Forward Looking Statements
This Form 10-Q contains "forward-looking" statements including statements
regarding our expectations of our future operations. For this purpose, any
statements contained in this Form 10-Q that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate," or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, many of which are not within our control. These factors
include, but are not limited to, economic conditions generally and in the
industries in which we may participate. In addition, these forward-looking
statements are subject, among other things, to our successful completion of the
research and development of our technologies; successful commercialization of
our technologies; successful protection of our patents; and effective
significant industry competition from various entities whose research and
development, financial, sales and marketing and other capabilities far exceeds
ours. In light of these risks and uncertainties, you are cautioned not to place
undue reliance on these forward-looking statements. Except as required by law,
we undertake no obligation to announce publicly revisions we make to these
forward-looking statements to reflect the effect of events or circumstances that
may arise after the date of this report.
OVERVIEW
Manhattan Scientifics, Inc. (the "Company" or "Manhattan Scientifics"), a
Delaware corporation, was established on July 31, 1992 and has one operating
wholly-owned subsidiary: Metallicum, Inc., ("Metallicum"). Manhattan Scientifics
is focused on technology transfer and commercialization of these transformative
technologies.
The Company operates as a technology incubator that seeks to acquire, develop
and commercialize life-enhancing technologies in various fields, with emphasis
in the areas of nanotechnology. Nanotechnology is the use and manipulation of
matter on an atomic and molecular scale. To achieve this goal, the Company is
actively seeking to identify emerging technologies through strategic alliances
with scientific laboratories, educational institutions, scientists and leaders
in industry and government. The Company and its executives have a long-standing
relationship with Los Alamos Laboratories in New Mexico.
Metallicum
In June 2008, we acquired Metallicum and its licensed patented technology. We
entered into a stock purchase agreement with Metallicum to acquire all of the
outstanding capital in exchange for 15,000,000 restricted shares of our common
stock. An additional 15,000,000 shares of our common stock will be payable to
Metallicum in the event of meeting certain milestones. At December 31, 2011, one
milestone was met. Metallicum was granted an exclusive license by The Los Alamos
National Laboratory on patents related to nanostructured metals. In September
2009, we entered into a technology transfer agreement and sale with Carpenter
Technology Corporation, ("Carpenter") wherein Carpenter was to fully develop,
manufacture and market a new class of high strength metals. On February 11,
2015, the Company and Carpenter entered into a Settlement Agreement and Mutual
Release pursuant to which the parties provided a full release of one another,
Carpenter paid the Company $8,000,000, Carpenter transferred to the Company all
intellectual and physical property that was part of the original agreement,
Carpenter agreed to provide follow-on technical assistance and Carpenter
provided a list of all customers and contacts.
On May 1, 2019, Manhattan Scientifics, Inc., a Delaware corporation (the
"Company"), and Metallicum, Inc., a wholly-owned subsidiary of the Company,
entered into an Overarching Agreement with a non-affiliated third party ("Third
Party"), providing for an exclusive license by the Company of its ECAP
technology to the Third Party for a term of 17 years unless terminated sooner, a
sublicense by the Company to the Third Party of its rights under that certain
Exclusive Field-of-Use Patent License Agreement dated January 5, 2009 entered
with The Los Alamos National Laboratory for a term until the expiration of the
last valid claim to expire of the patents pursuant to such agreement and the
sale by the Company of ECAP-C machines to the Third party. As part of the above
license agreements, the Company will receive royalty payments, including minimum
payments, based on a percentage of the Third Party's sales. The Company
anticipates royalty income as the nanotitanium is commercialized for use in
medial prosthetics. Royalties will be 10% on sales of licensed dental products
and an average of 5% in all other sales of licensed products. We expect to start
earing royalties in 2021.
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Imagion
On May 31, 2011, we entered into an Agreement and Plan of Reorganization to
acquire Senior Scientific. The total purchase price was 21,668,000 restricted
shares of our common stock (less 7,667,000 shares previously issued pursuant to
an option agreement). As a result of this acquisition, Senior Scientific owned
patented technologies that can use biosafe nanoparticles and sensitive magnetic
sensors to detect and measure cancer cells in biopsies or in the human body with
the potential to transform how cancer is detected and treated. On November 17,
2016, Senior Scientific merged with and into Imagion, a Nevada company.
Following the merger, Imagion held all of the liabilities, obligations and
assets of Senior Scientific and the Company continued as the sole equity holder
of Imagion. On November 29, 2016, the Company announced a plan to have Imagion
pursue an IPO and listing on the Australian Stock Exchange (ASX).
As of September 30, 2020, Manhattan Scientifics presently owns 53,516,508 shares
of Imagion, with a fair market value of approximately $2,936,000, based upon the
closing price per share of Imagion common stock on the Australian Stock
Exchange. The Company accounts for its investment in Imagion in accordance with
ASC 825-10 and elected fair value option. We initially held 31% of the total
issued and outstanding shares of Imagion and had one seat on the Board of
Directors of Imagion. The guidance allows entities to elect to measure certain
financial assets and financial liabilities (as well as certain nonfinancial
instruments that are similar to financial instruments) at fair value.
Investments over which an investor has the ability to exercise significant
influence are eligible for the fair value option as they represent recognized
financial assets. When the fair value option is elected for an instrument, all
subsequent changes in fair value for that instrument are reported in
earnings. As of September 30, 2020, we hold approximately 6% of the total issued
and outstanding shares of Imagion and no longer have a seat on the Board of
Directors of Imagion.
Novint
We made an investment in Novint Technologies Inc. ("Novint") in 2001. Novint is
currently engaged in the development and sale of 3D haptics products and
equipment. Haptics refers to one's sense of touch and Novint's focus is in the
consumer interactive computer gaming market. The Company owns 1,028,425 shares
of Novint's common stock. The fair value of the Novint shares are not recorded
on the balance sheet as of September 30, 2020.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 2019
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of
consultants, contractors, accounting, legal, travel, rent, telephone and other
day-to-day operating expenses. General and administrative expenses were $196,000
for the three months ended September 30, 2020 compared with $187,000 for the
three months ended September 30, 2019. The primary increase in general and
administrative expenses was the result of the increase in stock-based
compensation for legal expenses.
RESEARCH AND DEVELOPMENT. Research and development costs were $3,000 for the
three months ended September 30, 2020 compared with $3,000 for the three months
ended September 30, 2019.
OTHER INCOME (EXPENSES). Total other income for the three months ended September
30, 2020 totaled $1,960,000 compared to the expenses of $1,397,000 for the three
months ended September 30, 2019. This is primarily attributable to the increase
in the gain on fair value adjustments of its investment in Imagion during the
period offset by an increase in interest expense.
NET INCOME (LOSS). During the three months ended September 30, 2020, the Company
had net income of $1,761,000, compared to a net income of $1,229,000 for the
three months ended September 30, 2019. This is primarily attributable to the
gain on fair value adjustment of investment, partially offset by a decrease in
revenue and an increase in general and administrative expenses.
NINE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
2019
GENERAL AND ADMINISTRATIVE. General and administrative expenses consist of
consultants, contractors, accounting, legal, travel, rent, telephone and other
day-to-day operating expenses. General and administrative expenses were $541,000
for the nine months ended September 30, 2020 compared with $945,000 for the nine
months ended September 30, 2019. The primary decrease in general and
administrative expenses was the result of the decrease in stock-based
compensation and legal expenses.
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RESEARCH AND DEVELOPMENT. Research and development costs were $8,000 for the
nine months ended September 30, 2020 compared with $6,000 for the nine months
ended September 30, 2019.
OTHER INCOME (EXPENSES). Total other income for the nine months ended September
30, 2020 totaled $2,056,000 compared to the other income of $764,000 for the
nine months ended September 30, 2019. This is primarily attributable to the gain
on fair value adjustments of its investment in Imagion during the period that is
partially offset in part by an increase in interest expense.
NET INCOME (LOSS). During the nine months ended September 30, 2020, the Company
had a net income of $1,557,000, compared to the net loss of $115,000 for the
nine months ended September 30, 2019. This is primarily attributable to the gain
on fair value adjustment of investments and a decrease in general and
administrative expenses, offset in part by a decrease in revenues and an
increase in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
Stockholders' equity totaled $576,000 on September 30, 2020 and the working
capital deficit was $1,513,000 on such date. We had an increase of $213,000 in
cash and cash equivalents for the nine months ended September 30, 2020.
Based upon current projections, our principal cash requirements for the next 12
months consists of (1) fixed expenses, including payroll, and professional
services and (2) variable expenses, including technology research and
development, milestone payments and intellectual property protection, and
additional scientific consultants. As of September 30, 2020, we had $474,000 in
cash. We believe our current cash position may not sufficient to maintain our
operations for the next twelve months. Accordingly, we may need to engage in
equity or debt financings to secure additional funds. If we raise additional
funds through future issuances of equity or convertible debt securities, our
existing stockholders could suffer significant dilution, and any new equity
securities we issue could have rights, preferences and privileges superior to
those of holders of our common stock. Any debt financing that we secure in the
future could involve restrictive covenants relating to our capital raising
activities and other financial and operational matters, which may make it more
difficult for us to obtain additional capital and to pursue business
opportunities, including potential acquisitions. We may not be able to obtain
additional financing on terms favorable to us, if at all. If we are unable to
obtain adequate financing or financing on terms satisfactory to us when we
require it, our ability to continue to support our business growth and to
respond to business challenges could be impaired, and our business may be
harmed.
On October 17, 2019, we executed a secured note with our only independent
director for $100,000 and a secured note with an unrelated party for $50,000.
The secured notes are due on October 17, 2022. The Company agreed that the notes
bear interest at 10% per annum, to be paid in advance with shares of Imagion
Biosystems Limited common stock ("IBX"), calculated at $0.015 per share or
3,000,000 shares of IBX. We currently do not plan any further sale of transfer
of IBX common stock to raise funds for operations. To fund operations, we plan
on relying on payments of $600,000, to be collected during the next two years in
equal increments from the sale of assets in 2019 and future royalties from the
Metallicum license.
CASH FLOW INFORMATION
The Company had cash and cash equivalents of approximately $474,000 and $261,000
at September 30, 2020 and December 31, 2019, respectively. This represents an
increase in cash of $213,000.
OPERATING ACTIVITIES
The Company used approximately $267,000 of cash for operating activities in the
nine months ended September 30, 2020 as compared to using $243,000 of cash for
operating activities in the nine months ended September 30, 2020. The reason for
the increase in cash used for operating activities is a lower increase in
current liabilities partially offset by a lower net loss after adjustment for
non-cash items.
INVESTING ACTIVITIES
The Company received approximately $480,000 of cash for investing activities in
the nine months ended September 30, 2020 as compared to receiving $300,000 of
cash for investing activities in the nine months ended September 30, 2019. This
increase in cash received in investing activities, is primarily attributed to
proceeds from sale of investment of Imagion Biosystems shares.
FINANCING ACTIVITIES
During the nine months ended September 30, 2020 and 2019, the Company had no
financing activities.
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CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. A significant estimate includes the carrying value of our patents, fair
value of our common stock, assumptions used in calculating the value of stock
options, depreciation and amortization.
Investment in Equity Securities:
During the year ended December 31, 2017, the Company elected fair value option
for its investment in Imagion Biosystems, Inc. a Nevada company ("Imagion")
based on triggering event of dilution of ownership, which lead to the
deconsolidation of Imagion. Investments in Imagion are measured at fair value as
opposed to equity method based on ASC 825-10. The guidance allows entities to
elect to measure certain financial assets and financial liabilities (as well as
certain nonfinancial instruments that are similar to financial instruments) at
fair value. Investments over which an investor has the ability to exercise
significant influence are eligible for the fair value option as they represent
recognized financial assets. When the fair value option is elected for an
instrument, all subsequent changes in fair value for that instrument are
reported in earnings.
As of September 30, 2020, the Company holds approximately 6% of the total issued
and outstanding shares of Imagion and is reported under fair value method under
ASC 320. Management determined that it was appropriate to carry its investment
in Imagion at fair value because the investment is traded on the Australian
stock exchange and has daily trading activity and is a better indicator of
value. The investments are re-measured at the end of each quarter based on the
trading price and converted from AUD to USD. Any change in the value is reported
on the income statement as an unrealized gain or loss.
Property and equipment:
Property and equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized, and minor replacements, maintenance, and
repairs are charged to expense as incurred. When property and equipment are
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in the
results of operations for the respective period. Depreciation is provided over
the estimated useful lives of the related assets using the straight-line method
for financial statement purposes.
Intangible Assets:
In 2009, the Company entered into a patent license agreement with Los Alamos
National Security LLC for the exclusive use of certain technology relating to
the manufacture and application of nanostructuring metals and alloys. The value
attributable to license agreements is being amortized over the period of its
estimated benefit period of 10 years. Under the terms of the agreement the
Company is required to pay an annual license fee of $10,000 and, may be required
to pay royalties, as defined, to the licensors.
Due from the Sale of Assets:
Non-current assets are classified as held for sale if it is highly probably that
they will be recovered primarily through sale rather than through continuing
use.
Immediately before classification as held for sale, the assets are remeasured at
the lower of their carrying amount and fair value less costs to sell. Any
impairment loss on initial classification as held for sale and subsequent gains
and losses on reameasurement are recognized in profit or loss. Gains are not
recognized in excess of any cumulative impairment loss.
During the year ended December 31, 2019, the Company sold the assets held for
sale that were presented on the balance sheet as of December 31, 2018. During
the year ended December 31, 2018, the Company recorded impairment and adjusted
the asset valuation to $1.2 million. On May 1, 2020, the Company received
$300,000 for sale of assets for a total of $1.2 million during the year ended
December 31, 2019. The remaining $600,000 will be collected during the next two
years in equal increments on the anniversary date of the agreement, May 1. As of
September 30, 2020, the Company evaluated the collectability and determined that
no allowance is needed at this time due to the payment history with this third
party and the subsequent receipt of funds.
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Revenue Recognition:
The Company recognizes revenue in accordance with generally accepted accounting
principles as outlined in the Financial Accounting Standard Board's ("FASB")
Accounting Standards Codification ("ASC") 606, Revenue From Contracts with
Customers, which consists of five steps to evaluating contracts with customers
for revenue recognition: (i) identify the contract with the customer; (ii)
identity the performance obligations in the contract; (iii) determine the
transaction price; (iv) allocate the transaction price; and (v) recognize
revenue when or as the entity satisfied a performance obligation.
Revenue recognition occurs at the time we satisfy a performance obligation to
our customers, when control transfers to customers, provided there are no
material remaining performance obligations required of the Company or any
matters of customer acceptance. We only record revenue when collectability is
reasonably assured.
The Company's license provides a right to use the technology that creates a
performance obligation to satisfy at a point in time. The Company recorded
revenue from the royalty on the anniversary date of the agreement based on the
minimum royalty which is the point at which the performance obligation occurs at
that point in time.
Accounting for Leases:
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) and subsequent
amendments to the initial guidance: ASU 2017-13, ASU 2018-10, ASU 2018-11, ASU
2018-20 and ASU 2019-01 (collectively, Topic 842). Topic 842 requires companies
to generally recognize on the balance sheet operating and financing lease
liabilities and corresponding right-of-use assets. The Company early adopted
Topic ASC 842 using the effective date of January 1, 2019 as the date of our
initial application of the standard. The Company used the new transition
election to not restate comparative periods and elected the package of practical
expedients upon adoption, which permits the Company to not reassess under the
new standard the Company's prior conclusions about lease identification, lease
classification and initial direct costs. Consequently, financial information for
the comparative periods will not be updated. Upon adoption, there was no
material impact to the financial statements.
Stock Based Compensation:
In June 2018, FASB issued ASU No. 2018-07, Compensation - Stock Compensation
(Topic 718),Improvements to Nonemployee Share Based Payment Accounting. The
amendments in this Update expand the scope of stock compensation to include
share-based payment transactions for acquiring goods and services from
nonemployees. The guidance in this Update does not apply to transactions
involving equity instruments granted to a lender or investor that provides
financing to the issuer. The guidance is effective for fiscal years beginning
after December 31, 2018 including interim periods within the fiscal year. The
Company adopted with an effective date of January 1, 2019. Upon adoption, there
was no material impact to the financial statements.
Fair Value Measurements:
The Company recognized the fair value of financial instruments in accordance
with FASB ASC 820, Fair Value Measurements and Disclosures, "Fair Value
Measurements", which provides a framework for measuring fair value under GAAP.
Fair value is defined as the exchange price that would be received for an asset
or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. The standard also expands
disclosures about instruments measured at fair value and establishes a fair
value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair
value:
Level 1 - Quoted prices for identical assets and liabilities in active markets;
Level 2 - Quoted prices for similar assets and liabilities in active markets;
quoted prices for identical or similar assets and liabilities in markets that
are not active; and model-derived valuations in which all significant inputs and
significant value drivers are observable in active markets; and
Level 3 - Valuations derived from valuation techniques in which one or more
significant inputs or significant value drivers are unobservable.
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Basic and Diluted Loss Per Share:
In accordance with FASB ASC 260, "Earnings Per Share," the basic loss per share
is computed by dividing the loss attributable to common stockholders by the
weighted average number of common shares outstanding during the period. Basic
net loss per share excludes the dilutive effect of stock options or warrants and
convertible notes. Diluted net earnings (loss) per common share is determined
using the weighted-average number of common shares outstanding during the
period, adjusted for the dilutive effect of common stock equivalents, consisting
of shares that might be issued upon exercise of common stock options and
warrants. As of September 30, 2020 and 2019, 46,397,917 and 40,105,000,
respectively, dilutive shares were excluded from the calculation of diluted loss
per common share as the effect of these shares on earnings per share would have
been anti-dilutive; however, dilutive shares were included from the calculation
of diluted income common shares for the three months ended September 30, 2020
and 2019, and nine months ended September 30, 2020.
OFF BALANCE SHEET ARRANGEMENTS
We have not entered into any off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations
liquidity, capital expenditures or capital resources and would be considered
material to investors.
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