0001477932-15-002129.txt : 20150331 0001477932-15-002129.hdr.sgml : 20150331 20150331170242 ACCESSION NUMBER: 0001477932-15-002129 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20141231 FILED AS OF DATE: 20150331 DATE AS OF CHANGE: 20150331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MANHATTAN SCIENTIFICS INC CENTRAL INDEX KEY: 0001099132 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 850460639 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-28411 FILM NUMBER: 15740122 BUSINESS ADDRESS: STREET 1: THE CHRYSLER BUILDING STREET 2: 405 LEXINGTON AVENUE, 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10174 BUSINESS PHONE: 212-541-2405 MAIL ADDRESS: STREET 1: THE CHRYSLER BUILDING STREET 2: 405 LEXINGTON AVENUE, 26TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10174 10-K 1 mhtx_10k.htm FORM 10-K

 

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, 2014

 

¨

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

¨

Accelerated filer

¨

Non-accelerated filer

¨

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 30, 2014 was $49,150,143 based upon a closing price of $0.1362 on June 30, 2014. 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 26, 2015 there were 518,378,036 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

   

14

 

ITEM 2.

DESCRIPTION OF PROPERTIES

   

18

 

ITEM 3.

LEGAL PROCEEDINGS

   

18

 

ITEM 4.

MINE SAFETY DISCLOSURES

   

18

 
           

PART II

           

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

   

19

 

ITEM 6.

SELECTED FINANCIAL DATA

   

24

 

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   

25

 

ITEM7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

   

29

 

ITEM 8.

FINANCIAL STATEMENTS

   

F-1

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

   

30

 

ITEM 9A(T)

CONTROLS AND PROCEDURES

   

30

 

ITEM 9B.

OTHER INFORMATION

   

31

 
           

 PART III

           

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

   

32

 

ITEM 11.

EXECUTIVE COMPENSATION

   

34

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

   

36

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

   

37

 

ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

   

38

 

 ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

   

39

 
 

SIGNATURES

   

41

 

 

 
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.

 

 
3

  

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.

 

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) – In 2008, Manhattan Scientifics acquired Metallicum Inc., along with its licensed patented nanostructured metals technology. We also licensed additional related intellectual property from Los Alamos National Laboratory, and filed additional patent applications related to the technology. The technology enables metals with uniform, ultrafine grains. This provides greater strength, lighter weight, and enhanced biocompatibility. It provides significant benefits across a wide range of metal applications – anywhere strength or weight is a concern.

 

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

 

 
4

  

On May 31, 2011, we entered into an Agreement and Plan of Reorganization to acquire Senior Scientific and Scientific Nanomedicine, Inc. (“Scientific Nanomedicine” or “SNMI”). We subsequently dissolved Scientific Nanomedicine 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

 

The goal of our licensed proprietary process will be to enable our commercial partners 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. As described above, the Company and Carpenter terminated their relationship in February 2015.

 

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 low magnetic field 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 detect and measure tumors in places inaccessible to other tests, and including tumors while they are still small enough to be treatable. The nanoparticles are nontoxic, and the low magnetic field 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 tested to detect down to tens of thousands of cells;

·

After development for commercial use – our technology may be capable of detecting cancer before stage one -- down to "a few thousand cells";

·

Our technology system uses technologies and methods that are patented or held as trade secret systems, and utilizes standard currently using SQUID (superconducting quantum interference device) magnetic sensors, which we hope to develop for commercialization along with the nanoparticles that will be used to detect cancer;

·

In Q4 2013, we executed a formal agreement with the MD Anderson Cancer Center for initial testing and validation of the Technology and delivered an MRX system to them in Q2 of 2014;

·

There is revenue potential from lab/animal research and from human medical applications;

·

FDA approval clearance may not be needed for lab/animal uses; and

·

Since biosafe nanoparticles are already in use in humans-there may be a shortened FDA approval process for human medical applications.

 

Senior Scientific is bringing Dr. Edward R. Flynn’s nanomagnetic relaxometry (nanoMRX) from the laboratory to the clinic. nanoMRX can locate and measure tumors one millionth the size detectable by X-Rays and MRI, – which can be thought of as the difference between an electron microscope and the unaided eye. nanoMRX uses non-toxic iron oxide nanoparticles and ultrasensitive low magnetic field sensors – no XRay radiation, no large and expensive MRI magnets, no injected radioactive isotopes. The technology has been proven in a research prototype instrument funded by the National Institutes of Health.

 

Our biggest impact, and largest market, is in human clinical applications. Cancer is estimated to cost the US $1 trillion per year. Many cancers are fatal because they are not caught early enough. Subject to regulatory approval, we believe we can slash years off the time cancer has to hide and grow untreated. Other cancers are fatal because doctors cannot determine where the cancer has spread, and or when therapy has eliminated it all. Our goal is to allow doctors to find more tumor sites, and monitor the effectiveness of therapy.

 

 
5

  

Our first human applications are likely to be in the detection of ovarian cancer. Ovarian cancer is the deadliest of gynecological cancers, in part because it stays hidden from current techniques until it has grown to billions of cells and hundreds of sites. Each year in the US, about 15,000 women die from ovarian cancer, and over 20,000 more women are diagnosed with the disease. We are working with Dr. Robert C. Bast Jr. of M.D. Anderson Cancer Center, one of the world’s preeminent researchers in ovarian cancer, to bring nanoMRX to bear on this disease. We anticipate expanding the MD Anderson collaboration to include are also collaborating with doctors working in breast cancer (230,000 new cases every year) and prostate cancer (240,000 new cases every year).

 

Bringing nanoMRX to clinical use requires that we demonstrate the technology in animal experiments, and then in clinical trials. Applying nanoMRX to animal experiments reveals an earlier market for us. Millions of animals are used in medical research each year, and this research will benefit from the marked increase in sensitivity available from nanoMRX. We have completed the design of our first commercial instrument for animal measurements. We will use this design instrument to further optimize nanoparticle performances, software tools, and animal model-based in-vivo testing procedures. We intend to sell or place additional instruments in other academic or clinical cancer research institutes during this year. Results from the use of that these instrument platforms will can be used to begin marketing to the pharmaceutical preclinical animal research and veterinary markets (neither market requires FDA approval), as well as to fuel negotiations with strategic potential partners and prospective acquirers. We intend to place a second instrument in operation at MD Anderson early next year. Our collaborators at MD Anderson are enthusiastic in support, and are already educating their staff about the instrument and beginning to schedule studies. We are currently funded for the two devices described above.

 

We were also awarded a New Mexico Small Business Assistance grant that supports physicists from Los Alamos to help us optimize the specialized magnetic systems that are at the core of our measurement technology.

 

Nanoparticles: The nanoparticles are the razor blade or ink cartridge in our business model. The science was originally proven using nanoparticle from sources outside the company. It is very important for the performance of our technology to that we have control of the nanoparticles; thus the company has worked to create our own custom made nanoparticles. Our custom made nanoparticles have demonstrated excellent performance in cell-based binding studies with leukemia, ovarian and prostate cancer cell lines. We are working on improving performance, stability, and yield in collaboration with CINT (Center for Integrated Nanotechnologies) to support commercial sales.

 

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.

 

 
6

  

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.

 

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, NM 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 to sell certain nanostructured metal technologies acquired from Metallicum, 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.

 

In January 2013, the Company entered into a licensing agreement with a party granting certain licensing rights to the Company's nanostructured metal technology. As consideration the Company received $210,000 during 2013, $30,000 on December 31, 2013, $30,000 by December 1, 2014 and will receive $30,000 upon commercial launch by the party or the latest December 1, 2015.

 

As of December 31, 2014 and 2013, the Company recorded $642,000 and $652,000 as revenue for the years ended December 31, 2014 and 2013. The Company has received the following amounts from Carpenter:

 

·

During the year ended December 31, 2014, the Company received from Carpenter $0.6 million of minimum royalty payment related to the Agreement.

·

During the year ended December 31, 2013, the Company received from Carpenter $0.3 million of income and $0.2 million from a licensing agreement.

·

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, 2012 and 2013, 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.

 

On February 11, 2015, the Company and Carpenter entered into a Settlement Agreement and Mutual Release pursuant to which the parties provided a full release of one another, Carpenter paid the Company $8,000,000, Carpenter transferred to the Company all intellectual and physical property that was part of the original agreement, Carpenter agreed to provide follow-on technical assistance and Carpenter provided a list of all customers and contacts. Following the return of the Company’s nanostructured metal technology, the Company has commenced exploring strategic alternatives for its Metallicum division. At this time we are exploring and working with partner companies in the fields of titanium dental implants, titanium and magnesium medical devices, high voltage aluminum conductors as well as oil and gas field applications.

 

On March 25, 2015, the Company announced that it had retained Imperial Capital, LLC to explore strategic alternatives for its Metallicum division.

 

 
7

  

NANOMEDICINE

 

Our subsidiary, Senior Scientific, 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 $5.5 million in the Senior Scientific cancer project in the past three years. We continue to progress in advancing the technology toward commercialization.

 

• We are implementing a nanoparticle production capability. Our magnetic relaxometry measurements are now performed with our own nanoparticles, and we have an agreement for sales and distribution of our nanoparticles to others.

 

• Senior Scientific has joined both BIOCOM and NMBio as a corporate member, improving our access to and visibility within the general biopharmaceutical and New Mexico biotechnology communities.

 

• We delivered our second generation instrument in May 2014 and we are working with Dr. John Hazle, Chairman, Department of Imaging Physics, Division of Diagnostic Imaging, as the Principle Investigator for our Research Collaboration and with several groups at the MD Anderson Cancer Center. 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) is also being coordinated with Dr. Hazel’s group. The work 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 their user and facility requirements for the instrument that is placed at MD Anderson and experimental results. We have acquired preliminary data regarding and are exploring the possibility to add prostate cancer, among other applications in the collaboration with MD Anderson, and negotiating negotiate a larger collaboration if practicable.

 

• We have hired a new President with senior managerial expertise in medical product commercialization and direct experience in cancer diagnostics. 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 (approximately) NIH grant to fund the development a version of our technology using atomic magnetometer technology, which was originally funded by an NIH grant. We have begun qualifying commercial vendors for production of a commercial prototype atomic magnetometer-based instrument in anticipation of the performance and market opportunities this technology would bring to bare relative to our current SQUID-based platform.

 

 
8

  

• We have hired a full time Chief Nanoparticle Chemist, to oversee the implementation of our in-house nanoparticle production capabilities. We have and renewed our user agreement with the Center for Integrated Nanotechnologies at Sandia National Laboratories to a) continue to advance our expertise in nanoparticle production, b) allow for an appropriate transition time in developing our own manufacturing capabilities, and c) to provide back up production capabilities. 

 

·

We are now at an important juncture in our program. Our next step is to expand our work with Research Collaboration sites to build the pre-clinical evidence for the MRX technology as a sensitive and specific in-vivo detection of various cancer types in animal models.

·

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.

·

We expect to have undertaken the safety and toxicology studies necessary to show that our nanoparticles are safe for use in humans within approximately the next year. Additionally, tthe 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.

 

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.

 

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, and 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.

 

 
9

  

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

 

 
10

 

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

 

 
11

 

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

Magnetically Transparent Stage For Rapid Positioning Of A Sample

61929562

21-Jan-2014

 

US

Methods and apparatuses related to instrumentation for magnetic relaxometry measurements

62/014,634

19-Jun-2014

   

Magnetic Relaxometry to Assess Disease via Circulating Markers

62/072,293

29-Oct-2014

   

 

• 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.

 

 
12

  

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.

 

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.

 

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 year ended December 31, 2014, all of our revenue was generated by one customer. For the year ended December 31, 2013, our revenue was generated from two customers. We did not have any significant suppliers.

 

 
13

  

EMPLOYEES

 

As of December 31, 2014, we had one full-time employee in general management as well as 7 employees employed by Senior Scientific and Metallicum. 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.

 

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

 

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

 

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

 

 
14

  

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.

 

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.

 

 
15

  

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 2014 REVENUE IS GENERATED FROM ONE CUSTOMER.

 

For the year ended December 31, 2014, our revenue were generated by one customer, which relationship was terminated in February 2015.

 

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.

 

 
16

 

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

 

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

 

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

 

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

 

Our Common Stock currently is quoted on the 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, and 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 MARKET PRICE OF OUR COMMON STOCK.

 

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

 

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

 

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

 

 
17

 

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 $2,487 in 2014. 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, 2014, 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.

 

 
18

 

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, 2014 and December 31, 2013, 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.

 

2014

       

First Quarter

 

$

0.0089

   

$

0.082

 

Second Quarter

 

$

0.169

   

$

0.13

 

Third Quarter

 

$

0.13

   

$

0.12

 

Fourth Quarter

 

$

0.109

   

$

0.091

 

 

2013

       

First Quarter

 

$

0.0475

   

$

0.046

 

Second Quarter

 

$

0.046

   

$

0.04

 

Third Quarter

 

$

0.073

   

$

0.0629

 

Fourth Quarter

 

$

0.07

   

$

0.066

 

 

As of March 26, 2015, there were 489,383,252 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 four 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:

 

2014

 

In January 2014, the Company entered into a securities purchase agreement with an accredited investor (the “January 2014 Accredited Investor”) pursuant to which the January 2014 Accredited Investor purchased 1,818,182 shares of the Company’s common stock and a warrant to acquire 909,091 shares of common stock for a purchase price of $100,000. The warrant is exercisable for five (5) years at an exercise price of $0.085 per share.

 

 
19

  

In February 2014, the Company entered into securities purchase agreements with two accredited investors (the “February 2014 Accredited Investors”) pursuant to which the February 2014 Accredited Investors purchased 18,250,000 shares of the Company’s common stock and warrants to acquire 4,562,500 shares of common stock for an aggregate purchase price of $1,368,750. The warrants are exercisable for five (5) years at an exercise price of $0.075 per share.

 

In February 2014, the Company paid $82,125 and granted a warrant for 4,562,500 shares of common stock to a consulting group as a finder’s fee related to the February 2014 Accredited Investors securities purchase agreement. The cash payment and warrant grant has been accounted for as an offering cost related to the February 2014 Accredited Investors securities purchase agreement and has been netted with the February 2014 Accredited Investors securities offering. The Warrants are exercisable for five (5) years at an exercise price of $0.075 per share.

 

In March 2014, the Company issued 2,533,334 shares of common stock to two consultants for services with a total value $177,000. The stock issuance is for services performed during the period January 2014 through June 2014.

 

In March 2014, the Company issued 1,818,182 shares of common stock in a private offering to two parties for cash totaling $100,000.

 

In March 2013, the board of directors of the Company approved that all members of the Company’s board of directors that have been serving in that capacity for at least one year as of September 30, 2013, will be issued 500,000 stock options on September 30, 2014 with a 10 year life. The Company used the Black-Scholes option pricing model to calculate the compensation expense for the option grants using the following inputs: exercise price of $0.09 per share, risk free rate of 2.0%, volatility of 125% and zero dividends. The aforementioned options were granted as of September 30, 2014 which the Company recorded compensation expense totaling $258,000 as of September 30, 2014.

 

In May 2014, the Company issued 1,000,000 shares of common stock and 2,000,000 common stock options to Larry Schatz, a member of the Company’s board of directors for past services performed during the three months ended March 31, 2014. The common stock options expire in 10 years and have an exercise price of $0.055 per share. The Company recorded $90,000 of general and administrative expense for the common stock issued, based on the $0.09 per share stock price on the date of grant and $174,000 of general and administrative expense for the common stock options issued during the three months ending March 31, 2014. The Company used the Black-Scholes option pricing model to calculate the expense for the option grants using the following inputs: exercise price of $0.055 per share, risk free rate of 2.0%, volatility of 125% and zero dividends.

 

In May 2014, the Company granted the issuance of 70,000 shares of common stock to seven employees (10,000 shares each) with a total fair value of $7,000 or $0.10 per share. As of September 30, 2014, these shares had not been issued and have been recorded as a stock payable at the fair value totaling $7,000. The shares were issued in July 2014.

 

In June 2014, the Company issued 116,666 shares of common stock to a consultant for services with a total value $7,000.

 

In July 2014 and August 2014, the Company issued 3,658,913 shares of common stock to five of its board of directors related to the exercise of options for 4,000,000 shares with an exercise price of $0.013 previously granted in 2007 on a cashless basis based on a fair market value of $0.15per share.

 

In August 2014, the Company issued 800,000 shares of common stock related to a previously granted stock option to a consultant with an exercise price of $0.07 for a total cash value of $56,000.

 

In September 2014, the Company issued 380,660 shares of common stock to a consultant for services rendered with a fair value of $14,000.

 

 
20

  

In November 2014, the Company sold and issued 18,000,000 shares of common stock and a stock warrant for 4,500,000 shares to an accredited investor for a total cash consideration of $1,980,000. As part of this sale of common stock, the Company incurred an offering expense of $109,000 in cash and issued 2,000,000 shares of common stock and stock warrant for 3,000,000 shares with an exercise price of $0.11. The related offering expense has been netted against the net proceeds raised from this sale of common stock.

 

In December 2014, the Company sold and issued 968,863 shares of common stock in a private offering to accredited investors for a total cash consideration of $106,575.

 

2013

 

On April 3, 2013, the Company and its wholly-owned subsidiary, Senior Scientific, entered into Convertible Note Purchase Agreements with Raymond A. Mason, William B. Jones and the Ferdinand J. Crovato Trust (the “April 2013 Investors”), providing for the sale by Senior Scientific to the April 2013 Investors of Convertible Promissory Notes in the aggregate amount of up to $2,500,000 (the "Convertible Notes"). The closing of the initial $1,000,000 in Convertible Notes occurred on April 3, 2013 and $500,000 on October 1, 2013. The balance of the funding will be provided on April 1, 2014 ($500,000) and October 1, 2014 ($500,000). In addition, the Company and Senior Scientific entered a Guaranty and Security Agreements with the April 2013 Investors whereby the Company agreed to unconditionally guaranty to the April 2013 Investors the full, prompt and punctual performance with respect to the Convertible Notes, agreed to subordinate any claim that the Company may have against the Subsidiary to that of the April 2013 Investors and granted the April 2013 Investors a security interest in the Company’s assets including its ownership interest in the Subsidiary.

 

The Convertible Notes bear interest at 8%, mature four (4) years from the date of issuance and are convertible at the April 2013 Investors options at any time upon ten (10) days written notice to the Company into either: (1) the number of membership interests of the Subsidiary equal to the quotient of the principal due under the respective convertible promissory note divided by $2,500,000 multiplied by 18% of the total equity of Senior Scientific outstanding as of April 3, 2013; or (2) the number of shares of common stock of the Company equal to the quotient of the principal and interest payable under the Convertible Notes divided by a conversion price of $0.055 per share.

 

The Company may not prepay the Convertible Notes. In the event of a default and so long as any default exists, interest on the Convertible Notes will accrue at 10%. The Company must pay all accrued interest on the Convertible Notes on the first calendar day of each quarter, commencing on July 13, 2013.

 

On November 5, 2013, the Company entered into a Conversion Agreement with Marvin Maslow (the "Holder") pursuant to which the Company agreed to convert $1,057,608 of debt (the "Debt"), including principal and interest, currently owed to Holder into 105,761 shares of Series D Preferred Shares of the Company. The Debt has been outstanding since 2007.

 

The above transactions were approved by the Board of Directors of the Company. The Series D Preferred Stock does not pay dividends and the does not have a liquidation preference. The Holder of the Series D Preferred Stock will be entitled to 20 votes for each share of common stock that the Series D Preferred Stock are convertible into. The Series D Preferred Stock has a conversion price of $0.055 (the “Conversion Price”) and a stated value of $10.00 (the “Stated Value”) per share. Each share of Series D Preferred Stock is convertible, at the option of the Holder, into such number of shares of common stock of the Company as determined by dividing Stated Value by the Conversion Price.

 

Holder may only convert the Series D Preferred Stock upon certain Convertible Promissory Notes, whether presently outstanding or to be issued, issued to three accredited investors (the "Note Investors") in accordance with those certain Convertible Note Purchase Agreements between the Company and the Note Investors dated April 3, 2013, have either (i) been converted in full or in part by the Note Investors into shares of common stock of the Company, (ii) the Note Investors have sold or assigned all or a part of their Convertible Promissory Notes to third parties, or (iii) the Note Investors have been paid in full or in part. The Holder will only be permitted to convert such number of Series D Preferred Stock equal to the pro rata amount of the Convertible Promissory Notes converted, assigned or paid. In the event the Note Investors agree in writing that these restrictions may be terminated, then the Holder will be entitled to convert the Series D Preferred Stock at the Holder’s election and the above restrictions will be null and void. Additionally, Holder may not convert the Series D Preferred Stock until the ten day average daily trading volume is greater than $20,000.

 

 
21

  

In the event the Holder terminates its consulting agreement or violates a non-compete covenant, then the Series D Preferred Shares shall be returned to the Company for cancellation and the Company shall be obligated on the Debt. As the Series D Preferred Stock is conditionally redeemable, the Company has recorded the Series D Preferred Stock as mezzanine equity in the accompanying consolidated balance sheet.

 

For the year ended December 31, 2013, the Company issued 2,363,638 shares of common stocks for a total consideration of $130,000 to three individuals.

 

For the year ended December 31, 2013, the Company issued 2,500,000 shares to an attorney for legal services for the Company totaling $113,000, and 557,000 shares to three consultants for services to satisfy an outstanding obligation totaling $29,000.

 

For the year ended December 31, 2013, the Company issued 600,000 shares related to the exercise of warrants for 1,000,000 shares with an exercise price of $0.02 on a cashless basis based on fair market value of $0.05 per share.

 

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

 

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, 2014 was 21,869,763.

 

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, 2014 was 500,000.

 

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, 2014 was -0-.

 

 
22

  

Set forth in the table below is information regarding awards made through compensation plans or arrangements through December 31, 2014.

 

 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

   

     

     

21,869,763

 

Total

   

     

     

21,869,763

 

 

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, 2012

   

39,700,000

                 

39,700,000

 

Granted

   

250,000

   

$

0.07

   

$

0.07

     

250,000

 

Exercised

   

(1,000,000

)

                   

(1,000,000

)

Expired

   

(3,000,000

                   

(3,000,000

Outstanding as of December 31, 2013

   

35,950,000

                     

35,950,000

 

Granted

   

5,030,000

   

$

0.11

   

$

0.11

     

5,030,000

 

Expired

   

(500,000

)

                   

(500,000

)

Outstanding as of December 31, 2014

   

40,480,000

                     

40,480,000

 

 

 
23

 

Exercise prices and weighted-average contractual lives of 40,480,000 stock options outstanding as of December 31, 2014 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

     

2.68

   

$

0.01

     

25,000,000

   

$

0.01

 

$

0.07

     

6,250,000

     

6.47

   

$

0.07

     

6,250,000

   

$

0.07

 

$

0.06

     

1,200,000

     

0.38

   

$

0.06

     

1,200,000

   

$

0.06

 

$

0.07

     

3,000,000

     

5.98

   

$

0.07

     

3,000,000

   

$

0.07

 

$

0.14

     

3,000,000

     

9.50

   

$

0.14

     

3,000,000

   

$

0.14

 

 

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

 

Warrants:

 

The Company issued the following warrants at the corresponding weighted average exercise price as of December 31, 2014.

 

    Warrants     Weighted average Exercise Price  

Outstanding as of December 31, 2012

   

17,400,000

   

$

0.07

 

Issued/Vested

   

-

         

Cancelled/Expired

   

(4,000,000

       

Outstanding as of December 31, 2013

   

13,400,000

   

$

0.07

 

Issued/Vested

   

19,243,182

   

$

0.09

 

Exercised

   

(4,000,000

)

       

Cancelled/Expired

   

(3,400,000

)

       

Outstanding as of December 31, 2014

   

25,243,182

   

$

0.07

 

 

Date

  Number of Warrants     Exercise Price Contractual Life Remaining   Number of Shares Exercisable  

April 2012

   

6,000,000

   

$

0.05

 

0.8 year

   

6,000,000

 

January 2014

   

909,091

   

$

0.09

 

4.1 year

   

909,091

 

February 2014

   

9,125,000

   

$

0.08

 

4 .1years

   

9,125,000

 

March 2014

   

909,091

   

$

0.09

 

4.2 years

   

909,091

 

August 2014

   

800,000

   

$

0.08

 

4.7 years

   

800,000

 

November 2014

   

7,500,000

   

$

0.11

 

4.9 years

   

7,500,000

 
     

25,243,182

               

25,243,182

 

 

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

 

ITEM 6. SELECTED FINANCIAL DATA

 

N/A

 

 
24

 

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.) goal is to demonstrate 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 was to fully develop, manufacture and market a new class of high strength metals. On February 11, 2015, the Company and Carpenter entered into a Settlement Agreement and Mutual Release pursuant to which the parties provided a full release of one another, Carpenter paid the Company $8,000,000, Carpenter transferred to the Company all intellectual and physical property that was part of the original agreement, Carpenter agreed to provide follow-on technical assistance and Carpenter provided a list of all customers and contacts.

 

 
25

  

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.

 

For the years ended December 31, 2014 and 2013, significantly all of our revenue was generated by one customer, Carpenter Technology Corporation. We did not have any significant suppliers.

 

YEAR ENDED DECEMBER 31, 2014 COMPARED TO YEAR ENDED DECEMBER 31, 2013.

 

GROSS PROFIT. The $642,000 of revenue recognized for the year ended December 31, 2014 related to service income and is nearly equivalent to the $652,000 in revenue earned during the year ended December 31, 2013. The fees earned pursuant to the agreement with Carpenter have been proportionately recognized as revenue based upon the total fees collected over a 42 month period and minimum royalty payments. 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. As of December 31, 2013, fees to be collected over the 42 months period associated with the Agreement have all been earned and collected. In 2014, we received $600,000 as a minimum royalty payment pursuant to the Agreement.

 

GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of consultants, contractors, accounting, legal, travel, rent, telephone and other day to day operating expenses. General and administrative expenses were $2,256,000 for the year ended December 31, 2014 compared with $1,500,000 for the year ended December 31, 2013. General and administrative expenses increased primarily as a result of costs related to stock based awards to our officers and directors of approximately $670,000 granted during 2014.

 

RESEARCH AND DEVELOPMENT. Research and development expenses consist of consultants and contractors. Research and development expenses were $1,861,000 for the year ended December 31, 2014 compared with $960,000 for the year ended December 31, 2013. Research and development expenses increased due to the design, engineering and construction of the next generation instruments to be used for the MD Anderson Cancer Center; hiring of four professional individuals; continued expenses working with the University of New Mexico; and continued development on intellectual property related to our nano-technology.

 

OTHER INCOME AND (EXPENSES). Other income and (expenses) were $(330,000) for the year ended December 31, 2014 compared with $(120,000) for the year ended December 31, 2013. The increase is primarily related to an increase in interest expense and debt discounts related to new loans totaling $1,000,000 during 2014.

 

NET LOSS. Our net loss was $3,805,000 for the year ended December 31, 2014 compared to a net loss of $1,928,000 for the year ended December 31, 2013. The increase in net loss resulted from the aforementioned factors noted above.

 

COMPREHENSIVE LOSS. Our comprehensive loss was $3,087,000 for the year ended December 31, 2014 compared to comprehensive loss of $1,928,000 for the year ended December 31, 2013.

 

 
26

  

LIQUIDITY AND PLAN OF OPERATIONS

 

Stockholders’ deficit totaled $832,000 on December 31, 2014 and the working capital surplus was $737,000 on such date. Although we have $2,528,000 of cash on hand as of December 31, 2014, we anticipate the need to continue raise fund for the costs incurred related to research and patents for Senior Scientific technology and cover the cash needs of our overhead for 2015.

 

At December 31, 2014, 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; our cash on hand; and our strategic alliances with various scientific laboratories, educational institutions, scientists and leaders in industry and government.

 

We had an increase of $1,950,000 in cash and cash equivalents for the year ended December 31, 2014, as a result of cash provided by financing activities offset by our net loss. For the year ended December 31, 2014, cash used by operating activities was $2,535,000 compared to $964,000 used by operating activities for the year ended December 31, 2013. Cash used by operating activities in 2014 was primarily as a result of our net loss which was offset by non-cash expenditures related to stock-based expenses totaling $878,000, debt discount and original issue discount of $147,000, and depreciation and amortization expense of $202,000. Cash used in investing activities for the year ended December 31, 2014 totaled $36,000 related to purchase of equipment for our research and development. There was $4,521,000 of cash provided by financing activities in the year ended December 31, 2014 as the result of issuance of common stock and a promissory note in 2014 compared to $1,630,000 cash provided by financing activities during the same period in 2013.

 

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, 2013, we had $2,528,000 in cash. We intend to satisfy our capital requirements for the next 12 months from our cash on hand and continued efforts to raise funds. In February 2015, we had entered into a Settlement Agreement and Mutual General Release with Carpenter Technology Corporation whereby Carpenter agreed as consideration for the full and final settlement and satisfaction of all claims we have or could assert against Carpenter in connection with September 12, 2009 Technology Agreement that among other things, Carpenter would pay us $8,000,000 which we received February 2015.

 

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.

 

 
27

  

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.

 

 
28

  

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.

 

 
29

  

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

REPORTS OF THE INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

   

F-2

 

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2014 AND 2013

   

F-4

 

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

   

F-5

 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

   

F-6

 

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

   

F-7

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

   

F-8

 

 

 
F-1

  

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Manhattan Scientifics, Inc.

 

We have audited the accompanying consolidated balance sheet of Manhattan Scientifics, Inc. (“the Company”) as of December 31, 2014 and the related consolidated statements of operations and other comprehensive loss, stockholders’ deficit and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit 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 audit 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, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit 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. at December 31, 2014 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

 

RBSM LLP

 

New York, NY

 

March 31, 2015

 

 
F-2

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and

Stockholders of Manhattan Scientifics, Inc.

 

We have audited the accompanying consolidated balance sheets of Manhattan Scientifics, Inc. (“the Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations and other comprehensive loss, stockholders’ deficit and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated 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 audit 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, 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. at December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

PMB Helin Donovan, LLP

 

Austin, TX

 

March 31, 2014

 

 
F-3

 

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 

    December 31,
2014
    December 31,
2013
 

ASSETS

       

Current assets:

       

Cash and cash equivalents

 

$

2,528,000

   

$

578,000

 

Prepaid expenses and other assets

   

-

     

12,000

 

Total current assets

   

2,528,000

     

590,000

 
                 

Fixed assets, net of accumulated depreciation of $175,000 and $136,000, respectively

   

144,000

     

147,000

 

Investments

   

2,000

     

2,000

 

Intellectual property, net of accumulated amortization of $681,000 and $217,000, respectively

   

957,000

     

1,120,000

 

Other asset

   

2,000

     

2,000

 

Total assets

 

$

3,633,000

   

$

1,861,000

 
                 

LIABILITIES

               

Current liabilities:

               

Accounts payable and accrued expenses

 

$

426,000

   

$

389,000

 

Accrued interest and expenses – related parties

   

19,000

     

19,000

 

Note payable to former officers

   

450,000

     

450,000

 

Convertible notes payable

   

896,000

     

896,000

 

Total current liabilities

   

1,791,000

     

1,754,000

 
                 

Long-term Liabilities

               

Convertible notes payable, net of unamortized debt discount of $884,000 and $213,000, respectively

   

1,616,000

     

1,287,000

 

Total long-term liabilities

   

1,616,000

     

1,287,000

 

Total liabilities

   

3,407,000

     

3,041,000

 

Mezzanine equity

               

Series D convertible, authorized 105,671 shares and 105,671

               

issued and outstanding at December 31, 2014 and 2013, respectively

   

1,058,000

     

1,058,000

 
                 

STOCKHOLDERS' 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 at December 31, 2014 and 2013

               

Series C convertible, redeemable, authorized 14,000 shares;

   

-

     

-

 

issued and outstanding - none

               
                 

Common, authorized 950,000,000 shares, 516,378,036 and 464,963,554 shares issued and outstanding at December 31, 2014 and 2013, respectively

   

516,000

     

465,000

 

Additional paid-in-capital

   

61,894,000

     

56,734,000

 

Accumulated deficit

   

(63,242,000

)

   

(59,437,000

)

Total stockholders' deficit

   

(832,000

)

   

(2,238,000

)

                 

Total liabilities and stockholders' deficit

 

$

3,633,000

   

$

1,861,000

 

 

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

 

 
F-4

 

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

 

    YEAR ENDED DECEMBER 31,  
    2014     2013  
         

Revenue

 

$

642,000

   

$

652,000

 
                 

Operating costs and expenses:

               

General and administrative

   

2,256,000

     

1,500,000

 

Research and development

   

1,861,000

     

960,000

 

Total operating costs and expenses

   

4,117,000

     

2,460,000

 
                 

Loss from operations before other income and expenses

   

(3,474,000

)

   

(1,808,000

)

                 

Other income and expenses:

               

 Interest and other expenses

   

(330,000

)

   

(120,000

)

                 

NET LOSS BEFORE INCOME TAXES

   

(3,805,000

)

   

(1,928,000

)

                 

Income tax expense

   

-

     

-

 
                 

NET LOSS

   

(3,805,000

)

   

(1,928,000

)

                 
                 

BASIC LOSS PER COMMON SHARE:

               

Weighted average number of common shares outstanding

   

485,631,117

     

461,107,333

 
                 

Basic loss per common share

 

$

(0.01

)

 

$

(0.00

)

 

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

 

 
F-5

 

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

 Consolidated Statements of Stockholders' Deficit

 For The Years Ended December 31, 2014 And 2013

 

    Preferred Stock $.001 Par Value Series B     Common Stock $.001 Par Value     Additional Paid-in     Other Comprehensive     Accumulated      
    Shares     Amount     Shares     Amount     Capital     Income     Deficit     Total  

Balance December 31, 2012

   

49,999

   

$

-

     

458,942,480

   

$

459,000

   

$

56,231,000

   

$

22,000

   

$

(57,509,000

)

 

$

(797,000

                                                                 

Issuance of shares for cash

                   

2,363,636

     

2,000

     

128,000

                     

130,000

 

Issuance of shares for services

                   

3,657,438

     

4,000

     

138,000

                     

142,000

 

Recognition of debt discount on warrants associated with debt

                                   

227,000

                     

227,000

 

Stock options issued

for services

                                   

10,000

                     

10,000

 

Conversion of debt to preferred stock by shareholder

                                   

1,058,000

                     

1,058,000

 

Comprehensive loss

                                           

(22,000

)

           

(22,000

)

Net loss

                                       

(1,928,000

)

   

(1,928,000

)

                                                                 

Balance December 31, 2013

   

49,999

     

-

     

464,963,554

     

465,000

     

56,734,000

     

-

     

(59,437,000

)

   

(2,238,000

)

                                                                 

Issuance of shares for cash

                   

43,654,909

     

43,000

     

3,477,000

                     

3,520,000

 

Issuance of shares for services

                   

7,759,573

     

8,000

     

290,000

                     

298,000

 

Recognition of debt discount on warrants associated with debt

                                   

818,000

                     

818,000

 

Stock options issued for services

                                   

575,000

                     

575,000

 

Net loss

                                                   

(3,805,000

)

   

(3,805,000

)

                                                                 

Balance December 31, 2014

   

49,999

     

-

     

516,378,036

   

$

516,000

   

$

61,894,000

   

$

-

   

$

(63,242,000

)  

$

(832,000

)

 

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

 

 
F-6

 

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    YEAR ENDED DECEMBER 31,  
    2014     2013  

CASH FLOWS FROM OPERATING ACTIVITIES:

       

Net loss

 

$

(3,805,000

)

 

$

(1,928,000

)

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

               

Common stock issued for services

   

303,000

     

294,000

 

Stock options issued/vested for services

   

575,000

     

10,000

 

Debt discount and original issue discount accretion

   

147,000

     

14,000

 

Amortization of intellectual property and fixed assets

   

202,000

     

227,000

 

Changes in:

               

Accounts receivable

   

--

     

257,000

 

Prepaid expenses and other assets

   

6,000

     

--

 

Accounts payable

   

37,000

     

155,000

 

Accrued interest and expenses, related parties

   

--

     

7,000

 
                 

Net cash used in operating activities

   

(2,535,000

)

   

(964,000

)

                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Purchase of fixed assets

   

(36,000

)

   

(179,000

                 

Net cash used in investing activities

   

(36,000

)

   

(179,000

                 

CASH FLOWS FROM FINANCING ACTIVITIES:

               

Proceeds from note payable

   

1,000,000

     

1,500,000

 

Payment on related party note payable

   

--

     

--

 

Proceeds from issuance of common stock, net of offering costs

   

3,521,000

     

130,000

 
                 

 Net cash provided by financing activities

   

4,521,000

     

1,630,000

 
                 

NET INCREASE IN CASH AND CASH EQUIVALENTS

   

1,950,000

     

487,000

 

Cash and cash equivalents, beginning of period

   

578,000

     

91,000

 
                 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

2,528,000

   

$

578,000

 
                 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

               

Interest paid

 

$

-

   

$

-

 
                 

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:

         

Conversion of debt to preferred stock by shareholder

 

$

-

   

$

1,058,000

 

Recognition of debt discount on warrants associated with debt

 

$

202,000

   

$

227,000

 

 

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

 

 
F-7

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 1 – ORGANIZATION AND OPERATIONS

 

Manhattan Scientifics, Inc., a Delaware corporation (formerly Grand Enterprises, Inc) (“Grand”) was established on July 31, 1992 and has two wholly-owned subsidiaries: Metallicum, Inc. (“Metallicum”), 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, Inc., operates as a technology incubator that seeks to acquire, develop and commercialize life-enhancing technologies in various fields, with emphasis in the areas of nano-technologies and nano-medicine. In this capacity, the Company continues to identify emerging technologies through strategic alliances with scientific laboratories, educational institutions, and scientists and leaders in industry and government. The Company has a long standing relationship with Los Alamos Laboratories in New Mexico. 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 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, and improvements on the patents or trade secrets whether or not patentable or registrable under copyright or similar laws.

 

In January 2009, the Company entered into a patent license agreement with Los Alamos National Security, LLC for the exclusive licensing use of certain technology relating to the manufacture and application of nanostructuring metals and alloys. Pursuant to such agreement the Company provided a non-refundable fee and 2,000,000 shares of common stock. Additionally, the Company is required to pay an annual license fee starting in February 2010 and royalties on future net sales.

 

In September 2009, the Company entered into a technology transfer agreement with Carpenter Technologies Corporation (“Carpenter”). 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, the Company 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-8

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

Manhattan Scientifics success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.

 

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 ACCOUNTING POLICIES AND RELATED MATTERS

 

BASIS OF CONSOLIDATION:

 

The consolidated financial statements include the accounts of Manhattan Scientific, Inc. and its wholly owned subsidiaries Metallicum and Senior Scientific. All significant intercompany balances and transactions have been eliminated. The accompanying consolidated financial statements include the operating activities of Metallicum and Senior Scientific for the years ended December 31, 2014 and 2013.

 

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 up to $250,000. As of December 31, 2014 and 2013, the Company had cash accounts exceeding insured amount totaling $2,140,000 and $129,000, respectively.

 

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-9

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

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, 2014 and 2013, accumulated amortization was $194,000 and $164,000. 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, 2014 and 2013, accumulated amortization was $20,000 and $16,000. 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 Nanomedicine, Inc. which held 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, 2014 and 2013, accumulated amortization was $467,000 and $37,000.

 

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-10

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

BASIC AND DILUTED LOSS PER SHARE

 

In accordance with FASB ASC 260, “Earnings Per Share,” the basic loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Basic net loss per share excludes the dilutive effect of stock options or warrants and convertible notes Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and warrants. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive. As of December 31, 2014 and 2013, 65,723,000 and 49,350,000 dilutive shares were excluded from the calculation of diluted loss per common share.

 

RESEARCH AND DEVELOPMENT:

 

Research and development costs are expensed as incurred and amounted to $2,168,000 and $960,000 for the years ended December 31, 2014 and 2013.

 

INVESTMENTS:

 

Available-for-Sale Investments

 

Investments that the Company designates as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). The Company determines the cost of the investment sold based on the specific identification method. The Company’s available-for-sale investments include:

 

Marketable equity securities The Company acquires these equity investments for the promotion of business and strategic objectives. The Company records the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on other equity investments, net.

 

Non-Marketable and Other Equity Investments

 

The Company accounts for non-marketable and other equity investments under either the cost or equity method and 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 discernible milestones.

 

 
F-11

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

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, 2014 and December 31, 2013 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, 2014 and December 31, 2013 because of the relative short term nature of these instruments. At December 31, 2014 and December 31, 2013, the fair value of the Company’s debt approximates carrying value.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

In January 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-04, Receivables - Troubled Debt Restructurings by Creditors ("ASU 2014-04"), which intends to clarify when a creditor should be considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan such that the loan should be derecognized and the real estate recognized. ASU 2014-04 is effective for annual periods, and interim periods within those annual periods beginning after December 15, 2014. We will adopt this standard effective January 1, 2015. Our adoption of ASU 2014-14 is not expected to have a material impact on our consolidated financial statements.

 

 
F-12

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ("ASU 2014-09"), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our consolidated financial statements and have not yet determined the method by which we will adopt the standard in 2017.

 

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern. The provisions of ASU No. 2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently assessing the impact of this ASU on the Company’s consolidated financial statements.

 

NOTE 3 – INVESTMENTS

 

As of December 31, 2014 and 2013, the Company owned 1,075,648 shares of Novint common stock or approximately 3%. The fair value of the Novint shares was $-0- and $-0- as of December 31, 2014 and 2013, 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 and shareholder 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 note payable balance totaling $450,000 at December 31, 2013 comprised of a loan payable of $450,000 to its former Chief Operating Officer. During 2013, the former Chief Executive Officer and shareholder converted the outstanding balance due him totaling $1,071,000 into 105,761 shares Preferred Stock Class D Convertible Shares. 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 $23,000 and $43,000 for the years ended December 31, 2014 and 2013, respectively. Accrued interest related to these notes payable approximated $268,000 and $245,000 as of December 31, 2014 and 2013, respectively and is included in accrued liabilities.

 

 
F-13

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 5 – CONVERTIBLE NOTES PAYABLE

 

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, 2013 and 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 year ended December 31, 2012, the Company has recorded an expense associated with original debt discount and expense associated with the debt discount (warrants) of $422,000. Accordingly, the carrying net value of this note at December 31, 2014 and 2013 totals $896,000, comprising of $600,000 (original face value) plus the fully accreted original debt discount of $296,000.

 

During 2013 and 2014, the Company issued convertible notes for $2,500,000 through its wholly-owned subsidiary, Senior Scientific, LLC. The convertible notes bear interest at 8%, mature four years from the date of issuance, and are convertible into either: (1) membership interests of Senior Scientific, LLC equal to the quotient of the principal due of the convertible notes divided by $2,500,000 multiplied by 18% of the total equity of Senior Scientific, LLC outstanding as of the date hereof; or (2) the number of shares of common stock of the Company equal to the quotient of the principal and interest payable due of the convertible notes divided by a conversion price of $0.055 per share. The Company may not prepay the convertible notes. In the event of a default and so long as the default exists, interest on the convertible notes will accrue at 10%. The Company must pay all accrued interest on the convertible notes on the first calendar day of each quarter. The conversion feature to the note payable has been accounted for as an original issue discount approximating $1,045,000 which $148,000 and $14,000 has been accreted and recorded as interest expense for the years ended December 31, 2014 and 2013, respectively. Accordingly, the carrying net value of this note at December 31, 2014 and 2013 totals $1,616,000 and $1,287,000, respectively, comprising of $2,500,000 and $1,500,000 (original face value) plus the unamortized original debt discount of $884,000 and $213,000, respectively.

 

NOTE 6 – CAPITAL TRANSACTIONS

 

Preferred Stock

 

The Company has a total of 1,000,000 shares of authorized preferred shares which are segregated into four classes of preferred stock.

 

The Company has 182,525 authorized shares of convertible, redeemable, 10 percent cumulative, Class A, Preferred Stock with $0.001 par value. One Class A, Preferred share is convertible into 50 restricted common shares and will be entitled to the number of votes equal to the number of shares of common stock into which such holder’s shares of Series A Preferred stock could be converted at the time of the vote. Class A, Preferred Stock is redeemable by the Company at $15 per share. Upon liquidation the holders of Series A Preferred stock will be entitled to be paid out of the assets available for distribution of the corporation an amount equal to $10 per share, before any payment will be made to the common shareholders. As of December 31, 2014 and 2013, 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, 2014 and 2013, 49,999 shares of Preferred Stock were issued and outstanding. Class B preferred shares are convertible at a rate of 1 Series B preferred share to 10 common shares.

 

 
F-14

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

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, 2014 and 2013, no shares of Preferred Stock were issued and outstanding.

 

On November 5, 2013, the Company entered into a Conversion Agreement with Marvin Maslow (the "Holder") pursuant to which the Company agreed to convert $1,057,608 of debt (the "Debt"), including principal and interest, currently owed to Holder into 105,761 shares of Series D Preferred Shares of the Company. The Debt has been outstanding since 2007.

 

The above transactions were approved by the Board of Directors of the Company. The Series D Preferred Stock does not pay dividends and does not have a liquidation preference. The Holder of the Series D Preferred Stock will be entitled to 20 votes for each share of common stock that the Series D Preferred Stock are convertible into. The Series D Preferred Stock has a conversion price of $0.055 (the “Conversion Price”) and a stated value of $10.00 (the “Stated Value”) per share. Each share of Series D Preferred Stock is convertible, at the option of the Holder, into such number of shares of common stock of the Company as determined by dividing Stated Value by the Conversion Price.

 

Holder may only convert the Series D Preferred Stock upon certain Convertible Promissory Notes, whether presently outstanding or to be issued, issued to three accredited investors (the "Note Investors") in accordance with those certain Convertible Note Purchase Agreements between the Company and the Note Investors dated April 3, 2013, have either (i) been converted in full or in part by the Note Investors into shares of common stock of the Company, (ii) the Note Investors have sold or assigned all or a part of their Convertible Promissory Notes to third parties, or (iii) the Note Investors have been paid in full or in part. The Holder will only be permitted to convert such number of Series D Preferred Stock equal to the pro rata amount of the Convertible Promissory Notes converted, assigned or paid. In the event the Note Investors agree in writing that these restrictions may be terminated, then the Holder will be entitled to convert the Series D Preferred Stock at the Holder’s election and the above restrictions will be null and void. Additionally, Holder may not convert the Series D Preferred Stock until the ten day average daily trading volume is greater than $20,000.

 

In the event the Holder terminates its consulting agreement or violates a non-compete covenant, then the Series D Preferred Shares shall be returned to the Company for cancellation and the Company shall be obligated on the Debt. As the Series D Preferred Stock is conditionally redeemable, the Company has recorded the Series D Preferred Stock as mezzanine equity in the accompanying consolidated balance sheet.

 

The Company has 447,714 and 553,475 undesignated blank check preferred stock, $0.001 par value, authorized as of December 31, 2014 and 2013, 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.

 

Common Stock

 

The Company has a total of 950,000,000 shares of authorized common shares. As of December 31, 2014 and 2013, 516,378,036 and 464,963,554 shares of common stock were issued and outstanding, respectively.

 

Stocks issued during 2014

 

In January 2014, the Company entered into a securities purchase agreement with an accredited investor (the “January 2014 Accredited Investor”) pursuant to which the January 2014 Accredited Investor purchased 1,818,182 shares of the Company’s common stock and a warrant to acquire 909,091 shares of common stock for a purchase price of $100,000. The warrant is exercisable for five (5) years at an exercise price of $0.085 per share.

 

 
F-15

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

In February 2014, the Company entered into securities purchase agreements with two accredited investors (the “February 2014 Accredited Investors”) pursuant to which the February 2014 Accredited Investors purchased 18,250,000 shares of the Company’s common stock and warrants to acquire 4,562,500 shares of common stock for an aggregate purchase price of $1,368,750. The warrants are exercisable for five (5) years at an exercise price of $0.075 per share.

 

In February 2014, the Company paid $82,125 and granted a warrant for 4,562,500 shares of common stock to a consulting group as a finder’s fee related to the February 2014 Accredited Investors securities purchase agreement. The cash payment and warrant grant has been accounted for as an offering cost related to the February 2014 Accredited Investors securities purchase agreement and has been netted with the February 2014 Accredited Investors securities offering. The Warrants are exercisable for five (5) years at an exercise price of $0.075 per share.

 

In March 2014, the Company issued 2,533,334 shares of common stock to two consultants for services with a total value $177,000. The stock issuance is for services performed during the period January 2014 through June 2014.

 

In March 2014, the Company issued 1,818,182 shares of common stock in a private offering to two parties for cash totaling $100,000.

 

In March 2013, the board of directors of the Company approved that all members of the Company’s board of directors that have been serving in that capacity for at least one year as of September 30, 2013, will be issued 500,000 stock options on September 30, 2014 with a 10 year life. The Company used the Black-Scholes option pricing model to calculate the compensation expense for the option grants using the following inputs: exercise price of $0.09 per share, risk free rate of 2.0%, volatility of 125% and zero dividends. The aforementioned options were granted as of September 30, 2014 which the Company recorded compensation expense totaling $258,000 as of September 30, 2014.

 

In May 2014, the Company issued 1,000,000 shares of common stock and 2,000,000 common stock options to Larry Schatz, a member of the Company’s board of directors for past services performed during the three months ended March 31, 2014. The common stock options expire in 10 years and have an exercise price of $0.055 per share. The Company recorded $90,000 of general and administrative expense for the common stock issued, based on the $0.09 per share stock price on the date of grant and $174,000 of general and administrative expense for the common stock options issued during the three months ending March 31, 2014. The Company used the Black-Scholes option pricing model to calculate the expense for the option grants using the following inputs: exercise price of $0.055 per share, risk free rate of 2.0%, volatility of 125% and zero dividends.

 

In May 2014, the Company granted the issuance of 70,000 shares of common stock to seven employees (10,000 shares each) with a total fair value of $7,000 or $0.10 per share. As of September 30, 2014, these shares had not been issued and have been recorded as a stock payable at the fair value totaling $7,000. The shares were issued in July 2014.

 

In June 2014, the Company issued 116,666 shares of common stock to a consultant for services with a total value $7,000.

 

In July 2014 and August 2014, the Company issued 3,658,913 shares of common stock to five of its board of directors related to the exercise of options for 4,000,000 shares with an exercise price of $0.013 previously granted in 2007 on a cashless basis based on a fair market value of $0.15 per share.

 

In August 2014, the Company issued 800,000 shares of common stock related to a previously granted stock option to a consultant with an exercise price of $0.07 for a total cash value of $56,000.

 

In September 2014, the Company issued 380,660 shares of common stock to a consultant for services rendered with a fair value of $14,000.

 

 
F-16

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

In November 2014, the Company sold and issued 18,000,000 shares of common stock and a stock warrant for 4,500,000 shares to an accredited investor for a total cash consideration of $1,980,000. As part of this sale of common stock, the Company incurred an offering expense of $109,000 in cash and issued 2,000,000 shares of common stock and stock warrant for 3,000,000 shares with an exercise price of $0.11. The related offering expense has been netted against the net proceeds raised from this sale of common stock.

 

In December 2014, the Company sold and issued 968,545 shares of common stock in a private offering to two individuals for a total cash consideration of $106,540.

 

Stocks issued during 2013

 

For the year ended December 31, 2013, the Company issued 2,363,636 shares of common stock for a total consideration of $130,000 to three individuals.

 

For the year ended December 31, 2013, the Company issued 2,500,000 shares to an attorney for legal services for the Company totaling $113,000, and 557,000 shares to three consultants for services to satisfy an outstanding obligation totaling $29,000.

 

For the year ended December 31, 2013, the Company issued 600,000 shares related to the exercise of options for 1,000,000 shares with an exercise price of $0.02 on a cashless basis based on fair market value of $0.05 per share.

 

For the year ended December 31, 2013, the Company issued 105,671 shares of convertible Class D, Preferred Stock for conversion of a former Chief Executive Officer and shareholder (Preferred Stock section above for additional discussions) debt totaling $1,058,000.

 

For the year ended December 31, 2013, the Company had granted 14,000,000 shares and warrants for 14,000,000 shares to officers and directors of the Company fair valued at $2,232,000 however, this stock grant has since been rescinded by the Company’s board of directors and thus, reversed out and no longer reflected in the accompanying financial statements as of December 31, 2013.

 

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.

 

 
F-17

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

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, 2014 and 2013 was 21,869,763 and 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, 2014 and 2013 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, 2014 was -0-.

 

During 2013, the Company issued options for 250,000 shares of common stock vesting immediately, exercise price of $0.07 per share, and 5 year life. The fair value of this option awarded totaled $10,000 based on the Black-Scholes option pricing model using the following assumptions: 5 year term; volatility rate of 133%; and a risk free rate of 2.5%.

 

During 2014, the Company granted an option for 5,030,000 shares of common stock vesting over four year period, exercise price ranging from $0.06 to $0.26 per share, and five year lives from when the option is fully vested. The fair value of this option totaled $582,000 based on the Black-Scholes option pricing model using the following assumptions: 5 year term; volatility rate of ranging from 124% to 125%; and a risk free rate of 2.5%.

 

 Set forth in the table below is information regarding awards made through compensation plans or arrangements through December 31, 2014, the most recently completed fiscal year.

 

At December 31, 2014, the 40,480,000 outstanding options had an aggregate intrinsic value of $1,566,000.

 

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

   

     

     

21,869,763

 

Total

   

     

     

21,869,763

 

 

 
F-18

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

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, 2012

   

39,700,000

                 

39,700,000

 

Granted

   

250,000

   

$

0.07

   

$

0.07

     

250,000

 

Exercised

   

(1,000,000

)

                   

(1,000,000

)

Expired

   

(3,000,000

                   

(3,000,000

Outstanding as of December 31, 2013

   

35,950,000

                     

35,950,000

 

Granted

   

5,030,000

   

$

0.11

   

$

0.11

     

5,030,000

 

Expired

   

(500,000

)

                   

(500,000

)

Outstanding as of December 31, 2014

   

40,480,000

                     

40,480,000

 

 

Exercise prices and weighted-average contractual lives of 40,480,000 stock options outstanding as of December 31, 2014 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

     

2.68

   

$

0.01

     

25,000,000

   

$

0.01

 

$

0.07

     

6,250,000

     

6.47

   

$

0.07

     

6,250,000

   

$

0.07

 

$

0.06

     

1,200,000

     

0.38

   

$

0.06

     

1,200,000

   

$

0.06

 

$

0.07

     

3,000,000

     

5.98

   

$

0.07

     

3,000,000

   

$

0.07

 

$

0.14

     

3,000,000

     

9.50

   

$

0.14

     

3,000,000

   

$

0.14

 

$

0.06

     

2,000,000

     

9.25

   

$

0.06

     

2,000,000

   

$

0.06

 

$

0.26

     

30,000

     

4.96

   

$

0.26

     

1,000

   

$

0.26

 

 

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

 

 
F-19

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

  

Warrants:

 

The Company issued the following warrants at the corresponding weighted average exercise price as of December 31, 2014.

 

    Warrants     Weighted average Exercise Price  

Outstanding as of December 31, 2012

   

17,400,000

   

$

0.07

 

Issued/Vested

   

-

         

Cancelled/Expired

   

(4,000,000

       

Outstanding as of December 31, 2013

   

13,400,000

   

$

0.07

 

Issued/Vested

   

19,243,182

   

$

0.09

 

Exercised

   

(4,000,000

)

       

Cancelled/Expired

   

(3,400,000

)

       

Outstanding as of December 31, 2014

   

25,243,182

   

$

0.07

 

 

Date

  Number of Warrants     Exercise Price     Contractual Life Remaining   Number of Shares Exercisable  

April 2012

   

6,000,000

   

$

0.05

     

0.8 year

   

6,000,000

 

January 2014

   

909,091

   

$

0.09

     

4.1 year

   

909,091

 

February 2014

   

9,125,000

   

$

0.08

     

4.1 years

   

9,125,000

 

March 2014

   

909,091

   

$

0.09

     

4.2 years

   

909,091

 

August 2014

   

800,000

   

$

0.08

     

4.7 years

   

800,000

 

November 2014

   

7,500,000

   

$

0.11

     

4.9 years

   

7,500,000

 
     

25,243,182

                   

25,243,182

 

 

 
F-20

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

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, 2014 and 2013, respectively. Deferred tax assets are comprised of the following at December 31:

 

    2014     2013  

Net operating loss carryforward

 

$

11,856,000

   

$

10,744,000

 

Temporary differences

   

6,158,000

     

5,748,000

 

Less valuation allowance

   

(18,014,000

)

   

(16,492,000

)

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, 2014 and 2013, 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, 2014 and 2013, net operating loss carryforwards were approximately $45,251,000 and $41,446,000, respectively, for federal tax purposes that expire at various dates from 2013 through 2030 and for state tax purposes expire in 2014 through 2024.

 

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, 2014 and 2013, the provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (34% in 2014 and 2013) to income taxes as follows:

 

    2014

 

  2013

Tax benefit computed at 34%

 

$

410,000

   

$

127,000

 

Change in valuation allowance

   

(1,522,000

)

   

(771,000

)

Change in carryovers and tax attributes

   

1,112,000

     

644,000

 

Income tax provision

   

-

     

-

 

 

 
F-21

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

NOTE 8 – COMMITMENTS

 

Operating Leases

 

The Company’s principal executive offices in New York are leased on a month to month basis for $500 per month. For the years ended December 31, 2014 and 2013, rent expense was $6,000, and $6,000 respectively.

 

Consulting Agreement

 

On June 1, 2014, the Company entered into consulting agreement with Gerald Grafe, a shareholder, whereby Mr. Grafe has been retained to serve as President for Senior Scientific for a period of twenty four (24) months ending on May 31, 2016. As compensation, Mr. Grafe will the right to receive 5,000,000 shares of the Company’s common stock (conditionally vest on certain conditions) and monthly fee of $17,000. Additionally, Mr. Grafe will accrue an additional deferred consulting fee of $4,200 a month however, if the Company’s per share average closing bid for the 15 days prior to such date is above $0.20 per share then, the deferred fee for the preceding 3 months shall not be accrued, and 625,000 shares (or the total remaining unvested shares, if less than 625,000 shares) shall vest.

 

Litigation

 

The Company is subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of December 31, 2014 and 2013, the Company was not party to any material litigation, claims or suit whose outcome could have material effect to the financial statements.

 

License Agreement

 

As discussed in Note 3, 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. Under the terms of the agreement, the Company may be required to pay royalties, as defined, to the licensors. The license rights also require the Company to meet certain milestones. Twelve months from the effective date of the license rights agreement Manhattan will initiate negotiations with at least five companies regarding manufacture and distribution of licensed products. Within twenty-four months Manhattan will establish capability for manufacturing a licensed product in New Mexico and within thirty-six months Manhattan will either manufacture a licensed product or close a sublicense agreement, or initiate a request for required government approval for a licensed product.

 

Metallicum, Inc.

 

In June 2008, the Company completed the purchase of Metallicum, Inc., a privately held research and development company of nano-structured materials, by acquiring all of the outstanding capital stock of Metallicum, Inc. for a total purchase price of $305,000. In connection with the Metallicum acquisition, the Company has agreed to pay additional consideration in future periods, based upon the attainment by the acquired entity of defined operating objectives. In accordance with FASB ASC 805, the Company does not accrue contingent consideration obligations prior to the attainment of the objectives. At December 31, 2014, maximum potential future consideration pursuant to such arrangements, to be resolved over the following years, is the potential issuance of 15 million restricted shares of the Company’s common stock having a current approximate value of $1,050,000. Any such payments would result in increases in intangible assets.

 

 
F-22

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

The required milestones for the issuance of these contingent shares are as follows:

 

1.

Metallicum is granted an exclusive license by The Los Alamos National Laboratory (LANL) on patent numbers U.S.7152448, U.S.6399215 and U.S. 6197129 related to nanostructured materials.

2.

Metallicum sells nanostructured titanium to a partner or customer company which manufactures and sells in the United States a nonostructured titanium product which receives, if required, FDA approval.

3.

Metallicum, with purchaser’s cooperation, develops and submits U.S. patent applications to protect the current titanium nanostructuring technology for dental implants and additional medical device applications

4.

Metallicum secures commercial contracts for, in purchaser’s reasonable good faith judgment, material sales of nanostructured metal with at least two customers.

 

Upon achieving milestones 1 and 2 Metallicum will receive 6,000,000 shares of common stock. Upon achieving each milestone 3, 4 and 5 Metallicum shareholders will receive 3,000,000 shares of common stock for each milestone reached. As of December 31, 2014, the Company has so far only achieved milestone 1.

 

NOTE 9 – TECHNOLOGY TRANSFER AGREEMENT AND SUB-LICENSE AGREEMENT

 

On September 12, 2009, the Company entered into a contract with Carpenter Technology Corp. to sell certain nanostructured metal technologies acquired from Metallicum, Inc, its wholly owned subsidiary, to Carpenter and to provide sub-license rights to Carpenter covering license agreements that the Company has from Los Alamos Laboratories. The agreement has two distinct elements: and 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 agrees to pay a sales price of $600,000 and pay royalties for products developed using this technology. In addition, the Company can receive additional service income for assisting Carpenter in the production process. These additional services are elective and do not affect the sale of the technology. The second element of the agreement is a sub-license to Carpenter for patents (the LANS patents) that are licensed by the Company from Los Alamos Laboratories. The sub-license agreement obligates Carpenter to pay MSI a running royalty on the sales of products that require license to the LANS patents but does not have any upfront fee or annual minimum royalties. As of December 31, 2014, fees to be collected over the 42 months period associated with the Agreement have been earned and collected.

 

The Company recognized the sales revenue upon transfer of the technology and the service income over the term of the agreement. The royalty income will be recognized as products are developed using the field technology or sub-license.

 

As of December 31, 2014 and 2013, the Company earned $-0- and $343,000 and recorded such amount as revenue for the years ended December 31, 2014 and 2013. The amount received by the Company relates to services provided under the first element of the contract regarding additional services. The Company earned service income for time that a consultant to the Company, Dr. Lowe, made himself available to Carpenter in accordance with the Technology Transfer Agreement. The fees earned pursuant to the agreement with Carpenter were proportionately recognized as revenue based upon the total fees to be collected over a 42 month period. The 42 month period is based on the time periods described in the Agreement (6 months after effective date), (12 months after effective date), and (each of the first 3 anniversaries of Annuity date where the “Annuity date” is the date of the latter of 18 months after the effective date or the date Manhattan Scientific fully satisfies its duties under of the Agreement).

 

 
F-23

 

MANHATTAN SCIENTIFICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014 AND 2013

 

In January 2013, the Company entered into a licensing agreement with a party granting certain licensing rights to the Company's nanostructured metal technology. As consideration: the Company received $210,000 during 2013, and will receive $30,000 by December 31, 2013; $30,000 by December 1, 2014; and $30,000 upon commercial launch by the party or the latest December 1, 2015. For the years ended December 31, 2014 and 2013, the Company recorded the receipt of $-0- and $210,000, respectively, as revenue.

 

NOTE 10 – SUBSEQUENT EVENTS

 

On January 12, 2015, our wholly-owned subsidiary, Senior Scientific, LLC (”Senior”), entered into an Executive Employment Agreement (the ”Proulx Agreement”) with Robert R. Proulx, who will serve as the Chief Operating Officer and President for Senior. The Proulx Agreement is for a term through January 31, 2018 at a base salary of $250,000. In addition, Mr. Proulx will recieve (i) 10,000,000 shares of common stock of the Company of which 2,500,000 shares of common stock will vest on commencement and the balance shall vest over 10 quarters at 750,000 per quarter and (ii) 5,000,000 shares of common stock of the Company to be issued upon certain defined events.

 

On January 30, 2015, the Company was notified by L.L. Bradford & Company, LLC (“Bradford”) that the firm has decided to discontinue the performance of public company audit services. Certain clients of Bradford are transitioning to RBSM, LLP (“RBSM”), to serve as their independent registered public accounting firm. As Bradford was engaged by the Company commencing on June 20, 2014 and did not participate in an audit of the Company’s financial statements, Bradford has not issued a report and has not expressed an audit opinion on the Company’s financial statements for any year end.

 

On February 5, 2015 (the “Engagement Date”), the Company engaged RBSM as its independent registered public accounting firm for the Company’s fiscal year ended December 31, 2014. The decision to engage RBSM as the Company’s independent registered public accounting firm was approved by the Company’s Board of Directors.

 

On February 11, 2015, the Company entered into a Settlement Agreement and Mutual General Releases (the "Settlement Agreement") Carpenter Technology Corporation related to the agreement discussed in Note 9, pursuant to which the parties settled and released each other from any and all liabilities and claims related to the Carpenter Agreements.

 

Under the terms of the Settlement Agreement and as consideration for the full and final settlement and satisfaction of all claims that the Company has or could assert against Carpenter in connection with the Carpenter Agreements, Carpenter will: (1) pay the Company $8,000,000 within 10 days from the date of the Settlement Agreement; (2) transfer and/or assign to the Company all physical and intellectual property which was the subject matter of the Carpenter Agreements free and clear of all liens and encumbrances; (3) provide the Company with follow on technical assistance; and (4) provide the Company with a complete list of all customers and contacts for same related to the technology which was the subject matter of the Carpenter Agreements. In addition, under the terms of the Settlement Agreement, neither party may disparage the other and the Carpenter Agreements were terminated and rendered null and void. As of the date this report, the Company has received the $8,000,000 portion of the Settlement Agreement.

 

On March 13, 2015, Marvin Maslow was elected as a member of the Board of Directors of the Company.

 

In consideration of legal services provided by Larry Schatz in connection with the litigation and settlement matters between the Company and Carpenter Technology Corporation, on March 13, 2015, the Company agreed to issue to Mr. Schatz 1,000,000 shares of common stock of the Company and warrants to acquire 2,500,000 shares of common stock. The common stock purchase warrants are exercisable for five (5) years at an exercise price of $0.12 per share. Mr. Schatz is a member of the Company's Board of Directors.

 

 
F-24

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

 

None

 

ITEM 9T. CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

Our principal executive and principal financial officers have evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a – 15(e) and 15d – 15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") that arc designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC's rules and forms and that the information is gathered and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

 

Our principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(c) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report.

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission.

 

Management's Report on Internal Control Over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(t) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:

 

1. Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and

 

3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

 

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. Based on this assessment, management concluded that the Company did not maintain effective internal controls over financial reporting as a result of the identified material weakness in our internal control over financial reporting described below. In making this assessment, management used the framework set forth in the report entitled Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication. and (v) monitoring.

 

 
30

 

Identified Material Weakness

 

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

 

Management identified the following material weakness during its assessment of internal controls over financial reporting as or December 31, 2014:

 

Resources: As of December 31, 2014, we had one full-time employee in general management and no full-time employees with the requisite expertise in the key functional areas of finance and accounting. As a result, there is a lack of proper segregation of duties necessary to insure that all transactions are accounted for accurately and in a timely manner.

 

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

 

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

 

Management's Remediation Initiatives

 

We plan to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions. We also plan to add an audit committee financial expert to our board and create an audit committee made up of our independent directors.

 

(b) Changes in Internal Control Over Financial Reporting

 

There were no changes in our internal controls over financial reporting during this fiscal quarter that materially affected, or is reasonably likely to have a materially affect, on our internal control over financial reporting.

 

ITEM 9B. OTHER INFORMATION

 

 
31

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

 

The names, ages and biographical information of each of our directors and executive officers as of March 27, 2015 are set forth below. There are no existing family relationships between or among any of our executive officers or directors.

 

NAME

 

AGE

 

POSITION

         

Emmanuel Tsoupanarias

 

62

 

Chairman of the Board, President and Chief Executive Officer

Leonard Friedman

 

77

 

Secretary and Director

Frank Georgiou

 

64

 

Director

Chris Theoharis

 

62

 

Director

Larry Schatz

 

68

 

Director

Marvin Maslow

 

77

 

Director

 

Members of the Board serve until the next annual meeting of stockholders and until their successors are elected and qualified. Officers are appointed by and serve at the discretion of the Board. There are no family relationships among any of our directors or officers.

 

None of our directors or executive officers has, during the past ten years:

 

·

been convicted in a criminal proceeding and none of our directors or executive officers is subject to a pending criminal proceeding,

·

been subject to any order, judgment, or decree not subsequently reversed, suspended or vacated of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities, futures, commodities or banking activities, or

·

been found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

 

EMMANUEL TSOUPANARIAS has served as our chief executive officer and chairman of the Board since November 1, 2007. Mr. Tsoupanarias is the president, founder and editor of FuelCellsWorks.com, a weekly trade publication that has become the voice of the fuel cell industry. He is internationally recognized as an expert in fuel cell development. Prior to his tenure at FuelCellsWorks.com, Mr. Tsoupanarias was an executive in the power generation manufacturing sector. From 1992 to 2007 Mr. Tsoupanarias has served as a Project Manager in the power generation sector and from 2000 has served as a consultant in the fuel cell industry. His technical and engineering background and his 7-year tenure as the Company’s CEO qualify him for the Company’s Board.

 

LEONARD FRIEDMAN has served as a director since October 2007. Mr. Friedman is an honors graduate of Hunter College with a B.S. degree in economics and a minor in accounting. He is also a graduate of Brooklyn Law School. Mr. Friedman was a founder and partner in the law firm of Anes, Friedman, Leventhal & Rubin from which he retired in 2000. Until 2002, he was CEO of Fiasco of New York, Inc., a restaurant and real estate corporation that owned and operated eight restaurants in New York and California. Mr. Friedman’s legal knowledge, managerial experience and knowledge of the Company qualify him to serve on the Company’s Board.

 

FRANK GEORGIOU has served as a director since October 2007. Since 1993, Mr. Georgiou has been the President of Three Diamond Diner Corp., a private company that owns and operates the Mount Kisco Coach Diner. He is the former President of the Upper New York Pangregorian, a consortium of restaurant owners. Mr. Georgiou’s business experience as president of a private company is valuable to the Company’s Board.

 

 
32

 

LARRY SCHATZ has served as a director since June 2010. He is of Counsel at Grubman, Shire & Meiselas, P.C, a law firm where he has advised clients on business and corporate matters for the last 18 years. Mr. Schatz has practiced law in New York and Florida for over 44 years. He has served on boards of several public companies, including the Company from June 2003 to January 2006. Mr. Schatz’s experience advising clients on business and corporate matters and his experience on the boards of other public companies qualify him to serve on the Company’s Board.

 

CHRIS THEOHARIS has served as a director since October 2007. Since 2003, Mr. Theoharis has worked as a consultant, both advising companies on small business acquisitions and business practices in the retail industry. Mr. Theoharis has also served as a consultant to Maximum Quality Foods Inc. and Vested Business Brokers. Prior to his work in the consulting industry, he worked as a stockbroker and financial advisor for Morgan Stanley from 1996 to 2003, leaving Morgan Stanley as an Associate Vice President. Mr. Theoharis has also worked for a public accounting firm. He graduated from Adelphi University in 1970 with a B.B.A. in Accounting. Mr. Theoharis’s accounting and finance knowledge qualify him as a member of the Company’s Board.

 

MARVIN MASLOW served as the CEO of Manhattan Scientifics from January 1998 until November 2007. On March 13, 2015, Mr. Maslow was appointed as a director of the Company. From June 1990 through September 1996, Mr. Maslow served as chief executive officer of Projectavision, Inc., a company he co-founded to develop and market video projection technology. For more than 20 years, Mr. Maslow has been President of Normandie Capital Corp., a private investment and consulting company. Mr. Maslow is credited with the starting up and financing of more than 20 enterprises during his career. Mr. Maslow received an A.A.S. degree from the Rochester Institute of Technology in 1957 and an honorable discharge from the U.S. Army Signal Corps in 1963. Mr. Maslow serves as a paid consultant to the Company, attends board meetings and serves as a special advisor to the Board of Directors. He also serves as a Manager of the Company’s Senior Scientifics LLC subsidiary.

 

SECCTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

 

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who own more than ten percent of our common stock to file reports of ownership and change in ownership with the Securities and Exchange Commission and the exchange on which the common stock is listed for trading. Executive officers, directors and more than ten percent stockholders are required by regulations promulgated under the Exchange Act to furnish us with copies of all Section 16(a) reports filed. Based solely on our review of copies of the Section 16(a) reports filed for the fiscal year ended December 31, 2014, we believe that our executive officers, directors and ten percent stockholders complied with all reporting requirements applicable to them.

 

CODE OF ETHICS

 

On March 31, 2005, we adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A copy of the Company’s Code of Ethics can be viewed on our website at www.mhtx.com/code-of-ethics.htm or obtained free of charge by sending a written request to the attention of the Company’s Chief Executive Officer, Emmanuel Tsoupanarias at The Chrysler Building, 405 Lexington Avenue, 26th Floor, New York, New York, 10174.

 

CORPORATE GOVERNANCE

 

We do not have a separately-designated standing audit committee. The entire Board of Directors of the Company acts as the audit committee. The Board of Directors of the Company has determined that it does not have an "audit committee financial expert" as such term is defined in the rules adopted by the SEC requiring companies to disclose whether or not at least one member of the audit committee is an "audit committee financial expert." The Board of Directors believes that the aggregate technical, commercial and financial experience of its members, together with their knowledge of the Company, provides the Board with the ability to monitor and direct the goals of the Company and to protect the best interests of its shareholders. Four of the five members of the Board of Directors are "independent," as that term is defined in Section 10A(m) of the Securities Exchange Act of 1934, and that the members' independence qualifies it to monitor the performance of management, the public disclosures by the Company of its financial condition and performance, the Company's internal accounting operations and its independent auditors. In addition, the Board of Directors is authorized to engage independent financial consultants, auditors and counsel whenever it believes it is necessary and appropriate.

 

 
33

  

ITEM 11. EXECUTIVE COMPENSATION

 

The following tables set forth all compensation awarded by us to our executive officers for the fiscal years ended December 31, 2014 and 2013. Other than the Employment Agreement entered into between the Company and Emmanuel Tsoupanarias, our CEO, we do not have employment agreements with any of our other officers.

 

Name

 

Year

  Salary ($)     Bonus ($)     Stock Awards ($)     Option Awards ($)     Non-Equity Incentive Plan Compensation ($)     Changes in Pension Value and Nonqualified Deferred Compensation Earnings ($)     All Other Compensation ($)     Total ($)  
                                     

Emmanuel Tsoupanarias

 

2014

   

150,000

     

--

     

--

     

66,865

     

--

     

--

           

215,865

 

CEO and Chairman

 

2013

   

150,000

     

--

     

--

     

--

     

--

     

--

     

--

     

150,000

 
                                                                     

Gerald Grafe President of

 

2014

 

$

225,875

     

--

   

$

175,000

     

--

     

--

     

--

     

--

   

$

400,875

 

Senior Scientific (1)

 

2013

   

205,500

     

--

     

112,500

     

--

     

--

     

--

     

--

     

318,000

 

 

(1) On December 31, 2014, Gerald Grafe resigned as President of Senior.

 

Prior to entering an Employment Agreement with the Company On March 28, 2013, Mr. Emmanuel Tsoupanarias, our Chief Executive Officer, did not have an employment agreement. His salary, was originally set at $100,000, was set by the Board of Directors in 2007. Pursuant to his Employment Agreement, Mr. Tsoupanarias shall receive an annual salary of $150,000 and additional cash incentive consideration as determined by the Board for a term of five years.

 

The independent members of the Company’s board of directors, acting as a compensation committee, reviewed the compensation policies and practices relating to the compensation provided to the Company’s employees to determine whether such policies and practices are reasonably likely to have a material adverse effect on the Company. Based on the review and the compensation paid by the Company to its only employee, the Company determined that any risks associated with the Company’s compensation practices were not reasonably likely to have a material adverse effect on the Company.

 

On March 28, 2013, the Company entered into an Employment Agreement with Emmanuel Tsoupanarias, our CEO. The agreement is for a term of five years and Mr. Tsoupanarias shall receive an annual salary of $150,000 per year and additional cash incentive consideration as determined by the Board. In the event the employment agreement is terminated by the Company without cause, then the Mr. Tsoupanarias shall receive 50% of the base salary remaining on the term and all options and other securities he would have been entitled to for an additional three months shall vest.

 

Director Compensation

 

For the year ended December 31, 2014, for their service as directors, each of the directors received $6,000 in fees.

 

 
34

  

Compensation Committee Interlocks and Insider Participation

 

Our entire board currently acts as our compensation committee. Emmanuel Tsoupanarias is the sole executive officer of our company. No member of the compensation committee is employed by or serving as a member of the board of directors or compensation committee of any entity that has one or more of its executive officers serving as a member of our board.

 

OUTSTANDING EQUITY AWARDS

 

Name

 

Grant Date

  Number of Securities Underlying Unexercised Warrants (#) Exercisable     Number of Securities Underlying Unexercised Warrants (#) Unexercisable (1)     Warrant Exercise Price ($)  

Warrant Expiration Date

                   

Emmanuel Tsoupanarias, Chairman and CEO

 

08/5/2011

   

6,000,000

     

-

   

$

0.070

 

08/5/2021

                               

Emmanuel Tsoupanarias, Chairman and CEO

 

06/30/2014

   

500,000

     

-

   

$

0.140

 

06/30/2024

                               

Larry Schatz, Director

 

03/31/2014

   

2,000,000

     

-

   

$

0.055

 

03/31/2024

                               

Frank Georgiou, Director

 

06/30/2014

   

500,000

     

-

   

$

0.140

 

06/30/2024

                               

Chris Theoharis, Director

 

06/30/2014

   

500,000

     

-

   

$

0.140

 

06/30/2024

                               

Leonard Friedman, Director

 

06/30/2014

   

500,000

     

-

   

$

0.140

 

06/30/2024

                               

Larry Schatz, Director

 

06/30/2014

   

500,000

     

-

   

$

0.140

 

06/30/2024

                               

Marvin Maslow, Director

 

06/30/2014

   

500,000

     

-

   

$

0.140

 

06/30/2024

 

Grant of Plan Based Awards

 

No plan-based awards were made during the fiscal year ended December 31, 2014.

 

 
35

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth, as of March 26, 2015, the names, addresses and number of shares of common stock beneficially owned by (i) all persons known to us to be the beneficial owners of more than 5% of the outstanding shares of common stock, (ii) each of our directors, (iii) each of our executive officers, and (iv) all of our directors and executive officers as a group. Except as indicated, each beneficial owner listed exercises sole voting power and sole dispositive power over the shares beneficially owned. Share ownership in each case includes shares issuable upon exercise of options exercisable within 60 days of the date of this Annual Report that would be required to be reported pursuant to Rule 13d-3 of the Securities Exchange Act of 1934 for purposes of computing the percentage of common stock owned by such person but not for purposes of computing the percentage owned by any other person. Unless otherwise indicated, the address of the below-listed persons is our address, The Chrysler Building, 405 Lexington Avenue, 26th Floor, New York, New York 10174.

 

Name and Address of Beneficial Owner

  Number of
Shares
Beneficially
Owned
  Percent of
Class (1)

         

Emmanuel Tsoupanarias (2)

   

16,430,773

     

3.2

%

Leonard C. Friedman (3)

   

10,423,641

     

2.0

%

Frank Georgiou (4)

   

22,937,075

     

4.4

%

Chris Theoharis (4)

   

4,742,374

     

1.0

%

Larry Schatz (7)

   

6,500,000

     

1.3

%

Marvin Maslow (5)(6)

   

73,257,545

     

14.1

%

Directors and Executive Officers as a group (6 persons)

   

134,291,408

     

25.9

%

                 

Total

   

134,291,408

     

25.9

%

____________

(1) This tabular information is intended to conform to Rule 13d-3 promulgated under the Securities Exchange Act of 1934 relating to the determination of beneficial ownership of securities. The percent of class is based on 518,378,036 shares and, for each beneficial owner, gives effect to the exercise of warrants or options exercisable within 60 days of the date of this table owned, in each case, by the person or group whose percentage ownership is set forth herein.

(2) Includes 10,200,106 owned by Saraklis Inc., a corporation controlled by Mr. Tsoupanarias, options to purchase 500,000 shares at $0.14 and options to purchase 5,000,000 shares at $0.07.

(3) Includes 2,500,000 shares owned in joint tenancy with his wife and a warrant to purchase 500,000 shares at a price of $0.14 per share.

(4) Includes a warrant to purchase 500,000 shares at a price of $0.14 per share.

(5) Includes 28,628,273 shares of Common Stock, options to purchase 25,000,000 shares of Common Stock, a warrant to purchase 500,000 shares of Common Stock at an exercise price of $0.14 per share.

(6) Includes 105,761 shares of Series D Preferred Stock on an as converted basis. The Series D Preferred Stock has a conversion price of $0.055 and a stated value of $10.00 per share. Each share of Series D Preferred Stock is convertible into such number of shares of common stock of the Company as determined by dividing stated value by the conversion price.

 (7) Includes options to purchase 2,000,000 shares at a price of $0.055 and 500,000 shares at a price of $0.14.

 

 
36

  

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

In December 2007, the former Chief Operating Officer, Jack Harrod, and former Chief Executive Officer, Marvin Maslow, collectively forgave $1,416,500 of their outstanding accrued salaries ($1,387,500) and note payable ($29,000) balances. The amount forgiven has been accounted for as contributed capital. Additionally, the Company repaid $5,000 of Marvin Maslow’s note payable balance. The remaining unpaid notes payable balances totaling $995,000 at December 31, 2011 and 2010 comprised of loans payable of $450,000 and $545,000 to Jack Harrod and Marvin Maslow, respectively. Mr. Harrod resigned April 1, 2006. Mr. Maslow resigned November 1, 2007. Mr. Maslow is a related party as a result of his beneficial ownership of more than 10% of the Company’s common stock. In addition, Mr. Maslow was appointed to the Board on March 13, 2015. 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, 2011 and 2010, respectively. Accrued interest related to these notes payable approximated $432,000 and $382,000 as of December 31, 2011 and 2010, respectively and is included in accrued liabilities, related parties. Mr. Maslow had agreed to waive any and all request for full payment of the amount owed to him until March 31, 2014. Sums earned to date from the Company in connection with equity and debt transactions have been credited to a reduction of the Company’s liability to him. On November 5, 2013, the Company entered into a Conversion Agreement with Mr. Maslow pursuant to which the Company agreed to convert $1,057,608 of debt, including principal and interest, currently owed to Mr. Maslow into 105,761 shares of Series D Preferred Shares of the Company.

 

The above transactions were approved by the Board of Directors of the Company. The Series D Preferred Stock does not pay dividends and the does not have a liquidation preference. The holder of the Series D Preferred Stock will be entitled to 20 votes for each share of common stock that the Series D Preferred Stock are convertible into. The Series D Preferred Stock has a conversion price of $0.055 (the “Conversion Price”) and a stated value of $10.00 (the “Stated Value”) per share. Each share of Series D Preferred Stock is convertible, at the option of Mr. Maslow, into such number of shares of common stock of the Company as determined by dividing Stated Value by the Conversion Price. Mr. Maslow may only convert the Series D Preferred Stock upon certain Convertible Promissory Notes, whether presently outstanding or to be issued, issued to three accredited investors (the "Note Investors") in accordance with those certain Convertible Note Purchase Agreements between the Company and the Note Investors dated April 3, 2013, have either (i) been converted in full or in part by the Note Investors into shares of common stock of the Company, (ii) the Note Investors have sold or assigned all or a part of their Convertible Promissory Notes to third parties, or (iii) the Note Investors have been paid in full or in part. Mr. Maslow will only be permitted to convert such number of Series D Preferred Stock equal to the pro rata amount of the Convertible Promissory Notes converted, assigned or paid. In the event the Note Investors agree in writing that these restrictions may be terminated, then Mr. Maslow will be entitled to convert the Series D Preferred Stock at Mr. Maslow’s election and the above restrictions will be null and void. Additionally, Mr. Maslow may not convert the Series D Preferred Stock until the ten day average daily trading volume is greater than $20,000. In the event Mr. Maslow terminates its consulting agreement or violates a non-compete covenant, then the Series D Preferred Shares shall be returned to the Company for cancellation and the Company shall be obligated on the Debt. The issuance of the Series D Preferred Stock was made in reliance upon exemptions from registration pursuant to Section 4(2) under the Securities Act of 1933 and/or Rule 506 promulgated under Regulation D thereunder. The holder of the Series D Preferred Stock is an accredited investor as defined in Rule 501 of Regulation D promulgated under the Securities Act of 1933.

 

On May 6, 2012, the Company issued 483,871 shares to Gerald Grafe, a former officer of Senior Scientific, for legal services.

 

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

 

On December 7, 2012, the Company issued 2,500,000 shares to Gerald Grafe for legal services from December 1, 2012 - June 1, 2013 at $0.05 per share value.

 

On March 28, 2013, the Company entered into an Employment Agreement with Emmanuel Tsoupanarias, our CEO. The agreement is for a term of five years and Mr. Tsoupanarias shall receive an annual salary of $150,000 per year and additional cash incentive consideration as determined by the Board. In the event the employment agreement is terminated by the Company without cause, then the Mr. Tsoupanarias shall receive 50% of the base salary remaining on the term and all options and other securities he would have been entitled to for an additional three months shall vest.

 

 
37

 

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

INDEPENDENT AUDITOR FEES

 

The following is a summary of the fees billed to us by our independent auditors for the fiscal years ended December 31, 2014 and December 31, 2013:

 

Fee Category

  Fiscal 2014     Fiscal 2013  
         

Audit and audit related fees

 

$

50,000

   

$

50,000

 

Tax fees

   

-

     

-

 

Other fees

   

-

     

-

 

Total fees

 

$

50,000

   

$

50,000

 

 

Audit Fees. Consists of aggregate fees billed for professional services rendered for the audit of our consolidated financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by our auditors in connection with statutory and regulatory filings or engagements.

 

Tax Fees. Consists of aggregate fees billed for professional services for tax compliance, tax advice and tax planning. These services include assistance regarding federal and state tax compliance. There were no tax services provided in fiscal years ended December 31, 2014 and December 31, 2013.

 

Other Fees. Consists of fees for products and services other than the services reported above. There were no management consulting services provided in fiscal years ended December 31, 2014 and December 31, 2013.

 

We do not currently have an Audit Committee. Our full Board of Directors considers whether the provision of these services is compatible with maintaining the auditor's independence, and has determined such services

 

BOARD OF DIRECTORS POLICY ON PRE-APPROVAL OF SERVICES OF INDEPENDENT AUDITORS

 

The Board of Directors’ policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors on a case-by-case basis. These services may include audit services, audit-related services, tax services and other services.

 

 
38

 

ITEM 15. EXHIBITS

 

(a) EXHIBITS

 

Exhibit Number

 

Description of Exhibit

     

2.1

 

Agreement and Plan of Reorganization (1)

2.2

 

Agreement and Plan of Merger (1)

3.1

 

Certificate of Incorporation dated August 1, 1995 (12)

3.2

 

Certificate of Amendment to Certificate of Incorporation dated January 8, 1998 (12)

3.3

 

Bylaws (1)

3.4

 

Certificate of Amendment of Certificate of Incorporation dated January 16, 2001 (12)

3.5

 

Certificate of Amendment of Certificate of Incorporation dated August 8, 2007 (12)

4.1

 

Certificate of Designation, Preferences and Rights of Series B Preferred Stock (12)

4.2

 

Amended Certificate of Designation, Preferences and Rights of Series B Preferred Stock (12)

4.3

 

Certificate of Designation, Preferences and Rights of Series C Preferred Stock (12)

4.4

 

Amended Certificate of Designation, Preferences and Rights of Series C Preferred Stock (2)

4.5

 

Form of Convertible Promissory Note issued April 3, 2013 (13)

4.6

 

Certificate of Designation for the Series D Preferred Stock (14)

4.7

 

Form of Securities Purchase Agreement entered by and between Manhattan Scientifics, Inc. And the January 2014 Accredited Investor (15)

4.8

 

Form of Securities Purchase Agreement entered by and between Manhattan Scientifics, Inc. and the February 2014 Accredited Investors (16)

4.9

 

Form of Warrant (16)

4.10

 

Form of Securities Purchase Agreement entered by and between Manhattan Scientifics, Inc. and the November 2014 Accredited Investor (17)

4.11

 

Form of Warrant (17)

4.12

 

Form of Subscription Agreement entered by and between Manhattan Scientifics, Inc. and the 2014 Accredited Investors (18)

4.13

 

Form of Warrant (23)

10.1

 

Manhattan Scientifics, Inc. 1998 Stock Option Plan (1)

10.2

 

Stock Purchase Agreement between Manhattan Scientifics, Inc., Projectavision, Inc., and Lancer Partners, L.P. (3)

10.3

 

Manhattan Scientifics, Inc. 2000 Equity Incentive Plan (5)

10.4

 

2004 Consultant Stock Plan (6)

10.5

 

Manhattan Scientifics 2005 Equity Incentive Plan (8)

10.6

 

Technology Transfer Agreement by and between Carpenter Technology Corporation and Manhattan Scientifics, Inc, effective as of the 12th day of September 2009 (7)

10.7

 

Acquisition Option Agreement by and among Senior Scientific LLC, Edward R. Flynn, Ph.D., Scientific Nanomedicine, Inc. and Manhattan Scientifics, Inc. (10)

10.8

 

Stock Purchase Agreement, dated as of June 12, 2008, among Manhattan Scientifics, Inc., Metallicum, Inc., and the shareholders of Metallicum (9)

10.9

 

Settlement and Memorandum of Agreement among Marvin Maslow, Jack B. Harrod and Manhattan Scientifics, Inc. (9)

10.10

 

Patent License Agreement Between Los Alamos National Security, LLC and Manhattan Scientifics, Inc. (10)

10.11

 

Agreement and Plan of Reorganization by and among the Company, Scientific Nanomedicine, Inc., Edward, R. 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. (11)

10.12

 

Purchase Agreement by and among the Company, Senior Scientific LLC and Edward R. Flynn. (11)

10.13

 

Consulting Agreement dated June 1, 2011 between Manhattan Scientifics Inc. and V. Gerald Grafe (12)

10.14

 

Employment Agreement dated March 28, 2013 between Manhattan Scientifics Inc. and Emmanuel Tsoupanarias (12)

10.15

 

Consulting Agreement between Normandie New Mexico Corp. and Manhattan Scientifics Inc. dated October 1, 2009 (12)

10.16

 

Amendment to the Consulting Agreement between Normandie New Mexico Corp. and Manhattan Scientifics Inc. dated October 1, 2009 (12)

10.17

 

Convertible Note Purchase Agreement between Manhattan Scientifics, Inc. and Senior Scientific, LLC and Raymond A. Mason, William B. Jones and the Ferdinand J. Crovato Trust dated April 3, 2013 (13)

10.18

 

Guaranty and Security Agreement between Manhattan Scientifics, Inc. and Senior Scientific, LLC and Raymond A. Mason, William B. Jones and the Ferdinand J. Crovato Trust dated April 3, 2013 (13)

10.19

 

Conversion Agreement by and between Manhattan Scientifics, Inc. and Marvin Maslow dated November 5, 2013 (14)

10.20

 

Executive Employment Agreement between Senior Scientific, LLC and Robert R. Proulx dated January 12, 2015 (20)

10.21

 

Settlement Agreement and Mutual General Releases by and between Manhattan Scientifics, Inc. and Carpenter Technology Corporation dated February 11, 2015 (22)

14.1

 

Code of Ethics (9)

16.1

 

Letter from L.L. Bradford & Company, LLC (21)

21.1

 

List of Subsidiaries (12)

 

 
39

  

31.1

 

Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) and 15d- 14(a)

31.2

 

Certification of Principal Financial Officer Pursuant to Rule 13a-14(a) and 15d- 14(a)

32.1

 

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

32.2

 

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

99.1

 

Press Release dated December 30, 2014 (19)

EX-101.INS**

 

XBRL INSTANCE DOCUMENT

EX-101.SCH**

 

XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

EX-101.CAL**

 

XBRL TAXONOMY EXTENSION CALCULATION LINKBASE

EX-101.DEF**

 

XBRL TAXONOMY EXTENSION DEFINITION LINKBASE

EX-101.LAB**

 

XBRL TAXONOMY EXTENSION LABELS LINKBASE

EX-101.PRE**

 

XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

______________

(1) Incorporated by reference to the registrant's Form 10-SB filed with the Commission on December 8, 1999.

(2) Incorporated by reference to the registrant's Form 10-QSB filed with the Commission on August 14, 2000 for the period ended June 30, 2000.

(3) Incorporated by reference as Amendment No. 2 to the registrant's Form 10-SB filed with Commission on February 9, 2000.

(4) Reserved.

(5) Incorporated by reference to the registrant's proxy statement filed on Schedule 14C filed with the Commission on December 26, 2000.

(6) Incorporated by reference to the registrant's registration statement filed on Form S-8 filed with the Commission on November 26, 2004.

(7) Incorporated by reference to Amendment No. 2 to the registrant’s Form 10-Q/A for the period ended September 30, 2009 filed with the Commission on October 4, 2010.

(8) Incorporated by reference to the registrant's registration statement in Form S-8 filed with the Commission on June 8, 2005.

(9) Incorporated by reference to the registrant's Form 10-K filed with the Commission on April 9, 2010.

(10) Incorporated by reference to the registrant’s Form 10-K/A filed with the Commission on March 25, 2011.

(11) Incorporated by reference to the registrant's Form 8-K filed with the Commission on June 6, 2011.

(12) Incorporated by reference to the registrant's Form 10-K filed with the Commission on March 30, 2012.

(13) Incorporated by reference to the registrant's Form 8-K filed with the Commission on April 9, 2013

(14) Incorporated by reference to the registrant's Form 8-K filed with the Commission on November 8, 2013

(15) Incorporated by reference to the registrant's Form 8-K filed with the Commission on January 31, 2014

(16) Incorporated by reference to the registrant's Form 8-K filed with the Commission on February 12, 2014

(17) Incorporated by reference to the registrant's Form 8-K filed with the Commission on November 18, 2014

(18) Incorporated by reference to the registrant's Form 8-K filed with the Commission on December 11, 2014

(19) Incorporated by reference to the registrant's Form 8-K filed with the Commission on January 5, 2015

(20) Incorporated by reference to the registrant's Form 8-K filed with the Commission on January 20, 2015

(21) Incorporated by reference to the registrant's Form 8-K filed with the Commission on February 9, 2015

(22) Incorporated by reference to the registrant's Form 8-K filed with the Commission on February 19, 2015

(23) Incorporated by reference to the registrant's Form 8-K filed with the Commission on March 19, 2015

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

 

 
40

 

SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 31th day of March 2015.

 

 

MANHATTAN SCIENTIFICS, INC.

 
       
 

By:

/s/ Emmanuel Tsoupanarias

 
   

Emmanuel Tsoupanarias

 
   

Chief Executive Officer

 

 

In accordance with the Exchange Act, this report has been signed below by the following persons on March 31, 2015 on behalf of the registrant and in the capacities indicated.

 

Signature

 

Title

 

     

/s/ Emmanuel Tsoupanarias

 

Chief Executive Officer, President, Chairman of the Board

 

Emmanuel Tsoupanarias

 

(Principal Executive Officer and Principal Accounting Officer )

 

     

/s/ Leonard Friedman

 

Secretary and Director

 

Leonard Friedman

   
     

/s/ Frank Georgiou

 

Director

 

Frank Georgiou

   
     

/s/ Larry Schatz

 

Director

 

Larry Schatz

   
     

/s/ Chris Theoharis

 

Treasurer and Director (Principal Financial Officer)

 

Chris Theoharis

   

 

/s/ Marvin Maslow

 

Director

Marvin Maslow

   

 

 

 

41


 

EX-31.1 2 mhtx_ex311.htm CERTIFICATION

EXHIBIT 31.1

 

Certifications

 

I, Emmanuel Tsoupanarias, certify that:

 

1.

I have reviewed this annual report on Form 10-K of Manhattan Scientifics, Inc.;

   

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

   

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

   

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     
 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     
 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     
 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     
 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: March 31, 2015

By:

/s/ Emmanuel Tsoupanarias

 
   

Emmanuel Tsoupanarias

 
   

Chief Executive Officer

 
   

(Principal Executive Officer)

 

 

EX-31.2 3 mhtx_ex312.htm CERTIFICATION

EXHIBIT 31.2

 

Certifications

 

I, Chris Theoharis, certify that:

 

1.

I have reviewed this annual report on Form 10-K of Manhattan Scientifics, Inc.;

   

2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

   

3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

   

4.

The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

 

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     
 

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

     
 

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     
 

(d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.

The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

 

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     
 

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

 

Date: March 31, 2015

By:

/s/ Chris Theoharis

 
   

Chris Theoharis

 
   

(Principal Financial Officer)

 

 

EX-32.1 4 mhtx_ex321.htm CERTIFICATION

EXHIBIT 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Manhattan Scientifics, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Emmanuel Tsoupanarias, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date: March 31, 2015

By:

/s/ Emmanuel Tsoupanarias

 
   

Emmanuel Tsoupanarias

 
   

Chief Executive Officer (Principal Executive Officer)

 

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Manhattan Scientifics, Inc. and will be retained by Manhattan Scientifics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request .

 

EX-32.2 5 mhtx_ex322.htm CERTIFICATION

EXHIBIT 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report of Manhattan Scientifics, Inc. (the “Company”) on Form 10-K for the period ended December 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Chris Theoharis, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

Date: March 31, 2015

By:

/s/ Chris Theoharis

 
   

Chris Theoharis

 
   

(Principal Financial Officer)

 

 

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Manhattan Scientifics, Inc. and will be retained by Manhattan Scientifics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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