U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal quarter ended March 31, 2020

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ____________to____________

 

MANHATTAN SCIENTIFICS, INC.

(Exact name of small business issuer as specified in its charter)

 

Delaware

 

000-28411

 

85-0460639

(State of Incorporation)

 

(Commission File Number)

 

(IRS Employer Identification No.)

 

244 Fifth Ave, Suite 2341

New York, New York, 10001

(Address of principal executive offices) (Zip code)

 

Issuer’s telephone number: (212) 541-2405

 

Securities registered under Section 12(b) of the Exchange Act: None

 

 _________________________________________

Securities registered under Section 12(g) of the Exchange Act:

 

Common Stock, $0.001 par value

(Title of Class)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒     No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐     No ☒

 

There were 557,781,064 shares outstanding of registrant’s common stock, par value $0.001 per share, as of May 20, 2020.

 

 

 

 

TABLE OF CONTENTS

 

PART I

 

Item 1.

Condensed Financial Statements

 

3

 

Condensed Consolidated Balance Sheets as of March 31, 2020 (unaudited) and December 31, 2019

3

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019 (unaudited)

4

 

Condensed Consolidation Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019 (unaudited)

5

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019 (unaudited)

6

 

Condensed Notes to Consolidated Financial Statements (Unaudited)

7

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

15

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

20

 

Item 4.

Controls and Procedures

20

 

 

 

 

 

PART II

 

Item 1.

Legal Proceedings

21

 

Item 1A.

Risk Factors

21

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

 

Item 3.

Defaults Upon Senior Securities

24

 

Item 4.

Mine Safety Disclosure

24

 

Item 5.

Other Information

24

 

Item 6.

Exhibits

25

 

SIGNATURES

 

26

 

 
2

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PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

March 31, 

 

 

December 31, 

 

 

 

2020

 

 

2019

 

 

 

(unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash

 

$ 241,000

 

 

$ 261,000

 

Prepaid expenses

 

 

18,000

 

 

 

13,000

 

Due from the sale of assets - current portion

 

 

300,000

 

 

 

300,000

 

Total current assets

 

 

559,000

 

 

 

574,000

 

 

 

 

 

 

 

 

 

 

Investment in equity securities

 

 

408,000

 

 

 

1,045,000

 

Property and equipment, net

 

 

8,000

 

 

 

4,000

 

Due from the sale of assets

 

 

600,000

 

 

 

600,000

 

Other assets

 

 

2,000

 

 

 

2,000

 

Total assets

 

$ 1,577,000

 

 

$ 2,225,000

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$ 1,504,000

 

 

$ 1,510,250

 

Accrued expenses — related parties

 

 

667,000

 

 

 

583,750

 

Total current liabilities

 

 

2,171,000

 

 

 

2,094,000

 

 

 

 

 

 

 

 

 

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Notes payable, net of discounts

 

 

85,000

 

 

 

78,000

 

Total long-term liabilities

 

 

85,000

 

 

 

78,000

 

Total liabilities

 

 

2,256,000

 

 

 

2,172,000

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies - Note 7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series D convertible preferred, authorized 105,761 shares, 105,761 and 105,761 shares issued and outstanding, respectively

 

 

1,058,000

 

 

 

1,058,000

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Capital stock $.001 par value

 

 

 

 

 

 

 

 

Preferred, authorized 447,804 shares, 0 and 0 shares issued, and outstanding, respectively

 

 

-

 

 

 

-

 

Class A Convertible Preferred, authorized 182,525, 0 and 0 shares issued and outstanding, respectively

 

 

-

 

 

 

-

 

Class B Convertible Preferred, authorized 250,000, 49,999 and 49,999 shares issued and outstanding, respectively

 

 

-

 

 

 

-

 

Class C Redeemable Convertible Preferred, authorized 14,000, 0 and 0 shares issued and outstanding, respectively

 

 

-

 

 

 

-

 

Common, authorized 950,000,000 shares, 557,781,064 and 557,781,064 shares issued, and outstanding, respectively

 

 

558,000

 

 

 

558,000

 

Additional paid-in-capital

 

 

67,632,000

 

 

 

67,632,000

 

Accumulated deficit

 

 

(69,927,000 )

 

 

(69,195,000 )

Total stockholders' deficit

 

 

(1,737,000 )

 

 

(1,005,000 )

TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT

 

$ 1,577,000

 

 

$ 2,225,000

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
3

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2020

 

 

2019 

 

 

 

 

 

 

Revenue

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Operating costs:

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

169,000

 

 

 

220,000

 

Research and development

 

 

3,000

 

 

 

1,000

 

 

 

 

 

 

 

 

 

 

Total operating costs and expenses

 

 

172,000

 

 

 

221,000

 

 

 

 

 

 

 

 

 

 

Loss from operations before other income and expenses

 

 

(172,000 )

 

 

(221,000 )

 

 

 

 

 

 

 

 

 

Other income and (expenses):

 

 

 

 

 

 

 

 

Loss on fair value adjustment of investments

 

 

(553,000 )

 

 

(215,000 )

Interest expense

 

 

(7,000 )

 

 

-

 

Total other income (expense)

 

 

(560,000 )

 

 

(215,000 )

 

 

 

 

 

 

 

 

 

NET LOSS

 

$ (732,000 )

 

$ (436,000 )

 

 

 

 

 

 

 

 

 

LOSS PER COMMON SHARE: 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding (Basic)

 

 

557,781,064

 

 

 

533,781,064

 

 

 

 

 

 

 

 

 

 

Basic loss per common share

 

$ (0.00 )

 

$ (0.00 )

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding (Diluted)

 

 

557,781,064

 

 

 

533,781,064

 

 

 

 

 

 

 

 

 

 

Diluted loss per common share

 

$ (0.00 )

 

$ (0.00 )

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
4

Table of Contents

 

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

For the Three Months Ended March 31, 2020

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

$0.001 Par Value

 

 

Common Stock 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Series B

 

 

$0.001 Par Value

 

 

Paid-In

 

 

Accumulated

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2019

 

 

49,999

 

 

 

-

 

 

 

557,781,064

 

 

 

558,000

 

 

 

67,632,000

 

 

 

(69,195,000 )

 

 

(1,005,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(732,000 )

 

 

(732,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Blance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2020

 

 

49,999

 

 

 

-

 

 

 

557,781,064

 

 

 

558,000

 

 

 

67,632,000

 

 

 

(69,927,000 )

 

 

(1,737,000 )

 

 

For the Three Months Ended March 31, 2019

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

$0.001 Par Value

 

 

Common Stock 

 

 

Additional

 

 

 

 

Total

 

 

 

Series B

 

 

$0.001 Par Value

 

 

Paid-In

 

 

Accumulated

 

 

Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Deficit

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

49,999

 

 

 

-

 

 

 

533,781,064

 

 

 

534,000

 

 

 

67,289,000

 

 

 

(67,973,000 )

 

 

(150,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(436,000 )

 

 

(436,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Blance

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

49,999

 

 

 

-

 

 

 

533,781,064

 

 

 

534,000

 

 

 

67,289,000

 

 

 

(68,409,000 )

 

 

(586,000 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 
5

Table of Contents

 

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

 

 

 

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

Net loss

 

$ (732,000 )

 

$ (436,000 )

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

-

 

 

 

1,000

 

Loss on fair value adjustment of investments

 

 

553,000

 

 

 

215,000

 

Amortization of debt discount

 

 

7,000

 

 

 

-

 

Changes in:

 

 

 

 

 

 

 

 

Prepaid expenses

 

 

(5,000 )

 

 

(6,000 )

Accounts payable and accrued expenses

 

 

77,000

 

 

 

117,000

 

Deposit for asset sale

 

 

-

 

 

 

10,000

 

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

 

 

(100,000 )

 

 

(99,000 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchase of fixed assets

 

 

(4,000 )

 

 

(2,000 )

Proceeds from sale of investments

 

 

84,000

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Net cash provided by (used in) investing activities

 

 

80,000

 

 

 

(2,000 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from notes payable

 

 

-

 

 

 

50,000

 

 Net cash provided by financing activities

 

 

-

 

 

 

50,000

 

 

 

 

 

 

 

 

 

 

NET DECREASE IN CASH

 

 

(20,000 )

 

 

(51,000 )

CASH, BEGINNING OF PERIOD

 

 

261,000

 

 

 

87,000

 

 

 

 

 

 

 

 

 

 

CASH, END OF PERIOD

 

$ 241,000

 

 

$ 36,000

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Interest paid

 

$ -

 

 

$ -

 

Income taxes paid

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

   

 
6

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(UNAUDITED)

 

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, 2019, filed on April 14, 2020. 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.

 

Operating results for the three-month period ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.  The condensed consolidated balance sheet at December 31, 2019 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the U.S. for complete financial statements.

 

As of March 31, 2020, the Company has cumulative losses totaling $69,927,000 and negative working capital of $1,612,000. The Company incurred a net loss of $732,000 for the three months ended March 31, 2020. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.  Because of these conditions, the Company will require additional working capital to develop business operations. Management’s plans are to raise additional working capital through the continued licensing of its technology as well as to generate revenues for other services. There are no assurances that the Company will be able to achieve the level of revenues adequate to generate sufficient cash flow from operations to support the Company’s working capital requirements. To the extent that funds generated are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may not continue its operations.

 

The financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS

 

BASIS OF CONSOLIDATION:

 

The consolidated financial statements include the accounts of Manhattan Scientific, Inc., its wholly owned subsidiary Metallicum. All significant intercompany balances and transactions have been eliminated.

 

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.

 

 
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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(UNAUDITED)

 

CASH CONCENTRATION:

 

The Company’s cash accounts are federally insured up to $250,000 for each financial institution we hold our accounts in. As of March 31, 2020 and December 31, 2019, we had cash balances of $0 and $0 exceeding the federally insured limits.

 

PROPERTY AND EQUIPMENT:

 

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes.

 

INTANGIBLE ASSETS:

 

License Agreements

 

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. At March 31, 2020 and December 31, 2019, the license agreements were fully amortized. Beginning in 2010, the Company was required to pay an annual license fee of $10,000 and may be required to pay royalties, as defined, to the licensors.

 

DUE FROM THE SALE OF ASSETS:

 

Non-current assets are classified as held for sale if it is highly probably that they will be recovered primarily through sale rather than through continuing use.

 

Immediately before classification as held for sale, the assets are remeasured at the lower of their carrying amount and fair value less costs to sell.  Any impairment loss on initial classification as held for sale and subsequent gains and losses on re-measurement are recognized in profit or loss.  Gains are not recognized in excess of any cumulative impairment loss.

 

During the year ended December 31, 2019, the Company sold the assets held for sale that were presented on the balance sheet as of December 31, 2018.  During the year ended December 31, 2018, the Company recorded impairment and adjusted the asset valuation to $1.2 million.  The Company sold the assets for a total of $1.2 million of which $300,000 was received during the year ended December 31, 2019.  The remaining $900,000 will be collected during the next three years in equal increments on the anniversary date of the agreement, May 1.  During May 2020, the Company received $300,000 and reduced the due from the sale of assets.   As of March 31, 2020, the Company evaluated the collectability and determined that no allowance is needed at this time due to the payment history with this third party and the subsequent receipt of funds. 

 

REVENUE RECOGNITION:

 

The Company recognizes revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which consists of five steps to evaluating contracts with customers for revenue recognition: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.

 

Revenue recognition occurs at the time we satisfy a performance obligation to our customers, when control transfers to customers, provided there are no material remaining performance obligations required of the Company or any matters of customer acceptance. We only record revenue when collectability is probable.

 

 
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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(UNAUDITED)

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

 

The Company recognized the fair value of financial instruments in accordance with  FASB ASC 820, Fair Value Measurements and Disclosures, “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.

 

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.

 

Our financial assets and liabilities carried at fair value measured on a recurring basis as of March 31, 2020 and December 31, 2019, consisted of the following:

 

 

 

Total fair value at March 31, 2020

 

 

Quoted prices in active markets for identical assets (Level 1)

 

 

Significant other observable inputs (Level 2)

 

 

Significant unobservable inputs (Level 3)

 

Investment in equity securities

 

$ 408,000

 

 

$ 408,000

 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total fair value at December 31, 2019

 

 

Quoted prices in active markets for identical assets (Level 1)

 

 

Significant other observable inputs (Level 2)

 

 

Significant unobservable inputs (Level 3)

 

Investment in equity securities

 

$ 1,045,000

 

 

$ 1,045,000

 

 

$ -

 

 

$ -

 

 

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 March 31, 2020 and December 31, 2019 because of the relative short term nature of these instruments.

 

During the year ended December 31, 2017, the Company elected fair value option for its investment in Imagion Biosystems, Inc. a Nevada company (“Imagion”) based on triggering event of dilution of ownership, which lead to the deconsolidation of Imagion. Investments in Imagion are measured at fair value as opposed to equity method based on ASC 825-10. The guidance allows entities to elect to measure certain financial assets and financial liabilities (as well as certain nonfinancial instruments that are similar to financial instruments) at fair value. Investments over which an investor has the ability to exercise significant influence are eligible for the fair value option as they represent recognized financial assets. When the fair value option is elected for an instrument, all subsequent changes in fair value for that instrument are reported in earnings. 

 

As of March 31, 2020, the Company holds approximately 11% of the total issued and outstanding shares of Imagion and is reported under fair value method under ASC 320.  Management determined that it was appropriate to carry its investment in Imagion at fair value because the investment is traded on the Australian stock exchange and has daily trading activity and is a better indicator of value.  The investments are re-measured at the end of each quarter based on the trading price and converted from AUD to USD.  Any change in the value is reported on the income statement as an unrealized gain or loss.

 

 
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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(UNAUDITED)

 

ACCOUNTING FOR LEASES

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, Topic 842). Topic 842 requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. The Company early adopted Topic ASC 842 using the effective date of January 1, 2019 as the date of our initial application of the standard. The Company used the new transition election to not restate comparative periods and elected the package of practical expedients upon adoption, which permits the Company to not reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs.  Consequently, financial information for the comparative periods will not be updated.  Upon adoption, there was no material impact to the financial statements.

 

INCOME TAXES

 

The Company accounts for income taxes under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on the Company’s consolidated balance sheets in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. The Company must assess the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent the Company believes that recovery is not likely, the Company must establish a valuation allowance. Changes in the Company’s valuation allowance in a period are recorded through the income tax provision on the consolidated statements of operations.

 

ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return.

 

Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the implementation of ASC 740-10, the Company recognized no material adjustment in the liability for unrecognized income tax benefits.

 

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.  As of March 31, 2020 and 2019, 31,697,917 and 50,798,182, respectively, dilutive shares were excluded from the calculation of diluted loss per common share as the effect of these shares on earnings per share would have been anti-dilutive.

 

 
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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(UNAUDITED)

 

STOCK BASED COMPENSATION

 

In June 2018, FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718),Improvements to Nonemployee Share Based Payment Accounting.  The amendments in this Update expand the scope of stock compensation to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance in this Update does not apply to transactions involving equity instruments granted to a lender or investor that provides financing to the issuer. The guidance is effective for fiscal years beginning after December 31, 2018 including interim periods within the fiscal year. The Company adopted with an effective date of January 1, 2019.  Upon adoption, there was no material impact to the financial statements. 

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC Topic 820. This guidance is effective for public companies in fiscal years beginning after December 15, 2019, with early adoption permitted. Effective January 1, 2020, we adopted ASU 2018-13.  The implementation of this standard did not have any material impact on our consolidated financial statements.

 

The Company does not expect the adoption of recently issued accounting pronouncements to have a potential impact on the Company’s results of operations, financial position or cash flow.

 

The Company has evaluated all recent accounting pronouncements and none are expected to have a material impact on the condensed consolidated financial statements except “Fair Value measurements.”

 

NOTE 3 – INVESTMENT IN EQUITY SECURITIES (IMAGION BIOSYSTEMS)

 

As of March 31, 2020, the Company owns 56,516,508 shares of Imagion (1,000,000 restricted shares for prepaid notes interests – see Note 4), resulting in a noncontrolling interest of Imagion’s issued and outstanding common stock. Initially, the Company held approximately 31% of Imagion’s total issued and outstanding common stock and was later was decreased to approximately 11%. Based upon Imagion’s trading price on March 31, 2020, approximately $0.007 per share, the fair value of the Imagion shares was approximately $408,000.  During the three months ended March 31, 2020, the Company recorded a loss in its investment of $553,000.

 

On March 25, 2020, Imagion announced that shareholders will be offered two new shares for every five shares held at March 30, 2020. With new share, shareholders will receive a free attaching new option. New option will have an exercise price of 3 cents (Australian currency) and term of three years. The offer will close on April 20, 2020. The Company has the right to buy 22,606,603 new shares of Imagion and the market value at March 31, 2020 is $13,813.  The Company elected not to purchase additional shares of Imagion and the option expired in April 2020.

 

During the three months ended March 31, 2020, the Company sold 4,000,000 shares of Imagion and received cash proceeds of $84,000.

 

Below is reconciliation for the changes to the investment in Imagion for the three months ended March 31, 2020:

 

Balance as of December 31, 2019

 

$ 1,045,000

 

Change due to the sale of securities

 

 

(84,000 )

Change in the fair value of securities

 

 

(553,000 )

Balance as of March 31, 2020

 

$ 408,000

 

 

 
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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(UNAUDITED)

 

NOTE 4 – NOTES PAYABLE

 

On October 17, 2019, The Company executed a secured note with a related party, a director of the Company, for $100,000. The secured note is due on October 17, 2022. The Company agreed that the note bears interest at 10% per annum, to be paid in advance in shares of Imagion Biosystems Limited common stock (IBX), calculated at $0.0257 per share with 2 million shares of IBX common stock. The amortization of debt discount for the three months ended March 31, 2020 was $4,600.

 

On October 17, 2019, The Company executed a secured note with an individual for $50,000. The secured note is due on October 17, 2022. The Company agreed that the note bears interest at 10% per annum, to be paid in advance in shares of Imagion Biosystems Limited common stock (IBX), calculated at $0.0257 per share with 1 million shares of IBX common stock. The amortization of debt discount for the three months ended March 31, 2020 was $2,400.

 

 

 

As of

March 31,

2020

 

Notes payable

 

$ 150,000

 

Less: Discounts on notes payable

 

 

(65,000 )

Notes payable, net of discounts

 

$ 85,000

 

 

NOTE 5 – OPTIONS AND WARRANTS

 

A summary of the Company’s stock option activity and related information is as follows:

 

 

 

Number of Options

 

 

Exercise Price Per Share

 

 

Weighted Average Exercise Price

 

 

Number of Options Exercisable

 

Outstanding as of December 31, 2019

 

 

22,075,000

 

 

$ 0.07

 

 

$ .07

 

 

 

22,075,000

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding as of March 31, 2020

 

 

22,075,000

 

 

$ 0.07

 

 

$ 0.07

 

 

 

22,075,000

 

 

Exercise prices and weighted-average contractual lives of 22,075,000 stock options outstanding as of March 31, 2020 are as follows:

 

 

 

 

 

 

 

Options Outstanding

 

 

Options Exercisable

 

Exercise Price

 

 

Number Outstanding

 

 

Weighted Average Remaining Contractual Life

 

 

Number

Exercisable

 

$ 0.05

 

 

 

3,000,000

 

 

 

5.24

 

 

 

3,000,000

 

$ 0.06

 

 

 

6,000,000

 

 

 

4.62

 

 

 

6,000,000

 

$ 0.07

 

 

 

9,000,000

 

 

 

1.13

 

 

 

9,000,000

 

$ 0.08

 

 

 

575,000

 

 

 

0.68

 

 

 

575,000

 

$ 0.14

 

 

 

3,000,000

 

 

 

4.24

 

 

 

3,000,000

 

$ 0.02

 

 

 

500,000

 

 

 

4.25

 

 

 

500,000

 

 

 
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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(UNAUDITED)

 

The fair value for options granted were determined using the Black-Scholes option-pricing model.

 

Warrants:

 

The Company issued the following warrants at the corresponding weighted average exercise price as of March 31, 2020.

 

 

 

Number of Warrants

 

 

Exercise Price Per Share

 

 

Weighted Average Exercise Price

 

 

Number of Warrants Exercisable

 

Outstanding as of December 31, 2019

 

 

9,700,000

 

 

$ 0.07

 

 

$ 0.07

 

 

 

9,700,000

 

Granted

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Exercised

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Expired

 

 

(2,500,000 )

 

 

0.12

 

 

 

0.12

 

 

 

(2,500,000 )

Outstanding as of March 31, 2020

 

 

7,200,000

 

 

 

 

 

 

 

 

 

 

 

7,200,000

 

 

Grant date

 

Number of Warrants

 

 

Exercise Price

 

 

Contractual Life Remaining

 

Number of Shares Exercisable

 

April 2012

 

 

6,000,000

 

 

$ 0.05

 

 

0.6 years

 

 

6,000,000

 

July 2015

 

 

300,000

 

 

$ 0.05

 

 

0.2 years

 

 

300,000

 

August 2015

 

 

300,000

 

 

$ 0.05

 

 

0.3 years

 

 

300,000

 

September 2015

 

 

300,000

 

 

$ 0.05

 

 

0.4 years

 

 

300,000

 

October 2015

 

 

300,000

 

 

$ 0.05

 

 

0.5 years

 

 

300,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,200,000

 

 

 

 

 

 

 

 

 

7,200,000

 

 

The fair value for warrants granted were determined using the Black-Scholes option-pricing model.

 

NOTE 6 – LICENSE AGREEMENT

 

On May 1, 2019, the Company, entered into an agreement with a non-affiliated third party (“Third Party”), providing for an exclusive license by the Company of its ECAP technology to the Third Party for a term of 17 years unless terminated sooner, a sublicense by the Company to the Third Party of its rights under that certain Exclusive Field-of-Use Patent License Agreement dated January 5, 2009 entered with The Los Alamos National Laboratory for a term until the expiration of the last valid claim to expire of the patents pursuant to such agreement and the sale by the Company of ECAP-C machines to the Third party.  As part of the above license agreements, the Company will receive royalty payments, including minimum payments, based on a percentage of the Third Party’s sales.  Royalties will be 10% on gross sales of licensed dental products and average of 5% on all other sales of licensed products.

 

During the three months ended March 31, 2020, the Company received $0 as a minimum royalty payment.

 

 
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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019

(UNAUDITED)

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

Legal matter contingencies

 

The Company believes, based on current knowledge and after consultation with counsel, that it is not currently party to any material pending proceedings, individually or in the aggregate, the resolution of which would have a material effect on the Company.  Provisions for losses are established in accordance with ASC 450, “Contingencies” when warranted.  Once established, such provisions are adjusted when there is more information available of when an event occurs requiring a change.

 

Lease

 

The Company leases a facility with terms of month to month for its headquarters and had a lease on a facility through April 2021. During the year ended December 31, 2019, the lease was assigned to a third party entity. The lease was able to be cancelled at any time with three months written notice before April 2020 and 2021, the anniversary date of the lease. The Company adopted ASC 842 on January 1, 2019 and which had no impact on the financial statements as under the practical expedient the leases consist of terms less than one year, and therefore is not required to be capitalized.

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

As of March 31, 2020 and December 31, 2019, the Company had accrued expenses to related parties of approximately $667,000 and $583,750.  During the three months ended March 31, 2020, the Company reclassified $1,276,000 from accrued expenses related party to accrued expenses after the Company reevaluated its related party transactions.

 

As of March 31, 2020, the amounts are due to the Company’s sole officer for compensation $188,000 and the chairman of the board for compensation of $439,000 and the members of the board of directors of $40,000. 

 

As of March 31, 2020 and December 31, 2019, the Company had $100,000 and $100,000, respectively, of principal balance of notes payable due to a director of the Company. (See Note 4)

 

NOTE 9 – SUBSEQUENT EVENTS

 

As of the filing date, the Coronavirus (“COVID-19”) has caused significant volatility in global markets, including the market price of our securities. The demand for our products and services has decreased and the ability of our customers to make payments for the products and services they purchased has been negatively impacted.

 

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to March 31, 2020 to the date these financial statements were issued, and there were no other material subsequent events to disclose in these financial statements, except as noted.

 

 
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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. (the “Company” or “Manhattan Scientifics”), a Delaware corporation, was established on July 31, 1992 and has one operating wholly-owned subsidiary: Metallicum, Inc., (“Metallicum”). Manhattan Scientifics is focused on technology transfer and commercialization of these transformative technologies.

 

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 nanotechnology. Nanotechnology is the use and manipulation of matter on an atomic and molecular scale. To achieve this goal, the Company continues to identify emerging technologies through strategic alliances with scientific laboratories, educational institutions, scientists and leaders in industry and government. The Company and its executives have a long-standing relationship with Los Alamos Laboratories in New Mexico.

 

In June 2008, we acquired Metallicum and its licensed patented technology. We entered into a stock purchase agreement with Metallicum to acquire all of the outstanding capital in exchange for 15,000,000 restricted shares of our common stock. An additional 15,000,000 shares of our common stock will be payable to Metallicum in the event of meeting certain milestones. At December 31, 2011, one milestone was met. Metallicum was granted an exclusive license by The Los Alamos National Laboratory on patents related to nanostructured metals. In September 2009, we entered into a technology transfer agreement and sale with Carpenter Technology Corporation, (“Carpenter”) wherein Carpenter was to fully develop, manufacture and market a new class of high strength metals. On February 11, 2015, the Company and Carpenter entered into a Settlement Agreement and Mutual Release pursuant to which the parties provided a full release of one another, Carpenter paid the Company $8,000,000, Carpenter transferred to the Company all intellectual and physical property that was part of the original agreement, Carpenter agreed to provide follow-on technical assistance and Carpenter provided a list of all customers and contacts.

 

On May 31, 2011, we entered into an Agreement and Plan of Reorganization to acquire 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, Senior Scientific owned 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. On November 17, 2016, Senior Scientific merged with and into Imagion, a Nevada company. Following the merger, Imagion held all of the liabilities, obligations and assets of Senior Scientific and the Company continued as the sole equity holder of Imagion. On November 29, 2016, the Company announced a plan to have Imagion pursue an IPO and listing on the Australian Stock Exchange (ASX). As of March 31, 2020, Manhattan Scientifics presently owns 55,516,508 shares of Imagion, with a fair market value of approximately $408,000, based upon the closing price per share of Imagion common stock on the Australian Stock Exchange. The Company accounts for its investment in Imagion in accordance with ASC 825-10 and elected fair value option. We initially held 31% of the total issued and outstanding shares of Imagion and had one seat on the Board of Directors of Imagion. The guidance allows entities to elect to measure certain financial assets and financial liabilities (as well as certain nonfinancial instruments that are similar to financial instruments) at fair value. Investments over which an investor has the ability to exercise significant influence are eligible for the fair value option as they represent recognized financial assets. When the fair value option is elected for an instrument, all subsequent changes in fair value for that instrument are reported in earnings. As of March 31, 2020, we hold approximately 12% of the total issued and outstanding shares of Imagion and no longer have a seat on the Board of Directors of Imagion.

 

 
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On May 1, 2019, Manhattan Scientifics, Inc., a Delaware corporation (the “Company”), and Metallicum, Inc., a wholly-owned subsidiary of the Company, entered into an Overarching Agreement with a non-affiliated third party (“Third Party”), providing for an exclusive license by the Company of its ECAP technology to the Third Party for a term of 17 years unless terminated sooner, a sublicense by the Company to the Third Party of its rights under that certain Exclusive Field-of-Use Patent License Agreement dated January 5, 2009 entered with The Los Alamos National Laboratory for a term until the expiration of the last valid claim to expire of the patents pursuant to such agreement and the sale by the Company of ECAP-C machines to the Third party. As part of the above license agreements, the Company will receive royalty payments, including minimum payments, based on a percentage of the Third Party’s sales. The Company anticipates royalty income as the nanotitanium is commercialized for use in medial prosthetics. Royalties will be 10% on sales of licensed dental products and an average of 5% in all other sales of licensed products.

 

RESULTS OF OPERATIONS

 

THREE MONTHS ENDED MARCH 31, 2020 COMPARED TO THREE MONTHS ENDED MARCH 31, 2019

 

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 $169,000 for the three months ended March 31, 2020 compared with $220,000 for the three months ended March 31, 2019. The primary decrease in general and administrative expenses was the result of the decrease in accounting and legal expenses.

 

RESEARCH AND DEVELOPMENT. Research and development was $3,000 for the three months ended March 31, 2020 compared with $1,000 for the three months ended March 31, 2019. The decrease in research and development was based on the departure of its chief scientist and the Company was in the process of licensing its technology a third party.

 

OTHER INCOME (EXPENSES). Total other expense for the three months ended March 31, 2020 totaled $560,000 compared to $215,000 for the three months ended March 31, 2019. This is primarily attributable to the loss on fair value adjustments of its investment in Imagion during the period.

 

NET LOSS. During the three months ended March 31, 2020, the Company incurred a net loss of $732,000, compared to a net loss of $436,000 for the three months ended March 31, 2019. The increase in the net loss is mainly attributable to the increase in the loss on fair value adjustment.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Stockholders’ deficit totaled $1,737,000 on March 31, 2020 and the working capital deficit was $1,612,000 on such date. We had a decrease of $20,000 in cash and cash equivalents for the three months ended March 31, 2020.

 

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 March 31, 2020, we had $241,000 in cash. We believe our current cash position is not sufficient to maintain our operations for the next twelve months. Accordingly, we will need to engage in equity or debt financings to secure additional funds. If we raise additional funds through future issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences and privileges superior to those of holders of our common stock. Any debt financing that we secure in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions. We may not be able to obtain additional financing on terms favorable to us, if at all. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, our ability to continue to support our business growth and to respond to business challenges could be impaired, and our business may be harmed.

 

 
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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.

 

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.

  

Property and equipment:

 

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets using the straight-line method for financial statement purposes.

 

Intangible Assets:

 

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.

 

 
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Due from the Sale of Assets:

 

Non-current assets are classified as held for sale if it is highly probably that they will be recovered primarily through sale rather than through continuing use.

 

Immediately before classification as held for sale, the assets are remeasured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on initial classification as held for sale and subsequent gains and losses on reameasurement are recognized in profit or loss. Gains are not recognized in excess of any cumulative impairment loss.

 

During the year ended December 31, 2019, the Company sold the assets held for sale that were presented on the balance sheet as of December 31, 2018. During the year ended December 31, 2018, the Company recorded impairment and adjusted the asset valuation to $1.2 million. The Company sold the assets for a total of $1.2 million of which $300,000 was received during the year ended December 31, 2019. The remaining $900,000 will be collected during the next three years in equal increments on the anniversary date of the agreement, May 1. During May 2020, the Company received $300,000 and reduced the due from the sale of assets. As of March 31, 2020, the Company evaluated the collectability and determined that no allowance is needed at this time due to the payment history with this third party and the subsequent receipt of funds.

 

Revenue Recognition:

 

The Company recognizes revenue in accordance with generally accepted accounting principles as outlined in the Financial Accounting Standard Board’s (“FASB”) Accounting Standards Codification (“ASC”) 606, Revenue From Contracts with Customers, which consists of five steps to evaluating contracts with customers for revenue recognition: (i) identify the contract with the customer; (ii) identity the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price; and (v) recognize revenue when or as the entity satisfied a performance obligation.

 

Revenue recognition occurs at the time we satisfy a performance obligation to our customers, when control transfers to customers, provided there are no material remaining performance obligations required of the Company or any matters of customer acceptance. We only record revenue when collectability is reasonably assured.

 

Accounting for Leases:

 

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequent amendments to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU 2018-20 and ASU 2019-01 (collectively, Topic 842). Topic 842 requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use assets. The Company early adopted Topic ASC 842 using the effective date of January 1, 2019 as the date of our initial application of the standard. The Company used the new transition election to not restate comparative periods and elected the package of practical expedients upon adoption, which permits the Company to not reassess under the new standard the Company’s prior conclusions about lease identification, lease classification and initial direct costs. Consequently, financial information for the comparative periods will not be updated. Upon adoption, there was no material impact to the financial statements.

 

Stock Based Compensation:

 

In June 2018, FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718),Improvements to Nonemployee Share Based Payment Accounting. The amendments in this Update expand the scope of stock compensation to include share-based payment transactions for acquiring goods and services from nonemployees. The guidance in this Update does not apply to transactions involving equity instruments granted to a lender or investor that provides financing to the issuer. The guidance is effective for fiscal years beginning after December 31, 2018 including interim periods within the fiscal year. The Company adopted with an effective date of January 1, 2019. Upon adoption, there was no material impact to the financial statements.

 

 
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Fair Value Measurements:

 

The Company recognized the fair value of financial instruments in accordance with FASB ASC 820, Fair Value Measurements and Disclosures, “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.

 

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 March 31, 2020 and December 31, 2019 because of the relative short term nature of these instruments.

 

During the year ended December 31, 2017, the Company elected fair value option for its investment in Imagion Biosystems, Inc. a Nevada company (“Imagion”) based on triggering event of dilution of ownership, which lead to the deconsolidation of Imagion. Investments in Imagion are measured at fair value as opposed to equity method based on ASC 825-10. The guidance allows entities to elect to measure certain financial assets and financial liabilities (as well as certain nonfinancial instruments that are similar to financial instruments) at fair value. Investments over which an investor has the ability to exercise significant influence are eligible for the fair value option as they represent recognized financial assets. When the fair value option is elected for an instrument, all subsequent changes in fair value for that instrument are reported in earnings.

 

As of March 31, 2020, the Company holds approximately 11% of the total issued and outstanding shares of Imagion and is reported under fair value method under ASC 320. Management determined that it was appropriate to carry its investment in Imagion at fair value because the investment is traded on the Australian stock exchange and has daily trading activity and is a better indicator of value. The investments are re-measured at the end of each quarter based on the trading price and converted from AUD to USD. Any change in the value is reported on the income statement as an unrealized gain or loss.

 

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.

 

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.

 

 
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to include disclosure under this item.

  

ITEM 4. CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

We conducted an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive and principal financial officers concluded as of March 31, 2020 that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in our internal controls over financial reporting discussed immediately below.

 

Identified Material Weakness

 

A material weakness in our internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.

 

Management identified the following material weakness during its assessment of internal controls over financial reporting:

 

Resources: We had one full-time employee in general management and no full-time employees with the requisite expertise in the key functional areas of finance and accounting. As a result, there is a lack of proper segregation of duties necessary to insure that all transactions are accounted for accurately and in a timely manner.

 

Written Policies & Procedures: We need to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions, and prepare, review and submit SEC filings in a timely manner.

 

Audit Committee: We do not have, and are not required, to have an audit committee. An audit committee would improve oversight in the establishment and monitoring of required internal controls and procedures.

 

(b) Changes In Internal Control Over Financial Reporting

 

During the quarter ended March 31, 2020, the Company prepared written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions. There were no other changes in our internal controls over financial reporting during this fiscal quarter that materially affected, or is reasonably likely to have a materially affect, on our internal control over financial reporting.

 

 
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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of March 31, 2020, we were not a party to any material litigation, claim or suite whose outcome could have a material effect on our financial statements.

 

ITEM 1A. RISK FACTORS

 

An investment in the Common Stock involves a high degree of risk. In addition to the other information in this report, the following risk factors should be considered carefully in evaluating the Company and our business. If you decide to buy our securities, you should be able to afford a complete loss of your investment.

 

WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE OUR NEW TECHNOLOGIES WHICH WOULD RESULT IN CONTINUED LOSSES.

 

We are currently developing new technologies and a commercial product. We have generated our first revenues but we are unable to project when we will again generate significant revenue or achieve regular profitability, if at all. As is the case with any new technology, we expect the development process to continue. We cannot assure that our resources will be able to develop and commercialize our technology fast enough to meet market requirements. We can also not assure that our technology will gain market acceptance and that we will be able to overcome obstacles, such as potential FDA approvals. The failure to successfully develop and commercialize the technologies would result in continued losses and may require us to curtail operations.

 

THE SUCCESS OF OUR BUSINESS MAY REQUIRE CONTINUED FUNDING. IF WE CANNOT RAISE THE MONEY WE NEED TO SUPPORT OUR OPERATIONS UNTIL WE EARN SIGNIFICANT REVENUES, WE MAY BE REQUIRED TO CURTAIL OR TO CEASE OUR OPERATIONS AND YOU COULD LOSE YOUR ENTIRE INVESTMENT.

 

Our ability to develop our business depends upon our receipt of money to continue our operations while we introduce our products and a market for them develops. If this funding is not received as needed, it is unlikely that we could continue our business, in which case you would lose your entire investment. Our ability to access the capital markets has been hindered generally by the general difficult economic climate, beginning in 2008, for small technology concept companies, without significant revenues or earnings.

 

To the extent that we need additional funding, we cannot assure you that such financing will be available to us when needed, on commercially reasonable terms, or at all. If we are unable to obtain additional financing, we may be required to curtail the commercialization of our products and possibly cease our operations.

 

OUR ABILITY TO EFFECTUATE OUR BUSINESS MODEL MAY BE LIMITED, WHICH WOULD ADVERSELY EFFECT OUR BUSINESS AND FINANCIAL CONDITIONS.

 

Our future performance will depend to a substantial degree upon our ability to effectuate and generate revenues from our licensing and royalty business model. As a result, we may continue to incur substantial operating losses until such time as we are able to generate revenues from the sale or license of our products. There can be no assurance that businesses and customers will adopt our technology and products, or that businesses and prospective customers will agree to pay for or license our products. In the event that we are not able to significantly increase the number of customers that purchase or license our products, or if we are unable to charge the necessary prices or license fees, our financial condition and results of operations will be materially and adversely affected.

 

 
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WE MAY FACE STRONG COMPETITION FROM LARGER, ESTABLISHED COMPANIES.

 

We likely will face intense competition from other companies, both globally and within the United States, in the development of our cancer detection technology and nano-metal technologies, virtually all of which can be expected to have longer operating histories, greater name recognition, larger installed customer bases and significantly more financial resources and research and development facilities than Manhattan Scientifics. There can be no assurance that developments by our current or potential competitors will not render our proposed products obsolete.

 

WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY OR WE COULD BECOME INVOLVED IN LITIGATION WITH OTHERS REGARDING OUR INTELLECTUAL PROPERTY. EITHER OF THESE EVENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

 

We rely on a combination of intellectual property law, nondisclosure, trade secret and other contractual and technical measures to protect our proprietary right. Our success will depend, in part, on our technology’s commercial viability and on the strength of our intellectual property rights. However, we cannot assure you that these provisions will be adequate to protect our intellectual property. In addition, the laws of certain foreign countries do not protect intellectual property rights to the same extent as the laws of the United States.

 

Although we believe that our intellectual property does not infringe upon the proprietary rights of third parties, competitors may claim that we have infringed on their products.

 

We could incur substantial costs in defending ourselves in suits brought against us for alleged infringement of another party’s intellectual property rights as well as in enforcing our rights against others, and if we are found to infringe, the manufacture, sale and use of our or our customers’ or partners’ products could be enjoined. Any claims against us, with or without merit, would likely be time-consuming, requiring our management team to dedicate substantial time to addressing the issues presented. Furthermore, the parties bringing claims may have greater resources than we do.

 

OUR MANAGEMENT IS ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER ALL MATTERS REQUIRING SHAREHOLDER APPROVAL.

 

Our existing directors and executive officers are the beneficial owners of approximately 25% of the outstanding shares of common stock, excluding stock options and warrants. As a result, our existing directors, executive officers, principal shareholders and their respective affiliates, if acting together, would be able to exercise significant influence over all matters requiring shareholder approval, including the election of directors and the approval of significant corporate transactions. Such concentration of ownership may also have the effect of delaying or preventing a change in control of our company.

 

THE TRADING PRICE OF OUR COMMON STOCK MAY DECREASE DUE TO FACTORS BEYOND OUR CONTROL.

 

The trading price of our common stock is subject to significant fluctuations in response to numerous factors, including without limitation:

 

 

·

variations in anticipated or actual results of operations;

 

·

announcements of new products or technological innovations by us or our competitors;

 

·

changes in earnings estimates of operational results by analysts;

 

·

inability of market makers to combat short positions on the stock;

 

·

an overall downturn in the financial markets and stock markets;

 

·

the use of stock to pay employees and consultants if sufficient working capital is not available;

 

·

inability of the market to absorb large blocks of stock sold into the market; and

 

·

developments or disputes concerning our intellectual property.

 

 
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Moreover, the stock market from time-to-time has experienced extreme price and volume fluctuations, which have particularly affected the market prices for small technology companies without significant revenues. These broad market fluctuations may adversely affect the market price of our Common Stock. If our shareholders sell substantial amounts of their common stock in the public market, the price of our common stock could fall. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a price we deem appropriate.

 

WE HAVE NOT PAID CASH DIVIDENDS AND IT IS UNLIKELY THAT WE WILL PAY CASH DIVIDENDS IN THE FORESEEABLE FUTURE.

 

We plan to use all of our earnings, to the extent we have significant earnings, to fund our operations. We do not plan to pay any cash dividends in the foreseeable future. We cannot guarantee that we will, at any time, generate sufficient surplus cash that would be available for distribution as a dividend to the holders of our Common Stock. You should not expect to receive cash dividends on our Common Stock.

 

WE MAY NOT HAVE SUFFICIENT CAPITAL TO RUN OUR OPERATIONS.

 

If we are unable to obtain further financing, it may jeopardize our ability to continue our operations. To the extent that additional capital is raised through the sale of equity and/or convertible debt securities, the issuance of such securities could result in dilution to our shareholders and/or increased debt service commitments. If adequate funds are not available, we may be unable to sufficiently develop or maintain our existing operations.

 

WE HAVE THE ABILITY TO ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK WITHOUT ASKING FOR SHAREHOLDER APPROVAL, WHICH COULD CAUSE YOUR INVESTMENT TO BE DILUTED.

 

Our Certificate of Incorporation currently authorizes the Board of Directors to issue up to 950,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. The power of the Board of Directors to issue shares of Common Stock or warrants or options to purchase shares of Common Stock is generally not subject to shareholder approval. Accordingly, any additional issuance of our Common Stock may have the effect of further diluting your investment.

 

We require substantial working capital to fund our business. If we raise additional funds through the issuance of equity, equity-related or convertible debt securities, those securities may have rights, preferences or privileges senior to those of the holders of our Common Stock. The issuance of additional Common Stock or securities convertible into Common Stock by our management will also have the effect of further diluting the proportionate equity interest and voting power of holders of our Common Stock.

 

LIMITED PUBLIC MARKET FOR OUR COMMON STOCK MAY AFFECT OUR SHAREHOLDERS' ABILITY TO SELL OUR COMMON STOCK.

 

Our Common Stock currently is quoted on the OTCQB operated by OTC Markets, which is generally considered to be a less efficient market than national exchanges. Consequently, the liquidity of our securities could be impaired, not only in the number of securities which could be bought and sold, but also through SEC regulations, delays in the timing of transactions, difficulties in obtaining price quotations, reduction in security analysts' and the new media's coverage of us, if any, and lower prices for our securities than might otherwise be attained. This circumstance could have an adverse effect on the ability of an investor to sell any shares of our common stock as well as on the selling price for such shares. In addition, the market price of our common stock may be significantly affected by various additional factors, including, but not limited to, our business performance, industry dynamics or changes in general economic conditions.

 

 
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APPLICABILITY OF "PENNY STOCK RULES" TO BROKER-DEALER SALES OF OUR COMMON STOCK COULD HAVE A NEGATIVE EFFECT ON THE LIQUIDITY AND MARKET PRICE OF OUR COMMON STOCK.

 

A penny stock is generally a stock that is not listed on national securities exchange and is quoted on the "pink sheets" or on the OTC Bulletin Board, has a price per share of less than $5.00 and is issued by a company with net tangible assets less than $5 million.

 

The penny stock trading rules impose additional duties and responsibilities upon broker-dealers and salespersons effecting purchase and sale transactions in Common Stock and other equity securities, including determination of the purchaser's investment suitability, delivery of certain information and disclosures to the purchaser, and receipt of a specific purchase agreement before effecting the purchase transaction.

 

Many broker-dealers will not affect transactions in penny stocks, except on an unsolicited basis, in order to avoid compliance with the penny stock trading rules. When our Common Stock is subject to the penny stock trading rules, such rules may materially limit or restrict the ability to resell our Common Stock, and the liquidity typically associated with other publicly traded equity securities may not exist.

 

WE ARE EVALUATING THE EFFECTS OF COVID-19 ON OUR BUSINESS OPERATIONS.

 

While the complete impact on our business from the recent outbreak of the COVID-19 coronavirus is unknown at this time and difficult to predict, various aspects of our business are being adversely affected by it and may continue to be adversely affected.

 

As of the date hereof, COVID-19 has been declared a pandemic by the World Health Organization, has been declared a National Emergency by the United States Government and has resulted in several states being designated disaster zones. COVID-19 coronavirus caused significant volatility in global markets, including the market price of our securities. The spread of COVID-19 coronavirus has caused public health officials to recommend precautions to mitigate the spread of the virus, especially as to travel and congregating in large numbers. In addition, certain states and municipalities have enacted, and additional cities are considering, quarantining and “shelter-in-place” regulations which severely limit the ability of people to move and travel, and require non-essential businesses and organizations to close.

 

Thus far, these restrictions have adversely affected our business, results of operations and financial condition. It is unclear how such restrictions, should they continue for an extended period, which will contribute to a general slowdown in the global economy, will affect our business, results of operations, financial condition, and our future strategic plans.

 

To date, the demand for our products and services has decreased and the ability of our customers to make payment for the products and services they purchased has been negatively impacted. It is unclear how a prolonged outbreak with travel, commercial and other similar restrictions, may adversely affect our business operations and the business operations of our customers and suppliers. However, we anticipate a prolonged period will have a negative effect on our business operations.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

Not applicable.

 

 
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ITEM 6. EXHIBITS

 

Index to Exhibits

 

31.1

 

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

EX-101.INS**

 

XBRL Instance Document

 

EX-101.SCH**

 

XBRL Taxonomy Extension Schema Document

 

EX-101.CAL**

 

XBRL Taxonomy Extension Calculation Linkbase

 

EX-101.DEF**

 

XBRL Taxonomy Extension Definition Linkbase

 

EX-101.LAB**

 

XBRL Taxonomy Extension Labels Linkbase

 

EX-101.PRE**

 

XBRL Taxonomy Extension Presentation Linkbase

_________________

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 
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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 20th day of May, 2020.

 

 

MANHATTAN SCIENTIFICS, INC.

 

By:

/s/ Emmanuel Tsoupanarias

 

Name:

Emmanuel Tsoupanarias

 

Title:

Chief Executive Officer

(Principal Executive, Financial and Accounting Officer)

 

 
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