ------ ------ ------ ----------
<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
Issuance of 1,037,000 shares of Series A preferred
stock, net of issuance costs $ 10,000 1,020,000
Net loss
--------- ----------- -------- ----------
Balance, March 31, 1993 10,000 14,391,627 14,500 1,060,500
Issuance of shares to investor at approximately
$.21 per share 14,391,627 14,500 2,985,500
Issuance of shares on exercise of options 479,720 1,000 49,000
Services performed in exchange for Series A
preferred stock issued in fiscal 1993
Net loss
--------- ----------- -------- ----------
Balance, March 31, 1994 10,000 29,262,974 30,000 4,095,000
Services performed for Series A preferred stock
issued in fiscal 1993
Issuance of shares at approximately $.52 per share 345,399 182,000
Net loss
--------- ----------- -------- ----------
Balance, December 31, 1994 10,000 29,608,373 30,000 4,277,000
Issuance of 163,000 shares of Series A
preferred stock 2,000 161,000
Write-off of amounts receivable from stockholders (40,000)
Net loss
--------- ----------- -------- ----------
Balance, December 31, 1995 12,000 29,608,373 30,000 4,398,000
Issuance of shares upon exercise of option for
$15,000 14,391,627 14,000 1,000
Net loss
--------- ----------- -------- ----------
Balance, December 31, 1996 12,000 44,000,000 44,000 4,399,000
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 `
--------- ----------- -------- ----------
Balance, December 31, 1997 (carried forward) 0 44,000,000 44,000 4,341,000
<CAPTION>
Deficit
Amounts Accumulated
Receivable During the
From Development Treasury
Stockholders Stage Stock Total
------------ ----------- ---------- ------------
<S> <C> <C> <C> <C>
Initial issuance of shares to founders on
contribution
of intangible assets at historic cost basis $ 15,000
Additional founders' contribution $ (40,000) 0
Issuance of 1,037,000 shares of Series A preferred
stock, net of issuance costs (286,000) 744,000
Net loss $ (543,000) (543,000)
------------ ----------- --------- ------------
Balance, March 31, 1993 (326,000) (543,000) 216,000
Issuance of shares to investor at approximately
$.21 per share 3,000,000
Issuance of shares on exercise of options 50,000
Services performed in exchange for Series A
preferred stock issued in fiscal 1993 127,000 127,000
Net loss (2,292,000) (2,292,000)
------------ ----------- --------- ------------
Balance, March 31, 1994 (199,000) (2,835,000) 1,101,000
Services performed for Series A preferred stock
issued in fiscal 1993 159,000 159,000
Issuance of shares at approximately $.52 per share 182,000
Net loss (2,250,000) (2,250,000)
------------ ----------- --------- ------------
Balance, December 31, 1994 (40,000) (5,085,000) (808,000)
Issuance of 163,000 shares of Series A
preferred stock 163,000
Write-off of amounts receivable from stockholders 40,000 0
Net loss (972,000) (972,000)
------------ ----------- --------- ------------
Balance, December 31, 1995 0 (6,057,000) (1,617,000)
Issuance of shares upon exercise of option for
$15,000 15,000
Net loss (284,000) (284,000)
------------ ----------- --------- ------------
Balance, December 31, 1996 0 (6,341,000) (1,886,000)
Purchase and retirement of 1,200,000 shares of
Series A preferred stock (70,000)
Purchase of 7,195,814 treasury shares of common
stock for $15,000 $ (15,000) (15,000)
Net loss/comprehensive loss (335,000) (335,000)
------------ ----------- --------- ------------
Balance, December 31, 1997 (carried forward) 0 (6,676,000) (15,000) (2,306,000)
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (Capital Deficiency) (continued)
(Notes A and G)
For the Cumulative Period From July 31, 1992 (Inception) Through December 31,
1999 (continued)
<TABLE>
<CAPTION>
Preferred Stock
$.001 Par Value Common Stock
-------------------- --------------------
Series A Series B $.001 Par Value
Preferred -------------------- --------------------
Stock Shares Amount Shares Amount
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 (brought forward) $ 0 44,000,000 $ 44,000
--------- ----------- ---------
Purchase of 7,195,813 treasury shares of common
stock for $15,000
Special distribution of 14,391,627 shares of
common stock to Projectavision, Inc.
Shares deemed issued in connection
with reverse merger 11,000,000 11,000
Issuance of 182,525 shares of Series A preferred
stock and warrants exercisable into 750,000
shares of common stock at an exercise price of
$.10 per share in exchange for note payable of
$1,500,000 and accrued interest of $330,000
including deemed dividend in connection with
beneficial conversion feature of preferred stock
Issuance of shares at $.20 per share, net of
issuance costs 5,000,000 5,000
Issuance of shares to purchase intangible assets 7,200,000 7,000
Issuance of shares at $.58 per share for
consulting services 1,000,000 1,000
Issuance of warrants on February 10, 1998, to purchase
2,000,000 shares of common stock exercisable at
$.75 per share at fair value for 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
Issuance of shares at $.05 per share 20,340,000 20,000
Issuance of stock options and warrants at fair value
for services
Net loss/comprehensive loss
--------- ----------- ---------
Balance, December 31, 1998 (carried forward) 0 98,250,405 98,000
<CAPTION>
Deficit
Amounts Accumulated
Additional Receivable During the
Paid-in From Development Treasury
Capital Stockholders Stage Stock
------- ------------ ----- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1997 (brought forward) $ 4,341,000 $ 0 $ (6,676,000) $ (15,000)
----------- ------------ ------------ ---------
Purchase of 7,195,813 treasury shares of common
stock for $15,000 (15,000)
Special distribution of 14,391,627 shares of
common stock to Projectavision, Inc. 346,000 30,000
Shares deemed issued in connection
with reverse merger (11,000)
Issuance of 182,525 shares of Series A preferred
stock and warrants exercisable into 750,000
shares of common stock at an exercise price of
$.10 per share in exchange for note payable of
$1,500,000 and accrued interest of $330,000
including deemed dividend in connection with
beneficial conversion feature of preferred stock 2,850,000 (1,020,000)
Issuance of shares at $.20 per share, net of
issuance costs 970,000
Issuance of shares to purchase intangible assets 1,433,000
Issuance of shares at $.58 per share for
consulting services 579,000
Issuance of warrants on February 10, 1998, to purchase
2,000,000 shares of common stock exercisable at
$.75 per share at fair value for 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 (10,000)
Issuance of shares at $.05 per share 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 (carried forward) 14,370,000 0 (12,276,000) 0
<CAPTION>
Total
-----
<S> <C>
Balance, December 31, 1997 (brought forward) $ (2,306,000)
------------
Purchase of 7,195,813 treasury shares of common
stock for $15,000 (15,000)
Special distribution of 14,391,627 shares of
common stock to Projectavision, Inc. 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
including deemed dividend in connection with
beneficial conversion feature of preferred stock 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
$.75 per share at fair value for services resulting
from cashless exercise features
Issuance of shares at $.18 per share
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 (carried forward) 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 Stockholders' Equity (Capital Deficiency)(continued)
(Notes A and G)
For the Cumulative Period From July 31, 1992 (Inception) Through
December 31, 1999 (continued)
<TABLE>
<CAPTION>
Preferred Stock
$.001 Par Value
----------------------- Common Stock Amounts
Series A Series B $.001 Par Value Additional Receivable
Preferred ----------------------- ------------------- Paid-in From
Stock Shares Amount Shares Amount Capital Stockholders
----- ---------- ---------- ------ ------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998
(brought forward) $ 0 0 $ 0 98,250,405 $ 98,000 $ 14,370,000 $ 0
Issuance of shares in
satisfaction of accrued expenses 78,000 15,000
Issuance of shares at $.49 per
share for consulting services 10,000 5,000
Issuance of shares at $.49 per
share to purchase furniture
and fixtures 100,000 49,000
Issuance of shares at market
prices as consulting services
were performed 17,269 15,000
Issuance of shares to purchase
intangible assets 1,000,000 1,000 999,000
Issuance of shares at $1.25 per
share for services 1,600 2,000
Issuance of stock options
immediately exercisable
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 consulting services
resulting from notification of
warrant holder of intent to
exercise 1,090,000
Shares issuable at $1.27 per
share in connection with note
payable 191,000
Issuance of shares on exercise
of 100,000 options at $.20 per
share 100,000 20,000
Issuance of Series B convertible
preferred shares at $6.00 per
share including deemed
dividend in connection with
beneficial conversion feature
of preferred stock 245,165 2,942,000
Issuance of shares at $.75
per share 533,000 1,000 399,000
Net loss/comprehensive loss
----------- ---------- --------- ------------ --------- ------------ -----------
Balance, December 31, 1999 $ 0 245,165 $ 0 100,090,274 $ 100,000 $ 26,669,000 $ 0
=========== ========== ========= ============ ========= ============ ===========
<CAPTION>
Deficit
Accumulated
During the
Development Treasury
Stage Stock Total
----- ----- -----
<S> <C> <C> <C>
Balance, December 31, 1998
(brought forward) $(12,276,000) $ 0 $ 2,192,000
Issuance of shares in
satisfaction of accrued expenses 15,000
Issuance of shares at $.49 per
share for consulting services 5,000
Issuance of shares at $.49 per
share to purchase furniture
and fixtures 49,000
Issuance of shares at market
prices as consulting services
were performed 15,000
Issuance of shares to purchase
intangible assets 1,000,000
Issuance of shares at $1.25 per
share for services 2,000
Issuance of stock options
immediately exercisable
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 consulting services
resulting from notification of
warrant holder of intent to
exercise 1,090,000
Shares issuable at $1.27 per
share in connection with note
payable 191,000
Issuance of shares on exercise
of 100,000 options at $.20 per
share 20,000
Issuance of Series B convertible
preferred shares at $6.00 per
share including deemed
dividend in connection with
beneficial conversion feature
of preferred stock (1,471,000) 1,471,000
Issuance of shares at $.75
per share 400,000
Net loss/comprehensive loss (9,800,000) 0 (9,800,000)
------------ -------- -----------
Balance, December 31, 1999 $(23,547,000) $ 3,222,000
============ ======== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period From
Inception
(July 31, 1992)
Year Ended December 31, Through
-------------------------------- December 31,
1999 1998 1999
------------- -------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (9,800,000) $ (4,580,000) $(21,056,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Common stock issued for services 22,000 580,000 602,000
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
Financing costs payable with common stock 191,000 191,000
Loss of equity investee 100,000 100,000
Depreciation and amortization 183,000 112,000 675,000
Changes in:
Prepaid expenses 5,000 (5,000) 0
Accounts payable and accrued expenses 156,000 (156,000) 588,000
Note receivable (10,000) (10,000)
------------ ------------ ------------
Net cash used in operating activities (1,491,000) (1,224,000) (7,825,000)
------------ ------------ ------------
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 note payable to stockholders 275,000 2,149,000
Net proceeds from issuance of preferred stock 1,471,000 2,169,000
Net proceeds from issuance of common stock 355,000 1,782,000 5,384,000
Loan repayment to preferred stockholder (148,000)
Capital lease payments (13,000)
Security deposit paid (7,000) (7,000)
------------ ------------ ------------
Net cash provided by financing activities 2,094,000 1,767,000 9,434,000
------------ ------------ ------------
Net increase in cash and cash equivalents 503,000 519,000 1,168,000
Cash and cash equivalents, beginning of period 665,000 146,000
------------ ------------ ------------
Cash and cash equivalents, end of period $ 1,168,000 $ 665,000 $ 1,168,000
============ ============ ============
Supplemental disclosure of cash flow information:
Interest paid $ 7,000 $ 7,000
============ ============
Supplemental disclosures of noncash investing and
financing activities:
Fixed assets contributed to the Company in exchange for
Series A preferred stock $ 45,000
============
Issuance of 14,391,627 common shares to
acquire intangible assets $ 15,000
============
Special distribution of 14,391,627 shares of common stock to
stockholder in settlement of stockholder advances $ 376,000 $ 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
============ ============
Issuance of 1,000,000 common shares to acquire intangible assets $ 1,000,000 $ 1,000,000
============ ============
Issuance of 100,000 common shares to acquire furniture and
fixtures $ 49,000 $ 49,000
============ ============
Issuance of 78,000 common shares in satisfaction of accrued
expenses $ 15,000 $ 15,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-8
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1999
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, 1999, the Lauer Entities claim
beneficial ownership of approximately 46 percent of the Company's common stock
(see Note G).
In January 1998, Manhattan Scientifics, Inc., then a non-operating public
corporation with nominal net assets acquired all of the outstanding common stock
of Tamarack Storage Devices, Inc. ("Tamarack") by issuing 44 million shares of
its common stock including approximately 43,120,000 shares issued to
Projectavision, a public company which gave the stockholders of Tamarack actual
control of the combined company. In addition, Manhattan Scientifics, Inc. issued
182.525 shares Series A preferred stock and a warrant to purchase 750,000 shares
of its common stock at an exercise price of 10 cents per share in exchange for a
note payable of $1.5 million plus accrued interest of $330,000 due to
Projectavision from Tamarack. In connection with the legal form of this
transaction, Tamarack became a wholly-owned subsidiary of Manhattan Scientifics,
Inc. For accounting purposes, the acquisition was treated as a recapitalization
of Tamarack rather than a business combination. Tamarack as the accounting
acquiror of the public shell did not record goodwill or any other intangible
asset for this "Reverse Acquisition". The historical financial statements are
those of Tamarack. Tamarack, a development stage enterprise, was a Texas
corporation formed in July 1992. Since inception, Tamarack has been, and
continues to be, involved in the research and development of products based on
holographic data storage technology. Loss per share has been restated for all
periods prior to the acquisition to include the number of equivalent shares
received by Tamarack's stockholders in the Reverse Acquisition.
Prior to this transaction, Projectavision owned approximately 98% of Tamarack.
Projectavision through cash investments acquired approximately 65% of Tamarack
through December 31, 1996. During late 1997 and early 1998, as a result of a
treasury stock transaction between Tamarack and its two founding stockholders,
Projectavision came to own approximately 97% of the outstanding shares of
Tamarack. In lieu of repayment of certain advances made by Projectavision
amounting to approximately $376,000, Tamarack made a special dividend
distribution to Projectavision of the 14,391,627 treasury shares increasing
Projectavision's ownership of Tamarack to 98%. The value ascribed to this
transaction amounted to a reduction of the treasury stock at historical cost and
a contribution to additional paid-in capital of $346,000 as part of the reverse
acquisition.
Concurrently with the Reverse Acquisition, Tamarack merged with DKY, Inc., a
newly formed company. In connection with this transaction, Tamarack, as the
surviving entity, obtained certain license/intellectual property assignment
rights held by DKY, Inc. In addition, the Company issued 7,200,000 common shares
to acquire certain intangible assets from DKY, Inc.'s stockholder valued at $1.4
million, (see Note G).
F-9
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1999
NOTE A - ORGANIZATION AND OPERATIONS (CONTINUED)
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 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 January 1, 2001.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
[1] Cash and cash equivalents:
The Company maintains cash and cash equivalents with various financial
institutions. The Company performs periodic evaluations of the relative
credit standing of the financial institutions which is considered in the
Company's investment strategy. As of December 31, 1999, the Company had
approximately $1,118,000 in excess of FDIC insurance limits.
[2] Principles of consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All material intercompany accounts and
transactions have been eliminated.
[3] Property and equipment:
Property and equipment are recorded at cost. The cost of maintenance and
repairs is charged against results of operations as incurred. Depreciation
is charged against results of operations using the straight-line method
over the estimated economic useful life.
[4] Patents:
Patents are recorded at cost. Amortization is charged against results of
operations using the straight-line method over the estimated economic
useful life. Patents related to the micro fuel cell and solar fuel cell
technologies are estimated to have an economic useful life of 10 years.
[5] Income taxes:
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined on the basis of the differences
between the tax basis of assets and liabilities and their respective
financial reporting amounts ("temporary differences") at enacted tax rates
in effect for the years in which the differences are expected to reverse.
F-10
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(CONTINUED)
[6] Per share data:
The basic and diluted per share data has been computed on the basis of the
net loss available to common stockholders for the period divided by the
historic weighted average number of shares of common stock outstanding.
All potentially dilutive securities (see Note G) have been excluded from
the computations since they would be antidilutive.
[7] Research and development expenses:
Costs of research and development activities are expensed as incurred.
[8] Advertising expenses:
The Company expenses advertising costs which consist primarily of
promotional items and print media, as incurred. Advertising expenses
amounted to $9,000, $5,000, and $21,000 for the years ended December 31,
1999, 1998 and for the cumulative period July 31, 1992 (inception) through
December 31, 1999, respectively.
[9] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period.
[10] Investment - NMXS, com, Inc.:
The Company initially recorded its investment in NMXS.com, Inc. at cost
and uses the equity method of accounting to record its share of income or
loss.
[11] Correction of financial statements:
The 1998 financial statements have been restated to give effect to
warrants issuable under an agreement (see Note G). 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 instruments 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 loss per share increased $.01.
In addition, the 1998 financial statements have been restated to give
effect to the beneficial conversion feature of convertible preferred stock
issued in January 1998 (see Note G). The 1998 financial statements have
been adjusted to reflect the deemed dividend resulting from the
calculation of the beneficial conversion feature without regard to
discounts on the quoted market price of the common stock. Accordingly, net
loss attributable to common stockholders increased by $920,000 and basic
and diluted loss per share increased by $.02.
F-11
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(CONTINUED)
[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 its products and such revenue will be recognized in
accordance with the terms of the underlying agreements at the time such
transactions are consummated.
NOTE C - SUBSCRIPTIONS RECEIVABLE
In December 1999, the Company received subscriptions to purchase 533,000 common
shares at $.75 per share in a private placement offering. Proceeds of $325,000
were received in January 2000 and have been recorded as an asset as of December
31, 1999.
NOTE D - PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1999 consists of the following:
Useful Lives
In Years
--------------
Furniture and fixtures 5 $57,000
Computers 5 38,000
Equipment 5 113,000
---------
208,000
Less accumulated depreciation 143,000
---------
$ 65,000
=========
NOTE E - 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 28% of NMXS.com, Inc. As a result of losses incurred by NMXS
through December 31, 1999, the Company reduced its investment cost in NMXS to
zero. The Company will not record any of the future earnings associated with
NMXS.com, Inc. until such, all the cumulative losses have been recovered. The
cumulative losses in excess of the amount invested amounted to $187,000 as of
December 31, 1999. In addition, per the stock purchase agreement with NMXS.com,
Manhattan Scientifics provided NMXS.com with business and management advice
through August 1999 without remuneration. Our CEO received a salary of $60,000
and a leased car from NMXS.com, Inc. as consideration for his services provided
to NMXS.com, Inc.
F-12
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1999
NOTE E - INVESTMENT - NMXS.COM, INC. (CONTINUED)
The following is a summary of financial data regarding financial position and
results of operations of NMXS.com, Inc. as of December 31, 1999 and for the year
ended December 31, 1999:
Current assets (including cash of $977,000) $ 1,167,000
Furniture and equipment 136,000
Other assets 6,000
-----------
$ 1,309,000
===========
Liabilities $ 85,000
Stockholders' equity 1,224,000
-----------
$ 1,309,000
===========
Revenue $ 266,000
===========
Net loss $(1,687,000)
===========
NOTE F - NOTES 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 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 to 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.
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 Peters Corporation from another stockholder. The fair market value of the
Company's stock was approximately $1.27 per share at the date of the
transaction. Subsequently, the Company agreed to issue to the Peters Corporation
150,000 common shares in replacement of shares provided by the third party. The
Company recognized a charge in 1999 of $191,000 for the value of the shares
deliverable with a corresponding credit to additional paid-in capital.
NOTE G - CAPITAL TRANSACTIONS
Common Stock:
The following common stock transactions include the effects of restating of
stockholders' equity for the shares received in the recapitalization/merger as a
result of the reverse acquisition. The exchange rate of such shares was 9.59
Manhattan Scientifics, Inc. common shares for each Tamarack common share.
Accordingly, the
F-13
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1999
Company's financial statement presentation indicates that there were 44,000,000
common shares outstanding immediately prior to consummating the reverse merger.
NOTE G - CAPITAL TRANSACTIONS (CONTINUED)
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.
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 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 common stock for $.20 per share
in a private placement offering.
In January 1998, issued 7,200,000 shares of common stock at $.20 per share to
acquire certain intangible assets.
In February 1998, issued 1,000,000 shares of common stock with a market value
of $.58 per share for consulting services.
In April 1998, issued 275,000 shares of common stock at $.18 per share to an
accredited investor in a private placement offering.
In July 1998, issued 9,435,405 shares of common stock on conversion of
182,525 shares of Series A convertible preferred stock, and included 309,155
of common shares representing payment in satisfaction of accumulated dividend
of approximately $100,000 at date of conversion.
In July 1998, as part of the private placement transaction described below,
the Company issued 10 million common stock purchase warrants at an exercise
price of $.05 per share to the "Lauer Entities". In addition, the Company
arranged for this third party to purchase 43,170,512 shares of the Company's
common stock from Projectavision, Inc. Furthermore, the Company agreed to
issue 20 million shares of common stock to this third party at a price of
$.05 per share, together with rights to assign such shares to certain other
third parties. Such rights were assigned to the certain other third parties
as noted directly below.
From August 1998 through December 1998, issued 20,340,000 shares of its
common stock at $.05 per share in a private placement offering.
F-14
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1999
NOTE G - CAPITAL TRANSACTIONS (CONTINUED)
During 1999, the Company effected the following transactions:
In August 1999, issued 1,000,000 shares of common stock for $1.00 per
share to acquire certain intangible assets.
In October 1999, issued 78,000 shares in satisfaction of accrued
expenses.
In October 1999, issued 100,000 shares at $.49 per share to acquire
furniture and fixtures that were issuable in May.
In October 1999, issued 10,000 shares at $.49 per share for consulting
services that were issuable in May.
In October 1999 issued 17,269 shares at market prices from April through
September as consulting services were performed.
In October 1999, exercised 100,000 options into 100,000 shares of common
stock at $.20 per share.
In December 1999, issued 1,600 shares of its common stock at $1.25 per
share for services rendered.
In December 1999, issued 533,000 shares of common stock at $.75 per
share in a private placement offering.
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.
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.
F-15
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1999
NOTE G - CAPITAL TRANSACTIONS (CONTINUED)
On January 8, 1998, in connection with the reverse merger transaction,
the Company issued 182,525 shares of its Series A convertible redeemable
preferred stock and a warrant to purchase 750,000 shares of the Company's common
stock at a price of $.10 per share in settlement of a note payable due to
Projectavision, Inc. in the amount of $1,500,000 plus accrued interest of
$330,000. The note required interest at 6% per annum. Interest expense related
to this note payable for 1997 amounted to $90,000. The Company recorded a deemed
dividend of $1,020,000 in accordance with EITF D-60 as a result of the
beneficial conversion feature of such preferred shares at the date of issuance
with a corresponding increase to additional paid-in capital. The amount of the
deemed dividend was computed based upon the excess of the market value of
equivalent common shares which approximated $2,737,000 plus the fair value of
the warrant of $113,000, over the deemed proceeds in the exchange for the
settlement of the obligation with Projectavision. The warrant was valued using
the Black-Scholes option pricing model. The following assumptions were used
computing the fair value of the warrant; weighted risk free interest rate of
5.49%; zero dividend yield; volatility of Company common stock of 43% and an
expected life of the warrant of ten years.
On July 28, 1998, the holder of the Series A convertible redeemable preferred
stock converted their shares into 9,435,405 shares of the Company's common
stock.
In December 1999, the Company issued 245,165 shares of Series B convertible
preferred stock at $6.00 per share in a private placement offering. The shares
are convertible at a rate of ten common shares for each preferred share. These
shares have voting rights and dividend rights as if each share had been
converted to common stock.
The 1999 financial statements reflect the deemed dividend on the Series B
preferred stock of $1,471,000 in accordance with EITF 98-5 resulting from the
calculation of the beneficial conversion feature based on the quoted market
price of the common stock. The amount of the deemed dividend was computed based
upon the excess of the market value of equivalent common shares deemed issued
over the proceeds received from the sale of the convertible preferred stock. The
amount of the deemed dividend has been limited to the offering proceeds.
Stock Options:
The Company has elected to account for its employee stock options in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB No. 25"). Under APB No. 25, generally, no compensation expense
is recognized in the accompanying financial statements in connection with the
awarding of stock option grants to employees provided that, as of the grant
date, all terms associated with the award are fixed and the quoted market price
of the Company's stock, as of the grant date, is not more than the amount an
employee must pay to acquire the stock as defined; however, to the extent that
stock options are granted to non employees, for goods or services, the fair
value of these options are included in operating results as an expense.
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
Weighted Number of
Number of Exercise Average Common
Common Price Per Exercise Shares
Shares Share Price Exercisable
------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C>
Outstanding as of December 31, 1997 0 0
Granted 21,325,000 $.20 $.20 21,325,000
Canceled (15,000,000) $.20 $.20 (15,000,000)
----------------- ---------------
Outstanding as of December 31, 1998 6,325,000 $.20 $.20 6,325,000
Granted 16,250,000 $.05 and $.20 $.05 16,250,000
Canceled 0 0
----------------- ---------------
Outstanding as of December 31, 1999 22,575,000 22,575,000
================= ===============
</TABLE>
All options issued during 1999 and 1998 vested immediately and expire at various
dates during 2008 and 2009.
Tamarack Storage Devices, Inc. 1992 Stock Option Plan was terminated in
connection with the reverse merger transaction. All options outstanding were
canceled at that time.
F-16
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1999
NOTE G - CAPITAL TRANSACTIONS (CONTINUED)
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 have deemed to be issued in connection with the private
placement. The remaining 5 million options were also recast as warrants to
purchase shares of the Company's common stock at an exercise price of $.05 per
share and given to the original option holders. The in the money feature of such
options amounted to $1,100,000 and was recorded as compensation and was
classified in general and administrative expense in the statements of operations
for the year ended December 31, 1998. The incremental fair value associated with
those warrants was computed using the Black-Scholes method which approximated
$115,000 has been included in the pro-forma net loss calculation below. On May
6, 1999, 500,000 options were repriced to $.05 which were previously granted at
$.20 on January 8, 1998 to a director of the Company. The in the money feature
of such options amounted to $220,000 and was recorded as compensation and was
classified in general and administrative expense in the statement of operations
for the year ended December 31, 1999.
Disclosures required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"), including pro forma
operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation are shown below.
Exercise prices and weighted-average contractual lives of stock options
outstanding as of December 31, 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>
$.05 16,200,000 9.30 $.05 16,200,000 $.05
$.20 6,375,000 8.60 $.20 6,375,000 $.20
</TABLE>
F-17
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1999
NOTE G - CAPITAL TRANSACTIONS (CONTINUED)
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.
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
<S> <C> <C>
Pro forma net loss available to common
shareholders $ (11,914,000) $ (6,158,000)
=============== ===============
Pro forma basic and diluted loss per share $(.12) $(.09)
====== =====
</TABLE>
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 and 1998 was $.48 and $.24, respectively. The following weighted-average
assumptions were used in computing the fair value of option grants for 1999 and
1998: weighted-average risk-free interest rate of 5.53% and 5.48%; zero dividend
yield; volatility of the Company's common stock of 129% and 43%; and an expected
life of the options of ten years.
The fair value of the options issued during 1999 and 1998 with an exercise price
below the market price approximated $6,160,000 and $1,490,000, respectively.
In addition to the above, the Company recorded charges to operations of
$6,572,000 and $1,065,000 in 1999 and 1998, respectively for options issued for
services rendered to the Company.
Warrants:
The Company issued or was committed to issue the following warrants as of
December 31, 1999:
<TABLE>
<CAPTION>
Number of Exercise Contractual Number of Shares
Date Warrants Price Life Exercisable
----------------- ------------ -------- ----------- ----------------
<S> <C> <C> <C> <C>
January 8, 1998 750,000 $.10 10 years 750,000
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
============ =============
</TABLE>
F-18
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1999
NOTE G - CAPITAL TRANSACTIONS (CONTINUED)
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. In August 1999, the Company was notified by the holder of certain
warrants that 1,076,923 shares of common stock (valued at $1,750,000) should be
issued pursuant to the terms of the cashless exercise provisions in the amended
consulting agreement. As a result, the Company has recorded $1,090,000 and
$660,000 charges for consulting services for the year ended December 31, 1999
and 1998, respectively, with a corresponding increase to additional paid-in
capital. In connection with the cancellation and release of all contracts with
Equilink, LLC on December 31, 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 which
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.
The fair value of the warrants issued during 1998 with an exercise price below
the market price was $660,000.
On May 6, 1999, 2,500,000 warrants held by the Chief Executive Officer were
converted into 2,500,000 options.
NOTE H - INCOME TAXES
There is no provision for federal, state or local income taxes for the years
ended December 31, 1999 and 1998, since the Company has incurred net operating
losses.
The Company's deferred tax asset as of December 31, 1999 represents benefits
from equity related compensation charges and net operating loss carryforwards of
approximately $3,452,000 and $1,064,000, respectively which is reduced by a
valuation allowance of approximately $4,516,000 since the future realization of
such tax benefit is not presently determinable.
As of December 31, 1999, the Company has a net operating loss carryforward of
$12,346,000 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
$2,697,000 in the aggregate.
The difference between the statutory federal income tax rate applied to the
Company's net loss and the Company's effective income tax rate for the years
ended December 31, 1999 and 1998 is summarized as follows:
Year Ended
December 31,
--------------
1999 1998
------- ------
Statutory federal income tax rate 34.0 % 34.0 %
Increase in valuation allowance (34.0)% (34.0)%
----- -----
0.0 % 0.0 %
===== =====
F-19
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1999
NOTE I - 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 years
ended December 31, 1999 and 1998 and for the cumulative period July 31,
1992 through December 31, 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 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, 1999, the Company has provided $1,000,000 to ERDI for research and
development activities. In addition, the Company is providing for key-man
life insurance coverage on the primary stockholder of ERDI. In May 1999,
the Company committed to funding an additional $300,000 under the ERDI
agreement of which $30,000 has been paid through December 31, 1999.
In August 1999, the Company entered into a license option agreement with
the Regents with 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 expired on February 29, 2000 and was
extended for a second term to February 28, 2001. Upon exercise of the
agreement, the Company paid to the University a fee of $10,000. The
agreement was extended to a second term and the Company paid 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 are 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-20
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1999
NOTE I - 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 were
treated as if issuable and will be held in escrow pending administrative
issuance of certain patents as defined in the agreement. The initial
purchase price was estimated at $1,000,000 based upon the value of the
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 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 reimubrsement of $109,000 against
rent charges for the year ended December 31, 1999 from a related party.
Rent expense charged to operations was approximately $16,000 for the year
ended December 31, 1999 and $37,000 for 1998.
Minimum future rental payments under these leases are as follows:
Year Ending
December 31,
------------
2000 $ 105,000
2001 75,000
NOTE J - RELATED PARTY TRANSACTIONS
The law firm of one director received $83,100 compensation for legal services
rendered to the Company during the year ended December 31, 1999.
The accounting firm of one of our directors received $29,000 compensation for
accounting services rendered to the Company during the year ended December 31,
1999.
The partners of one director received an aggregate of 200,000 options to
purchase Company common stock at $.05 per share as consideration for the
director's reduced availability which options were valued at $330,000 and
expensed to attend to partnership duties as a result of his activities on behalf
of the Company.
NMXS.com, Inc. pays our CEO a yearly salary of $60,000 and leases a car for our
CEO as consideration for his services.
F-21
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1999
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 K- SUBSEQUENT EVENTS
Common stock:
In January 2000, the Company issued 515,000 shares of common stock at $.75 per
share in a private placement offering.
Other:
On March 7, 2000, the Company entered into a license option agreement with a
third party for nanoporous polymer molecular filter technologies. The agreement
grants the Company an exclusive option to negotiate an exclusive world-wide
license under the third party's patent rights. The initial term will expire on
September 15, 2000 with an option for an additional six month term. The Company
paid $10,000 to execute the license option agreement and if extended to a second
term will require an additional $10,000 fee.
Commitment: (Unaudited)
On April 28, 2000, the Company paid $100,000 to Novint Technologies, Inc.
("Novint") as an advance for scientific research and devlopment services to
be performed." A formal research and development agreement with Novint is near
consummation and this payment was made to secure Novint's services pending
consummation. If no formal agreement is consummated by May 25, 2000, the funds
advanced shall be repaid, and repayment has been guaranteed.
F-22
<PAGE>
Item 8. 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.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
The names and ages of our directors and executive officers as of May 2,
2000, 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 28%. 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.
24
<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
28%. 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.
All of our officers, directors and 10% or greater shareholders have filed a Form
3, although such forms were not filed on the date we became a reporting company.
Item 10. 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
25
<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.
26
<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 received a salary of approxomimately
$39,000 in 1999, 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-KSB.
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.
27
<PAGE>
Item 11. 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-KSB. 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-KSB, 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 2, 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-KSB,
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.
28
<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 .......................... 33,895,512(6) 33.3%
Lancer Management Group II ....................... 22,000,000(7) 19.7%
Lancer Offshore .................................. 28,150,000(8) 27.7%
Michael Lauer..................................... 55,895,512(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.
(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-KSB, 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.
29
<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%
- ---------------------
(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.
Item 12. 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 January 1, 2001, 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
30
<PAGE>
of our common stock in replacement of the shares granted by the third party. As
of the date of this Form 10-KSB, 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.
31
<PAGE>
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>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
- ------ ----------------------
2.1 Agreement and Plan of Reorganization(1)
2.2 Agreement and Plan of Merger(1)
2.3 Certificate of Incorporation(1)
2.4 Amendment to Certificate of Incorporation(1)
2.5 Bylaws(1)
4.1 Specimen Common Stock Certificate(1)
10.1 License/Assignment Agreement with Robert(b)
Glenn Hockaday, and DKY, Inc.(1)
10.2 Research and Development Agreement with
Energy Related Devices, Inc.(1)
10.3 Letter Agreement with Energy Related
Devices, Inc. and Robert Glenn Hockaday(1)
10.4 Intellectual Property Assignment and
Research and Development Agreement with
Novars Gesellschaft fur neue Technologien
GmbH(1)
10.5 License Option Agreement with The Regents
of the University of California(1)
10.6 Lease of Executive Offices(1)
10.7 Lease of New Mexico Facilities(1)
10.8 1998 Stock Option Plan(1)
10.9 Employment Agreement with Robert Hermes(1)
10.10 Agreement with Stanton Crenshaw
Communications(1)
10.11 Agreement with Equilink(1)
10.12 Stock Purchase Agreement between Manhanttan
Scientifics, Inc., Projectavision, Inc.,
and Lancer Partners, L.P.(2)
10.13 License Option Agreement with Mr. Edward
Vanzo(3)
21.1 List of Subsidiaries(3)
27.1 Financial Data Schedule(4)
(1) Incorporated by reference to the registrant's Form 10-SB filed with the
Securities and Exchange Commission on December 8, 1999.
(2) Incorporated by reference as Amendment No.2 to the registrant's Form 10-SB
filed with the Securities and Exchange Commission on February 9, 2000.
(3) Incorporated by reference to Amendment No.3 to the registrant's Form 10-SB
filed with the Securities and Exchange Commission on March 29, 2000.
(4) Previously filed.
(b) Reports on Form 8-K
We did not file any reports on Form 8-K during 1999.
33
<PAGE>
SIGNATURES
In accordance with Section 13 of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereonto duly
authorized.
MANHATTAN SCIENTIFICS, INC.
Dated: May 4, 2000 By: /s/ Marvin Maslow
-------------------------
Marvin Maslow
President, Chief Executive
Officer, Chairman of the
Board
In accordance with the Exchange Act, this report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title of Capacities Date
--------- ------------------- ----
/s/ Marvin Maslow President, Chief May 4, 2000
- ----------------- Executive Officer,
Marvin Maslow Chairman of the Board
/s/ Scott L. Bach Director, Secretary May 4, 2000
- -----------------
Scott L. Bach
/s/ David Teich Director May 4, 2000
- ---------------
David Teich
