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 OF1934

 

For the fiscal quarter ended June 30, 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 August 19, 2020.

   

  

TABLE OF CONTENTS

 

PART I
Item 1.	Condensed Financial Statements		3
	Condensed Consolidated Balance Sheets as of June 30, 2020 (unaudited) and December 31, 2019			3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019 (unaudited)			4
	Condensed Consolidation Statements of Stockholders’ Deficit for the three and six months ended June 30, 2020 and 2019 (unaudited)			5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (unaudited)			7
	Condensed Notes to Consolidated Financial Statements (Unaudited)			8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation			16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			20
Item 4.	Controls and Procedures			21
PART II
Item 1.	Legal Proceedings			22
Item 1A.	Risk Factors			22
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			25
Item 3.	Defaults Upon Senior Securities			25
Item 4.	Mine Safety Disclosure			25
Item 5.	Other Information			25
Item 6.	Exhibits			26
SIGNATURES				27

  

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PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

  

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
		June 30,				December 31,
		2020				2019
		(unaudited)
ASSETS
Current assets:
Cash		$	459,000			$	261,000
Prepaid expenses			12,000				13,000
Due from the sale of assets - current portion			300,000				300,000
Total current assets			771,000				574,000
Investment in equity securities			1,070,000				1,045,000
Property and equipment, net			7,000				4,000
Due from the sale of assets			300,000				600,000
Other assets			2,000				2,000
Total assets		$	2,150,000			$	2,225,000
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses		$	1,503,000			$	1,510,250
Accrued expenses — related parties			707,000				583,750
Total current liabilities			2,210,000				2,094,000
Long-term liabilities:
Notes payable, net of discounts			91,000				78,000
Total long-term liabilities			91,000				78,000
Total liabilities			2,301,000				2,172,000
Commitments and Contingencies - Note 7
Series D convertible preferred mandatory redeemable, 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			(69,399,000	)			(69,195,000	)
Total stockholders' deficit			(1,209,000	)			(1,005,000	)
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT		$	2,150,000			$	2,225,000
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

   

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
		THREE MONTHS ENDED								SIX MONTHS ENDED
		JUNE 30,								JUNE 30,
		2020				2019				2020				2019
Revenue		$	50,000			$	50,000			$	50,000			$	50,000
Operating costs:
General and administrative expenses			176,000				538,000				345,000				758,000
Research and development			2,000				2,000				5,000				3,000
Total operating costs and expenses			178,000				540,000				350,000				761,000
Income (Loss) from operations before other income and expenses			(128,000	)			(490,000	)			(300,000	)			(711,000	)
Other income and (expenses):
Gain (Loss) on fair value adjustment of investments			662,000				(418,000	)			109,000				(633,000	)
Interest expense			(6,000	)			-				(13,000	)			-
Total other income (expense)			656,000				(418,000	)			96,000				(633,000	)
NET INCOME (LOSS)		$	528,000			$	(908,000	)		$	(204,000	)		$	(1,344,000	)
INCOME (LOSS) PER COMMON SHARE:
Weighted average number of common shares outstanding (Basic)			557,781,064				547,759,086				557,781,064				540,808,688
Basic Income (loss) per common share		$	0.00			$	(0.00	)		$	(0.00	)		$	(0.00	)
Weighted average number of common shares outstanding (Diluted)			579,204,001				547,759,086				557,781,064				540,808,688
Diluted Income (loss) per common share		$	0.00			$	(0.00	)		$	(0.00	)		$	(0.00	)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Six Months Ended June 30, 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	)
Balance
March 31, 2020			49,999				-				557,781,064				558,000				67,632,000				(69,927,000	)			(1,737,000	)
Net Income			-				-				-				-				-				528,000				528,000
Balance
June 30, 2020			49,999			$	-				557,781,064			$	558,000			$	67,632,000			$	(69,399,000	)		$	(1,209,000	)

 

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
For the Six Months Ended June 30, 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	)
Balance
March 31, 2019			49,999				-				533,781,064				534,000				67,289,000				(68,409,000	)			(586,000	)
Common stock issued for services			-				-				24,000,000				24,000				336,000				-				360,000
Options issued for services			-				-				-				-				7,000				-				7,000
Net Loss			-				-				-				-				-				(908,000	)			(908,000	)
Balance
June 30, 2019			49,999			$	-				557,781,064			$	558,000			$	67,632,000			$	(69,317,000	)		$	(1,127,000	)
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
		SIX MONTHS ENDED
		JUNE 30,
		2020				2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(204,000	)		$	(1,344,000	)
Adjustments to reconcile net loss to net cash used in operating activities:
Common stock issued for services			-				360,000
Stock options issued/vested for services			-				7,000
Depreciation and amortization			1,000				2,000
Loss/ (Gain) on fair value adjustment of investments			(109,000	)			632,000
Amortization of debt discount			13,000				-
Changes in:
Prepaid expenses			1,000				(1,000	)
Accounts payable and accrued expenses			116,000				189,000
Net cash used in operating activities			(182,000	)			(155,000	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets			(4,000	)			(2,000	)
Proceeds from sale of assets held for sale			300,000				300,000
Proceeds from sale of investments			84,000				-
Net cash provided by investing activities			380,000				298,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments for notes payable			-				(50,000	)
Proceeds from notes payable			-				50,000
Net cash provided by financing activities			-				-
NET DECREASE IN CASH			198,000				143,000
CASH, BEGINNING OF PERIOD			261,000				87,000
CASH, END OF PERIOD		$	459,000			$	230,000
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.

  

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2020

(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 and six-months period ended June 30, 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 June 30, 2020, the Company has cumulative losses totaling $69,399,000 and negative working capital of $1,439,000. The Company had a net loss of $204,000 for the six months ended June 30, 2020. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year from the issuance of these financial statements. 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.

 

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.

 

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

JUNE 30, 2020

(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 June 30, 2020 and December 31, 2019, we had cash balances of $191,000 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 June 30, 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 then sold the assets for a total of $1.2 million of which $300,000 was received during the year ended December 31, 2019 and $300,000 was received in May 2020. The remaining $600,000 will be collected during the next two years in equal increments on the anniversary date of the agreement, May 1. As of June 30, 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.

 

The Company generated 100% of the revenue from one customer for the six months period ended June 30, 2020.

 

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2020

(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 June 30, 2020 and December 31, 2019, consisted of the following:

 

		Total fair value at June 30, 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		$	1,070,000			$	1,070,000			$	-			$	-
		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 June 30, 2020 and December 31, 2019 because of the relative short term nature of these instruments.

 

Investments in equity securities

 

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.

 

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

 

As of June 30, 2020, the Company holds approximately 7% 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 in other income (expense).

 

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.

 

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

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 June 30, 2020 and 2019, 31,397,917and 40,105,000, 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; however, dilutive shares were included from the calculation of diluted income common shares for the three months ended June 30, 2020.

 

The following table shows the computation of basic and diluted earnings (loss) per share for the three- and six-months periods ended June 30, 2020 and 2019:

  

		Three Months Ended								Six Months Ended
		June 30, 2020				June 30, 2019				June 30, 2020				June 30, 2019
Numerator:
Net income		$	528,000			$	(908,000	)		$	(204,000	)		$	(1,344,000	)
Denominator:
Weighted-average basic shares outstanding			557,781,064				547,759,086				557,781,064				540,808,688
Effect of dilutive securities			1,422,937				-				-				-
Weighted-average diluted shares			579,204,001				547,759,086				557,781,064				540,808,688
Basic earnings (loss) per share		$	0.00			$	(0.00	)		$	(0.00	)		$	(0.00	)
Diluted earnings (loss) per share		$	0.00			$	(0.00	)		$	(0.00	)		$	(0.00	)

 

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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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

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.

 

NOTE 3 – INVESTMENT IN EQUITY SECURITIES (IMAGION BIOSYSTEMS)

 

As of June 30, 2020, the Company owns 56,516,508 shares of Imagion (1,000,000 restricted shares for prepaid notes interests have not been transferred – 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 later was decreased to approximately 7%. Based upon Imagion’s trading price on June 30, 2020, approximately $0.019 per share, the fair value of the Imagion shares was approximately $1,070,000. During the three and six months ended June 30, 2020, the Company recorded a gain on its investment of $662,000 and $109,000, receptively.

 

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 closed on April 20, 2020. The Company had 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 six months ended June 30, 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 six months ended June 30, 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			109,000
Balance as of June 30, 2020		$	1,070,000

 

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

NOTE 4 – NOTES PAYABLE

 

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 amortization of debt discount for the six months ended June 30, 2020 was $8,600.

 

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 $0.015 per share with 1 million shares of IBX common stock. The amortization of debt discount for the six months ended June 30, 2020 was $4,300.

 

Notes payable		$	150,000
Less: Discounts on notes payable			(59,000	)
Notes payable, net of discounts		$	91,000

 

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			$	0.07				22,075,000
Granted			-				-				-				-
Exercised			-				-				-				-
Expired			-				-				-				-
Outstanding as of June 30, 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 June 30, 2020 are as follows:

 

								Options Outstanding and Exercisable
Exercise Price				Number Outstanding				Weighted Average Remaining Contractual Life				Number Exercisable
$	0.05				3,000,000				5.00				3,000,000
$	0.06				6,000,000				4.37				6,000,000
$	0.07				9,000,000				0.89				9,000,000
$	0.08				575,000				0.44				575,000
$	0.14				3,000,000				4.00				3,000,000
$	0.02				500,000				4.00				500,000

 

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

 

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2020

(UNAUDITED)

 

Warrants:

 

The Company issued the following warrants at the corresponding weighted average exercise price as of June 30, 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			(2,800,000	)			0.12				0.12				(2,800,000	)
Outstanding as of June 30, 2020			6,900,000			$	0.05			$	0.05				6,900,000

 

Grant date		Number of Warrants				Exercise Price				Contractual Life Remaining		Number of Shares Exercisable
April 2012			6,000,000			$	0.05			0.3 years			6,000,000
August 2015			300,000			$	0.05			0.1 years			300,000
September 2015			300,000			$	0.05			0.2 years			300,000
October 2015			300,000			$	0.05			0.3 years			300,000
			6,900,000										6,900,000

 

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 six months ended June 30, 2020, the Company received $50,000 as a royalty payment.

  

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED NOTES TO THE UNAUDITED FINANCIAL STATEMENTS

JUNE 30, 2020

(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 could be cancelled at any time with three months written notice before April 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 June 30, 2020 and December 31, 2019, the Company had accrued expenses to related parties of approximately $707,000 and $583,750. During the six months ended June 30, 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 June 30, 2020, the amounts are due to the Company’s sole officer for compensation $187,000 and the chairman of the board for compensation of $476,000 and the members of the board of directors of $44,000.

  

NOTE 9 – SUBSEQUENT EVENTS

 

In accordance with ASC 855-10, the Company has analyzed its operations subsequent to June 30, 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 is actively seeking 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.

 

Metallicum

 

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 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. We expect to start earing royalties in 2021.

 

Imagion

 

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).

 

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As of June 30, 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 June 30, 2020, we hold approximately 7% of the total issued and outstanding shares of Imagion and no longer have a seat on the Board of Directors of Imagion.

    

RESULTS OF OPERATIONS

 

THREE MONTHS ENDED JUNE 30, 2020 COMPARED TO THREE MONTHS ENDED JUNE 30, 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 $176,000 for the three months ended June 30, 2020 compared with $538,000 for the three months ended June 30, 2019. The primary decrease in general and administrative expenses was the result of the decrease in stock-based compensation and legal expenses.

 

RESEARCH AND DEVELOPMENT. Research and development costs were $2,000 for the three months ended June 30, 2020 compared with $2,000 for the three months ended June 30, 2019.

 

OTHER INCOME (EXPENSES). Total other income for the three months ended June 30, 2020 totaled $656,000 compared to the expenses of $418,000 for the three months ended June 30, 2019. This is primarily attributable to the gain on fair value adjustments of its investment in Imagion during the period.

 

NET INCOME (LOSS). During the three months ended June 30, 2020, the Company had net income of $528,000, compared to a net loss of $908,000 for the three months ended June 30, 2019. This is primarily attributable to the income from license agreement, gain on fair value adjustments of its investment and the decrease in general and administrative expenses.

 

SIX MONTHS ENDED JUNE 30, 2020 COMPARED TO SIX MONTHS ENDED JUNE 30, 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 $345,000 for the six months ended June 30, 2020 compared with $758,000 for the six months ended June 30, 2019. The primary decrease in general and administrative expenses was the result of the decrease in stock-based compensation and legal expenses.

 

RESEARCH AND DEVELOPMENT. Research and development costs were $5,000 for the six months ended June 30, 2020 compared with $3,000 for the six months ended June 30, 2019.

 

OTHER INCOME (EXPENSES). Total other income for the six months ended June 30, 2020 totaled $96,000 compared to the other expense of $633,000 for the six months ended June 30, 2019. This is primarily attributable to the gain on fair value adjustments of its investment in Imagion during the period.

 

NET LOSS. During the six months ended June 30, 2020, the Company had a net loss of $204,000, compared to $1,344,000 for the six months ended June 30, 2019. This is primarily attributable to the income from license agreement, gain on fair value adjustments of its investment and the decrease in general and administrative expenses.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Stockholders’ deficit totaled $1,209,000 on June 30, 2020 and the working capital deficit was $1,439,000 on such date. We had an increase of $198,000 in cash and cash equivalents for the six months ended June 30, 2020.

 

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Based upon current projections, our principal cash requirements for the next 12 months consists of (1) fixed expenses, including payroll, investor relations services, public relations services, bookkeeping services, consultant services, and rent; and (2) variable expenses, including technology research and development, milestone payments and intellectual property protection, and additional scientific consultants. As of June 30, 2020, we had $458,000 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.

 

On October 17, 2019, we executed a secured note with our only independent director for $100,000 and a secured note with an unrelated party for $50,000. The secured notes are due on October 17, 2022. The Company agreed that the notes bear interest at 10% per annum, to be paid in advance with shares of Imagion Biosystems Limited common stock (“IBX”), calculated at $0.015 per share or 3,000,000 shares of IBX. We currently do not plan any further sale or issuance of IBX common stock to raise funds for operations. To fund operations, we plan on relying on payments of $600,000, to be collected during the next two years in equal increments from the sale of assets in 2019 and future royalties from the Metallicum license.

   

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.

 

Investment in Equity Securities:

 

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 June 30, 2020, the Company holds approximately 7% 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.

 

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.

 

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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.

 

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 then sold the assets for a total of $1.2 million of which $300,000 was received during the year ended December 31, 2019 and $300,000 was received in May 2020. The remaining $600,000 will be collected during the next two years in equal increments on the anniversary date of the agreement, May 1. As of June 30, 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.

 

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. As of June 30, 2020 and 2019, 31,397,917and 40,105,000, 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; however, dilutive shares were included from the calculation of diluted income common shares for the three months ended June 30, 2020. 

 

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.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

  

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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 June 30, 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 June 30, 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 June 30, 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

 

As a “smaller reporting company”, we are not required to provide this information under this item pursuant to Regulation S-K.

 

An investment in our Common Stock involves a high degree of risk. 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 19th day of August, 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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