NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE 1 – ORGANIZATION AND OPERATIONS
Manhattan Scientifics, Inc., a Delaware corporation (formerly Grand Enterprises, Inc) (“Grand”) was established on July 31, 1992 and has a wholly-owned subsidiary: Metallicum, Inc. (“Metallicum”). Manhattan Scientifics, Inc., operates as a technology incubator that seeks to acquire, develop and commercialize life-enhancing technologies in various fields, with emphasis in the areas of nano-technologies and nano-medicine. 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.
Metallicum is a nanotechnology company located in Colorado. Metallicum Inc. has focused on the development and manufacture of nanostructured metals for medical implants and other applications. Metallicum intends to establish 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, & aircraft manufacturing industries. Metallicum’s initial products include nanostructured bulk metals and alloys in the form of rod, bar, wire and foil. 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 an 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. The licenses have been fully amortized.
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. The license has been fully amortized.
In September 2009, the Company entered into a technology transfer agreement with Carpenter Technologies Corporation (“Carpenter”). Wherein 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. On February 11, 2015, the Company entered into a Settlement Agreement and Mutual General Releases (the "Settlement Agreement") with Carpenter Technology Corporation related to the agreement discussed in Note 7, pursuant to which the parties settled and released each other from any and all liabilities and claims related to the Carpenter Agreements.
On November 17, 2016, Senior Scientific merged with and into Imagion Biosystems, Inc., a Nevada corporation (“Imagion”). 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 June 30, 2017, Imagion completed an IPO and listing on the Australian Stock Exchange (ASX). As of December 31, 2019 , the Company owns 61,516,508 shares (2,000,000 restricted shares related to issued promissory notes interest) of Imagion, resulting in a noncontrolling interest of approximately 12% of Imagion’s issued and outstanding common stock. The Company elected to record the investment at fair value.
Manhattan Scientifics 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.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
BASIS OF CONSOLIDATION:
The consolidated financial statements include the accounts of Manhattan Scientific, Inc. and its wholly owned subsidiary, Metallicum. All significant intercompany balances and transactions have been eliminated.
The fiscal year end of the Company is December 31.
GOING CONCERN:
As of December 31, 2019, the Company has cumulative losses totaling $69,195,000 and negative working capital of $1,520,000. The Company had a net loss of $1,222,000 for the year ended December 31, 2019. These factors raise substantial doubt about the Company’s ability to continue within one year from the date of filing. Because of these conditions, the Company will require additional working capital to develop business operations. The Company intends 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 to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
The ability to continue as a going concern is dependent on our generating cash from the sale of our common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plans include selling our equity securities and/or obtaining debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.
USE OF ESTIMATES:
The preparation of consolidated 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 amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and 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 AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an original maturity of three months or less at the time of purchase to be cash equivalents for the purposes of the statement of cash flows.
CASH CONCENTRATION:
The Company’s cash accounts are fully insured up to $250,000. As of December 31, 2019 and 2018, none of the Company’s cash accounts exceeded the insured amounts.
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.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
IMPAIRMENT OF LONG-LIVED ASSETS:
The Company applies the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 360-10, Property, Plant and Equipment, where applicable to all long lived assets. FASB ASC 360-10 addresses accounting and reporting for impairment and disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with FASB ASC 360-10. FASB ASC 360-10 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets. Loss on long-lived assets to be disposed of is determined in a similar manner, except that fair market values are reduced for the cost of disposal.
During the year ended December 31, 2019, the Company has not recorded impairment.
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 December 31, 2019 and 2018, 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.
ASSETS HELD FOR SALE:
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.
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 May 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.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
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 December 31, 2019 and 2018, 22,075,000, 9,700,000, 13,549,177 and 21,605,000, 28,943,182 and 13,549,177 stock options, warrants, and preferred stock, respectively, were excluded from the calculation of diluted loss per common share.
RESEARCH AND DEVELOPMENT:
Research and development costs are expensed as incurred and amounted to $8,000 and $52,000 for the years ended December 31, 2019 and 2018.
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.
The Company recognizes revenue in accordance with generally accepted accounting principles as outlined in 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.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
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.
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.
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.
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 December 31, 2019 and 2018 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 the year ended December 31, 2019, the Company holds approximately 12% of the total issued and outstanding shares of Imagion and is reported under fair value method under ASC 320. Any change in the value is reported on the income statement as an unrealized gain or loss
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position or cash flow.
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.
There are no other recent accounting pronouncements that are expected to have a material impact on the condensed consolidated financial statements.
NOTE 3 – INVESTMENT IN IMAGION BIOSYSTEMS
As of December 31, 2019, the Company holds 61,516,508 shares of Imagion Biosystems (2,000,000 restricted shares for prepaid notes interests – see Note 8) that is 12% of Imagion’s total issued and outstanding common stock. Based upon Imagion’s trading price on December 31, 2019, $0.0175 per share, the fair value of the Imagion shares was $1,045,000. During the year ended December 31, 2019, the Company recorded unrealized losses in its investments of $190,000.
As of December 31, 2018, the Company owned 64,099,476 shares of Imagion Biosystems (“Imagion”), resulting in a noncontrolling interest of 19% of Imagion’s issued and outstanding common stock. Based upon Imagion’s trading price on December 31, 2018, $0.021097 per share, the fair value of the Imagion shares was $1,352,000. During the year ended December 31, 2018, the Company recorded unrealized losses in its investment of $4,150,000.
NOTE 4 – CAPITAL TRANSACTIONS
Preferred Stock
The Company has a total of 1,000,000 shares of authorized preferred shares which are segregated into four classes of preferred stock.
The Company has 182,525 authorized shares of convertible, redeemable, 10 percent cumulative, Class A, Preferred Stock with $0.001 par value. One Class A, Preferred share is convertible into 50 restricted common shares and will be entitled to the number of votes equal to the number of shares of common stock into which such holder’s shares of Series A Preferred stock could be converted at the time of the vote. Class A, Preferred Stock is redeemable by the Company at $15 per share. Upon liquidation the holders of Series A Preferred stock will be entitled to be paid out of the assets available for distribution of the corporation an amount equal to $10 per share, before any payment will be made to the common shareholders. As of December 31, 2019 and 2018, no shares of Preferred Stock were issued and outstanding.
The Company has 250,000 authorized shares of Class B, Preferred Stock with $0.001 par value. Class B preferred shares are convertible at a rate of 1 Series B preferred share to 10 common shares. Class B, Preferred Stock is not entitled to receive dividends unless dividends are paid on common stock. Upon liquidation Class B, Preferred Stock shall be treated as if it were converted to common stock prior to liquidation. As of December 31, 2019 and 2018, 49,999 and 49,999 shares of Preferred Stock were issued and outstanding, respectively.
The Company has 14,000 authorized shares of redeemable, convertible, Class C, Preferred Stock with $100 stated value. Class C, Preferred Stock is not entitled to receive dividends unless dividends are paid on common stock. Upon liquidation Class C, Preferred Stock shall be treated as if it were converted to common stock prior to liquidation. Class C, Preferred Stock is convertible at $100 divided by the 10 day average closing price of common stock. The Class C, Preferred Stock is redeemable by the Company at the stated value. As of December 31, 2019 and 2018, no shares of Preferred Stock were issued and outstanding.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
The Series D Preferred Stock does not pay dividends and does not have a liquidation preference. The Holder of the Series D Preferred Stock will be entitled to 20 votes for each share of common stock that the Series D Preferred Stock are convertible into. The Series D Preferred Stock has a conversion price of $0.055 (the “Conversion Price”) and a stated value of $10.00 (the “Stated Value”) per share. Each share of Series D Preferred Stock is convertible, at the option of the Holder, into such number of shares of common stock of the Company as determined by dividing Stated Value by the Conversion Price.
Holder may only convert the Series D Preferred Stock upon certain Convertible Promissory Notes, whether presently outstanding or to be issued, issued to three accredited investors (the "Note Investors") in accordance with those certain Convertible Note Purchase Agreements between the Company and the Note Investors dated April 3, 2013, have either (i) been converted in full or in part by the Note Investors into shares of common stock of the Company, (ii) the Note Investors have sold or assigned all or a part of their Convertible Promissory Notes to third parties, or (iii) the Note Investors have been paid in full or in part. The Holder will only be permitted to convert such number of Series D Preferred Stock equal to the pro rata amount of the Convertible Promissory Notes converted, assigned or paid. In the event the Note Investors agree in writing that these restrictions may be terminated, then the Holder will be entitled to convert the Series D Preferred Stock at the Holder’s election and the above restrictions will be null and void. Additionally, Holder may not convert the Series D Preferred Stock until the ten day average daily trading volume is greater than $20,000.
In the event the Holder terminates its consulting agreement or violates a non-compete covenant, then the Series D Preferred Shares shall be returned to the Company for cancellation and the Company shall be obligated on the Debt. As the Series D Preferred Stock is conditionally redeemable, the Company has recorded the Series D Preferred Stock as mezzanine equity in the accompanying consolidated balance sheet. As of December 31, 2019 and 2018, 105,761 shares of Series D Preferred Shares were issued and outstanding.
The Company has 447,804 and 447,804 undesignated blank check preferred stock, $0.001 par value, authorized as of December 31, 2019 and 2018. The preferred shares are to be issued in such series and to have such rights, preferences, and designation as determine by the Board of Directors of the Company.
Common Stock
The Company has a total of 950,000,000 shares of authorized common shares. As of December 31, 2019 and 2018, 557,781,064 and 533,781,064 shares of common stock were issued and outstanding, respectively.
Stock activity during 2019 and 2018
During the year ended December 31, 2019, the Company issued 24,000,000 shares of common stock to its board of directors for services valued at $360,000. The shares were valued based on the market price of the Company’s common shares of $0.015 on the grant date.
The Company did not issue any shares of common stock during the years ended December 31, 2018.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Options
In January 2015, our Board of Directors adopted the 2015 Incentive Stock Plan (the "2015 Plan"). The purpose of this Plan is to provide incentive stock options (which, pursuant to Section 422 of the Internal Revenue Code, can only be granted to employees), non-qualified stock options, stock appreciation rights, stock awards, or stock bonuses. The committee, or the Board of Directors if there is no committee, determines the type of option granted, the exercise price, the option term, which may be no more than ten years, terms and conditions of exercisability and methods of exercise. Options must vest within ten-years. Under the 2015 Plan, the exercise price may not be less than fair market value on the date of grant for the incentive stock options. The 2015 Plan also allows for the granting of Stock Appreciation Rights. No Stock Appreciation Rights have been granted. The number of shares under the 2015 Plan available for grant at December 31, 2019 and 2018 was 4,000,000.
As of the year ended December 31, 2019, the Company issued 500,000 options to its advisors for services valued at approximately $7,000. The options are exercisable at $0.015 and have a life of 5 years. The Company used the Black Scholes Merton model and the assumptions used were the stock price of $0.015, 180% volatility and discount rate of 2.25%.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Set forth in the table below is information regarding awards made through compensation plans or arrangements through December 31, 2019, the most recently completed fiscal year.
At December 31, 2019, the 22,075,000 outstanding options had an aggregate intrinsic value of $1,579,770.
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, 2017
|
|
|
21,855,000
|
|
|
|
|
|
|
|
|
|
21,855,000
|
|
Granted
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(250,000
|
)
|
|
|
0.07
|
|
|
|
0.07
|
|
|
|
(250,000
|
)
|
Outstanding as of December 31, 2018
|
|
|
21,605,000
|
|
|
|
|
|
|
|
|
|
|
|
21,605,000
|
|
Granted
|
|
|
500,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
500,000
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(30,000
|
)
|
|
|
0.26
|
|
|
|
0.26
|
|
|
|
(30,000
|
)
|
Outstanding as of December 31, 2019
|
|
|
22,075,000
|
|
|
|
|
|
|
|
|
|
|
|
22,075,000
|
|
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
Exercise prices and weighted-average contractual lives of 22,075,000 stock options outstanding as of December 31, 2019 are as follows:
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
Exercise Price
|
|
|
Number Outstanding
|
|
|
Weighted Average Remaining Contractual Life
|
|
|
Weighted Average Exercise Price
|
|
|
Number Exercisable
|
|
|
Weighted Average Exercise Price
|
|
$
|
0.05
|
|
|
|
3,000,000
|
|
|
|
5.49
|
|
|
$
|
0.05
|
|
|
|
3,000,000
|
|
|
$
|
0.05
|
|
$
|
0.06
|
|
|
|
6,000,000
|
|
|
|
4.87
|
|
|
$
|
0.06
|
|
|
|
6,000,000
|
|
|
$
|
0.06
|
|
$
|
0.07
|
|
|
|
9,000,000
|
|
|
|
1.38
|
|
|
$
|
0.07
|
|
|
|
9,000,000
|
|
|
$
|
0.07
|
|
$
|
0.08
|
|
|
|
575,000
|
|
|
|
5.64
|
|
|
$
|
0.08
|
|
|
|
575,000
|
|
|
$
|
0.08
|
|
$
|
0.14
|
|
|
|
3,000,000
|
|
|
|
3.74
|
|
|
$
|
0.14
|
|
|
|
3,000,000
|
|
|
$
|
0.14
|
|
$
|
0.02
|
|
|
|
500,000
|
|
|
|
4.50
|
|
|
$
|
0.02
|
|
|
|
500,000
|
|
|
$
|
0.02
|
|
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 December 31, 2019.
|
|
Warrants
|
|
|
Weighted average Exercise Price
|
|
Outstanding as of December 31, 2017
|
|
|
28,943,182
|
|
|
$
|
0.07
|
|
Issued/Vested
|
|
|
-
|
|
|
|
-
|
|
Cancelled/Expired
|
|
|
-
|
|
|
|
-
|
|
Outstanding as of December 31, 2018
|
|
|
28,943,182
|
|
|
$
|
0.07
|
|
Issued/Vested
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Cancelled/Expired
|
|
|
(19,243,182
|
)
|
|
|
0.07
|
|
Outstanding as of December 31, 2019
|
|
|
9,700,000
|
|
|
$
|
0.07
|
|
Date
|
|
Number of Warrants
|
|
|
Exercise Price
|
|
|
Contractual Life Remaining
|
|
Number of Shares Exercisable
|
|
April 2012
|
|
|
6,000,000
|
|
|
$
|
0.05
|
|
|
0.8 years
|
|
|
6,000,000
|
|
March 2015
|
|
|
2,500,000
|
|
|
$
|
0.12
|
|
|
0.2 years
|
|
|
2,500,000
|
|
July 2015
|
|
|
300,000
|
|
|
$
|
0.05
|
|
|
0.5 years
|
|
|
300,000
|
|
August 2015
|
|
|
300,000
|
|
|
$
|
0.05
|
|
|
0.6 years
|
|
|
300,000
|
|
September 2015
|
|
|
300,000
|
|
|
$
|
0.05
|
|
|
0.7 years
|
|
|
300,000
|
|
October 2015
|
|
|
300,000
|
|
|
$
|
0.05
|
|
|
0.8 years
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,700,000
|
|
|
|
|
|
|
|
|
|
9,700,000
|
|
The fair value for warrants granted were determined using the Black-Scholes option-pricing model.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE 5 – INCOME TAXES
Deferred tax assets are comprised of the following at December 31:
|
|
2019
|
|
|
2018
|
|
Net operating loss carryforward
|
|
$
|
13,536,000
|
|
|
$
|
13,280,000
|
|
Temporary differences
|
|
|
6,988,000
|
|
|
|
6,988,000
|
|
Less valuation allowance
|
|
|
(20,542,000
|
)
|
|
|
(20,268,000
|
)
|
Deferred tax asset, net
|
|
|
-
|
|
|
|
-
|
|
Deferred taxes arise from temporary differences in the recognition of certain expenses for tax and financial reporting purposes. At December 31, 2019 and 2018, management determined that realization of these benefits is not assured and has provided a valuation allowance for the entire amount of such benefits. At December 31, 2019 and 2018, net operating loss carryforwards were approximately $51,357,000 and $50,135,000, respectively, for federal tax purposes that expire at various dates through 2031 and for state tax purposes expire through 2025. For the years ended December 31, 2019 and 2018, the change in valuation is $20,542,000 and $20,268,000, respectively, and we have open tax years for 2017 through 2019.
For December 31, 2019 and 2018, the provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (21% in 2019 and 2018) to income taxes as follows:
|
|
2019
|
|
|
2018
|
|
Tax benefit computed at 21%
|
|
$
|
-
|
|
|
$
|
-
|
|
Change in valuation allowance
|
|
|
274,000
|
|
|
|
3,334,000
|
|
Change in carryovers and tax attributes
|
|
|
(274,000
|
)
|
|
|
(3,334,000
|
)
|
Income tax provision
|
|
$
|
-
|
|
|
$
|
-
|
|
See below for rate reconciliation.
|
|
2019
|
|
|
2018
|
|
Federal Tax statutory rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
Valuation allowance
|
|
|
(21.0
|
)%
|
|
|
(21.0
|
)%
|
Effective rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
NOTE 6 – COMMITMENTS AND CONTIGENCIES
Legal matter contingencies
The Company believes, based on current knowledge and after consultation with legal counsel, that it is not currently party to any material 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 dates of the lease. The Company adopted ASC 842 on January 1, 2019 and has evaluated that has 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 capitalize the lease.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2019 AND 2018
NOTE 7 – 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 year ended December 31, 2019, the Company received $50,000 as a minimum royalty payment, which is recognized in revenue for the year ended December 31, 2019.
NOTE 8 – NOTES PAYABLE
On March 11, 2019, the Company received a loan for $50,000 and entered into a promissory note and security agreement with a third party. The loan was secured with ECAP-C machines. The due date of the loan was the earlier of April 30, 2019 or the closing of the transaction with the third party. Interest shall accrue at a rate of 6% per annum from April 11, 2019 until paid in full.
On May 1, 2019, the transaction closed and agreements were executed. The Company repaid the $50,000 upon closing of the transaction.
On October 17, 2019, the Company executed a secured note with a related party 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 $0.015 per share with 2 million shares of IBX common stock. The interest expense for the year ended December 31, 2019 was $3,400. The Company recorded a debt discount for debt issue costs consisting of shares of IBX valued at $51,400.
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 $0.015 per share with 1 million shares of IBX common stock. The interest expense for the year ended December 31, 2019 was $1,600. The Company recorded a debt discount for debt issue costs consisting of shares of IBX valued at $25,700.
Notes payable
|
|
$
|
150,000
|
|
Less: Discounts on notes payable
|
|
|
(72,000
|
)
|
Notes payable, net of discounts
|
|
$
|
78,000
|
|
During the year ended December 31, 2019, the Company recorded amortization of $5,100. The balance of the debt discount was $72,000 as of December 31, 2019.
NOTE 9 – REVENUE
During the year ended December 31, 2019, the Company recorded revenue of $45,000 for which the services were performed and completed in 2018, but the Company performed an assessment and determined the collectability was not reasonably assured and did not record as revenue in 2018 per ASC 605. The original contract was dated in 2017. In 2019, the Company collected on the invoice and recorded revenue upon receipt of the funds.
NOTE 10 – STOCKHOLDERS’ EQUITY (DEFICIT)
During the year ended December 31, 2019, the Company issued 24,000,000 shares of common stock to its board of directors for services valued at $360,000. The shares were valued based on the market price of the Company’s common shares of $0.015 on the grant date.
NOTE 11 – RELATED PARTY TRANSACTIONS
As of December 31, 2019 and 2018, the Company had accrued expenses to related parties of approximately $1,860,000 and $1,531,000.
As of December 31, 2019, the amounts are due to the Company’s sole officer for compensation $166,142 and the chairman of the board for compensation of $381,350 and the members of the board of directors of $37,500. The amount due to a former officer of a wholly owned subsidiary of $1,275,000 which at his election can be paid in shares of common stock or options, and he has yet to make a determination.
As of December 31, 2018, the amounts are due to the Company’s sole officer for compensation $80,942 and the chairman of the board for compensation of $147,150 and the members of the board of directors of $22,500. The amount due to a former officer of a wholly owned subsidiary of $1,275,000 which at his election can be paid in shares of common stock or options, and he has yet to make a determination.
NOTE 12 – SUBSEQUENT EVENTS
Management has evaluated subsequent events through the date these financial statements were issued and there were no material subsequent events to disclose.