10-K 1 mhtx_10k.htm FORM 10-K mhtx_10k.htm


UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2012
 
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______.
 
MANHATTAN SCIENTIFICS, INC.
(Name of small business issuer in its charter)
 
Delaware
 
000-28411
 
85-0460639
(State of Incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)

The Chrysler Building, 405 Lexington Avenue, 26th Floor, New York, New York 10174
(Address of principal executive offices) (Zip code)

Issuer's telephone number: (212) 541-2405
Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
 
Common Stock, $0.001 par value
(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ¨ No x
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No ¨
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ¨
 
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 (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x  No ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No x
 
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the issuer as of June 29, 2012 was $19,847,114. For purposes of this computation, all executive officers, directors and 10% shareholders were deemed affiliates. Such a determination should not be construed as an admission that such 10% shareholders are affiliates.
 
As of March 28, 2013 there were 458,542,480 shares of common stock of the issuer issued and outstanding.
 


 
 

 
 
TABLE OF CONTENTS
 
     
PAGE
 
PART I
         
ITEM 1.
DESCRIPTION OF BUSINESS
    3  
ITEM 1A.
RISK FACTORS
    12  
ITEM 2.
DESCRIPTION OF PROPERTIES
    16  
ITEM 3.
LEGAL PROCEEDINGS
    16  
ITEM 4.
MINE SAFETY DISCLOSURES
    16  
           
PART II
           
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
    17  
ITEM 6
SELECTED FINANCIAL DATA
    21  
ITEM 7
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    22  
ITEM7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    25  
ITEM 8.
FINANCIAL STATEMENTS
    F-1  
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    26  
ITEM 9A(T)
CONTROLS AND PROCEDURES
    26  
ITEM 9B.
OTHER INFORMATION
    27  
           
PART III
           
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
    28  
ITEM 11.
EXECUTIVE COMPENSATION
    30  
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
    32  
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    32  
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
    33  
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
    34  
 
SIGNATURES
    36  

 
2

 

PART I

Forward Looking Statements
 
This Form 10-K contains "forward-looking" statements including statements regarding our expectations of our future operations. For this purpose, any statements contained in this Form 10-K 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, competition within our chosen industry, including competition from much larger competitors, technological advances, our ability to obtain approval from the FDA or other governmental agencies and the failure by us to successfully develop business relationships. 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 and mass production of, among other things, the advanced materials, the nanomedicine, successful protection of our licensed 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 to these forward-looking statements to reflect the effect of events or circumstances that may arise after the date of this report. All written and oral forward-looking statements made subsequent to the date of this report and attributable to us or persons acting on our behalf are expressly qualified in their entirety by this section.
 
ITEM 1. DESCRIPTION OF BUSINESS
 
OVERVIEW

COMPANY HISTORY

Manhattan Scientifics, Inc. (the “Company” or “Manhattan Scientifics”), a Delaware corporation, was established on July 31, 1992 and has two operating wholly-owned subsidiaries: Metallicum, Inc., (“Metallicum”) and Senior Scientific LLC (“Senior Scientific”). On June 12, 2008, the Company acquired Metallicum, Inc., for 15,000,000 shares of Company’s common stock. 
 
Manhattan Scientifics is focused on technology transfer and commercialization of disruptive technologies in the nano medicine space. The company is presently developing commercial medical prosthetics applications for its ultra-fine grain metals and plans to commercialize the cancer research work and nano medical applications developed by Senior Scientific, a unit of the Company.

The Company’s business model capitalizes on inventions and technology from which profits could be earned primarily through licensing. Manhattan Scientifics is dedicated to earning profit for its 8,600 owner-shareholders by identifying, developing, patenting, supporting and marketing technical innovation by harvesting top technology talent to bring game-changing products to market. Manhattan Scientifics assists and acquires early stage technologies and assists entrepreneurial founders and management to stage them to become commercial. Our investment philosophy is defined by our desire to help build innovative companies with exceptional potential. We emphasize novel technologies in the nano-medicine space with the potential to be disruptive and the ability to establish sustainable businesses. We are patient capital with experienced business-building partners who bring the perspective of merchant-bankers not venture capitalists. Our approach to assist scientists to commercialize their work is by providing a forum within which the commercialization process is fostered through partnerships with existing companies (Fortune 1000 or larger). We believe the entrepreneurial scientists and engineers who join us are enticed in part by the offer to potentially create personal success and wealth by virtue of ownership of our publicly traded shares common stock under the symbol MHTX.

Manhattan Scientifics distinguishes itself from most venture capital firms in that it uses its own, rather than managed capital. Consequently, Manhattan Scientifics’ actions are not constrained by preset rules and fund-life-time tables, and the technologist avoids many of the sometimes-adversarial aspects of venture capital relationships. Technologists who are “partnered” with our company also enjoy the diversity of shared success with their brother technologists at Manhattan Scientifics - success at any one of the company’s technologies finds its way into the value of our shares, and that success is shared by the entrepreneur whose concept or acceptance in the market place has not yet matured. Manhattan Scientifics brings its expertise with capital, but also with talent including IP counsel, experienced marketers and networkers with global reach.

Such companies allow the new technology to avoid the many pitfalls of the “Do it yourself” approach of startups (most of which fail). Our company earns profit through royalty-bearing licenses as part of the technology transfer process.
 
 
3

 
 
TWO BUSINESSES EXIST WITHIN MANHATTAN SCIENTIFICS

Two nanotechnology businesses exist within Manhattan Scientifics. Both “units” are wholly-owned subsidiaries, both focused on nanotechnology applications in medicine.

The first (Metallicum Inc.) – successfully demonstrates our business-model, a licensing model, given that we are an inventions commercialization company.

Manhattan’s second business is called Senior Scientific LLC, and is at the crossroads of biotechnology and nanotechnology.

Our novel bioimaging and nanomagnetic detection systems have been developed specifically to detect cancer and other diseases earlier and with higher specificity than is currently possible. We have developed proprietary hardware and software for the highly sensitive detection of nanomagnetic particles that can be linked to antibodies for the detection and treatment of cancer and other human diseases—all without the use of ionizing radiation or large magnetic fields.

Our novel technologies make possible the earlier detection of cancer in vivo, the ability to analyze biopsies with greater sensitivity and accuracy, the ability to monitor the therapeutic effectiveness of anticancer treatments—both in humans and in animal models—and allow us to detect cancer recurrence with significantly improved sensitivity. Please see: www.SeniorScientific.com

The technology was developed by Edward R. Flynn, PhD, Senior Scientific’s founder and chief scientist, in collaboration with Richard S. Larson, MD, PhD, Executive Vice Chancellor, UNM Health Sciences Center in New Mexico.

ACQUISITIONS

In June 2008, we acquired Metallicum, Inc. (“Metallicum”) and its licensed patented technology. We entered into a stock purchase agreement with Metallicum, Inc. 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 will fully develop, manufacture and market a new class of high strength metals. We earn annual revenues from these agreements and we expect to earn licensing royalties when Carpenter begins selling our licensed technology.
 
On May 31, 2011, we entered into an Agreement and Plan of Reorganization to acquire Senior Scientificand Scientific Nanomedicine, Inc. (“Scientific Nanomedicine” or “SNMI”). We subsequently dissolved Scientific Nanomedice and transferred all remaining assets to Senior Scientific. The total purchase price was 21,668,000 restricted shares of our common stock (less 7,667,000 shares previously issued pursuant to an option agreement). As a result of this acquisition, we own patented technologies that can use biosafe nanoparticles and sensitive magnetic sensors to detect and measure cancer cells in biopsies or in the human body with the potential to transform how cancer is detected and treated.
 
ADVANCED METALS

Our licensed proprietary process will enable our commercial partners the ability to build super-strength metals and alloys to make products that weigh far less than in the past and without significant cost premiums. In September 2009, the Company entered into a technology transfer agreement and sale with Carpenter Technology Corporation, (“Carpenter”).  Pursuant to these revenue generating agreements, Carpenter will fully develop, manufacture and market a new class of high strength metals. Metallicum intends to establish other manufacturing partner relationships with significant customers in the medical device and prosthetics industries.

 
4

 
 
NANOMEDICINE

Our acquisition of Senior Scientific gives us the commercial rights to technology and intellectual property with respect to the detection and monitoring of diseases using nanotechnologies. The technology is intended for the early detection of cancers, quantitative in vivo assessments of tumors, and similar applications with other diseases identifiable by cell surface markers. The technology does not require surgery, biopsy, radioactivity, or exotically expensive instruments. Nanoparticles are introduced to the body, for example, by intravenous injection. A sensitive magnetic instrument is used to magnetize and measure the nanoparticles that have bound to the specific targets (e.g., cells of a specific type of cancer). Other tissues, bone, scars, etc. are all transparent to the magnetic fields used, so the technology can be used to image and measure tumors in places inaccessible to other tests, and tumors while they are still small enough to be treatable. The nanoparticles are nontoxic, and the magnetic instrument is not harmful or expensive, so the tests can be repeated as needed. The following bullet points summarize management's current beliefs with respect to the benefits and commercialization of our nanomedicine technology:
 
• 
Our technology can detect cancer at a mass of 100,000 cells, and is currently being programmed to detect down to 12,000 cells;
• 
After development for commercial use – our technology may detect cancer before stage one -- down to "a few thousand cells";
• 
Our technology uses patented device now known as SQUID (superconducting quantum interference device) which we hope to develop for commercialization along with the nanoparticles that will be used to detect cancer;
• 
MD Anderson Cancer Center signed on for a preclinical trial of our magnetic nanoparticle technology in August 2011;
• 
There is revenue potential from lab/animal research and from human medical applications;
• 
FDA approval may not be needed for lab/animal uses; and
• 
Since biosafe nanoparticles are already in use-there may be a shortened FDA approval process for human medical applications.
 
Similar to our agreement with Carpenter, we plan to license our technology to a pharmaceutical or medical device company who will use the technology for non-invasive cancer biopsies and screenings.
 
OUR DEVELOPMENT MODEL
 
Our goal has been to influence the future through the development of potentially life changing technologies. Our business model is to: (i) identify significant technologies, (ii) acquire them or the rights to them, (iii) secure the services of inventors, engineers or other staff who were instrumental in their creation, (iv) provide or contract for suitable work facilities, laboratories, and other aids where appropriate, (v) prototype the technologies to demonstrate "proof of principle" feasibility, (vi) secure patent and or other intellectual property protection, (vii) secure early customers for product trials where feasible and appropriate, and (viii) commercialize through licenses, sales or cooperative efforts with other manufacturing and distribution firms.
 
Since our technologies are still in their development phase, the need for operating and acquisition capital is a continuous concern requiring the ongoing efforts of our management. The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.

We utilize the intellectual property sale/licensing model, and not a production model, though management is opportunistic and is open to explore all methods leading to commercializing our technologies. We intend to consider all appropriate avenues for the commercialization of our technologies.

DESCRIPTION OF TECHNOLOGIES

ADVANCED MATERIALS
 
Our business model is based on licensing metals technology to metals manufacturers. Although competing commercial products are provided by existing specialty metals companies, the only competing processes for creating nanostructured metals are either limited or cannot be economically scaled. Metallicum does not yet face direct competition, but expects competition will emerge as the metal is commercialized.
 
 
5

 
 
In January 2009, we 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 we provided a non-refundable fee and 2,000,000 shares of our common stock with a fair market value of $33.000. Additionally, we are required to pay an annual license fee of $10,000 starting in February 2010 and royalties on future net sales.
 
The technology is expected to trim thousands of pounds from airplanes and hundreds of pounds from cars without sacrificing structural strength or adding significant cost. The nanostructured metals also have wide implications for use in the medical device and prosthetics industries including dental implants, replacements for hips, shoulders, knees and cardio vascular stents. In December 2008, a manufacturing joint venture partner in Albuquerque, N.M. received U.S. Food and Drug Administration 510(k) clearance to market nanostructued titanium metal dental implants using our technology. This clearance positions us closer to our goal of commercializing our technology for nanostructured metals. We are in talks with many of the key manufacturers of dental implants and have signed material testing agreements with several manufacturers.
 
In September 2009, the Company entered into a contract with Carpenter Technology Corp. to sell certain nanostructured metal technologies acquired from Metallicum, Inc, its wholly owned subsidiary, to Carpenter and to provide sub-license rights to Carpenter covering license agreements that the Company has from Los Alamos Laboratories. The agreement has two distinct elements: a sale and services agreement and a sub-license agreement. The first element irrevocably transfers the field technology to Carpenter Technology Corporation and Carpenter may develop or use the technology for its own benefit. Carpenter agreed to pay a sales price of $600,000 and pay royalties for products developed using this technology. In addition, the Company will receive additional service income for assisting Carpenter in the production process. These additional services were elective and do not affect the sale of the technology. The second element of the agreement is a sub-license to Carpenter for patents (the LANS patents) that are licensed by the Company from Los Alamos National Laboratories. The sub-license agreement obligates Carpenter to pay MSI a running royalty on the sales of products that require license to the LANS patents.

As of December 31, 2012 and 2011, the Company recorded $686,000 and $686,000 as revenue for the years ended December 31, 2012 and 2011. The Company has received the following amounts from Carpenter:

· 
During the year ended December 31, 2009, the Company received $0.6 million for the sale of certain technology;
· 
During the years ended December 31, 2009, 2010, 2011 and 2012, the Company received from Carpenter $0.6 million of income for assisting with development of the technology and is recognizing the income over the term of the Agreement.
· 
During the year ended December 31, 2009, the Company, received a $1,000,000 .one-time payment for satisfying a performance obligation under the Technology Transfer Agreement

The Company recognized the sales revenue upon transfer of the technology and satisfying the performance obligation by Manhattan to facilitate the purchase of a current generation ECAP-C production machine by Carpenter and will recognize the service income over the term of the agreement. The royalty income will be recognized as products are developed using the field technology or sub-license.
 
In January 2013, the Company entered into a licensing agreement with a party granting certain licensing rights to the Company's nanostructured metal technology. As consideration: the Company will receive $180,000 in January 2013 which has been received; $30,000 by June 1, 2013; $30,000 by December 31, 2013; $30,000 by December 1, 2014; and $30,000 upon commercial launch by the party or the latest December 1, 2015.

In the near future, the Company believes that Carpenter will commercialize our metals technology which will provide a steady revenue stream. Carpenter has expressed optimism about the future and importance of the technology licensed from us. They recently disclosed that they believe the technology is going to change the future of metals over the next few decades. At a September investors meeting for Carpenter’s analysts, portfolio managers and shareholders, Carpenter discussed the interest in the medical community about the advanced metal, which Carpenter has trademarked under the name MithralMax. Carpenter reported that it has sub-licensed the technology to a yet to be named, premium dental implant manufacturer. Carpenter now says it is showing the material to many orthopedic companies. Carpenter also reported to the financial community that it is going to take a look at how the metal works in aerospace and energy industries such as fasteners for the aerospace industry. We expect to receive a minimum of $9 million in royalties from Carpenter during the period from 2015 to 2017. We anticipate, however, that we will receive additional royalties before 2015.

 
6

 
 
NANOMEDICINE

Our subsidiary, Senior Scientific LLC, holds patented technologies that can use biosafe nanoparticles and sensitive magnetic sensors to detect and measure cancer cells in biopsies or in the human body. The technology is highly specific – it measures the exact type of cancer and does not generate false positive results from benign growths, calcifications, or other spurious signals that complicate current detection methods. It is also very sensitive – it can measure tumors that are 1000-times smaller than is possible with currently available techniques. This combination of features has the potential to transform how cancer is detected and treated.

Conventional cancer treatment starts when a cancer has already grown to hundreds of millions of cells – large enough to be detectable by X-rays, ultrasound, or to cause external symptoms. Even then, distinguishing between benign conditions and cancer is difficult, resulting in missed cancers, exploratory surgeries or unnecessary treatment, and needless patient anxiety. Treatments tend towards “overkill,” since there are no effective methods to measure small changes in the cancer to reliably know when all cancer cells have been eliminated, or to detect metastases or recurrences before they are again large enough to be deadly. Cancer is a cellular phenomena, but conventional technology does not measure cells. The mismatch causes huge costs – we need to find and treat cancer cells, but current technology forces us to find shapes and remove or kill all kinds of cells. Billions of dollars each year are wasted, and many lives shattered or lost, because cancer is essentially invisible until it is big enough to cause problems.

We have invested approximately $2.0 million in the Senior Scientific cancer project in the past two years. We continue to progress in advancing the technology toward commercialization.

·  
We are currently performing the detailed design of two next generation instruments, which should be 1000X more sensitive than our research prototype, and will offer automation and laboratory integration required for use in customer labs. The first instrument will be placed into service at our Albuquerque lab. We are working with the MD Anderson Cancer Center to ensure that their facility is ready to accept the second instrument and place it promptly into use. We are identifying and qualifying vendors for the systems, and anticipate having the first instrument operational within about 6 months after close of financing. We are also implementing and testing our own, proprietary nanoparticle chemistry and production, to give us control over the quality and economics of this important consumable in our business model.

·  
Senior Scientific has joined NMBio as a corporate member, improving our access to and visibility within the New Mexico biotechnology community.

·  
We are working with several groups at the MD Anderson Cancer Center to deliver a preclinical instrument for their testing and use. The work of Dr. Robert C. Bast Jr., Vice President for Translational Research at MD Anderson, (widely credited for the discovery of the ovarian cancer marker CA-125) with our technology earned the attention of the National Foundation for Cancer Research, which featured the technology as a “2012 Research Breakthrough.” We have frequent meetings with Dr. John Hazle, Chairman, Department of Imaging Physics, Division of Diagnostic Imaging, regarding the user and facility requirements for the instrument to be placed at MD Anderson. We have acquired preliminary data regarding a prostate cancer application in collaboration with MD Anderson, and are negotiating a larger collaboration in that area.

·  
The first results from our clinical trial related to determination of minimum residual disease in leukemia were sufficiently promising that we have paused the trial while we integrate our in-house nanoparticles. The inclusion of our in-house nanoparticles in the trial should place us in better position to market the technology when the trial is complete.

·  
We are continuing work under our $100,000 (approx.) NIH grant to develop a version of our technology using atomic magnetometer technology. We have begun qualifying commercial vendors for production of a commercial prototype atomic magnetometer-based instrument.

·  
We have hired a full time Chief Nanoparticle Chemist, and renewed our user agreement with the Center for Integrated Nanotechnologies at Sandia National Laboratories.

 
7

 
 
All of these programs are designed to validate our technology for the market, which will produce value for our shareholders. Our technology makes possible the detection of specific cancer cells. Physicians may then select a broad range for initial diagnosis, or a single type for monitoring therapy or detecting metastases. Small quantities of biosafe nanoparticles with attached targeting agents are introduced into the patient where they “stick” only to the targeted cancer cells. A weak magnetic field is applied to magnetize the particles, and sensitive magnetic detectors count the number of particles that have stuck to cancer cells. Due to the highly specialized nature of both the nanoparticles and our detection device, only those particles stuck to their targeted cells are detected, making the results highly specific, objective (the results depend only on the cells, not a human interpretation of an image), and sensitive (only a few thousand cells are required, instead of hundreds of millions for conventional techniques).
 
Our technology makes possible improvements across a wide range of cancer fighting areas: detection of cancers years earlier; noninvasive, specific diagnosis after conventional screening; earlier, faster discovery of drugs; precise, personalized monitoring of therapy; detection of metastases while still treatable; and accurate monitoring of new therapies. Our technology has been proven in animal models using human cancer cells, in human trials using bone marrow biopsy samples, and is the subject of over 20 patent applications and14 peer-reviewed publications. Our success will depend in part on its ability to obtain regulatory approvals required for human application of its technologies, both in the United States and other countries. There can be no assurance that such approvals will be obtained.
 
Our next step is placing instruments into operation. We have the instruments designed, and the cancer institutes are preparing to receive them. We need capital to produce the instruments, support the first users, and get the validation results. This will take about 12 months, and, at the end, we will have the technology ready for launch into significant non-FDA markets, or license for use in human applications, or both. Our technology is a platform technology that has many possible applications. Our business model has been designed to fit these several applications, but, generally, the instrument will be placed at low cost, and recurring revenue realized on consumable targeted nanoparticles. Overall, we anticipate that our technology will be acquired or licensed by a large company once the first few applications are approved and in the market (if not before).
 
We are now at an important juncture in our program. We have met with major medical device companies, and they have posed specific technology validation questions that we will answer. Leading physicians at various cancer institutes are eager to get started with studies that will provide that validation. Regulatory approvals are required for applications of the technology in humans. Regulatory approval for in vivo applications may require demonstration that the targeted nanoparticles are safe for injection into humans, that the instrument is also safe, and that the resulting measurement provides information useful in assessing the state of a patient. We believe that the constituent parts of the targeted nanoparticles have already been approved for injection in humans in other applications. Initial toxicology studies in cell cultures suggest that the combination of the parts into targeted nanoparticles is not toxic. Significant effort is still required to document these results under the laboratory and manufacturing practices that the FDA is likely to require. The instrument comprises passive sensors and a magnetizing system, which applies a magnetic field much less powerful than that already approved in other instruments. The correlation of the instrument reading to the underlying biological phenomena has been demonstrated in preclinical studies for selected cancer/antibody combinations. Significant effort is still required to demonstrate the translation of the preclinical results to human pilot studies. We are currently working on defining the projects required to secure regulatory approval.
 
The total market for all applications of our technology is hard to estimate, given the breadth of the platform and our ability to develop the commercial application. Our measurement approach is a platform technology with applications in many areas. A few examples: there are about 1M prostate cancer biopsies in the US each year; replacing those with our superior and less invasive test is about a $3B market. There are 2M prostate cancer survivors in the US; annual monitoring of those men for recurrence is about a $6B market. There are 1.6M breast cancer biopsies in the US each year; replacing those with our superior and less invasive test is about a $4.8B market. Monitoring cancer in laboratory animals, necessary in all new drug development as well as many other research applications, is an independent $100M/year opportunity with no need for FDA approval.
 
Our first markets may be the use of our technology for in vitro laboratory measurements, preclinical research and ex vivo disease monitoring. We have received interest from clinicians in applying our technology to other cancers and other stages of cancer therapy. The selection of the initial market entries will be informed by size of market, and by time and risk of regulatory requirements. More than 100 million screening tests for cancer are performed each year in the US at a cost of over $14 billion. Ultimately, our technology, after development, has the potential to replace these screening tests or the more expensive, invasive tests that follow a positive screening result.
 
To develop our technology, we are seeking $3-$5 million in additional financing to: possibly place and support instruments at the request of collaborators at two of the leading cancer research and treatment centers in the United States; perform studies demonstrating the application of our technology to specific clinical needs; perfect and protect the intellectual property surrounding our instrument, our nanoparticles, and our clinical applications; and initiate the process of regulatory approval.
 
 
8

 
 
Available cash has been used to refine and improve the cancer detection technology system. The new system will give us the ability to detect down to a few hundred cells, 100 times more sensitive in detecting cancer cells than the present instrument which is already 1,000 times more sensitive than a mammogram. This is extremely important in detecting cancer that has metastasized. The technology has now been used to increase the sensitivity and specificity for finding ovarian cancer at an early stage. Results of experiments on ovarian cancer cell has shown this technology can easily identify the different types of ovarian cells and is now being used to do research on new markers for ovarian disease. These very important results will lead to earlier identification of ovarian cancer as well as identification of new methods for determining it is ovarian cancer and not a benign cyst in the ovaries. These results will shortly be submitted for publication in a peer-reviewed publication.

INTELLECTUAL PROPERTY / RESEARCH AND DEVELOPMENT
 
In 2008, we 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, improvements on the patents or trade secrets whether or not patentable or registerable under copyright or similar laws. The purchase price paid for these licenses was $305,000, which represents its fair value. The Company obtained an exclusive license on two patents and a non-exclusive license on the third patent. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years.
 
On May 31, 2011, we acquired Senior Scientific and all of its intellectual property. Incident to the acquisition, we assigned certain of the intellectual property to Scientific Nanomedicine, Inc., a subsidiary formed solely for that purpose. The need for that subsidiary has passed, and we have assigned all the intellectual property to Senior Scientific. Senior Scientific’s patent estate includes the patents and applications in the following schedule. We continue to prosecute our patent applications and file new applications as the technology progresses.

SenSci IP schedule:

Title
Application #
Filing date
Patent #
Country
Magnetic Needle Biopsy
60/549,501
1-Mar-2004
 
US
Magnetic Needle Biopsy
11/069,361
28-Feb-2005
7,309,316
US
Biomagnetic Detection And Treatment Of Alzheimer's Disease
60/866,095
16-Nov-2006
 
US
Biomagnetic Detection And Treatment Of Alzheimer's Disease
11/940,673
15-Nov-2007
8,060,179
US
Magnetic Needle Biopsy
11/957,988
17-Dec-2007
 
US
Magnetic Needle Biopsy
12/337,554
17-Dec-2008
8,118,754
US
Leukemia Cell Detection Using A Novel Magnetic Needle And Nanoparticles
61/248,775
5-Oct-2009
 
US
Early Detection Of Breast Cancer Using Magnetic Nanoparticles And Ultra-Sensitive Magnetic Field Sensors
61/259,011
6-Nov-2009
 
US
Detection Of Breast Cancer In Tissue Incompatible With Other Methods, And At Levels Undetectable By Other Means
61/308,897
27-Feb-2010
 
US
Apparatus And Method To Detect Ovarian Cancer In Tissue
61/310,700
4-Mar-2010
 
US
Nonsurgical Determination Of Organ Transplant Acceptance
61/314,370
16-Mar-2010
 
US
Method And System For In-Vivo Detection Of Hodgkin’s Lymphoma
61/314,392
16-Mar-2010
 
US
Nanoparticles And Methods For Making, Characterizing, And Testing Nanoparticles, Suitable For Use In Magentic Field Relaxometry Applications
61/329,076
28-Apr-2010
 
US
 
 
9

 
 
High-Temperature Superconducting Quantum Interference Device Apparatus
61/329,198
29-Apr-2010
 
US
Apparatus And Method To Detect Prostate Cancer In Tissue
61/331,816
5-May-2010
 
US
Methods And Apparatuses For The Localization And Treatment Of Cancer
61/352,782
8-Jun-2010
 
US
Methods And Apparatuses Using An Atomic Magnetometer To Detect Disease In Tissue
61/361,998
7-Jul-2010
 
US
Methods And Apparatuses To Detect Cancer Metastasis Or Recurrence
61/377,854
27-Aug-2010
 
US
Conjugated Nanoparticles As Contrast Agents
61/386,961
27-Sep-2010
 
US
Detection, Imaging, And Quantitation Of Targeted Cells
61/389,233
3-Oct-2010
 
US
Cell Detection Using Targeted Nanoparticles And Magnetic Properties Thereof
PCT/US2010/051417
5-Oct-2010
 
US
Detection, Measurement, And Imaging Of Cells Such As Cancer And Other Biologic Substances Using Targeted Nanoparticles And Magnetic Properties Thereof
PCT/US2010/055729
5-Nov-2010
 
US
Biological Application Of Magnetic Relaxometry With Atomic Magnetometer And SQUID Sensors
61/454,560
20-Mar-2011
 
US
Nonsurgical Determination Of Organ Transplant Condition
PCT/US2011/28746
16-Mar-2011
 
US
Magnetic Relaxometry Methods And Apparatuses
61/468,575
29-Mar-2011
 
US
Methods And Apparatuses For The Localization And Treatment Of Cancer
PCT/US2011/39349
7-Jun-2011
 
US
Detection, Measurement, And Imaging Of Cells Such As Cancer And Other Biologic Substances Using Targeted Nanoparticles And Magnetic Properties Thereof
13/249,994
30-Sep-2011
 
US
Magnetic Needle Biopsy
13/399,733
17-Feb-2012
 
US
Detection, Measurement, And Imaging Of Cells Such As Cancer And Other Biologic Substances Using Targeted Nanoparticles And Magnetic Properties Thereof
13/503674
24-Apr-2012
 
US
Magnetic Relaxometry Using Brownian Randomization, Neel Relaxation, Or Combinations Thereof
61/639,827
27-Apr-2012
 
US
Detection, Measurement, And Imaging Of Cells Such As Cancer And Other Biologic Substances Using Targeted Nanoparticles And Magnetic Properties Thereof
     
Japan
Detection, Measurement, And Imaging Of Cells Such As Cancer And Other Biologic Substances Using Targeted Nanoparticles And Magnetic Properties Thereof
     
Israel
Detection, Measurement, And Imaging Of Cells Such As Cancer And Other Biologic Substances Using Targeted Nanoparticles And Magnetic Properties Thereof
     
Canada
Detection, Measurement, And Imaging Of Cells Such As Cancer And Other Biologic Substances Using Targeted Nanoparticles And Magnetic Properties Thereof
     
Singapore
Detection, Measurement, And Imaging Of Cells Such As Cancer And Other Biologic Substances Using Targeted Nanoparticles And Magnetic Properties Thereof
     
Australia
Detection, Measurement, And Imaging Of Cells Such As Cancer And Other Biologic Substances Using Targeted Nanoparticles And Magnetic Properties Thereof
     
China
 
 
10

 
 
Detection, Measurement, And Imaging Of Cells Such As Cancer And Other Biologic Substances Using Targeted Nanoparticles And Magnetic Properties Thereof
     
EPO
Detection, Measurement, And Imaging Of Cells Such As Cancer And Other Biologic Substances Using Targeted Nanoparticles And Magnetic Properties Thereof
     
India
Detection, Measurement, And Imaging Of Cells Such As Cancer And Other Biologic Substances Using Targeted Nanoparticles And Magnetic Properties Thereof
     
Russia
Detection, Measurement, And Imaging Of Cells Such As Cancer And Other Biologic Substances Using Targeted Nanoparticles And Magnetic Properties Thereof
     
S. Korea
Applications Of Magnetic Relaxometry In Ovarian Cancer Nanomedicine
61/691,913
22-Aug-2012
 
US
Method For Measuring The Viscosity Of A Fluid Using Magnetic Nanoparticles
 
1-Mar-2011
 
US
Magnetic Relaxometry Using Brownian Randomization, Neel Relaxation, Or Combinations Thereof
61/639,827
27-Apr-2012
 
US
Magnetic Relaxometry Using Magnetization And Measurement Fields
61/715,791
18-Oct-2012
 
US

•           Confidential nanoparticle production, marker conjugation methods, and analysis techniques; and
•           Analysis and data acquisition software copyrights
 
Our ability to compete depends in part on the protection of and our ability to defend our proprietary technology and on the goodwill associated with our trade names, service marks and other proprietary rights. However, we do not know if current laws will provide us with sufficient enough protection that others will not develop technologies similar or superior to ours, or that third parties will not copy or otherwise obtain or use our technologies without our authorization.
 
The success of our business will depend, in part, to identify technology, obtain patents, protect and enforce patents once issued and operate without infringing on the proprietary rights of others. Our success will also depend on our ability to maintain exclusive rights to trade secrets and proprietary technology we own are currently developing and will develop. We can give no assurance that any issued patents will provide us with competitive advantages or will not be challenged by others, or that the patents of others will not restrict our ability to conduct business.
 
In addition, we rely on certain technology licensed with a perpetual term from the Los Alamos National Laboratory and may be required to license additional technologies in the future. We do not know if these third-party licenses will be available or will continue to be available to us on acceptable commercial terms or at all. The inability to enter into and maintain any of these licenses could have a material adverse effect on our business, financial condition or results of our operations.
 
Policing unauthorized use of our proprietary technology and other intellectual property rights could entail significant expense. In addition, we do not know if third parties will bring claims of copyright or trademark infringement against us or claim that our use of certain technologies violates a patent or other intellectual property. Any claims of infringement, with or without merit, could be time consuming and expensive to defend, result in costly litigation, divert management attention, require us to enter into costly royalty or licensing arrangements or prevent us from using important technologies or methods, any of which could have a material adverse effect on our business, financial condition or results of our operations. 

SALES AND MARKETING
 
Although our technologies presently are in the development stage, we are engaged in an early commercialization program intended to facilitate the transition from development to licensing, manufacturing and/or sale. This program consists of preliminary dialogues with potential strategic partners, investors, manufacturers, potential licensees and/or purchasers.

 
11

 
 
COMPETITION
 
As a result of our licensed technology, we do not have any direct competitors in our advanced materials operations. We may, however, face competition from leading researchers and manufacturers worldwide that develop competing technology.

With respect to our nanomedicine technology, our cancer detection technology will face competition primarily from companies such as Abbott Laboratories Inc., Cepheid Inc., Philips, GE Healthcare, Siemens, Gen-Probe Incorporated, MDxHealth SA, EpiGenomics AG, Roche Diagnostics and Sequenom, Inc. We plan, however, to enter into partnerships with the aforementioned companies to develop our technology

Competitors may successfully challenge our licensed technology, produce similar products that do not infringe our licensed technology or produce products in countries where we have not applied for intellectual property protection. Many of these competitors may have longer operating histories and significantly greater financial, marketing and other resources than we have. Furthermore, competitors may introduce new products that address our potential markets. Competition could have a material adverse effect on our business, financial condition and results of our operations.
 
The markets in which we compete are highly competitive and constantly evolving. We believe that the principal competitive factors in our technology markets include without limitation:
 
 
· capitalization;
 
· cost of product;
 
· first to market with product in market segment;
 
· strong intellectual portfolio;
 
· product reliability;
 
· strong customer base; and
 
· strong manufacturing and supplier relationships.

CUSTOMERS AND SUPPLIERS
 
For the years ended December 31, 2012 and 2011, all of our revenue was generated by one customer, Carpenter Technology Corporation. We did not have any significant suppliers.

EMPLOYEES
 
As of December 31, 2012, we had one full-time employee in general management. We do not expect any significant change in the total number of employees in the near future. Most of our research and development work has been performed by employees of our various research and development independent contractors (see below). We have historically indirectly funded the salaries of these individuals through our contract research and development payments to their employers. Although not technically our employees, we have considered these individuals to be an integral part of our research and development team. None of our employees or contractors is members of any union or collective bargaining organization. We consider our relationships with our employee and our independent contractor employees to be good.
 
As noted above, a significant portion of our research and development has been performed by independent contractors from whom we acquired or licensed certain technologies, and their various employees. Our independent contractors utilize a number of their own various employees to satisfy their research and development obligations to us, and their employees are considered to be part of our research and development team.
 
ITEM 1A. RISK FACTORS
 
An investment in the Common Stock involves a high degree of risk. In addition to the other information in this Report, the following risk factors should be considered carefully in evaluating the Company and our business. If you decide to buy our securities, you should be able to afford a complete loss of your investment.
 
 
12

 
 
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 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 CANNONT 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.

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 haptics and fuel cell 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.
 
 
13

 
 
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 18% 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.

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.
 
ALL OF OUR CURRENT REVENUE IS GENERATED FROM ONE CUSTOMER.
 
For the year ended December 31, 2012, all of our revenue was generated by one customer, Carpenter Technology Corporation. If Carpenter Technology Corporation was unable to satisfy its obligations under our agreements, it would materially impact our revenue, net income and financial position.

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.
 
 
14

 
 
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 500,000,000 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.
 
WE MAY RUN OUT OF AUTHORIZED CAPITAL PRIOR TO RECEIVING SHAREHOLDER APPROVAL TO AMEND OUR CERTIFICATE OF INCORPORATION TO INCREASE OUR AUTHORIZED CAPITAL.
 
As of December 31, 2012, our certificate of incorporation, as amended, authorizes us to issue 500,000,000 shares of common stock. If we are not able to increase our authorized capital, we may not be able to raise additional funds or pay service providers which could be harmful to our business or cause us to cease operations altogether.
 
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 Over-The-Counter Bulletin Board, 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.
 
APPLICABILITY OF "PENNY STOCK RULES" TO BROKER-DEALER SALES OF OUR COMMON STOCK COULD HAVE A NEGATIVE EFFECT ON THE LIQUIDITY AND MAREKT 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 effect 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.
 
 
15

 
 
ITEM 2. DESCRIPTION OF PROPERTIES
 
Our principal executive office is at The Chrysler Building, 405 Lexington Avenue, 26th Floor, New York, New York, 10174. We lease approximately 300 square feet of office space on a month-to-month basis. The aggregate annual rent for this office space was $3,000 in 2012. We believe our facilities are adequate for our current and planned business operations.
 
ITEM 3. LEGAL PROCEEDINGS
 
We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of December 31, 2012, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements other than the litigation described above which was subsequently settled.
 
ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

 
16

 
 
PART II
 
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Beginning on July 8, 2009, our Common Stock began quotations, and is currently being quoted, on the OTC Bulletin Board under the symbol MHTX.OB. From May 2007 to July 2009, our common stock was quoted on the OTC Pink Sheets under the symbol “MHTX.PK” after being removed from trading on the Over-The-Counter Bulletin Board. The following table sets forth for the periods indicated, the high and low per share bid information for our common stock for the fiscal years ended December 31, 2012 and December 31, 2011, as reported by www.otcmarkets.com. Such high and low bid information reflects inter-dealer quotes, without retail mark-ups, mark-downs or commissions and may not represent actual transactions.

2012
           
First Quarter
 
$
0.068
   
$
0.051
 
Second Quarter
 
$
0.055
   
$
0.040
 
Third Quarter
 
$
0.063
   
$
0.043
 
Fourth Quarter
 
$
0.060
   
$
0.046
 

2011
           
First Quarter
 
$
0.105
   
$
0.062
 
Second Quarter
 
$
0.083
   
$
0.049
 
Third Quarter
 
$
0.080
   
$
0.035
 
Fourth Quarter
 
$
0.070
   
$
0.042
 

As of March 28, 2013, there were 458,942,480 shares of common stock of the issuer issued and outstanding and 643 record shareholders.

DIVIDENDS
 
We have never paid any cash dividends. We presently intend to reinvest earnings, if any, to fund the development and expansion of our business and, therefore, do not anticipate paying cash dividends on our common stock in the foreseeable future. The declaration of cash dividends will be at the discretion of our board of directors and will depend upon our earnings, capital requirements, financial position, general economic conditions and other pertinent factors.

RECENT SALES OF UNREGISTERED SECURITIES
 
During the past three years, we have issued unregistered shares of common stock and options and warrants for the purchase of common stock in the following transactions in reliance on an exemption from registration pursuant to Section 4(2) of the Securities Act:
 
2012

The Company issued 12,800,000 shares of common stocks and warrants for 6,400,000 shares for a total consideration of $640,000 to seven individuals. Further, the Company issued 2,983,871 shares to an attorney for legal services for the Company totaling $124,000, and 300,000 shares to another consultant for services to satisfy an outstanding obligation totaling $21,000. Additionally, the Company issued 200,000 shares and warrants for 100,000 shares to a consultant for services rendered to the Company totaling $10,000. The fair value of the 200,000 shares and warrants for 100,000 shares of common stock was based on the unit offering price of a private placement agreement during the same period totaling $0.05 per unit which a unit consisted of 1 share of common stock and warrant for half a share.

 
17

 
 
On February 8, 2012, the Company issued 6,000,000 shares to Crovato, Montgomery & Mason for $300,000 in cash.

On May 6, 2012, the Company issued 483,871 shares to Gerald Grafe for legal services.

On May 29, 2012, the Company issued 3,000,000 shares to Serenissima Group for $150,000 in cash.

On May 29, 2012, the Company issued 300,000 shares to Udo Retteberg for consulting fees.

On September 19, 2012, the Company issued 1,000,000 shares and warrants for 500,000 shares with exercise price of $0.07 per share to ESNO Inc. c/oFrancisco Escobar for $50,000 in cash.

On September 19, 2012, the Company issued 200,000 shares and warrants for 100,000 shares with exercise price of $0.07 per share to ESNO Inc. c/oFrancisco Escobar for $10,000 in services.

On September 10, 2012, the Company issued 2,500,000 shares to Gerald Grafe for legal services from June 1 - December 1, $0.04 per share value.

On September 10, 2012, the Company issued 1,600,000 shares and warrants for 800,000 shares with exercise price of $0.07 per share to Robert Reveley for $80,000 in cash.

On September 27, 2012, the Company issued 1,000,000 shares and warrants for 500,000 shares with exercise price of $0.07 per share to Michael R Napolitano GST for $50,000 in cash

On December 7, 2012, the Company issued 2,500,000 shares to Gerald Grafe for legal services from December 1 - June 1, $0.05 per share value

On December 17, 2012, the Company issued 300,000 shares to Steven Miller for services at $0.05 per share

We issued convertible notes for $400,000 (the "Convertible Notes") of which $100,000 was issued on January 31, 2012 and $300,000 was issued on April 26, 2012. The non-interest bearing notes can be converted into the Company’s common stock, at any date after six months from the issuance of each Note, at a conversion price of 67% of the fair value of the Company’s common stock upon the date of conversion notice, subject to a floor price of approximately $0.044 for the note issued in January 2012 and approximately $0.034 for the note issued in April 2012. The holder of the notes has not converted any portion of the notes as of June 30, 2012. Additionally, the note holder was issued warrants for 6,000,000 shares of the Company’s common stock with an exercise price of $0.05 that expire on October 15, 2015.

2011

On January 1, 2011, the Company issued 1,000,000 shares of common stock to a consultant for services related to the Company's nanomedicine project with Senior Scientific, Inc. The shares were valued at $60,000 or $0.06 per share based on the current fair value of such shares on the date of the consulting agreement.
 
On April 28, 2011, the Company issued 3,000,000 shares of common stock to a consultant for services. The services are being rendered over a thirty-nine months period commencing on January 1, 2011. The shares were valued at $180,000 or $0.06 per share based on the current fair value of such shares on the date of the consulting agreement. For the year ended December 31, 2011, the Company expensed $45,000 with a prepaid consulting expense balance of $135,000 as of December 31, 2011.
 
On May 31, 2011, the Company issued 14,001,000 shares of common stock related to acquisition of Scientific Nanomedicine, Inc. and Senior Scientific, LLC, see Note 11 for further discussions. We subsequently dissolved Scientific Nanomedicine and tranfered all assets to Senior Scientific.
 
 
18

 
 
On August 8, 2011, the Company issued 525,000 shares of common stock for public relations services. The services are being rendered over a twelve months period commencing on January 1, 2011. The shares were valued at $42,000 or $0.08 per share based on the current fair value of such shares on the date of the public relations services agreement. For the year ended December 31, 2011, the Company expensed $42,000.
 
On August 28, 2011, the Company issued a total of 3,000,000 shares of common stock (2,000,000 shares to a director of the Company and 1,000,000 shares to a consultant). The shares were valued at $210,000 or $0.07 per share based on the current fair value of such shares on the date of the award.

On December 2, 2011, the Company issued 2,000,000 shares of common stock to an individual for cash totaling $100,000 or $0.05 per share.

On December 5, 2011, the Company issued 2,454,991 shares of common stock for legal services over a period of six months. The shares were valued at $150,000 or $0.08 per share based on the current fair value of such shares on the date of the legal service agreement. As of December 31, 2011, $25,000 of the total value of these shares has been expensed with $125,000 recorded as prepaid expenses which will be expensed over the service period of legal service agreement.

2010

During February 2010 through March 2010, the Company received $216,000 related to a private placement offering for shares of the Company’s common stock at a price of $0.08 per share for a total of 2,700,000 shares.

In September 2010, the Company received $15,000 related to a private placement offering for shares of the Company’s common stock at a price of $0.06 per share for a total of 250,000 shares.

In July 2010, the Company issued 350,000 shares of common stock to a consultant for services valued at $24,500. The consultant provided public relations and marketing services for a period of six months having commenced in June 2010. Also in July 2010, the Company issued 1,000,000 shares of common stock as a signing incentive to a new board of director valued at $70,000.
 
In October 2010, the Company issued 2,000,000 shares of common stock for legal services totaling $120,000.

In November 2010, the Company issued 7,667,000 shares of common stock related to an Acquisition Option Agreement, as further discussed in Note 11 of the Company’s financial statements, with total value of $460,000.

In November 2010, the Company issued 350,000 shares of common stock for consulting services totaling $21,000.

The issuances were not public offerings based upon the following factors: (i) the issuance of the securities was an isolated private transaction; (ii) a limited number of securities were issued to a limited number of offerees; (iii) there was no public solicitation; (iv) each offeree was an “accredited investor,” (v) the investment intent of the offerees; and (vi) the restriction on transferability of the securities issued. There no underwriter used in any transaction. The proceeds from the private offerings will be used for working capital, general corporate expenses and the acquisition and exploration of properties. No underwriters were used for any offering. All of the foregoing securities were issued in reliance upon the exemption from registration pursuant to Section 4(2) of the Securities Act and/or Rule 506 of Regulation D or Rule 903 of Regulation S.
 
Securities Authorized for Issuance under Equity Incentive Plans
 
In November 2004, our Board of Directors adopted the 2004 Consultant Stock Plan (the "2004 Plan"). The purpose of this 2004 Consultant Stock Plan is to advance our interests by helping us obtain and retain the services of persons providing consulting services upon whose judgment, initiative, efforts and/or services we are substantially dependent, by offering to or providing those persons with incentives or inducements affording such persons an opportunity to become owners of our capital stock. We reserved 2,000,000 shares of our Common Stock for awards to be made under the 2004 Plan. We filed a registration statement on Form S-8 with the SEC on November 26, 2004 to register the shares underlying the 2004 plan. The 2004 Plan is administered by a committee of two or more members of the Board of Directors or, if no committee is appointed, then by the Board of Directors. The committee or the Board of Directors if there is no committee, determines who is eligible to receive awards under the plan, grant awards and interpret the 2004 Plan. The number of shares under the 2004 Plan available for grant at December 31, 2012 was 500,000.
 
 
19

 
 
On May 9, 2005, our Board of Directors adopted the 2005 Equity Compensation Plan (the "2005 Plan"). The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to our success, by offering them an opportunity to participate in the our future performance through awards of Options, the right to purchase Common Stock and Stock Bonuses. We reserved 10,000,000 shares of our Common Stock for awards to be made under the 2005 Plan. The 2005 Plan is administered by a committee of two or more members of the Board of Directors or, if no committee is appointed, then by the Board of Directors. The committee, or the Board of Directors if there is no committee, determines who is eligible to receive awards under the plan, grant awards and interpret the 2005 Plan. We filed a registration statement on Form S-8 with the SEC on June 8, 2005 to register the shares underlying the 2005 plan. The number of shares under the 2005 Plan available for grant at December 31, 2012 was 4,868,763.
 
Set forth in the table below is information regarding awards made through compensation plans or arrangements through December 31, 2012.
 
Equity Compensation Plan Information
 
Plan category
 
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
   
Weighted-average
exercise price of
outstanding options,
warrants and rights
   
Number of securities remaining
available for future issuance
under equity compensation
plans (excluding securities
reflected in column (a))
 
                   
Equity compensation plans approved by security holders
                 
Equity compensation plans not approved by security holders
                27,649,763  
Total
                27,649,763  

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, 2010
    30,950,000          
 
      31,560,000  
Granted
    6,000,000       0.07       0.07       6,000,000  
Expired
    (250,000 )     0.39       0.39       (250,000 )
Outstanding as of December 31, 2011
    36,700,000                       36,700,000  
Granted
    3,000,000       0.07       0.07       3,000,000  
Expired
    -                       -  
Outstanding as of December 31, 2012
    39,700,000                       39,700,000  

 
20

 
 
Exercise prices and weighted-average contractual lives of 39,700,000 stock options outstanding as of December 31, 2012 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
 
                                 
$ 0.01       25,000,000       4.68       0.01       25,000,000       0.01  
  0.07       6,000,000       8.58       0.07       6,000,000       0.07  
  0.02       3,000,000       0.32       0.02       3,000,000       0.02  
  0.05       1,500,000       0.79       0.05       1,500,000       0.05  
  0.06       1,200,000       2.38       0.06       1,200,000       0.06  
  0.07       3,000,000       7.98       0.07       3,000,000       0.07  
 
The fair value for options granted were determined using the Black-Scholes option-pricing model.

At December 31, 2012, the 39,700,000 outstanding options had an aggregate intrinsic value of $1,146,000.
 
The Company issued the following warrants at the corresponding weighted average exercise price as of December 31, 2012.

   
Warrants
   
Weighted average
Exercise Price
 
             
Outstanding as of December 31, 2010
    6,000,000     $ 0.07  
Issued/Vested
    2,000,000       0.05  
Cancelled/Expired
    0          
Outstanding as of December 31, 2011
    8,000,000       0.07  
Issued/Vested
    6,400,000       0.33  
Cancelled/Expired
    0          
Outstanding as of December 31, 2012
    14,400,000       0.26  
 
Date
 
Number of
Warrants
   
Exercise Price
   
Contractual Life Remaining
 
Number of Shares
Exercisable
 
                       
October 11, 2007
    3,200,000       .01       7
 years
    3,200,000  
November 9, 2007
    800,000       .01       7
 years
    800,000  
September 8, 2009
    312,000       .10-.25       1
 year
    312,000  
November 1, 2009
    1,688,000       .15-.30       1
 year
    1,688,000  
October 21, 2011
    2,000,000       0.05       1
 year
    2,000,000  
February 1, 2012
    1,500,000       0.05       1
 year
    1,500,000  
April 26, 2012
    3,000,000       0.05       1
 year
    3,000,000  
September 10, 2012
    800,000       0.07       2
 years
    800,000  
September 19, 2012
    600,000       0.07       2
 years
    600,000  
September 27, 2012
    500,000       0.07       2
 years
    500,000  
 
    14,400,000                
 
    14,400,000  
 
The fair value for warrants granted were determined using the Black-Scholes option-pricing model. As of December 31, 2012,warrant for 6,400,000 shares were granted associated with convertible notes payable with exercise prices ranging from $0.05 to $0.07 per share, see Note 5 for additional discussions. As of December 31, 2011, warrants for 2,000,000 shares were granted associated with a convertible note payable with an exercise price of $0.05 per share, see Note 5 for additional discussions.
 
ITEM 6. SELECTED FINANCIAL DATA
 
N/A

 
21

 
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with our financial statements and accompanying notes appearing elsewhere in this Form 10-K.

OVERVIEW

The Company’s goal is to nurture visionary technologies into life changing success stories and Metallicum and Senior Scientific are pursuing that goal.
 
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 nanotechnology. Nanotechnology is the use and manipulation of matter on an atomic and molecular scale. To achieve this goal, the Company continues to identify emerging technologies through strategic alliances with scientific laboratories, educational institutions, scientists and leaders in industry and government. The Company and its executives have a long standing relationship with Los Alamos Laboratories in New Mexico.

TWO BUSINESSES EXIST WITHIN MANHATTAN SCIENTIFICS

Two nanotechnology businesses exist within Manhattan Scientifics Inc;  Both “units” are wholly-owned subsidiaries, both focused on nanotechnology applications in medicine.

The first (Metallicum Inc.) – successfully demonstrates our business-model, a licensing model, given that we are an inventions commercialization company.

Manhattan’s second business is called Senior Scientific LLC, and is at the crossroads of biotechnology and nanotechnology.

Our novel bioimaging and nanomagnetic detection systems have been developed specifically to detect cancer and other diseases earlier and with higher specificity than is currently possible. We have developed proprietary hardware and software for the highly sensitive detection of nanomagnetic particles that can be linked to antibodies for the detection and treatment of cancer and other human diseases—all without the use of ionizing radiation or large magnetic fields.
 
Our novel technologies make possible the earlier detection of cancer in vivo, the ability to analyze biopsies with greater sensitivity and accuracy, the ability to monitor the therapeutic effectiveness of anticancer treatments—both in humans and in animal models—and allow us to detect cancer recurrence with significantly improved sensitivity. Please see: www.SeniorScientific.com

The technology was developed by Edward R. Flynn, PhD, Senior Scientific’s founder and chief scientist, in collaboration with Richard S. Larson, MD, PhD, Executive Vice Chancellor, UNM Health Sciences Center in New Mexico.

In June 2008, we acquired Metallicum, Inc. (“Metallicum”) and its licensed patented technology. We entered into a stock purchase agreement with Metallicum, Inc. 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 will fully develop, manufacture and market a new class of high strength metals. We earn annual revenues from these agreements and we expect to earn licensing royalties when Carpenter begins selling our licensed technology.
 
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, we own patented technologies that can use biosafe nanoparticles and sensitive magnetic sensors to detect and measure cancer cells in biopsies or in the human body with the potential to transform how cancer is detected and treated.

 
22

 
 
For the years ended December 31, 2012 and 2011, significantly all of our revenue was generated by one customer, Carpenter Technology Corporation. We did not have any significant suppliers.

YEAR ENDED DECEMBER 31, 2012 COMPARED TO YEAR ENDED DECEMBER 31, 2011.

GROSS PROFIT. The $693,000 of revenue recognized for the year ended December 31, 2012 related to service income and is nearly equivalent to the $687,000 in revenue earned during the year ended December 31, 2011. The fees earned pursuant to the agreement with Carpenter are being proportionately recognized as revenue based upon the total fees to be collected over a 42 month period. The 42 month period is based on the time periods described in the Agreement (6 months after the Effective Date), (12 months after the Effective Date), and (each of the first 3 anniversaries of Annuity date where the “Annuity date” is March 12, 2011. The cost of revenue totaling $112,000 for the year ended December 31, 2011 represents consulting fees paid during the period.

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 $2,069,000 for the year ended December 31, 2012 compared with $2,541,000 for the year ended December 31, 2011. General and administrative expenses decreased primarily as a result of costs incurred for common stock issued for services and stock based compensation related to vesting of warrants in 2011 partially offset by higher costs incurred related to research, patent applications for Senior Scientific technology and costs associated with investor relations.

NET LOSS. Our net loss was $2,090,000 for the year ended December 31, 2012 compared to a net loss of $2,287,000 for the year ended December 31, 2011. The decrease in net loss resulted from lower general and administrative costs in 2011.

COMPREHENSIVE LOSS: Our comprehensive loss was $2,100,000 for the year ended December 31, 2012 compared to comprehensive loss of $2,320,000 for the year ended December 31, 2011. The comprehensive loss was the result of a net loss during the year ended December 31, 2012 and 2011 offset by $(10,000) and $(33,000) in 2012 and 2011, respectively, related to unrealized gain (loss) in the market value of our shares of Novint Technologies, Inc. (“Novint”). As of December 31, 2012 and December 31, 2011, we owned 1,075,648 shares of common stock of Novint.

LIQUIDITY AND PLAN OF OPERATIONS

Stockholders’ deficit totaled $797,000 on December 31, 2012 and the working capital deficit was $1,418,000 on such date. We anticipate we will sell additional common stock and issue shares and/or options in exchange for services. While we anticipate that our 2013 revenues received from our technology sales and service agreement will cover the cash needs of our overhead, we need to raise fund for the costs incurred related to research and patents for Senior Scientific technology.

At December 31, 2012, our significant assets include our portfolio of intellectual property relating to the various technologies, our contracts with third parties pertaining to technology development, acquisition, and licensing, and 1,075,648 shares of common stock of Novint; our cash on hand; and our strategic alliances with various scientific laboratories, educational institutions, scientists and leaders in industry and government.

We had a decrease of $66,000 in cash and cash equivalents for the year ended December 31, 2012, as a result of cash provided by financing activities offset by our net loss. For the year ended December 31, 2012, cash used by operating activities was $1,078,000 compared to $1,196,000 used by operating activities for the year ended December 31, 2011. Cash used by operating activities in 2012 was primarily as a result of our net loss which was offset by non-cash expenditures related to stock-based expenses totaling $436,000, debt discount and original issue discount of $424,000, and depreciation and amortization expense of $182,000. There was no cash used in investing activities in either the first quarters of 2012 and nominal amount in 2011. There was $1,012,000 of cash provided by financing activities in the year ended December 31, 2012 as the result of issuance of common stock and a promissory note in 2012 compared to no cash provided or used by financing activities during the same period of 2011.

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 December 31, 2012, we had $91,000 in cash. We intend to satisfy our capital requirements for the next 12 months from our cash on hand and cash generated from our technology transfer agreements which we anticipate will cover the cash needs of our overhead and the cost of our operations.

 
23

 
 
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.

Impairment of Long-Lived Assets:

We assess the impairment of our long-lived assets periodically in accordance with Financial Accounting Standards Board ("FAS") Accounting Standard Codification (“ASC”) Topic 10. Whenever events or changes in circumstances indicate that the carrying amounts of long-lived assets may not be recoverable, we will compare undiscounted net cash flows estimated to be generated by those assets to the carrying amount of those assets. When these undiscounted cash flows are less than the carrying amounts of the assets, we will record impairment losses to write the asset down to fair value, measured by the discounted estimated net future cash flows expected to be generated from the assets. To date there has been no impairment.

License Agreements

In 2008, the Company obtained licenses to the rights of certain patents regarding nano-structured materials developed by another company as a result of the acquisition of Metallicum. The purchase price paid for these licenses was $305,000, which represents its fair value. The Company obtained an exclusive license on two patents and a non-exclusive license on the third patent. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. Under the terms of the agreement, the Company may be required to pay royalties, as defined, to the licensors.

In 2009, the Company entered into a patent license agreement with Los Alamos National Security LLC for the exclusive use of certain technology relating to the manufacture and application of nanostructuring metals and alloys. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. Under the terms of the agreement the Company is required to pay an annual license fee of $10,000 and, may be required to pay royalties, as defined, to the licensors.

On May 31, 2011, we entered into an Agreement and Plan of Reorganization to acquire Senior Scientific. The total purchase price was 21,668,000 restricted shares of our common stock (less 7,667,000 shares previously issued pursuant to an option agreement. As a result of this acquisition, we own patented technologies that can use biosafe nanoparticles and sensitive magnetic sensors to detect and measure cancer cells in biopsies or in the human body with the potential to revolutionize how cancer is detected and treated.

Revenue Recognition

Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Service revenue is recognized when specific milestones are reached or as service is provided if there are no discernable milestones.
 
Investments: Available-for-Sale Investments

Investments that we designate as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). We determine the cost of the investment sold based on the specific identification method. Our available-for-sale investments include Marketable equity securities. We acquire these equity investments for the promotion of business and strategic objectives. We record the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on other equity investments, net.

 
24

 
 
Stock-Based Compensation:

The Company follows the provision of FASB ASC Topic 718 for the measurement and recognition of compensation expense for all share-based payment awards to employees, directors and non-employees. Additionally, the Company follows the SEC’s Staff Accounting Bulletin No. 107 “Share-Based Payment” (“SAB 107”), as amended by Staff Accounting Bulletin No. 110 (“SAB 110”), which provides supplemental application guidance based on the views of the SEC. The Company estimates the expected term, which represents the period of time from the grant date that the Company expects its stock options to remain outstanding, using the simplified method as permitted by SAB 107 and SAB 110. Under this method, the expected term is estimated as the mid-point between the time the options vest and their contractual terms. The Company continues to apply the simplified method because it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected terms due to the limited period of time its equity shares have been publicly traded and the limited number of its options which have so far vested and become eligible for exercise.

The estimated fair value of grants of stock options and warrants to our nonemployees is charged to expense, if applicable, in the financial statements. These options vest in the same manner as the employee options granted under each of the option plans as described above.

OFF BALANCE SHEET ARRANGEMENTS
 
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations liquidity, capital expenditures or capital resources and would be considered material to investors.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a Small Reporting Company, we are not required to provide the information under Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
 
 
25

 
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
REPORT OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
F-2
 
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2012 AND 2011
 
 
F-3
 
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
 
 
F-4
 
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
 
 
F-5
 
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
 
 
F-6
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
 
F-7
 
 
 
F-1

 

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
Manhattan Scientifics, Inc.;

We have audited the accompanying consolidated balance sheets of Manhattan Scientifics, Inc. (the “Company”) as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2012 and 2011.  These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Manhattan Scientifics, Inc. as of December 31, 2012 and 2011, and the related statements of operations, stockholders’ equity, and cash flows for the years ended December 31, 2012 and 2011in conformity with accounting principles generally accepted in the United States.
 

PMB Helin Donovan, LLP
 
/s/ PMB Helin Donovan, LLP

April 1, 2013
Seattle, Washington
 
 
F-2

 
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
   
December 31,
2012
   
December 31,
2011
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 91,000     $ 157,000  
Account receivable
    257,000       171,000  
Investments-available for sale
    22,000       32,000  
Prepaid expenses and other assets
    164,000       244,000  
Total current assets
    534,000       604,000  
                 
Fixed assets, net
    32,000       -  
Investments
    2,000       2,000  
Intellectual property, net
    1,283,000       1,447,000  
Other asset
    2,000       2,000  
Total assets
  $ 1,853,000     $ 2,105,000  
                 
LIABILITIES
               
Current liabilities
               
Accounts payable and accrued expenses
  $ 234,000     $ 252,000  
Accrued interest and expenses – related parties
    372,000       365,000  
Note payable to former officers
    450,000       450,000  
Notes payable – other
    896,000       225,000  
Total current liabilities
    1,952,000       1,292,000  
                 
Long-term Liabilities
               
Note payable, related party
    447,000       545,000  
Accrued interest, related party
    251,000       231,000  
Total long-term liabilities
    698,000       776,000  
Total liabilities
    2,650,000       2,068,000  
                 
Commitments and contingencies
    -       -  
                 
STOCKHOLDERS' EQUITY (DEFICIT)
               
Capital stock $.001 par value
               
Preferred, authorized 1,000,000 shares
               
Series A convertible, redeemable, 10 percent cumulative, authorized 182,525
    -       -  
shares; issued and outstanding - none
               
Series B convertible, authorized 250,000 shares; 49,999 shares issued and
    -       -  
Outstanding
               
Series C convertible, redeemable, authorized 14,000 shares;
    -       -  
issued and outstanding - none
               
Common, authorized 500,000,000 shares, 458,942,480 and 440,058,609 shares issued and outstanding, respectively
    459,000       440,000  
Additional paid-in-capital
    56,231,000       54,984,000  
Other accumulated comprehensive income
    22,000       32,000  
Accumulated deficit
    (57,509,000 )     (55,419,000 )
Total stockholders' equity (deficit)
    (797,000 )     37,000  
                 
Total liabilities and stockholders' equity (deficit)
  $ 1,853,000     $ 2,105,000  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-3

 
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS
 
   
YEAR ENDED DECEMBER 31,
 
   
2012
   
2011
 
             
Revenue
  $ 693,000     $ 687,000  
Cost of revenues
    -       112,000  
Gross profit
    693,000       575,000  
                 
Operating costs and expenses:
               
General and administrative
    2,069,000       2,541,000  
Research and development
    274,000       204,000  
Total operating costs and expenses
    2,343,000       2,745,000  
                 
Loss from operations before other income and expenses
    (1,650,000 )     (2,170,000 )
                 
Other income and expenses:
               
Gain on debt extinguishment
    33,000       -  
Interest and other expenses
    (473,000 )     (117,000 )
                 
NET LOSS BEFORE INCOME TAXES
    (2,090,000 )     (2,287,000 )
                 
Income tax expense
    -       -  
                 
NET LOSS AFTER INCOME TAXES
    (2,090,000 )     (2,287,000 )
                 
Other comprehensive income:
               
Unrealized loss on available for sale investments
    (10,000 )     (33,000 )
                 
COMPREHENSIVE LOSS
  $ (2,100,000 )   $ (2,320,000 )
                 
BASIC LOSS PER COMMON SHARE:
               
                 
Weighted average number of common shares outstanding
    449,696,878       425,578,607  
                 
Basic loss per common share
  $ (0.00 )   $ (0.00 )

The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-4

 
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Deficit
For The Years Ended December 31, 2012 And 2011
 
 
 
Preferred Stock
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$.001 Par Value
 
 
Common Stock
 
 
Additional
 
 
Other
 
 
 
 
 
 
 
 
 
Series B
 
 
$.001 Par Value
 
 
Paid-in
 
 
Comprehensive
 
 
Accumulated
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Income
 
 
Deficit
 
 
Total
 
                                                 
Balance December 31, 2010
 
 
49,999
 
 
$
-
 
 
 
411,769,926
 
 
$
412,000
 
 
$
52,726,000
 
 
$
65,000
 
 
$
(53,132,000
)
 
$
71,000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Issuance of shares for cash
 
 
 
 
 
 
 
 
 
 
2,000,000
 
 
 
2,000
 
 
 
98,000
 
 
 
 
 
 
 
 
 
 
 
100,000
 
Issuance of shares related to
    acquisition of Senior Scientific
    and Scientific Nanomedicine
 
 
 
 
 
 
 
 
 
 
14,001,000
 
 
 
14,000
 
 
 
885,000
 
 
 
 
 
 
 
 
 
 
 
899,000
 
Issuance of shares for services
 
 
 
 
 
 
 
 
 
 
12,287,683
 
 
 
12,000
 
 
 
792,000
 
 
 
 
 
 
 
 
 
 
 
804,000
 
Recognition of debt discount on
    warrants associated with debt
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
75,000
 
 
 
 
 
 
 
 
 
 
 
75,000
 
Vesting of stock options
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
408,000
 
 
 
 
 
 
 
 
 
 
 
408,000
 
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(33,000
)
 
 
 
 
 
 
(33,000
)
Net loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2,287,000
)
 
 
(2,287,000
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance December 31, 2011
 
 
49,999
 
 
$
-
 
 
 
440,058,609
 
 
$
440,000
 
 
$
54,984,000
 
 
$
32,000
 
 
$
(55,419,000
)
 
$
37,000
 
                                                               
Issuance of shares for cash
 
 
 
 
 
 
 
 
 
 
12,600,000
 
 
 
13,000
 
 
 
617,000
 
 
 
 
 
 
 
 
 
 
630,000
 
Issuance of shares for services
 
 
 
 
 
 
 
 
 
 
6,283,871
 
 
 
6,000
 
 
 
289,000
 
 
 
 
 
 
 
 
 
 
295,000
 
Recognition of debt discount on
    warrants associated with debt 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
120,000
 
 
 
 
 
 
 
 
 
 
120,000
 
Vesting of stock options
                                   
141,000
                     
141,000
 
Forgiveness of debt by shareholder
                                   
80,000
                     
80,000
 
Comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(10,000)
 
 
 
 
 
 
 
(10,000)
 
Net loss
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2,090,000)
 
 
 
(2,090,000
)
                                                               
Balance December 31, 2012
 
 
49,999
 
 
$
-
 
 
 
458,942,480
 
 
$
459,000
 
 
$
56,231,000
 
 
$22,000
 
 
$
(57,509,000
)
 
$
(797,000)
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-5

 
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
       
   
YEAR ENDED DECEMBER 31,
 
   
2012
   
2011
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (2,090,000 )   $ (2,287,000 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Common stock issued for services
    295,000       480,000  
Stock options issued/vested for services
    141,000       408,000  
Debt discount and original issue discount accretion
    424,000       -  
Gain on debt write-off
    (33,000 )     -  
Amortization of technology license, patents and intellectual property
    182,000       121,000  
Changes in:
               
Accounts receivable
    (86,000 )     (171,000 )
Prepaid expenses and other assets
    80,000       166,000  
Accounts payable
    (18,000 )     67,000  
Accrued interest and expenses, related parties
    27,000       20,000  
                 
Net cash used in operating activities
    (1,078,000 )     (1,196,000 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Purchase of fixed assets
    -       (2,000 )
                 
Net cash used in investing activities
    -       (2,000 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from note payable
    400,000       200,000  
Payment on related party note payable
    (18,000 )     -  
Proceeds from issuance of common stock, net of offering costs
    630,000       100,000  
                 
Net cash provided by financing activities
    1,012,000       300,000  
                 
NET DECREASE IN CASH AND CASH EQUIVALENTS
    (66,000 )     (898,000 )
Cash and cash equivalents, beginning of period
    157,000       1,055,000  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 91,000     $ 157,000  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Interest paid
  $ -     $ -  
                 
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
         
Issuance of 14,001,000 common shares for acquisition of Senior Scientific and Scientific Nanomedicine
  $ -     $ 899,000  
Recognition of debt discount on warrants associated with debt
  $ 120,000     $ 75,000  
Forgiveness of debt by shareholder and accounted for as additional paid-capital
  $ 80,000     $ -  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
F-6

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011
 
NOTE 1 – ORGANIZATION AND OPERATIONS

Manhattan Scientifics, Inc., a Delaware corporation (formerly Grand Enterprises, Inc) (“Grand”) was established on July 31, 1992 and has four wholly-owned subsidiaries: Metallicum, Inc. (“Metallicum”), Senior Scientific LLC, Tamarack Storage Devices, Inc. (“Tamarack”) and Teneo Computing, Inc. (“Teneo”) (collectively “the Company”) a development stage enterprise. Currently, Metallicum is the only operating subsidiary and Tamarack and Teneo are dormant. On June 12, 2008, the Company acquired Metallicum, Inc, for 15,000,000 shares of Company’s common stock, 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-techonogies 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. During 2008, the Company refocused its efforts from the development of its fuel cell technologies to its current focus on the development of nanomaterials through the acquisition of Metallicum.

Metallicum is a nanotechnology start-up company located in Santa Fe, New Mexico. 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, improvements on the patents or trade secrets whether or not patentable or registrable under copyright or similar laws.
 
In January 2009, the Company entered into a patent license agreement with Los Alamos National Security, LLC for the exclusive licensing use of certain technology relating to the manufacture and application of nanostructuring metals and alloys. Pursuant to such agreement the Company provided a non-refundable fee and 2,000,000 shares of our common stock. Additionally, the Company is required to pay an annual license fee starting in February 2010 and royalties on future net sales.
 
In September 2009, the Company entered into a technology transfer agreement with Carpenter Technologies Corporation (“Carpenter”). 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 May 31, 2011, we entered into an Agreement and Plan of Reorganization (“Nanomedicine Agreement”) by and among the Company, Scientific Nanomedicine, Inc. (“Nanomedicine”), Edward, R. Flynn (“Flynn”) and Edward R. Flynn and Maureen A. Flynn, as Co-Trustees of the Edward R. Flynn and Maureen A. Flynn Revocable Trust u/t/a dated 10/25/2006 (“Trust”); and entered into a Purchase Agreement (“Senior Scientific Agreement”) by and among the Company, Senior Scientific LLC, (“Senior Scientific”) and Flynn.
 
Under the Nanomedicine Agreement, the Company has agreed to purchase all of the common stock of Nanomedicine. The purchase price for the common stock of Nanomedicine is 21,667,000 restricted shares of the Company’s voting common stock (less 7,667,000 shares already issued pursuant to the Acquisition Option Agreement, dated February 8, 2010, among the Company, Nanomedicine, Flynn and Senior Scientific. Nanomedicine holds the commercial rights to technology and intellectual property with respect to the early detection of diseases using nanotechnologies.
 
Under the Senior Scientific Agreement, the Company has agreed to purchase all of the membership interests of Senior Scientific. The purchase price for the membership interests of Senior Scientific is 1,000 restricted shares of the Company’s voting common stock. Senior Scientific operates a research laboratory in New Mexico.
 
 
F-7

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011

The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.
 
Prior to September 2009, the Company had been considered a development stage company. As a result of the September 2009 technology transfer agreement with Carpenter, the Company has fully commenced its planned operations and generation of significant revenues.
 
Accordingly, the Company has relied primarily upon private placements and subscription sales of stock to fund our continuing activities and acquisitions.
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS
 
BASIS OF CONSOLIDATION:
 
The consolidated financial statements include the accounts of Manhattan Scientific, Inc. and its wholly owned subsidiaries Tamarack, Teneo, Metallicum and Senior Scientific. All significant intercompany balances and transactions have been eliminated. The accompanying consolidated financial statements include the operating activities of Metallicum, Inc. for the years ended December 31, 2012 and 2011.
 
The fiscal year end of the Company is December 31.
 
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 in the financial statements and accompanying notes. Actual results could differ from those estimates.
 
Management makes estimates that affect, carrying value of the Company’s patents, deferred income tax assets, estimated useful lives of property and equipment, useful lives of intangible assets, accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the year in which such adjustments are determined.
 
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 at December 31, 2012 and 2011.
 
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.
 
 
F-8

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011

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.
 
INTANGIBLE ASSETS:
 
License Agreements
In 2008, the Company obtained licenses to the rights of certain patents regarding nano-structured materials developed by another company as a result of the acquisition of Metallicum. The purchase price paid for these licenses was $305,000, which represents its fair value. The Company obtained an exclusive license on two patents and a non-exclusive license on the third patent. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. At December 31, 2012 and 2011, accumulated amortization was $134,000 and $104,000. Under the terms of the agreement, the Company may be required to pay royalties, as defined, to the licensors.
 
In 2009, the Company entered into a patent license agreement with Los Alamos National Security LLC for the exclusive use of certain technology relating to the manufacture and application of nanostructuring metals and alloys. The purchase price paid for this license agreement was $33,000 based on the fair market value of 2,000,000 shares of common stock issued. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. At December 31, 2012 and 2011, accumulated amortization was $13,000 and $10,000. Under the terms of the agreement the Company is required to pay an annual license fee of $10,000 starting in February 2010 and, may be required to pay royalties, as defined, to the licensors.
 
In 2011, the Company acquired Scientific Nanomemdicine, Inc. which holds the commercial rights to technology and intellectual property with respect to the early detection of diseases using nanotechnologies. The acquisition of Scientific Nanomedicine, Inc. has been accounted for as an asset purchase since this company had no tangible assets or liabilities and did not have the business inputs and outputs to be considered a business. The purchase price totaling $1,300,000 (fair value of 21,667,000 shares of common stocks issued) has been allocated to in process research and development and is being amortized over its estimated benefit period of 10 years. At December 31, 2012 and 2011, accumulated amortization was $207,000 and $77,000.
 
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.
 
 
F-9

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011

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.

RESEARCH AND DEVELOPMENT:

Research and development costs are expensed as incurred and amounted to $274,000 and $204,000 for the years ended December 31, 2012 and 2011.

INVESTMENTS:
 
Available-for-Sale Investments
Investments that the Company designates as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). The Company determines the cost of the investment sold based on the specific identification method. The Company’s available-for-sale investments include:
 
Marketable equity securities The Company acquires these equity investments for the promotion of business and strategic objectives. The Company records the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on other equity investments, net.
 
Non-Marketable and Other Equity Investments
The Company accounts for non-marketable and other equity investments under either the cost or equity method and includes them in other long-term assets. The non-marketable and other equity investments include:
 
Non-marketable cost method investments when the equity method does not apply. The Company records the realized gains or losses on the sale of non-marketable cost method investments in gains (losses) on other equity investments, net.
 
REVENUE RECOGNITION:
 
To date the only revenue generated is from the sale of field technology developed by Metallicum related to the Company’s nanotechnology, services provided and sample materials (See Note 9).
 
Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Service revenue is recognized when specific milestones are reached or as service is provided if there are no discernable milestones.
 
 
F-10

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011

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.
 
The fair value of the Company’s debt as of December 31, 2011 and December 31, 2010 approximated their fair value at those times.
 
Fair value of financial instruments: The carrying amounts of financial instruments, including cash and cash equivalents, short-term investments, accounts payable, accrued expenses and notes payables approximated fair value as of December 31, 2012 and December 31, 2011 because of the relative short term nature of these instruments. At December 31, 2012 and December 31, 2011, the fair value of the Company’s debt approximates carrying value. The fair value of the Company’s available for sale securities was $22,000 and $32,000 at December 31, 2012 and 2011, respectively, and these securities are classified as Level 1.
 
 
F-11

 

MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
In December 2011, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassification of Items Out of Accumulated Other Comprehensive Income. In June 2011, the FASB issued ASU 2011-05, Comprehensive Income: Presentation of Comprehensive Income, which requires an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. ASU 2011-05 does not change the items which must be reported in other comprehensive income, how such items are measured or when they must be reclassified to net income. ASU 2011-12 only defers those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments. Both ASUs are effective for interim and annual periods beginning after December 15, 2011. Our adoption of this ASU did not have a material impact on our consolidated financial statements.
 
In September 2011, the FASB issued ASU No. 2011-08, Testing Goodwill for Impairment, which provides entities testing goodwill for impairment to now have an option of performing a qualitative assessment before having to calculate the fair value of a reporting unit. If an entity determines, on the basis of qualitative factors, that the fair value of the reporting unit is more-likely-than-not less than the carrying amount, the existing quantitative impairment test is required. Otherwise, no further impairment testing is required. This ASU is effective for fiscal years beginning after December 15, 2011. Our adoption of this ASU did not have a material impact on our consolidated financial statements.
 
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which converges common fair value measurement and disclosure requirements in accordance with GAAP and International Financial Reporting Standards, or IFRS. This ASU is effective for interim and annual periods beginning after December 15, 2011. Our adoption of this ASU did not have a material impact on our consolidated financial statements.
 
NOTE 3 – INVESTMENTS
 
As of December 31, 2012 and 2011, the Company owned 1,075,648 shares of Novint common stock or approximately 3%. The fair value of the Novint shares was $22,000 and $32,000 as of December 31, 2012 and 2011, respectively.
 
The Company has an additional investment in Aprils, Inc. which is accounted for at a cost of $2,000.
 
NOTE 4 – RELATED PARTY AND FORMER OFFICERS NOTES PAYABLE
 
In December 2007, the former Chief Operating Officer and former Chief Executive Officer collectively forgave $1,416,500 of their outstanding accrued salaries ($1,387,500) and note payable ($29,000) balances. In December 2012, the former Chief Operating Officer forgave $80,000 of the accrued salaries balance. The amount forgiven has been accounted for as contributed capital. Additionally, the Company repaid $5,000 of the former Chief Executive Officer’s note payable balance. The remaining unpaid notes payable balances totaling $897,000 and $995,000 at December 31, 2012 and 2011 comprised of loans payable of $450,000 and $447,000, and $450,000 and $545,000 to its former Chief Operating Officer and Chief Executive Officer, respectively.
 
The loans bore interest at 5.5% per annum and were initially due December 31, 2002 and have been mutually extended. Under the terms of the note extensions dated December 12, 2007, the loans bear interest at 5% per annum and are now due. The Company has recorded interest expense for notes payable to these former officers of approximately $50,000 and $50,000 for the years ended December 31, 2012 and 2011, respectively. Accrued interest related to these notes payable approximated $482,000 and $432,000 as of December 31, 2012 and 2011, respectively and is included in accrued liabilities, related parties.
 
The related party note payable of $447,000 and its accrued interest have been classified at December 31, 2012 and 2011 to long-term because the holder has waived his right to call the note and related interest until after March 31, 2014.
 
 
F-12

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011

NOTE 5 –NOTE PAYABLE – OTHER
 
From October 21, 2011 to April 26, 2012, the Company issued convertible notes for $600,000 (the "Convertible Notes") of which $200,000 was received on October 21, 2011, $100,000 was received on January 31, 2012 and $300,000 was received on April 26, 2012. The non-interest bearing notes can be converted into the Company’s common stock, at any date after six months from the issuance of each Note, at a conversion price of 67% of the fair value of the Company’s common stock upon the date of conversion notice, subject to a floor price of approximately $0.041 for the note issued in October 2011, approximately $0.044 for the note issued in January 2012 and approximately $0.034 for the note issued in April 2012. The holder of the notes has not converted any portion of the notes as of December 31, 2012. Additionally, the note holder was issued warrants for 6,000,000 shares of the Company’s common stock with an exercise price of $0.05 that expire on October 15, 2015 ("Warrants"). The conversion feature to the note payable has been accounted for as an original issue discount approximating $296,000 which has been fully accreted as of December 31, 2012. The warrant associated with the note has been accounted for as a debt discount with an approximate value of $296,000 which has been allocated to the note’s fully accreted value of $896,000 (original note amount plus original debt discount) on proportionate basis which amounted to $195,000. The warrant value of $252,000 was determined using the Black-Scholes option pricing model based on the following assumptions: 2 year term; volatility rate of 134% to 135%; and discount rate of 2.5%. For the years ended December 31, 2012 and 2011, the Company has recorded an expense associated with original debt discount and expense associated with the debt discount (warrants) of $422,000 and $67,000. Accordingly, the carrying net value of this note at December 31, 2012 totals $896,000, comprising of $600,000 (original face value) plus the fully accreted original debt discount of $296,000. The carrying net value of this note at December 31, 2011 totals $192,000, comprising of $200,000 (original face value) plus accreted original debt discount of $38,000 less amortized debt discount of $46,000.
 
During the years ended December 31, 2005 and December 31, 2004, the Company issued convertible notes in the amount of $33,000. The notes had a one year maturity date, are noninterest bearing and upon maturity convertible at the current per share price. As of December 31, 2012, the Company has written off the $33,000 convertible note based upon the passing of the legal statute of limitation.
 
NOTE 6 – CAPITAL TRANSACTIONS
 
Preferred Stock
The Company has a total of 1,000,000 shares of authorized preferred shares which are segregated into three 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 share 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, 2012 and 2011, 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. As of December 31, 2012 and 2011, 49,999 shares of Preferred Stock were issued and outstanding. Series B preferred shares are convertible at a rate of 1 Series B preferred share to 10 common shares.
 
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, 2012 and 2011, no shares of Preferred Stock were issued and outstanding.
 
The Company has 553,475 undesignated blank check preferred stock, $0.001 par value, authorized, none outstanding. 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.
 
 
F-13

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011
 
Common Stock
The Company has a total of 500,000,000 shares of authorized common shares. As of December 31, 2012 and 2011, 458,942,480 and 440,058,609 shares of common stock were issued and outstanding, respectively.
 
Stocks issued during 2012
For the year ended December 31, 2012, the Company issued 12,800,000 shares of common stocks and warrants for 6,400,000 shares for a total consideration of $640,000 to seven individuals. Further, the Company issued 5,483,871 shares to an attorney for legal services for the Company totaling $249,000, and 600,000 shares to two consultants for services to satisfy an outstanding obligation totaling $36,000. Additionally, the Company issued 200,000 shares and warrants for 100,000 shares to a consultant for services rendered to the Company totaling $10,000. The fair value of the 200,000 shares and warrants for 100,000 shares of common stock was based on the unit offering price of a private placement agreement during the same period totaling $0.05 per unit which a unit consisted of 1 share of common stock and warrant for half a share.
 
Stocks issued during 2011
On January 1, 2011, the Company issued 1,000,000 shares of common stock to a consultant for services related to the Company's nanomedicine project with Senior Scientific, Inc. The shares were valued at $60,000 or $0.06 per share based on the current fair value of such shares on the date of the consulting agreement.
 
On April 28, 2011, the Company issued 3,000,000 shares of common stock to a consultant for services. The services are being rendered over a thirty-nine months period commencing on January 1, 2011. The shares were valued at $180,000 or $0.06 per share based on the current fair value of such shares on the date of the consulting agreement. For the three and nine months ended September 30, 2011, the Company expensed $15,000 and $30,000, respectively, with a prepaid consulting expense balance of $150,000 as of September 30, 2011.
 
On May 31, 2011, the Company issued 14,001,000 shares of common stock related to acquisition of Scientific Nanomedicine, Inc. and Senior Scientific, LLC, see Note 11 for further discussions.
 
On August 8, 2011, the Company issued 525,000 shares of common stock for public relations services. The services are being rendered over a twelve months period commencing on January 1, 2011. The shares were valued at $42,000 or $0.08 per share based on the current fair value of such shares on the date of the public relations services agreement. For the three and nine months ended September 30, 2011, the Company expensed $32,000 with a prepaid consulting expense balance of $10,000 as of September 30, 2011.
 
On August 28, 2011, the Company issued a total of 3,000,000 shares of common stock (2,000,000 shares to a director of the Company and 1,000,000 shares to a consultant). The shares were valued at $210,000 or $0.07 per share based on the current fair value of such shares on the date of the award.
 
On December 2, 2011, the Company issued 2,000,000 shares of common stock to an individual for cash totaling $100,000 or $0.05 per share.
 
On December 5, 2011, the Company issued 2,454,991 shares of common stock for legal services over a period of six months. The shares were valued at $150,000 or $0.08 per share based on the current fair value of such shares on the date of the legal service agreement. As of December 31, 2011, $25,000 of the total value of these shares has been expensed with $125,000 recorded as prepaid expenses which will be expensed over the service period of legal service agreement.
 
In September 2010, the Company received $15,000 related to a private placement offering for shares of the Company’s common stock at a price of $0.06 per share for a total of 250,000 shares.
 
In July 2010, the Company issued 350,000 shares of common stock to a consultant for services valued at $24,500. The consultant provided public relations and marketing services for a period of six months having commenced in June 2010. Also in July 2010, the Company issued 1,000,000 shares of common stock as a signing incentive to a new board of director valued at $70,000.
 
In October 2010, the Company issued 2,000,000 shares of common stock for legal services totaling $120,000.
 
In November 2010, the Company issued 7,667,000 shares of common stock related to an Acquisition Option Agreement, as further discussed in Note 12, with total value of $460,000.
 
 
F-14

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011
 
In November 2010, the Company issued 350,000 shares of common stock for consulting services totaling $21,000.
 
Options
In 2000, the Company’s Board of Directors adopted the 2000 Equity Incentive Plan (the "2000 Plan"). The 2000 Plan authorizes the issuance of options, right to purchase Common Stock and stock bonuses to officers, employees, directors and consultants. The Company reserved 30,000,000 shares of common Stock for awards to be made under the 2000 Plan.
 
On September 14, 2001, the Company filed a registration statement on Form S-8 to register 900,000 of these shares. On November 19, 2001, an additional 550,000 shares of common stock were registered for issuance under the 2000 Plan. On January 30, 2002, an additional 975,000 shares of common stock were registered for issuance under the 2000 Plan. On March 22, 2002, an additional 925,000 shares of common stock were registered for issuance under the 2000 Plan. On July 12, 2002, an additional 990,000 shares of common stock were registered for issuance under the 2000 Plan. On January 17, 2003, the Company registered an additional 8,000,000 of common stock for issuance under the 2000 Plan.
 
The 2000 Plan is administered by a committee of two or more members of the Board of Directors or, if no committee is appointed, then by the Board of Directors. The 2000 Plan allows for the issuance of 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 2000 Plan, the exercise price may not be less than fair market value on the date of grant for the incentive stock options. The 2000 Plan also allows for the granting of Stock Appreciation Rights. No Stock Appreciation Rights have been granted. The number of shares under the 2000 Plan available for grant at December 31, 2012 and 2011 was 25,281,000.
 
In November 2004, the Company’s Board of Directors adopted the 2004 Consultant Stock Plan (the "2004 Plan"). The purpose of this 2004 Consultant Stock Plan is to advance the Company’s interests by helping the Company obtain and retain the services of persons providing consulting services upon whose judgment, initiative, efforts and/or services we are substantially dependent, by offering to or providing those persons with incentives or inducements affording such persons an opportunity to become owners of our capital stock. The Company reserved 2,000,000 shares of Common Stock for awards to be made under the 2004 Plan. A registration statement on Form S-8 was filed with the SEC on November 26, 2004 to register the shares underlying the 2004 plan. The 2004 Plan is administered by a committee of two or more members of the Board of Directors or, if no committee is appointed, then by the Board of Directors. The committee or the Board of Directors if there is no committee, determines who is eligible to receive awards under the plan, grant awards and interpret the 2004 Plan. The number of shares under the 2004 Plan available for grant at December 31, 2012 and 2011 was 500,000.
 
On May 9, 2005, the Company’s Board of Directors adopted the 2005 Equity Compensation Plan (the "2005 Plan"). The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to our success, by offering them an opportunity to participate in the Company’s future performance through awards of Options, the right to purchase Common Stock and Stock Bonuses. The Company reserved 10,000,000 shares of Common Stock for awards to be made under the 2005 Plan. The 2005 Plan is administered by a committee of two or more members of the Board of Directors or, if no committee is appointed, then by the Board of Directors. The committee or the Board of Directors if there is no committee, determines who is eligible to receive awards under the plan, grant awards and interpret the 2005 Plan. A registration statement on Form S-8 was filed with the SEC on June 8, 2005 to register the shares underlying the 2005 plan. The number of shares under the 2005 Plan available for grant at December 31, 2012 was 4,868,763.
 
On August 5, 2011, the Company awarded the Chief Executive Officer an option for 6,000,000 shares of common stock vesting immediately, exercise price of $0.07 per share, and 10 year life. The fair value of this option award totaled $408,000 based on the Black-Scholes option pricing model using the following assumptions: 10 year term; volatility rate of 135%; and discount rate of 2.5%.
 
During 2012, the Company granted options for 3,000,000 shares of common stock vesting immediately, exercise price of $0.07 per share, and 8 year life. The fair value of these options totaled $142,000 based on the Black-Scholes option pricing model using the following assumptions: 8 year term; volatility rate ranging from 134% to 135%; and discount rate of 2.5%.
 
 
F-15

 

MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011
 
Set forth in the table below is information regarding awards made through compensation plans or arrangements through December 31, 2012, the most recently completed fiscal year.
 
Equity Compensation Plan Information
 
Plan category
 
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
(a)
 
Weighted-average
exercise price of
outstanding options,
warrants and rights
   Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))  
Equity compensation plans approved by security holders
 
 
 
 
   
 
Equity compensation plans not approved by security holders
 
 
 
 
   
27,649,763
 
Total
 
 
 
 
   
27,649,763
 
 
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, 2010
    30,950,000          
 
      31,560,000  
Granted
    6,000,000       0.07       0.07       6,000,000  
Expired
    (250,000 )     0.39       0.39       (250,000 )
Outstanding as of December 31, 2011
    36,700,000                       36,700,000  
Granted
    3,000,000       0.07       0.07       3,000,000  
Expired
    -                       -  
Outstanding as of December 31, 2012
    39,700,000                       39,700,000  

Exercise prices and weighted-average contractual lives of 39,700,000 stock options outstanding as of December 31, 2012 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
 
$ 0.01       25,000,000       4.68       0.01       25,000,000       0.01  
  0.07       6,000,000       8.58       0.07       6,000,000       0.07  
  0.02       3,000,000       0.32       0.02       3,000,000       0.02  
  0.05       1,500,000       0.79       0.05       1,500,000       0.05  
  0.06       1,200,000       2.38       0.06       1,200,000       0.06  
  0.07       3,000,000       7.98       0.07       3,000,000       0.07  

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

At December 31, 2012, the 39,700,000 outstanding options had an aggregate intrinsic value of $1,146,000.
 
 
F-16

 

MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011

Warrants:
 
The Company issued the following warrants at the corresponding weighted average exercise price as of December 31, 2012.
 
   
Warrants
   
Weighted average
Exercise Price
 
Outstanding as of December 31, 2010
    6,000,000     $ 0.07  
Issued/Vested
    2,000,000       0.05  
Cancelled/Expired
    0          
Outstanding as of December 31, 2011
    8,000,000       0.07  
Issued/Vested
    6,400,000       0.33  
Cancelled/Expired
    0          
Outstanding as of December 31, 2012
    14,400,000       0.26  
 
Date
 
Number of
Warrants
 
Exercise
Price
 
Contractual
Life Remaining
 
Number of Shares
Exercisable
October 11, 2007
 
 
3,200,000
 
 
.01
    7 years
 
 
3,200,000
 
November 9, 2007
 
 
800,000
 
 
.01
    7 years
 
 
800,000
 
September 8, 2009
 
 
312,000
 
 
.10-.25
    1 year
 
 
312,000
 
November 1, 2009
 
 
1,688,000
 
 
.15-.30
    1 year
 
 
1,688,000
 
October 21, 2011
   
2,000,000
   
0.05
    1 year    
2,000,000
 
February 1, 2012
   
1,500,000
   
0.05
    1 year    
1,500,000
 
April 26, 2012
   
3,000,000
   
0.05
    1 year    
3,000,000
 
September 10, 2012
   
800,000
   
0.07
    2 years    
800,000
 
September 19, 2012
   
600,000
   
0.07
    2 years    
600,000
 
September 27, 2012
   
500,000
   
0.07
    2 years    
500,000
 
 
 
 
14,400,000
 
 
 
   
 
 
 
14,400,000
 
 
The fair value for warrants granted were determined using the Black-Scholes option-pricing model. As of December 31, 2012,warrant for 6,400,000 shares were granted associated with convertible notes payable with exercise prices ranging from $0.05 to $0.07 per share, see Note 5 for additional discussions. As of December 31, 2011, warrants for 2,000,000 shares were granted associated with a convertible note payable with an exercise price of $0.05 per share, see Note 5 for additional discussions.
 
NOTE 7 – INCOME TAXES
 
The provision for income taxes on the statements of operations consists of $-0- and $-0- for the years ended December 31, 2012 and 2011, respectively. Deferred tax assets are comprised of the following at December 31:
 
 
 
2012
 
2011
Net operating loss carryforward
 
$
10,100,000
 
 
$
9,552,000
 
Temporary differences
 
 
5,621,000
 
 
 
5,277,000
 
Less valuation allowance
 
 
(15,721,000
)
 
 
(14,829,000
)
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, 2012 and 2011, 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, 2012 and 2011, net operating loss carryforwards were approximately $39,518,000 and $37,428,000, respectively, for federal tax purposes that expire at various dates from 2012 through 2031 and for state tax purposes expire in 2012 through 2022.
 
 
F-17

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2012 AND 2011
 
Utilization of net operating loss carryforwards may be subject to substantial annual limitations due to the “change in ownership” provisions of the Internal Revenue Code of 1986, as amended, and similar state regulations. The annual limitation may result in the expiration of substantial net operating loss carryforwards before utilization.
 
For December 31, 2012 and 2011, the provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (34% in 2012 and 2011) to income taxes as follows:
 
 
 
2012
 
2011
Tax benefit computed at 34%
 
$
344,000
 
 
$
615,000
 
Change in valuation allowance
 
 
(892,000
)
 
 
(970,000
)
Change in carryovers and tax attributes
 
 
548,000
 
 
 
355,000
 
Income tax provision
   
-