<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
/X/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000
/ / Transition report under Section 13 or 15(d) of the Exchange Act.
For the transition period from ______________ to ______________
Commission file number 000-28411
Manhattan Scientifics, Inc.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 850460639
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
641 Fifth Avenue, Suite 36F, New York, New York 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 752-0505
- --------------------------------------------------------------------------------
Issuer's telephone number, including area code
- --------------------------------------------------------------------------------
(Former name, former address and formal fiscal year, if
changed since last report)
Indicate by check whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
------ ----
The number of shares outstanding of each of the issuer's classes of
common equity as of May 5, 2000 was as follows: 101,687,139 shares of Common
Stock, and 245,165 shares of Series B Preferred Stock. In addition, as of the
date of this Form 10-QSB, there are 151,500 shares of Common Stock which
Manhattan Scientifics is obligated to issue but has not yet been issued to the
appropriate receipts.
Transitional Small Business Disclosure Format: Yes No X
---- ----
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY4
(a development stage enterprise)
Consolidated Balance Sheet
March 31, 2000
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 858,000
Note receivable 10,000
Prepaid expenses 55,000
------------
Total current assets 923,000
------------
Property and equipment, net 72,000
Patents, net 2,094,000
Security deposit 7,000
------------
$ 3,096,000
============
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses $ 186,000
Note payable to stockholder 275,000
------------
Total current liabilities 461,000
------------
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, 101,687,139 shares issued
and outstanding, 150,000 shares issuable 101,000
Additional paid-in capital 27,062,000
Deficit accumulated during the development stage (24,528,000)
------------
Total stockholders' equity 2,635,000
------------
$ 3,096,000
============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY4
(a development stage enterprise)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period From
Inception
Three Months Ended March 31, (July 31, 1992)
------------------------------ Through March 31,
2000 1999 2000
------------- ------------- -------------
<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 0
------------- ------------- -------------
Operating costs and expenses:
Salaries and employee benefits 4,429,000
Consulting fees 6,197,000
Materials and supplies 987,000
General and administrative 346,000 111,000 10,687,000
Rent and utilities 4,000 5,000 546,000
Research and development 644,000 172,000 2,267,000
------------- ------------- -------------
Total operating costs and expenses 994,000 288,000 25,113,000
------------- ------------- -------------
Loss from operations before other income and expenses (994,000) (288,000) (25,113,000)
Other income and expenses:
Contract revenue 3,602,000
Interest and other expense (3,000) (545,000)
Interest income 16,000 5,000 119,000
Loss of equity investee (100,000)
------------- ------------- -------------
Net loss attributable to common stockholders $ (981,000) $ (283,000) $ (22,037,000)
============= ============= =============
Basic and diluted loss per share:
Weighted average number of common shares outstanding 101,315,000 84,845,000
============= =============
Basic and diluted loss per share $ (.01) $ (.01)
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (Capital Deficiency)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through March 31, 2000
<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
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
The accompanying notes are an integral part of these financial statements
Consolidated Statements of Stockholders' Equity (Capital Deficiency) (continued)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through March 31, 2000
(continued)
<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>
Balance, December 31, 1997 (brought forward) 0 44,000,000 $44,000 $ 4,341,000
Purchase of 7,195,813 treasury shares of
common stock for $15,000
Special distribution of 14,391,627 shares
of common stock to Projectavision, Inc. 346,000
Shares deemed issued in connection
with reverse merger 11,000,000 11,000 (11,000)
Issuance of 182,525 shares of Series A
preferred stock and warrants
exercisable into 750,000 shares of
common stock 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
Issuance of shares at $.20 per share, net
of issuance costs 5,000,000 5,000 970,000
Issuance of shares to purchase intangible
assets 7,200,000 7,000 1,433,000
Issuance of shares at $.58 per share for
consulting services 1,000,000 1,000 579,000
Issuance of warrants to purchase
2,000,000 shares
of common stock exercisable at $.75 per share
at fair value for services 660,000
Issuance of shares at $.18 per share 275,000 50,000
Issuance of shares on conversion of
182,525 shares
of Series A preferred stock 9,435,405 10,000 (10,000)
Issuance of shares at $.05 per share 20,340,000 20,000 997,000
Issuance of stock options and warrants at
fair value for services 2,165,000
Net loss/comprehensive loss
-------- ---------- ------ ----------
Balance, December 31, 1998
(carried forward) 0 98,250,405 98,000 14,370,000
<CAPTION>
Deficit
Amounts Accumulated
Receivable During the
From Development Treasury
Stockholders Stage Stock Total
------------ ----- ----- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1997 (brought
forward) $ 0 $(6,676,000) $(15,000) $(2,306,000)
Purchase of 7,195,813 treasury shares of
common stock for $15,000 (15,000) (15,000)
Special distribution of 14,391,627 shares
of common stock to Projectavision, Inc. 30,000 376,000
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 (1,020,000) 1,830,000
Issuance of shares at $.20 per share, net
of issuance costs 975,000
Issuance of shares to purchase intangible
assets 1,440,000
Issuance of shares at $.58 per share for
consulting services 580,000
Issuance of warrants to purchase
2,000,000 shares
of common stock exercisable at $.75 per share
at fair value for services 660,000
Issuance of shares at $.18 per share 50,000
Issuance of shares on conversion of
182,525 shares
of Series A preferred stock 0
Issuance of shares at $.05 per share 1,017,000
Issuance of stock options and warrants at
fair value
for services 2,165,000
Net loss/comprehensive loss (4,580,000) (4,580,000)
------ ----------- -------- ----------
Balance, December 31, 1998
(carried forward) 0 (12,276,000) 0 2,192,000
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
The accompanying notes are an integral part of these financial statements
Consolidated Statements of Stockholders' Equity (Capital Deficiency)(continued)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through March 31, 2000
(continued)
<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>
Balance, December 31, 1998
(brought forward) 0 0 $ 0 98,250,405 $98,000 $14,370,000
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 to purchase
2,000,000 shares of common
stock exercisable at $.75 per
share for consulting services 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
<CAPTION>
Deficit
Amounts Accumulated
Receivable During the
From Development Treasury
Stockholders Stage Stock Total
------------ ----- ----- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1998
(brought forward) $ 0 $(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 to purchase
2,000,000 shares of common
stock exercisable at $.75 per
share for consulting services 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) (9,800,000)
------- ----------- ----- ---------
Balance, December 31, 1999 0 (23,547,000) $ 0 3,222,000
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (Capital Deficiency)(continued)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through March 31, 2000
(continued)
<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>
Balance, December 31, 1999
(brought forward) 0 245,165 $ 0 100,090,274 $100,000 $26,669,000
Issuance of shares at $.75 per
share 515,000 1,000 385,000
Issuance of shares at market
price for service 4,942 8,000
Issuance of common stock
to Equilink, LLC on exercise
of cashless warrants 1,076,923
Net loss/comprehensive loss
------ ------- ---------- ----------- -------- -----------
Balance, March 31, 2000 $ 0 245,165 $ 0 101,687,139 $101,000 $27,062,000
====== ======= ========== =========== ======== ===========
<CAPTION>
Deficit
Amounts Accumulated
Receivable During the
From Development Treasury
Stockholders Stage Stock Total
------------ ----- ----- -----
<S> <C> <C> <C> <C>
Balance, December 31, 1999
(brought forward) $ 0 $(23,547,000) $ 0 $3,222,000
Issuance of shares at $.75 per
share 386,000
Issuance of shares at market
price for service 8,000
Issuance of common stock
to Equilink, LLC on exercise
of cashless warrants
Net loss/comprehensive loss (981,000) (981,000)
-------- ------------ ----- ----------
Balance, March 31, 2000 $ 0 $(24,528,000) $ 0 $2,635,000
======== ============ ===== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a developmental stage enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period From
Inception
Three Months Ended (July 31, 1992)
March 31, Through
------------------------ March 31,
2000 1999 2000
---------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (981,000) $ (283,000) $(22,037,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Common stock issued for services 8,000 610,000
Preferred stock issued for services 598,000
Stock options issued for services 8,737,000
Warrants issued for services 1,750,000
Financing costs payable with common stock 191,000
Loss of equity investee 100,000
Depreciation and amortization 65,000 36,000 740,000
Changes in:
Prepaid expenses (55,000) (55,000)
Accounts payable and accrued expenses (47,000) (48,000) 541,000
Note receivable (10,000)
---------- ----------- ------------
Net cash used in operating activities (1,010,000) (295,000) (8,835,000)
---------- ----------- ------------
Cash flows from investing activities:
Purchase of equipment (11,000) (366,000)
Purchase of investment (100,000)
Proceeds from sale of equipment 14,000
---------- ----------- ------------
Net cash used in investing activities (11,000) (452,000)
---------- ----------- ------------
Cash flows from financing activities:
Purchase of treasury stock (100,000)
Proceeds from note payable to stockholders 2,149,000
Net proceeds from issuance of preferred stock 2,169,000
Net proceeds from issuance of common stock 711,000 250,000 6,095,000
Loan repayment to preferred stockholder (148,000)
Capital lease payments (13,000)
Security deposit paid (7,000)
---------- ----------- ------------
Net cash provided by financing activities 711,000 250,000 10,145,000
---------- ----------- ------------
Net increase (decrease) in cash and cash equivalents (310,000) (45,000) 858,000
Cash and cash equivalents, beginning of period 1,168,000 665,000
---------- ----------- ------------
Cash and cash equivalents, end of period $ 858,000 $ 620,000 $ 858,000
========== =========== ============
Supplemental disclosure of cash flow information:
Interest paid $ 7,000
============
Supplemental disclosures of noncash investing and
financing activities:
Fixed assets contributed to the Company in exchange for
Series A preferred stock $ 45,000
============
Issuance of 14,391,627 common shares to
Acquire intangible assets $ 15,000
============
Special distribution of 14,391,627 shares of common stock to
Stockholder in settlement of stockholder advances $ 376,000 $ 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
============
Issuance of 100,000 common shares to acquire furniture and
Fixtures $ 49,000
============
Issuance of 78,000 common shares in satisfaction of accrued
Expenses $ 15,000
============
</TABLE>
The accompanying notes are an integral part of these financial statements
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a developmental stage enterprise)
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 fields with an emphasis in the area of consumer and commercial
electronics. At March 31, 2000, the Lauer Entities claim beneficial ownership of
approximately 45 percent of the Company's common stock (see Note F).
In January 1998, Manhattan Scientifics, Inc., then a non-operating public
corporation with nominal net assets acquired all of the outstanding common stock
of Tamarack Storage Devices, Inc. ("Tamarack") by issuing 44 million shares of
its common stock including approximately 43,120,000 shares issued to
Projectavision, a public company which gave the stockholders of Tamarack actual
control of the combined company. In addition, Manhattan Scientifics, Inc. issued
182.525 shares 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 F).
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 December 15, 2001.
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a developmental stage enterprise)
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 March 31, 2000, the Company had
approximately $730,000 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.
[6] Per share data:
The basic and diluted per share data has been computed on the basis of the
net loss available to common stockholders for the period divided by the
historic weighted average number of shares of common stock outstanding.
All potentially dilutive securities (see Note F) have been excluded from
the computations since they would be antidilutive.
[7] Research and development expenses:
Costs of research and development activities are expensed as incurred.
[8] Advertising expenses:
The Company expenses advertising costs which consist primarily of
promotional items and print media, as incurred. Advertising expenses
amounted to $3,000, $0, and $24,000 for the three months ended March 31,
2000, 1999 and for the cumulative period July 31, 1992 (inception) through
March 31, 2000.
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a developmental stage enterprise)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
(CONTINUED)
[9] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period.
[10] Investment - NMXS, com, Inc.:
The Company initially recorded its investment in NMXS.com, Inc. at cost
and uses the equity method of accounting to record its share of income or
loss.
[11] Revenue recognition:
Contract revenues represent primarily reimbursed expenditures incurred in
connection with a government research contract. The significant aspects of
this contract were completed in 1997 and the Company does not expect any
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 - PROPERTY AND EQUIPMENT
Property and equipment as of March 31, 2000 consists of the following:
Useful Lives
In Years
------------
Furniture and fixtures 5 $ 57,000
Computers 5 49,000
Equipment 5 113,000
--------
219,000
Less accumulated depreciation 147,000
--------
$ 72,000
========
NOTE D - INVESTMENT - NMXS.COM, INC.
On June 3, 1999, the Company entered into an agreement with NMXS.com, Inc.
(formerly New Mexico Software, Inc., a public company) and invested $100,000 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 March 31, 2000, the Company reduced its investment cost in NMXS to zero.
The Company will not record any of the future earnings associated with NMXS.com,
Inc. until such, all the cumulative losses have been recovered. The cumulative
losses in excess of the amount invested amounted to $342,000 as of March 31,
2000. In addition, per the stock purchase agreement with NMXS.com, Manhattan
Scientifics provided NMXS.com with business and management advice through August
1999 without remuneration. Also, our CEO received a salary of $60,000 and a
leased car from NMXS.com, Inc. as consideration for his services provided to
NMXS.com, Inc.
NOTE E - 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
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a developmental stage enterprise)
NOTE E - NOTES PAYABLE (CONTINUED)
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 F - CAPITAL TRANSACTIONS
Common Stock:
The following common stock transactions include the effects of restating of
stockholders' equity for the shares received in the recapitalization/merger as a
result of the reverse acquisition. The exchange rate of such shares was 9.59
Manhattan Scientifics, Inc. common shares for each Tamarack common share.
Accordingly, the Company's financial statement presentation indicates that there
were 44,000,000 common shares outstanding immediately prior to consummating the
reverse merger.
Effective July 31, 1992, the Company issued 14,391,627 shares of common stock to
the founders for certain intangible assets.
During 1994, the Company effected the following stock transactions:
Issued 14,391,627 shares of common stock to Projectavision, Inc. at
approximately $.21 per share in accordance with a stock purchase
agreement.
Issued 479,720 shares of common stock on exercise of options at a price of
approximately $.10 per share.
Issued 345,399 shares of common stock at a price of approximately $.52 per
share.
During 1996, the Company issued 14,391,627 shares of common stock for $15,000.
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.
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a developmental stage enterprise)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
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.
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.
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a developmental stage enterprise)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
During 2000, the Company effected the following transactions:
In January 2000, issued 515,000 shares of common stock at $.75 per
share in a private placement offering.
In January 2000, issued 4,942 shares of common stock, at market
price, for consulting services performed.
In January 2000, issued 1,076,923 shares of common stock, pursuant
to the July 28, 1999 exercise of warrants by Equilink, LLC.
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.
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.
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a developmental stage enterprise)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
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
Granted 0 0
Canceled 0 0
----------- -----------
Outstanding as of March 31, 2000 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.
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
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a developmental stage enterprise)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
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. 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 March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- --------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
-------- ----------- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ .05 16,200,000 9.00 $ .05 16,200,000 $ .05
$ .20 6,375,000 8.30 $ .20 6,375,000 $ .20
</TABLE>
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a developmental stage enterprise)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Warrants:
The Company issued the following warrants as of March 31, 2000:
<TABLE>
<CAPTION>
Number of Exercise Contractual Number of Shares
Date Warrants Price Life Exercisable
- --------------- --------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
January 8, 1998 750,000 $ .10 10 years 750,000
July 28, 1998 12,500,000 $ .05 10 years 12,500,000
---------- ----------
13,250,000 13,250,000
========== ==========
</TABLE>
In January 2000, the Company issued 1,076,923 shares of common stock, pursuant
to the July 28, 1999 exercise of warrants by Equilink, LLC.
On May 6, 1999, 2,500,000 warrants held by the Chief Executive Officer were
converted into 2,500,000 options.
NOTE G - INCOME TAXES
There is no provision for federal, state or local income taxes for the periods
ended March 31, 2000 and 1999, since the Company has incurred net operating
losses.
The Company's deferred tax asset as of March 31, 2000 represents benefits from
equity related compensation charges and net operating loss carryforwards of
approximately $3,449,000 and $1,448,000, respectively which is reduced by a
valuation allowance of approximately $4,897,000 since the future realization of
such tax benefit is not presently determinable.
As of March 31, 2000, the Company has a net operating loss carryforward of
$13,319,000 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
$3,670,000 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 three
months ended March 31, 2000 and 1999 is summarized as follows:
Three Months
Ended
March 31,
------------------
2000 1999
-------- --------
Statutory federal income tax rate 34.0 % 34.0 %
Increase in valuation allowance (34.0)% (34.0)%
------ -----
0.0 % 0.0 %
====== =====
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a developmental stage enterprise)
NOTE H - COMMITMENTS
[1] License and development agreements:
In March 1997, the Company entered into a Cooperative Research and
Development Agreement (the "CRADA Agreement") with the Regents of the
University of California to develop a polymeric based recording media that
will satisfy all of the requirements for an holographic media storage
device. The work was to be completed within 25 months from the original
date of execution. Each party shall have the first option to retain title
to any subject inventions made by its employees during the work under this
agreement. The agreement provides that the Company's contribution to
funding will be $264,000. The CRADA research and development expenses
charged to the statement of operations for the three months ended March
31, 2000 and 1999 and for the cumulative period July 31, 1992 through
March 31, 2000 amounted to $0, $29,000 and $83,000, respectively.
On January 11, 1998, the Company entered into a research and development
agreement with Energy Related Devices, Inc. ("ERDI"). The term of the
agreement is for the later of three years from the commencement date as
defined in the agreement or the delivery of a prototype suitable for
commercial sale or license regarding the fuel cell product defined in the
agreement. The Company is obligated to fund up to $1 million in accordance
with certain milestones as defined in the agreement. Upon the delivery of
a prototype suitable for commercial sale or license regarding the fuel
cell product, the Company's obligation 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 March 31, 2000, the
Company has provided $1,000,000 to ERDI for research and development
activities. In addition, the Company is providing for key-man life
insurance coverage on the primary stockholder of ERDI. In May 1999, the
Company committed to funding an additional $300,000 under the ERDI
agreement of which $230,000 has been paid through March 31, 2000.
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. On February 28, 2000 the
agreement was extended to a second term and the Company paid an additional
$10,000 fee.
On March 7, 2000, the Company entered into a license option agreement with
a third party for nanoporous polymer molecular filter technologies. The
agreement grants the Company an exclusive option to negotiate an exclusive
world-wide license under the third party's patent rights. The initial term
will expire on September 15, 2000 with an option for an additional six
month term. The Company paid $10,000 to execute the license option
agreement and if extended to a second term will require an additional
$10,000 fee.
[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.
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a developmental stage enterprise)
NOTE H - COMMITMENTS (CONTINUED)
[3] Employment agreement:
On August 30, 1999, the Company entered into an employment and
noncompetition agreement with an individual to provide research related
activities. The term of the agreement is for one year commencing on
September 1, 1999. The agreement allows for two one year renewal options
unless terminated by either party. Base salary is $90,000 per annum with
available additional cash compensation as defined in the agreement. In
addition, the employee is eligible to receive stock options to purchase
500,000 shares of common stock at $.40 per share.
[4] Intangible asset acquisition:
On August 6, 1999, the Company entered into an agreement with Novars
Gesellschaft Furneve Technologies mbh ("Novars") to acquire all of the
intellectual property rights of Novars. As compensation, the Company
issued 1,000,000 shares of its common stock. 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, $150,000 January
2000 and $150,000 March 2000. As of March 31, 2000, the Company has agreed
to advance an additional $100,000, 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 $24,000 against rent
charges for the three months ended March 31, 2000 from a related party.
Rent expense charged to operations was approximately $4,000 for the three
months ended March 31, 2000 and $5,000 for the three months ended March
31, 1999.
Minimum future rental payments under these leases are as follows:
Twelve Months
Ending
March 31,
-------------
2000 $ 105,000
2001 50,000
NOTE I - RELATED PARTY TRANSACTIONS
The law firm of one director received $64,000 compensation for legal services
rendered to the Company during the three months ended March 31, 2000.
The accounting firm of one of our directors received $51,000 compensation for
accounting services rendered to the Company during the three months ended March
31, 2000.
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a developmental stage enterprise)
NOTE I - RELATED PARTY TRANSACTIONS (CONTINUED)
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.
During 1998, the Company entered into a research and development agreement with
Energy Related Devices, Inc. ("ERDI"), ERDI is majority-owned by a shareholder
of the Company (see Note H[1]).
NOTE J- SUBSEQUENT EVENTS
Commitment:
On April 28, 2000, the Company paid $100,000 to Novint Technologies, Inc.
("Novint") as an advance for scientific research and development 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 on May 25, 2000, the funds
advanced shall be repaid, and repayment has been guaranteed.
Other:
On May 2, 2000, the Company entered into a contract with the U.S. Army to design
and build a fuel cell power source to be used in an army test program. The
contract price is $75,000.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following discussion and analysis should be read in conjunction
with our financial statements and accompanying notes appearing elsewhere in this
Form 10-QSB.
Overview
In January 1998, Manhattan Scientifics, Inc., then a non-operating
public corporation with nominal net assets acquired all of the outstanding
common stock of Tamarack Storage Devices, Inc. by issuing 44 million shares of
its common stock including approximately 43,120,000 shares issued to
Projectavision, 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.
As of December 31, 1999, we had an accumulated loss since inception,
1992, of $21,056,000 and at March 31, 2000, we had an accumulated loss since
inception, 1992 of $22,037,000. 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
<PAGE>
expenses prior to receiving any revenues from our technologies.
We do not know if our research and development and marketing efforts
will be successful, that we will ever have commercially acceptable products, or
that we will achieve significant sales of any such products. We operate in an
environment of rapid change in technology and we are dependent upon the services
of our employees, consultants and independent contractors. If we are unable to
successfully bring our technologies to commercialization, we would likely have
to significantly alter our business plan and may cease operations.
Results of Operations
Comparison of three months ended March 31, 2000 to three months ended
March 31, 1999.
Net Loss We reported a net loss of $981,000 or $0.01 per common
share, basic and diluted, for operations for the three months ended March 31,
2000 versus a net loss of $283,000 or $0.01 per common share, basic and
diluted, for the three months ended March 31, 1999. The increase of $698,000
or 247% is primarily a result of increased research and development costs and
increased legal and accounting costs.
Revenues We had no revenues during the three months ended March 31,
2000 and had no revenues during the three months ended March 31, 1999.
Costs and Expenses Costs and expenses for the three months ended March
31, 2000 totaled $994,000, an increase of $706,000 or 245%, versus costs
and expenses of $288,000 for the three months ended March 31, 1999. These
costs and expenses are detailed below.
Salaries and Employee Benefits Salaries related to research and
development and employee benefits were approximately $32,000 for the three
months ended March 31, 2000 which consisted of salary to our Chief Polymer
Scientist, which is included in Research and Development for such period, versus
salaries and employee benefits of $0 for the three months ended March 31, 1999.
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.
General and Administrative expenses were $350,000 for the three months
ended March 31, 2000 which consisted of accounting, legal, travel and other
expense reimbursements, rent, telephone and other day to day operating expenses,
<PAGE>
versus general and administrative expenses of $116,000 for the three months
ended March 31, 1999. This increase of $234,000 or 202% is primarily a result of
increased legal and accounting expenses. 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
$644,000 for the three months ended March 31, 2000 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 $172,000 for the three
months ended March 31, 1999. This increase of $472,000 or 274% 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.
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.
<PAGE>
General and Administrative General 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.
Liquidity and Plan of Operations
At present, Manhattan Scientifics is a development stage company and is
in the technology acquisition and development phase of its operations.
Accordingly, we have relied primarily upon private placements and subscription
sales of stock to fund our continuing activities and acquisitions. To a limited
extent, and as described below, we have also relied upon borrowing from
non-traditional lenders who are also shareholders of ours. Until there is
revenue from sales and licensing of technology, or a large infusion of cash from
a potential strategic partner, we intend to continue to rely upon these methods
of funding operations during the next year.
The significant assets of Manhattan Scientifics include our portfolio
of intellectual property relating to the various technologies, our contracts
with third parties pertaining to technology development and acquisition, our
holdings of approximately 5.4 million shares of common stock in NMXS.Com, Inc.,
our cash on hand, and our strategic alliances with various scientific
laboratories, educational institutions, scientists and leaders in industry and
government.
Stockholders' equity totaled $2,635,000 on March 31, 2000 and the
working capital was $462,000 on such date. Stockholders' equity totaled
$3,222,000 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
<PAGE>
groups of private placements intended to raise capital for us.
These have consisted of the following:
1. In January 1998, in connection with the reverse merger transaction
described above, we raised $1,000,000 through the sale of 5 million
shares of common stock to 40 investors at a price of 20 cents per
share.
2. On April 16, 1998, we raised $50,000 through the sale of 275,000 shares
of common stock to a single individual, Mr. Stephen Guarino, at 18.18
cents per share.
3. From July 28, 1998 through December 31, 1998, we raised $1,017,000
through the sale of 20,340,000 shares of common stock to 51 individuals
and entities at 5 cents per share. The right to purchase these shares
was originally granted to one entity (Lancer Partners, L.P.) on July
28, 1998, together with the right to assign the right to purchase such
shares. That entity effectively assigned its rights to the 51
individuals and entities between July 28, 1998 and December 31, 1998.
Finders fees aggregating $25,000 were paid to one entity.
4. In December 1999, we raised $1,470,990 through the sale of 245,165
shares of Series B Preferred Stock to 10 accredited investors at $6.00
per share.
5. In December 1999, we raised $786,000 through the sale of 1,048,000
shares of common stock to 9 accredited investors at $0.75 per share.
The Company became eligible for resales of its restricted securities by
its shareholders under SEC Rule 144 on or about May 8, 2000.
In addition to the foregoing private placements, we received additional
capital through the exercise of options by one of our option holders. On or
about October 14, 1999, we received $20,000 from Mr. Donald Sandstrom, who has
served us from time to time as a scientific advisor, in connection with his
exercise of 100,000 options at 20 cents per share.
In October 1999, 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
<PAGE>
each of our technologies.
We do not presently maintain a line of credit with any financial
institution.
On April 11, 2000, Lancer Management Group, LLC, the beneficial owner
of 34.0% of our securities, expressed its willingness to advance us funds as
needed to continue our operations through December 15, 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-QSB.
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. As of March 31, 2000, we had $858,000 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 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.
Forward Looking Statements
THIS QUARTERLY REPORT, INCLUDING THE DISCUSSION OF OUR FINANCIAL CONDITION AND
RESULTS OF OPERATIONS, CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. OUR ACTUAL RESULTS AND TIMING OF CERTAIN EVENTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD LOOKING STATEMENTS AS
A RESULT OF, AMONG OTHER THINGS, THOSE FACTORS DESCRIBED ELSEWHERE IN THIS
QUARTERLY REPORT AND IN OTHER FILINGS MADE BY US WITH THE COMMISSION.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
None
<PAGE>
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ---------- --------------------------
<S> <C>
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 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
</TABLE>
(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 to 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.
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the Quarter ended March 31,
2000.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
MANHATTAN SCIENTIFICS, INC.
Dated: May 12, 2000 By: /s/ Marvin Maslow
-------------------- -------------------
Marvin Maslow
President, Chief Executive
Officer, and Chairman of
the Board
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Number Description and Method of Filing
- --------- ----------------------------------------
<S> <C>
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 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
</TABLE>
(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 to 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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-2000
<PERIOD-START> JAN-01-1999 JAN-01-2000
<PERIOD-END> MAR-31-1999 MAR-31-2000
<CASH> 620,000 858,000
<SECURITIES> 0 0
<RECEIVABLES> 10,000 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 637,000 923,000
<PP&E> 153,000 219,000
<DEPRECIATION> (131,000) (147,000)
<TOTAL-ASSETS> 1,998,000 3,096,000
<CURRENT-LIABILITIES> 53,000 461,000
<BONDS> 0 0
0 0
0 0
<COMMON> 14,468,000 27,163,000
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,998,000 3,096,000
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 288,000 994,000
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 3,000
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (283,000) (981,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (283,000) (981,000)
<EPS-BASIC> (.01) (.01)
<EPS-DILUTED> (.01) (.01)
</TABLE>
