ITEM 1. FINANCIAL STATEMENTS
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
June 30,
2013
|
|
|
December 31,
2012
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,111,000
|
|
|
$
|
91,000
|
|
Account receivable
|
|
|
20,000
|
|
|
|
257,000
|
|
Investments-available for sale
|
|
|
-
|
|
|
|
22,000
|
|
Prepaid expenses and other assets
|
|
|
128,000
|
|
|
|
164,000
|
|
Total current assets
|
|
|
1,259,000
|
|
|
|
534,000
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
2,000
|
|
|
|
2,000
|
|
Property and equipment, net
|
|
|
22,000
|
|
|
|
32,000
|
|
Intellectual property, net
|
|
|
1,202,000
|
|
|
|
1,283,000
|
|
Other asset
|
|
|
2,000
|
|
|
|
2,000
|
|
Total assets
|
|
$
|
2,487,000
|
|
|
$
|
1,853,000
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
253,000
|
|
|
$
|
234,000
|
|
Accrued interest and expenses — related parties
|
|
|
363,000
|
|
|
|
372,000
|
|
Note payable to former officers
|
|
|
450,000
|
|
|
|
450,000
|
|
Note payable — other
|
|
|
896,000
|
|
|
|
896,000
|
|
Total current liabilities
|
|
|
1,962,000
|
|
|
|
1,952,000
|
|
|
|
|
|
|
|
|
|
|
Long-term liabilities
|
|
|
|
|
|
|
|
|
Note payable, related party
|
|
|
447,000
|
|
|
|
447,000
|
|
Accrued interest, related party
|
|
|
272,000
|
|
|
|
251,000
|
|
Notes payable
|
|
|
1,000,000
|
|
|
|
-
|
|
Total long-term liabilities
|
|
|
1,719,000
|
|
|
|
698,000
|
|
Total liabilities
|
|
|
3,681,000
|
|
|
|
2,650,000
|
|
|
|
|
|
|
|
|
|
|
Commitments and Contingencies:
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
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|
|
Capital stock $.001 par value:
|
|
|
|
|
|
|
|
|
Preferred, authorized 1,000,000 shares:
|
|
|
|
|
|
|
|
|
Series A convertible, redeemable, 10 percent cumulative, authorized 182,525, shares;
issued and outstanding — none
|
|
|
-
|
|
|
|
-
|
|
Series B convertible, authorized 250,000 shares; 49,999 shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Series C convertible, redeemable, authorized 14,000 shares; issued and none outstanding
|
|
|
-
|
|
|
|
-
|
|
Common, authorized 500,000,000 shares, 461,749,918 and 440,058,609 shares issued, and outstanding, respectively
|
|
|
462,000
|
|
|
|
459,000
|
|
Additional paid-in-capital
|
|
|
56,357,000
|
|
|
|
56,231,000
|
|
Other accumulated comprehensive income
|
|
|
-
|
|
|
|
22,000
|
|
Accumulative deficit
|
|
|
(58,013,000
|
)
|
|
|
(57,509,000
|
)
|
Total stockholders' deficit
|
|
|
(1,194,000
|
)
|
|
|
(797,000
|
)
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
2,487,000
|
|
|
$
|
2,105,000
|
|
See notes to unaudited consolidated financial statements.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
|
|
THREE MONTHS ENDED
|
|
|
SIX MONTHS ENDED
|
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
191,000
|
|
|
$
|
172,000
|
|
|
$
|
635,000
|
|
|
$
|
343,000
|
|
Cost of revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Gross profit
|
|
|
191,000
|
|
|
|
172,000
|
|
|
|
635,000
|
|
|
|
343,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
693,000
|
|
|
|
508,000
|
|
|
|
1,039,000
|
|
|
|
1,039,000
|
|
Research and development
|
|
|
32,000
|
|
|
|
68,000
|
|
|
|
55,000
|
|
|
|
139,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating costs and expenses
|
|
|
725,000
|
|
|
|
576,000
|
|
|
|
1,094,000
|
|
|
|
1,178,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations before other income and expenses
|
|
|
(534,000
|
)
|
|
|
(404,000
|
)
|
|
|
(459,000
|
)
|
|
|
(835,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income and (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and other expenses
|
|
|
(32,000
|
)
|
|
|
(285,000
|
)
|
|
|
(45,000
|
)
|
|
|
(448,000
|
)
|
Interest income
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(566,000
|
)
|
|
|
(689,000
|
)
|
|
|
(504,000
|
)
|
|
|
(1,283,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on available for sale investments
|
|
|
(22,000
|
)
|
|
|
(11,000)
|
|
|
|
(22,000
|
)
|
|
|
(11,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS
|
|
$
|
(588,000
|
)
|
|
$
|
(678,000
|
)
|
|
$
|
(526,000
|
)
|
|
$
|
(1,272,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED LOSS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
|
|
459,534,418
|
|
|
|
445,472,753
|
|
|
|
459,240,084
|
|
|
|
445,472,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
See notes to unaudited consolidated financial statements.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
SIX MONTHS ENDED
|
|
|
|
June 30, 2013
|
|
|
June 30, 2012
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
Net loss
|
|
$
|
(504,000
|
)
|
|
$
|
(1,283,000
|
)
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
|
|
165,000
|
|
|
|
25,000
|
|
Debt discount and original issue discount accretion
|
|
|
-
|
|
|
|
422,000
|
|
Amortization of technology license, patents and intellectual property
|
|
|
91,000
|
|
|
|
90,000
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Account receivable
|
|
|
237,000
|
|
|
|
171,000
|
|
Prepaid expenses and other assets
|
|
|
-
|
|
|
|
154,000
|
|
Accounts payable and accrued expenses
|
|
|
19,000
|
|
|
|
(2,000
|
)
|
Accrued interest and expenses—related parties
|
|
|
12,000
|
|
|
|
9,000
|
|
Deferred revenue
|
|
|
-
|
|
|
|
86,000
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
20,000
|
|
|
|
(328,000
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from notes payable
|
|
|
1,000,000
|
|
|
|
400,000
|
|
Payment on related party note payable
|
|
|
-
|
|
|
|
(18,000
|
)
|
Proceeds from issuance of common stock
|
|
|
-
|
|
|
|
450,000
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
1,000,000
|
|
|
|
832,000
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
1,020,000
|
|
|
|
504,000
|
|
Cash and cash equivalents, beginning of period
|
|
|
91,000
|
|
|
|
157,000
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS, END OF PERIOD
|
|
$
|
1,111,000
|
|
|
$
|
661,000
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
|
|
|
$
|
|
|
Stock issued for accrued liabilities
|
|
$
|
|
|
|
$
|
21,000
|
|
Income taxes paid
|
|
$
|
|
|
|
$
|
|
|
See notes to unaudited consolidated financial statements.
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2013
NOTE 1 – BASIS OF PRESENTATION
The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the year ended December 31, 2012. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.
The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumption are inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions that could have a material effect on the reported amounts of the Company’s financial position and results of operations.
Operating results for the six month period ended June 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.
NOTE 2 – ORGANIZATION AND OPERATIONS
Manhattan Scientifics, Inc., a Delaware corporation (formerly Grand Enterprises, Inc.) (the “Company”) was established on July 31, 1992 and has two operating wholly-owned subsidiaries: Metallicum, Inc., (“Metallicum”) and Senior Scientific, LLC ( “Senior Scientific”). On June 12, 2008, the Company acquired Metallicum, Inc., for 15,000,000 shares of Company’s common stock. The Company operates as a technology incubator that seeks to acquire, develop and commercialize life-enhancing technologies in various fields, with emphasis in the areas of nanotechonogies and nanomedicine. In this capacity, the Company continues to identify emerging technologies through strategic alliances with scientific laboratories, educational institutions, and scientists and leaders in industry and government. The Company has a long standing relationship with Los Alamos Laboratories in New Mexico. During 2008, the Company refocused its efforts from the development of its fuel cell technologies to its current focus on the development of nanomaterials through the acquisition of Metallicum and early cancer detection through the acquisition of Senior Scientific.
Metallicum is a nanotechnology start-up company located in Santa Fe, New Mexico. Metallicum Inc. has focused on the development and manufacturing of nanostructured metals for medical implants and other applications. Metallicum has established, and intends to establish, additional manufacturing partner relationships with major Fortune 500 metals companies and strategic partnering with significant customers in the medical device & prosthetics industries as well as in auto, truck, and aircraft manufacturing industries. The Company conducts its operations primarily in the United States.
Manhattan Scientifics purchased Metallicum to acquire its licensed rights to patented technology. The technology is comprised of three US Patents (US Patent numbers 7152448, 6197129 and 6399215) for which Metallicum (subsequently, Manhattan) had been assigned exclusive license rights by Los Alamos National Security LLC (LANL). Under the license rights, Metallicum had all rights, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, and improvements on the patents or trade secrets whether or not patentable or registrable under copyright or similar laws.
In January 2009, the Company entered into a patent license agreement with Los Alamos National Security, LLC for the exclusive licensing use of certain technology relating to the manufacture and application of nanostructuring metals and alloys. Pursuant to such agreement the Company provided a non-refundable fee and 2,000,000 shares of common stock. Additionally, the Company is required to pay an annual license fee starting in February 2010 and royalties on future net sales.
In September 2009, the Company entered into a technology transfer agreement with Carpenter Technologies Corporation (“Carpenter”) pursuant to which Carpenter will fully develop, manufacture and market a new class of high strength metals under an exclusive technology transfer agreement from Manhattan Scientifics and the Los Alamos National Laboratory. The proprietary process will enable super-strength metals and alloys to make products that weigh far less than in the past and without significant cost premiums.
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2013
NOTE 2 – ORGANIZATION AND OPERATIONS (Continued)
On May 31, 2011, we entered into an Agreement and Plan of Reorganization to acquire Senior Scientific and Scientific Nanomedicine, Inc. (“Scientific Nanomedicine” or “SNMI”). We subsequently dissolved Scientific Nanomedice and transferred all remaining assets to Senior Scientific. The total purchase price was 21,668,000 restricted shares of our common stock (less 7,667,000 shares previously issued pursuant to an option agreement). As a result of this acquisition, we own patented technologies that can use biosafe nanoparticles and sensitive magnetic sensors to detect and measure cancer cells in biopsies or in the human body with the potential to transform how cancer is detected and treated.
The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated.
INTANGIBLE ASSETS:
License Agreements
In 2008, the Company obtained licenses to the rights of certain patents regarding nanostructured materials developed by another company as a result of the acquisition of Metallicum. The purchase price paid for these licenses was $305,000, which represented its fair value. The Company obtained an exclusive license on two patents and a non-exclusive license on the third patent. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. At June 30, 2013 and December 31, 2012, accumulated amortization was $149,000 and $134,000, respectively. Under the terms of the agreement, the Company may be required to pay royalties, as defined, to the licensors.
In 2009, the Company entered into a patent license agreement with Los Alamos National Security LLC for the exclusive use of certain technology relating to the manufacture and application of nanostructuring metals and alloys. The purchase price paid for this license agreement was $33,000 based on the fair market value of 2,000,000 shares of common stock issued. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. At June 30, 2013 and December 31, 2012, accumulated amortization was $15,000 and $13,000, respectively. Under the terms of the agreement the Company is required to pay an annual license fee of $10,000 starting in February 2010 and, may be required to pay royalties, as defined, to the licensors.
In 2011, the Company acquired Scientific Nanomemdicine, Inc. which holds the commercial rights to technology and intellectual property with respect to the early detection of diseases using nanotechnologies. The acquisition of Scientific Nanomedicine, Inc. has been accounted for as an asset purchase since this company had no tangible assets or liabilities and did not have the business inputs and outputs to be considered a business. The purchase price totaling $1,300,000 (fair value of 21,667,000 shares of common stocks issued) has been allocated to in process research and development and is being amortized over its estimated benefit period of 10 years. At June 30, 2013 and December 31, 2012, accumulated amortization was $272,000 and $207,000. We subsequently dissolved Scientific Nanomedice and transferred all remaining assets to Senior Scientific.
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2013
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS (Continued)
USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. A significant estimate includes the carrying value of the Company’s patents, fair value of the Company’s common stock, assumptions used in calculating the value of stock options, depreciation and amortization.
CASH CONCENTRATION:
The Company’s cash accounts are fully insured at June 30, 2013 and December 31, 2012 except that $464,000 was uninsured as of June 30, 2013.
INVESTMENTS
Available-for-Sale Investments
Investments that the Company designates as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). The Company determines the cost of the investment sold based on the specific identification method. The Company’s available-for-sale investments include:
Marketable equity securities:
The Company acquires these equity investments for the promotion of business and strategic objectives. The Company records the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on other equity investments, net.
Non-Marketable and Other Equity Investments
The Company accounts for non-marketable and other equity investments under either the cost or equity method and include them in other long-term assets. The non-marketable and other equity investments include:
Non-marketable cost method investments
when the equity method does not apply. The Company records the realized gains or losses on the sale of non-marketable cost method investments in gains (losses) on other equity investments, net.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation based on the fair value of all option grants or stock issuances made to employees or directors on or after its implementation date (the beginning of fiscal 2006), as well as a portion of the fair value of each option and stock grant made to employees or directors prior to the implementation date that represents the unvested portion of these share-based awards as of such implementation date, to be recognized as an expense, as codified in ASC 718. The Company calculates stock option-based compensation by estimating the fair value of each option as of its date of grant using the Black-Scholes option pricing model. These amounts are expensed over the respective vesting periods of each award using the straight-line attribution method. Compensation expense is recognized only for those awards that are expected to vest, and as such, amounts have been reduced by estimated forfeitures. The Company has historically issued stock options and vested and non-vested stock grants to employees and outside directors whose only condition for vesting has been continued employment or service during the related vesting or restriction period. The estimated fair value of grants of stock options and warrants to nonemployees of the Company is charged to expense, if applicable, in the financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective January 1, 2008, the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures, Pre Codification SFAS No. 157, “Fair Value Measurements”, which provides a framework for measuring fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also expands disclosures about instruments measured at fair value and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices for identical assets and liabilities in active markets;
Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2013
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS (Continued)
The Company designates cash equivalents (consisting of money market funds) and investments in securities of publicly traded companies as Level 1. The total amount of the Company’s investment classified as Level 3 is de minimis.
The fair value of the Company’s debt as of June 30, 2013 and December 31, 2012 approximated their fair value at those times.
Fair value of financial instruments: The carrying amounts of financial instruments, including cash and cash equivalents, short-term investments, accounts payable, accrued expenses and notes payables approximated fair value as of June 30, 2013 and December 31, 2012 because of the relative short term nature of these instruments. At June 30, 2013 and December 31, 2012, the fair value of the Company’s debt approximates carrying value. The fair value of the Company’s available for sale securities was $43,000 at June 30, 2012 and these securities are classified as Level 1.
BASIC AND DILUTED LOSS PER SHARE
In accordance with FASB ASC 260, “Earnings Per Share,” the basic loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Basic net loss per share excludes the dilutive effect of stock options or warrants and convertible notes. Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and warrants. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
REVENUE RECOGNITION
To date the only revenue generated is from the sale of field technology developed by Metallicum related to the Company’s nanotechnology, services provided and sample materials (See Note 8).
Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Service revenue is recognized when specific milestones are reached or as service is provided if there are no discernable milestones.
NOTE 4 – CAPITAL TRANSACTIONS
Capital transactions during the six months ended June 30, 2013 and 2012:
For the six months ended June 30, 2013, the Company issued 175,438 shares to a consultant for services performed for the Company totaling $10,000; 132,000 shares to a consultant for services totaling $6,000 being performed over a three months period; and 2,500,000 shares to a consultant for services totaling $113,000 being performed over six months period.
For the six months ended June 30, 2012, the Company issued 9,000,000 shares of common stocks and warrants for 4,500,000 shares for a total consideration of $450,000 to four individuals. Further, the Company issued 483,871 shares to one consultant for services performed for the company totaling $24,000, and 300,000 shares to another consultant for services to satisfy an outstanding obligation totaling $21,000.
NOTE 5 – INVESTMENTS
The Company made an investment in Novint Technologies Inc. (“Novint”) in 2001. The Company initially recorded its investment using the equity method of accounting and wrote down the investment to $-0- in 2004 as it recorded its proportionate share of Novint's net loss.
In prior years, the Company had significant control of Novint because of Mr. Maslow's position as a shareholder and board member of both the Company and Novint. Mr. Maslow resigned from the board of the Company in October 2007 and therefore the Company no longer has significant control of Novint. As of June 30, 2013 and December 31, 2012, the Company owned 1,075,648 shares of Novint common stock or approximately 3% and modified its accounting for the ownership position in accordance with FASB ASC 820. The fair value of the Novint shares was$-0- and $22,000 as of June 30, 2013 and December 31, 2012.
The Company has an additional investment in Aprilis, Inc. which is accounted for at a cost of $2,000 as of June 30, 2013 and December 31, 2012.
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2013
NOTE 6 – RELATED PARTY AND FORMER OFFICERS NOTES PAYABLE
In December 2007, the former Chief Operating Officer and former Chief Executive Officer collectively forgave $1,416,500 of their outstanding accrued salaries ($1,387,500) and note payable ($29,000) balances. In December 2012, the former Chief Operating Officer forgave $80,000 of the accrued salaries balance. The amount forgiven has been accounted for as contributed capital. Additionally, the Company repaid $5,000 of the former Chief Executive Officer’s note payable balance. The remaining unpaid notes payable balances totaling $897,000 at June 30, 2013 and December 31, 2012 comprised of loans payable of $450,000 and $447,000, and $450,000 and $545,000 to its former Chief Operating Officer and Chief Executive Officer, respectively. Under the terms of the note extensions dated December 12, 2007, the loans bear interest at 5% per annum and are now due. The Company has recorded interest expense for notes payable to these former officers of approximately $13,000 and $26,000 for the three and six months ended June 30, 2013 and 2012, respectively. Accrued interest related to these notes payable approximated $508,000 and $482,000 as of June 30, 2013 and December 31, 2012, respectively and is included in accrued liabilities, related parties.
The related party note payable of $447,000 and its accrued interest have been classified at June 30, 2013 and December 31, 2012 to long-term because the holder has waived his right to call the note and related interest until after March 31, 2014.
NOTE 7 – NOTES PAYABLE – OTHER
From October 21, 2011 to April 26, 2012, the Company issued convertible notes for $600,000 (the "Convertible Notes") of which $200,000 was received on October 21, 2011, $100,000 was received on January 31, 2012 and $300,000 was received on April 26, 2012. The non-interest bearing notes can be converted into the Company’s common stock, at any date after six months from the issuance of each Note, at a conversion price of 67% of the fair value of the Company’s common stock upon the date of conversion notice, subject to a floor price of approximately $0.041 for the note issued in October 2011, approximately $0.044 for the note issued in January 2012 and approximately $0.034 for the note issued in April 2012. The holder of the notes has not converted any portion of the notes as of December 31, 2012. Additionally, the note holder was issued warrants for 6,000,000 shares of the Company’s common stock with an exercise price of $0.05 that expire on October 15, 2015 ("Warrants"). The conversion feature to the note payable has been accounted for as an original issue discount approximating $296,000 which has been fully accreted as of December 31, 2012. The warrant associated with the note has been accounted for as a debt discount with an approximate value of $296,000 which has been allocated to the note’s fully accreted value of $896,000 (original note amount plus original debt discount) on proportionate basis which amounted to $195,000. The warrant value of $252,000 was determined using the Black-Scholes option pricing model based on the following assumptions: 2 year term; volatility rate of 134% to 135%; and discount rate of 2.5%. For the years ended December 31, 2012 and 2011, the Company has recorded an expense associated with original debt discount and expense associated with the debt discount (warrants) of $422,000 and $67,000. Accordingly, the net carrying value of this note at June 30, 2013 and December 31, 2012 totals $896,000, comprising of $600,000 (original face value) plus the fully accreted original debt discount of $296,000.
On April 3, 2013, the Company issued convertible notes for $1,000,000 through its wholly-owned subsidiary, Senior Scientific, LLC. The convertible notes bear interest at 8%, mature four years from the date of issuance, and are convertible into either: (1) membership interests of Senior Scientific, LLC equal to the quotient of the principal due of the convertible notes divided by $2,500,000 multiplied by 18% of the total equity of Senior Scientific, LLC outstanding as of the date hereof; or (2) the number of shares of common stock of the Company equal to the quotient of the principal and interest payable due of the convertible notes divided by a conversion price of $0.055 per share. The Company may not prepay the convertible notes. In the event of a default and so long as the default exists, interest on the convertible notes will accrue at 10%. The Company must pay all accrued interest on the convertible notes on the first calendar day of each quarter. The conversion feature of the convertible notes has been evaluated by management and has been determined to have no beneficial conversion feature.
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 2013
NOTE 8 – TECHNOLOGY SALE AND SUB-LICENSE AGREEMENT
On September 12, 2009, the Company entered into a contract with Carpenter Technology Corp. to sell certain nanostructured metal technologies acquired from Metallicum, Inc, its wholly owned subsidiary, to Carpenter and to provide sub-license rights to Carpenter covering license agreements that the Company has from Los Alamos Laboratories. The agreement has two distinct elements: a sale and services agreement and a sub-license agreement. The first element irrevocably transfers the field technology to Carpenter Technology Corporation and Carpenter many develop or use the technology for its own benefit. Carpenter agrees to pay a sales price of $600,000 and pay royalties for products developed using this technology. In addition, the Company can receive additional service income for assisting Carpenter in the production process. These additional services are elective and do not affect the sale of the technology. The second element of the agreement is a sub-license to Carpenter for patents (the LANS patents) that are licensed by the Company from Los Alamos Laboratories. The sub-license agreement obligates Carpenter to pay MSI a running royalty on the sales of products that require license to the LANS patents but does not have any upfront fee or annual minimum royalties.
The Company recognized the sales revenue upon transfer of the technology and the service income over the term of the agreement. The royalty income will be recognized as products are developed using the field technology or sub-license.
For the three and six months ended June 30, 2013 and 2012, the Company earned $172,000 and $342,000 and recorded such amount as revenue. The amount received by the Company relates to services provided under the first element of the contract regarding additional services. The Company earned service income for time that a consultant to the Company, Dr. Lowe, made himself available to Carpenter in accordance with the Technology Transfer Agreement. The fees earned pursuant to the agreement with Carpenter are being proportionately recognized as revenue based upon the total fees to be collected over a 42 month period. The 42 month period is based on the time periods described in the Agreement (6 months after effective date), (12 months after effective date), and (each of the first 3 anniversaries of Annuity date where the “Annuity date” is the date of the latter of 18 months after the effective date or the date Manhattan Scientific fully satisfies its duties under of the Agreement).
In January 2013, the Company entered into a licensing agreement with a party granting certain licensing rights to the Company's nanostructured metal technology. As consideration: the Company received $180,000 in January 2013, and will receive $30,000 by June 1, 2013; $30,000 by December 31, 2013; $30,000 by December 1, 2014; and $30,000 upon commercial launch by the party or the latest December 1, 2015. For the three and six months ended June 30, 2013, the Company recorded the receipt of $20,000 and $200,000 as revenue.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward Looking Statements
This Form 10-Q contains “forward-looking” statements including statements regarding our expectations of our future operations. For this purpose, any statements contained in this Form 10-Q 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. In addition, these forward-looking statements are subject, among other things, to our successful completion of the research and development of our technologies; successful commercialization of our technologies; successful protection of our patents; and effective significant industry competition from various entities whose research and development, financial, sales and marketing and other capabilities far exceeds ours. In light of these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to announce publicly revisions we make to these forward-looking statements to reflect the effect of events or circumstances that may arise after the date of this report.
OVERVIEW
Manhattan Scientifics, Inc. (OTCQB: MHTX)
www.mhtx.com
, is focused on commercialization of disruptive technologies in the nano- medicine space. The company works among the brilliant minds and groundbreaking ideas in the fertile ground of New Mexico – home to two national laboratories, and one of the nation’s highest concentrations of PhD scientists. These technologies are scientifically advanced, but are rarely ready for commercialization.
We have expertise in licensing from the national laboratories and in working with individual inventors. We build intellectual property portfolios and business cases supporting new technologies, and shepherd them to relationships with industrial partners who are well-prepared to launch product. The result is a win for everyone – the lab and inventor see the technology enter the market, the industrial partner gets a solid foundation for a new product, and we profit from building the licensing bridge to industry.
We are currently focused on two opportunities: a nanostructured metals technology, and a nanoparticle-based technology that provides highly sensitive cancer detection. The nanostructured metals technology has been revenue producing for several years. The cancer detection technology can detect cancer years earlier, and is still pre-revenue.
In 2008, we acquired Metallicum Inc., along with its licensed patented nanostructured metals technology. We also licensed additional related intellectual property from Los Alamos National Laboratory, and filed additional patent applications related to the technology. The technology enables metals with uniform, ultrafine grains. This provides greater strength, lighter weight, and enhanced biocompatibility. It provides significant benefits across a wide range of metal applications – anywhere strength or weight is a concern.
In September 2009, we licensed the technology package in a defined field of use to Carpenter Technology Corporation, NYSE:CRS, Fortune/1000. Carpenter plans to aggressively market certain nanostructured ultra-fine grain metals to be mass manufactured under royalty agreements with Manhattan Scientifics. Carpenter has already paid significant fees to Manhattan Scientifics (about $1M/year for the last 4 years) in exchange for limited exclusivity grants made to them.
The agreement calls for minimum annual revenues and minimum annual royalties which more than cover the company’s fixed overhead.
MHTX is contracted to receive a minimum of $9.5 million in royalties from Carpenter during the period 2015-2017 of which there is no guaranty.
We are continuing to develop the base technology for application in other fields of use, and are pursuing industrial partners in those other fields, e.g. aluminum, magnesium.
In 2011, we acquired Senior Scientific, LLC,
www.seniorscientific.com
and its technology for sensitive cancer detection. The technology uses iron oxide nanoparticles and very sensitive magnetic sensors to locate and measure cancer in the body. It can detect cancers 1 million times smaller than current technologies – that’s like the difference between the unaided eye and an electron microscope. It also means detection years earlier – that can be the difference between life and death.
We are currently maturing the technology, and intend to have third party validation in 2014. At that point, we will be ready to enter a strategic partnership or launch product on our own in several different markets.
Senior Scientific is bringing Dr. Edward R. Flynn’s nanomagnetic relaxometry (nanoMRX) from the laboratory to the clinic. nanoMRX can locate and measure tumors one millionth the size detectable by XRays and MRI – that’s like the difference between an electron microscope and the unaided eye. nanoMRX uses non-toxic iron oxide nanoparticles and ultrasensitive magnetic sensors – no XRay radiation, no large and expensive MRI magnets, no injected radioactive isotopes.
Our biggest impact, and largest market, is in human clinical applications. Cancer is estimated to cost the US $1 trillion per year. Many cancers are fatal because they are not caught early enough. We will slash years off the time cancer has to hide and grow untreated. Other cancers are fatal because doctors cannot determine where the cancer has spread, and when therapy has eliminated it all. We will allow doctors to find every tumor site, and monitor the effectiveness of therapy.
Our first human applications are likely to be in the detection of ovarian cancer. Ovarian cancer is the deadliest of gynecological cancers, in part because it stays hidden from current techniques until it has grown to billions of cells and hundreds of sites. Each year in the US, about 15,000 women die from ovarian cancer, and over 20,000 more women are diagnosed with the disease. We are working with Dr. Robert C. Bast Jr. of M.D. Anderson Cancer Center, one of the world’s preeminent researchers in ovarian cancer, to bring nanoMRX to bear on this disease. We are also collaborating with doctors working in breast cancer (230,000 new cases every year) and prostate cancer (240,000 new cases every year).
Bringing nanoMRX to clinical use requires that we demonstrate the technology in animal experiments, and then in clinical trials. Applying nanoMRX to animal experiments reveals an earlier market for us. Millions of animals are used in medical research each year, and this research will benefit from the million-fold increase in sensitivity available from nanoMRX. We are currently developing a commercial instrument for animal measurements. The instrument will be used to generate the preliminary data for the path to clinical use, and will also serve as the basis for product launch into veterinary and research markets. We are scheduled to deliver our cancer diagnostic device to the MD Anderson Small Animal Imaging Facility early next year. Their work will provide important independent validation of the technology, from a key opinion leader in the market.
We are currently building the next generation devices for collaborative use by M.D. Anderson. The technology has been proven in a research prototype instrument funded by the National Institutes of Health. We are currently building the next generation higher performance medical device this year. We expect to have the first commercial instrument operating at our facility Q3 2013. We will use that instrument to further optimize nanoparticles, software tools, and procedures. Results from that instrument will be used to begin marketing to the animal research and veterinary markets, (neither market requires FDA approval) as well as to fuel negotiations with strategic potential partners and prospective acquirers. We intend to place the second instrument in operation at MD Anderson early next year. Our collaborators at MD Anderson are enthusiastic in support, and are already educating their staff about the instrument and beginning to schedule studies.
We are currently funded for the two devices described above. Results from the first instrument at our lab will better position us to engage a strategic partner to launch the product in the animal markets. Validation at MD Anderson early next year will also position us to engage a strategic partner to begin trials targeting the first human applications.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2013 COMPARED TO THREE MONTHS ENDED JUNE 30, 2012.
GROSS PROFIT. The $191,000 of revenue recognized for the three months ended June 30, 2013 increased compared to the $172,000 in revenue earned during the three months ended June 30, 2012. The increase in revenue is primarily due to a new licensing agreement consummated in January 2013 in which the Company received $20,000 for such agreement during the three months ended June 30, 2013. The fees earned pursuant to the agreement with Carpenter are being proportionately recognized as revenue based upon the total fees to be collected over a 42 month period. The 42 month period is based on the time periods described in the Agreement (6 months after effective date), (12 months after effective date), and (each of the first 3 anniversaries of Annuity date where the “Annuity date” is the date of the latter of 18 months after the effective date or the date Manhattan Scientific fully satisfies its duties under of the Agreement).
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of consultants, contractors, accounting, legal, travel, rent, telephone and other day to day operating expenses. General and administrative expenses were $693,000 for the three months ended June 30, 2013 compared with $576,000 for the three months ended June 30, 2012.
RESEARCH AND DEVELOPMENT. Research and Development was $32,000 for the three months ended June 30, 2013 compared with $68,000 for the three months ended June 30, 2012.
OTHER INCOME AND (EXPENSES). Other income and (expenses) for the three months ended June 30, 2013 totaled $(32,000), a decrease compared to $(285,000) for the three months ended June 30, 2012. The decrease in expenses related to other income (expenses) was a result of a non-recurring charge totaling $272,000 related to beneficial conversion feature on convertible debt in 2012 that was recorded as interest expense.
NET LOSS. Our net loss was $566,000 for three months ended June 30, 2013 compared to a net loss of $689,000 for the three months ended June 30, 2012. The decrease in net loss is attributable to the aforementioned factors.
COMPREHENSIVE LOSS: Our comprehensive loss was $588,000 for three months ended June 30, 2013 compared to comprehensive loss of $678,000 for the three months ended June 30, 2012. The decrease in net loss is attributable to the aforementioned factors.
SIX MONTHS ENDED JUNE 30, 2013 COMPARED TO SIX MONTHS ENDED JUNE 30, 2012.
GROSS PROFIT. The $635,000 of revenue recognized for the six months ended June 30, 2013 increased compared to the $343,000 in revenue earned during the six months ended June 30, 2012. The increase in revenue is primarily due to a new licensing agreement consummated in January 2013 in which the Company received $200,000 for such agreement during the six months ended June 30, 2013. The fees earned pursuant to the agreement with Carpenter are being proportionately recognized as revenue based upon the total fees to be collected over a 42 month period. The 42 month period is based on the time periods described in the Agreement (6 months after effective date), (12 months after effective date), and (each of the first 3 anniversaries of Annuity date where the “Annuity date” is the date of the latter of 18 months after the effective date or the date Manhattan Scientific fully satisfies its duties under of the Agreement).
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of consultants, contractors, accounting, legal, travel, rent, telephone and other day to day operating expenses. General and administrative expenses were $1,039,000 for the six months ended June 30, 2013 compared with $1,039,000 for the six months ended June 30, 2012. General and administrative expenses increased primarily remained the same as with the prior year period of 2012.
RESEARCH AND DEVELOPMENT. Research and Development was $55,000 for the six months ended June 30, 2013 compared with $139,000 for the six months ended June 30, 2012.
OTHER INCOME AND (EXPENSES). Other income and (expenses) for the six months ended June 30, 2013 totaled $(45,000), an increase compared to $(448,000) for the six months ended June 30, 2012. The decrease expenses related other income (expenses) was a result of a non-recurring charge totaling $423,000 related to beneficial conversion feature on convertible debts in 2012 that was recorded as interest expense.
NET LOSS. Our net loss was $504,000 for six months ended June 30, 2013 compared to a net loss of $1,283,000 for the six months ended June 30, 2012. The decrease in net loss is attributable to the aforementioned factors.
COMPREHENSIVE LOSS: Our comprehensive loss was $526,000 for six months ended June 30, 2013 compared to comprehensive loss of $1,272,000 for the six months ended June 30, 2012. The decrease in net loss is attributable to the aforementioned factors.
LIQUIDITY AND CAPITAL RESOURCES
Stockholders’ deficit totaled $1,194,000 on June 30, 2013 and the working capital deficit was $703,000 on such date. Although, we anticipate we may sell additional common stock and issue shares and/or options in exchange for services, we anticipate that our 2013 revenues received from our technology licensing fees and service agreement will cover the cash needs of our overhead and the cost of our operations.
We had an increase of $1,020,000 in cash and cash equivalents for the six months ended June 30, 2013, as a result of cash provided by financing activities. For the six months ended June 30, 2013, cash provided by operating activities was $20,000 compared to cash $328,000 used in operating activities for the six months ended June 30, 2012. Cash provided by operating activities was primarily as a result of our net loss primarily related to non-cash expenditures of $165,000 of stock-based compensation, and decrease in accounts receivable of $237,000. There was no cash used in investing activities in either the first two quarters of 2013 or 2012. There was $1,000,000 of cash provided by financing activities in the six months of 2013 as the result of issuance of convertible notes in 2013 compared to $832,000 cash provided by financing activities during the first two quarters of 2012.
Based upon current projections, our principal cash requirements for the next 12 months consists of (1) fixed expenses, including payroll, investor relations services, public relations services, bookkeeping services, consultant services, and rent; and (2) variable expenses, including technology research and development, milestone payments and intellectual property protection, and additional scientific consultants. As of June 30, 2013, we had $1,111,000 in cash. We intend to satisfy our capital requirements for the next 12 months from our cash on hand and cash generated from our technology transfer agreements which we anticipate will cover the cash needs of our overhead and the cost of our operations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. A significant estimate includes the carrying value of our patents, fair value of our common stock, assumptions used in calculating the value of stock options, depreciation and amortization.
Impairment of Long-Lived Assets:
We assess the impairment of our long-lived assets periodically in accordance with Financial Accounting Standards Board ("FAS") Accounting Standard Codification (“ASC”) Topic 10. Whenever events or changes in circumstances indicate that the carrying amounts of long-lived assets may not be recoverable, we will compare undiscounted net cash flows estimated to be generated by those assets to the carrying amount of those assets. When these undiscounted cash flows are less than the carrying amounts of the assets, we will record impairment losses to write the asset down to fair value, measured by the discounted estimated net future cash flows expected to be generated from the assets. To date there has been no impairment.
License Agreements
In 2008, the Company obtained licenses to the rights of certain patents regarding nano-structured materials developed by another company as a result of the acquisition of Metallicum. The purchase price paid for these licenses was $305,000, which represents its fair value. The Company obtained an exclusive license on two patents and a non-exclusive license on the third patent. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. Under the terms of the agreement, the Company may be required to pay royalties, as defined, to the licensors.
In 2009, the Company entered into a patent license agreement with Los Alamos National Security LLC for the exclusive use of certain technology relating to the manufacture and application of nanostructuring metals and alloys. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. Under the terms of the agreement the Company is required to pay an annual license fee of $10,000 and, may be required to pay royalties, as defined, to the licensors.
On May 31, 2011, we entered into an Agreement and Plan of Reorganization to acquire Senior Scientific and Scientific Nanomedicine. The total purchase price was 21,668,000 restricted shares of our common stock (less 7,667,000 shares previously issued pursuant to an option agreement. As a result of this acquisition, we own patented technologies that can use biosafe nanoparticles and sensitive magnetic sensors to detect and measure cancer cells in biopsies or in the human body with the potential to revolutionize how cancer is detected and treated.
Revenue Recognition
Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Service revenue is recognized when specific milestones are reached or as service is provided if there are no discernable milestones.
Investments:
Available-for-Sale Investments
Investments that we designate as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). We determine the cost of the investment sold based on the specific identification method. Our available-for-sale investments include Marketable equity securities. We acquire these equity investments for the promotion of business and strategic objectives. We record the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on other equity investments, net.
Stock-Based Compensation:
The Company follows the provision of FASB ASC Topic 718 for the measurement and recognition of compensation expense for all share-based payment awards to employees, directors and non-employees. Additionally, the Company follows the SEC’s Staff Accounting Bulletin No. 107 “Share-Based Payment” (“SAB 107”), as amended by Staff Accounting Bulletin No. 110 (“SAB 110”), which provides supplemental application guidance based on the views of the SEC. The Company estimates the expected term, which represents the period of time from the grant date that the Company expects its stock options to remain outstanding, using the simplified method as permitted by SAB 107 and SAB 110. Under this method, the expected term is estimated as the mid-point between the time the options vest and their contractual terms. The Company continues to apply the simplified method because it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected terms due to the limited period of time its equity shares have been publicly traded and the limited number of its options which have so far vested and become eligible for exercise.
The estimated fair value of grants of stock options and warrants to our nonemployees is charged to expense, if applicable, in the financial statements. These options vest in the same manner as the employee options granted under each of the option plans as described above.
OFF BALANCE SHEET ARRANGEMENTS
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations liquidity, capital expenditures or capital resources and would be considered material to investors.