The accompanying notes are an integral part of these audited consolidated financial statements.
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
NOTE 1 – BASIS OF PRESENTATION
Manhattan Scientifics, Inc., a Delaware corporation (formerly Grand Enterprises, Inc) (“Grand”) was established on July 31, 1992 and has a wholly-owned subsidiary: Metallicum, Inc. (“Metallicum”). 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 Colorado. Metallicum Inc. has focused on the development and manufacture of nanostructured metals for medical implants and other applications. Metallicum intends to establish manufacturing partner relationships with major Fortune 500 metals companies and strategic partnering with significant customers in the medical device & prosthetics industries as well as in auto, truck, & aircraft manufacturing industries. Metallicum’s initial products include nanostructured bulk metals and alloys in the form of rod, bar, wire and foil. The Company conducts its operations primarily in the United States.
Manhattan Scientifics purchased Metallicum to acquire its licensed rights to patented technology. The technology is comprised of three US Patents (US Patent numbers 7152448, 6197129 and 6399215) for which Metallicum (subsequently, Manhattan) had been assigned an exclusive license rights by Los Alamos National Security LLC (LANL). Under the license rights, Metallicum had all rights, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, and improvements on the patents or trade secrets whether or not patentable or registrable under copyright or similar laws.
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 which started 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 February 11, 2015, the Company entered into a Settlement Agreement and Mutual General Releases (the “Settlement Agreement”) with Carpenter Technology Corporation related to the agreement discussed in Note 7, pursuant to which the parties settled and released each other from any and all liabilities and claims related to the Carpenter Agreements.
On November 17, 2016, Senior Scientific merged with and into Imagion Biosystems, Inc., a Nevada corporation (“Imagion”). Following the merger, Imagion held all of the liabilities, obligations and assets of Senior Scientific and the Company continued as the sole equity holder of Imagion. On June 30, 2017, Imagion completed an IPO and listing on the Australian Stock Exchange (ASX). As of December 31, 2021 , the Company owns 52,516,508 shares (1,000,000 restricted shares related to issued promissory notes interest) of Imagion, resulting in a noncontrolling interest of approximately 5% of Imagion’s issued and outstanding common stock. The Company elected to record the investment at fair value.
Manhattan Scientifics success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
BASIS OF CONSOLIDATION:
The condensed consolidated financial statements include the accounts of Manhattan Scientific, Inc., and its wholly owned subsidiary Metallicum. All significant intercompany balances and transactions have been eliminated.
GOING CONCERN:
As of December 31, 2021, the Company has an accumulated deficit of 68,520,000 and negative working capital of $684,000. Because of these conditions, the Company will require additional working capital to develop business operations. The Company intends to raise additional working capital through the continued licensing of its technology as well as to generate revenues for other services. There are no assurances that the Company will be able to achieve the level of revenues adequate to generate sufficient cash flow from operations to support the Company’s working capital requirements. To the extent that funds generated are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may not continue its operations.
As of the filing date, the Coronavirus (“COVID-19”) has caused significant volatility in global markets, including the market price of our securities. The demand for our products and services has decreased and the ability of our customers to make payments for the products and services they purchased has been negatively impacted.
These factors raise substantial doubt about the Company’s ability to continue within one year from the date of filing. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.
The ability to continue as a going concern is dependent on out generating cash from the sale of our common stock and/or obtaining debt financing and attaining future profitable operations. Management’s plan includes selling our equity securities and/or obtaining debt financing to fund our capital requirement and ongoing operations; however, there can be no assurance the Company will be successful in these efforts.
USE OF ESTIMATES:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. A significant estimate includes the carrying value of the Company’s patents, fair value of the Company’s common stock, assumptions used in calculating the value of stock options, depreciation and amortization.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an original maturity of year 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 federally insured up to $250,000 for each financial institution we hold our accounts in. As of December 31, 2021 and December 31, 2020, we had cash balances of $-0- and $103,000 exceeding the federally insured limits.
PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets, the useful lives range between 3-10 years, using the straight-line method for financial statement purposes.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
INTANGIBLE ASSETS:
License Agreements
In 2008, the Company obtained licenses to the rights of certain patents regarding nanostructured materials developed by another company as a result of the acquisition of Metallicum. The purchase price paid for these licenses was $305,000, which represented 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, 2021 and December 31, 2020, the license agreements were fully amortized. 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, 2021 and December 31, 2020, the license agreements were fully amortized. Beginning in 2010, the Company was required to pay an annual license fee of $10,000 and may be required to pay royalties, as defined, to the licensors.
DUE FROM THE SALE OF ASSETS:
Non-current assets are classified as held for sale if it is highly probably that they will be recovered primarily through sale rather than through continuing use.
Immediately before classification as held for sale, the assets are remeasured at the lower of their carrying amount and fair value less costs to sell. Any impairment loss on initial classification as held for sale and subsequent gains and losses on re-measurement are recognized in profit or loss. Gains are not recognized in excess of any cumulative impairment loss.
During the year ended December 31, 2019, the Company sold the assets held for sale that were presented on the balance sheet as of December 31, 2018. During the year ended December 31, 2018, the Company recorded impairment and adjusted the asset valuation to $1.2 million. The Company sold the assets for a total of $1.2 million of which $300,000 was received during the year ended December 31, 2019. The remaining $900,000 will be collected during the next three years in equal increments on the anniversary date of the agreement, May 1. During May 2020 and 2021, the Company received $300,000 and $300,000 respectively and reduced the due from the sale of assets. As of December 31, 2021, 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.
MARKETABLE SECURITIES:
The Company considers securities with original maturities of greater than 90 days to be available for sale securities. Securities under this classification are recorded at fair value and unrealized gains and losses within other income (loss). The estimated fair value of the available for sale securities is determined based on quoted market prices or rates for similar instruments. In addition, the cost of debt securities in this category is adjusted for amortization of premium and accretion of discount to maturity. For available for sale debt securities in an unrealized loss position, the Company assesses whether it intends to sell or if it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value. If the criteria are not met, the Company evaluates whether the decline in fair value has resulted from a credit loss or other factors. In making this assessment, management considers, among other factors, the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized costs basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other income (loss). For the year ended December 31, 2021, no allowance was recorded for credit losses.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
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 probable.
FAIR VALUE OF FINANCIAL INSTRUMENTS:
The Company recognized the fair value of financial instruments in accordance with FASB ASC 820, Fair Value Measurements and Disclosures, “Fair Value Measurements”, which provides a framework for measuring fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also expands disclosures about instruments measured at fair value and establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 — Quoted prices for identical assets and liabilities in active markets;
Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The Company designates cash equivalents (consisting of money market funds) and investments in securities of publicly traded companies as Level 1. The total amount of the Company’s investment classified as Level 3 is de minimis. 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, 2021 and December 31, 2020 because of the relative short term nature of these instruments.
During the year ended December 31, 2017, the Company elected fair value option for its investment in Imagion Biosystems, Inc. a Nevada company (“Imagion”) based on triggering event of dilution of ownership, which lead to the deconsolidation of Imagion. Investments in Imagion are measured at fair value as opposed to equity method based on ASC 825-10. The guidance allows entities to elect to measure certain financial assets and financial liabilities (as well as certain nonfinancial instruments that are similar to financial instruments) at fair value. Investments over which an investor has the ability to exercise significant influence are eligible for the fair value option as they represent recognized financial assets. When the fair value option is elected for an instrument, all subsequent changes in fair value for that instrument are reported in earnings.
As of December 31, 2021, the Company holds 52,516,508 shares of Imagion and is reported under fair value method under ASC 320. Any change in the value is reported on the income statement as an unrealized gain or loss on fair value adjustment of investments.
Our financial assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2021 and 2020, consisted of the following:
| | Total fair value at December 31, 2021 | | | Quoted prices in active markets for identical assets (Level1) | | | Significant other observable inputs (Level 2) | | | Significant unobservable inputs (Level 3) | |
Investment in equity securities | | $ | 2,901,000 | | | $ | 2,901,000 | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | |
| | Total fair value at December 31, 2020 | | | Quoted prices in active markets for identical assets (Level1) | | | Significant other observable inputs (Level 2) | | | Significant unobservable inputs (Level 3) | |
Investment in equity securities | | $ | 5,875,000 | | | $ | 5,875,000 | | | $ | - | | | $ | - | |
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
INTELLECTUAL PROPERTY / RESEARCH AND DEVELOPMENT
In June 2008, we acquired Metallicum and 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.
Our ability to compete depends in part on the protection of and our ability to defend our proprietary technology and on the goodwill associated with our trade names, service marks and other proprietary rights. However, we do not know if current laws will provide us with sufficient enough protection that others will not develop technologies similar or superior to ours, or that third parties will not copy or otherwise obtain or use our technologies without our authorization.
The success of our business will depend, in part, to identify technology, obtain patents, protect and enforce patents once issued and operate without infringing on the proprietary rights of others. Our success will also depend on our ability to maintain exclusive rights to trade secrets and proprietary technology we own are currently developing and will develop. We can give no assurance that any issued patents will provide us with competitive advantages or will not be challenged by others, or that the patents of others will not restrict our ability to conduct business.
In addition, we rely on certain technology licensed with a perpetual term from the Los Alamos National Laboratory and may be required to license additional technologies in the future. We do not know if these third-party licenses will be available or will continue to be available to us on acceptable commercial terms or at all. The inability to enter into and maintain any of these licenses could have a material adverse effect on our business, financial condition or results of our operations.
Policing unauthorized use of our proprietary technology and other intellectual property rights could entail significant expense. In addition, we do not know if third parties will bring claims of copyright or trademark infringement against us or claim that our use of certain technologies violates a patent or other intellectual property. Any claims of infringement, with or without merit, could be time consuming and expensive to defend, result in costly litigation, divert management attention, require us to enter into costly royalty or licensing arrangements or prevent us from using important technologies or methods, any of which could have a material adverse effect on our business, financial condition or results of our operations.
LEASES
The Company leases a facility with terms of month to month for its headquarters. The Company adopted ASC 842 on January 1, 2019 and has evaluated that has no impact on the financial statements as under the practical expedient the leases consist of terms less than one year, and therefore is not required to capitalize the lease.
During June 2019, the Company entered into an assignment and assumption of lease with the landlord and another entity for the lease term through April 2021. The average aggregate annual rent for this space is $30,360.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
INCOME TAXES
The Company accounts for income taxes under an asset and liability approach. This process involves calculating the temporary and permanent differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The temporary differences result in deferred tax assets and liabilities, which would be recorded on the Company’s consolidated balance sheets in accordance with ASC 740, which established financial accounting and reporting standards for the effect of income taxes. The Company must assess the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent the Company believes that recovery is not likely, the Company must establish a valuation allowance. Changes in the Company’s valuation allowance in a period are recorded through the income tax provision on the consolidated statements of operations.
ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements and prescribes a recognition threshold and measurement attributes for financial statement disclosure of tax positions taken or expected to be taken on a tax return.
Under ASC 740-10, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Additionally, ASC 740-10 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As a result of the implementation of ASC 740-10, the Company recognized no material adjustment in the liability for unrecognized income tax benefits.
BASIC AND DILUTED EARNINGS (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 income (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, 2021 and 2020, 26,655,760 and 33,655,760, respectively, dilutive shares were excluded from the calculation of diluted earnings (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 year ended December 31, 2021.
The following table shows the computation of basic and diluted earnings (loss) per share for the year ended December 31, 2021 and 2020:
| | The Years Ended | |
| | December 31, 2021 | | | December 31, 2020 | |
Numerator: | | | | | | |
Net income (loss) | | $ | (3,639,000 | ) | | $ | 4,314,000 | |
| | | | | | | | |
Denominator: | | | | | | | | |
Weighted-average basic shares outstanding | | | 559,281,064 | | | | 558,322,048 | |
Effect of dilutive securities | | | - | | | | 34,729,262 | |
Weighted-average diluted shares | | | 559,281,064 | | | | 593,051,310 | |
| | | | | | | | |
Basic earnings (loss) per share | | $ | (0.01 | ) | | $ | 0.01 | |
Diluted earnings (loss) per share | | $ | (0.01 | ) | | $ | 0.01 | |
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.
RECENT ACCOUNTING PRONOUNCEMENTS
In August 2018, the FASB issued ASU 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement, which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC Topic 820. This guidance is effective for public companies in fiscal years beginning after December 15, 2019, with early adoption permitted. Effective January 1, 2020, we adopted ASU 2018-13. The implementation of this standard did not have any material impact on our consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which address issues identified as a result of the complexity associated with applying generally accepted accounting principles for certain financial instruments with characteristics of liabilities and equity. This amendment is effective for public business entities that meet the definition of a Securities and Exchange Commission (SEC) filer, excluding entities eligible to be smaller reporting companies as defined by the SEC, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company implemented on January 1, 2022 and the implementation of this standard did not have any material impact on our consolidated financial statements.
The Company has evaluated all recent accounting pronouncements and none are expected to have a material impact on the condensed consolidated financial statements.
NOTE 3 – INVESTMENT IN IMAGION BIOSYSTEMS
As of December 31, 2021, the Company owns 52,516,508 shares of Imagion, resulting in a noncontrolling interest of Imagion’s issued and outstanding common stock. Based upon Imagion’s trading price on December 31, 2021, approximately $0.05 per share, the fair value of the Imagion shares was approximately $2,901,000. During the year ended December 31, 2021, the Company recorded an unrealized loss in its investment of $2,974,000.
Below is reconciliation for the changes to the investment in Imagion for the year ended December 31, 2021:
Balance as of December 31, 2020 | | $ | 5,875,000 | |
Change in the unrealized fair value of securities | | | (2,974,000 | ) |
Balance as of December 31, 2021 | | $ | 2,901,000 | |
NOTE 4 – NOTES PAYABLE
On October 17, 2019, The Company executed a secured note with a related party for $100,000. The secured note is due on October 17, 2022. The Company agreed that the note bears interest at 10% per annum, to be paid in advance in shares of Imagion Biosystems Limited common stock (IBX), calculated at $0.015 per share with 2 million shares of IBX common stock. The amortization of debt discount for the year ended December 31, 2021 was $17,000.
On October 17, 2019, The Company executed a secured note with an individual for $50,000. The secured note is due on October 17, 2022. The Company agreed that the note bears interest at 10% per annum, to be paid in advance in shares of Imagion Biosystems Limited common stock (IBX), calculated at $0.015 per share with 1 million shares of IBX common stock. The amortization of debt discount for the year ended December 31, 2021 was $9,000.
Notes payable | | $ | 150,000 | |
Less: Discounts on notes payable | | | (20,000 | ) |
Notes payable, net of discounts | | $ | 130,000 | |
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
NOTE 5 – CAPTIAL 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, 2021 and 2020, 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, 2021 and 2020, 49,999 and 49,999 shares of Preferred Stock were issued and outstanding, respectively. Class B preferred shares are convertible at a rate of 1 Series B preferred share to 10 common shares.
The Company has 14,000 authorized shares of redeemable, convertible, Class C, Preferred Stock with $100 stated value. Class C, Preferred Stock is not entitled to receive dividends unless dividends are paid on common stock. Upon liquidation Class C, Preferred Stock shall be treated as if it were converted to common stock prior to liquidation. Class C, Preferred Stock is convertible at $100 divided by the 10 day average closing price of common stock. The Class C, Preferred Stock is redeemable by the Company at the stated value. As of December 31, 2021 and 2020, 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 had 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. As of the date of this filing, this has not occurred yet.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
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 447,804 and 447,804 undesignated blank check preferred stock, $0.001 par value, authorized as of December 31, 2021 and 2020. 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, 2021 and 2020, 559,281,064 and 559,281,064 shares of common stock were issued and outstanding, respectively.
During the year ended December 31, 2020, the Company reclassified $1,341,000 liabilities to equity as it became certain cash would not be paid to settle and equity would be issued.
Stock Activity during 2021 and 2020
During the year ended December 31, 2021, the Company had not issued common stock.
During the year ended December 31, 2020, the Company issued 1,500,000 shares of common stock for services valued at $24,000. The shares were valued based on the market price of the Company’s common shares of $0.016 on the grant date.
Options
On March 22, 2021, the Company entered into a settlement with a third party, which the Company granted 15,000,000 shares of common stock options to purchase 15,000,000 shares of common stock at an exercise price of $0.0154. The options price was based on the closing market price of common stock on October 1, 2020. The Settlement is for the Employment Agreement with a third party, dated January 12, 2015 to which the Company agreed to issued common shares.
At December 31, 2021, the 26,500,000 outstanding options had an aggregate intrinsic value of $1,595,000. A summary of the Company’s stock option activity and related information is as follows:
| | Number of Options | | | Weighted Average Exercise Price | | | Weighted Average Remaining Life | | | Number of Options Exercisable | | | Aggregate Intrinsic Value | |
Outstanding as of December 31, 2019 | | | 22,075,000 | | | | 0.07 | | | | 3.2 | | | | 22,075,000 | | | $ | - | |
Granted | | | - | | | | - | | | | - | | | | 500,000 | | | | | |
Exercised | | | - | | | | - | | | | - | | | | - | | | | | |
Expired | | | (3,575,000 | ) | | $ | 0.07 | | | | - | | | | (3,575,000 | ) | | | - | |
Outstanding as of December 31, 2020 | | | 18,500,000 | | | | 0.07 | | | | 2.84 | | | | 18,500,000 | | | | - | |
Granted | | | 15,000,000 | | | | 0.02 | | | | 9.68 | | | | 15,000,000 | | | | 15,500 | |
Exercised | | | - | | | | - | | | | - | | | | - | | | | | |
Expired | | | (7,000,000 | ) | | | 0.07 | | | | - | | | | (7,000,000 | ) | | | - | |
Outstanding as of December 31, 2021 | | | 26,500,000 | | | $ | 0.04 | | | | 6.06 | | | | 26,500,000 | | | $ | 15,000 | |
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
Exercise prices and weighted-average contractual lives of 26,500,000 stock options outstanding as of December 31, 2021 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 | |
$ | 0.02 | | | | 15,500,000 | | | | 8.80 | | | $ | 0.02 | | | | 15,500,000 | | | $ | 0.02 | |
$ | 0.05 | | | | 3,000,000 | | | | 3.50 | | | $ | 0.05 | | | | 3,000,000 | | | $ | 0.05 | |
$ | 0.06 | | | | 5,000,000 | | | | 4.35 | | | $ | 0.06 | | | | 5,000,000 | | | $ | 0.06 | |
$ | 0.14 | | | | 3,000,000 | | | | 2.75 | | | $ | 0.14 | | | | 3,000,000 | | | $ | 0.14 | |
The fair value for options granted were determined using the Black-Scholes option-pricing model.
The Company did not recognize compensation expense during the year ended December 31, 2021.
NOTE 6 – INCOME TAXES
The provision for income taxes on the statements of operations consists of $-0- and $-0- for the years ended December 31, 2021 and 2020, respectively. Deferred tax assets are comprised of the following at December 31:
| | 2021 | | | 2020 | |
Net operating loss carryforward | | $ | 12,704,000 | | | $ | 12,630,000 | |
Temporary differences | | | 6,988,000 | | | | 6,988,000 | |
Less valuation allowance | | | (19,692,000 | ) | | | (19,618,000 | ) |
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, 2021 and 2020, 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, 2021 and 2020, net operating loss carryforwards were approximately $47,275,000 and $47,043,000, respectively, for federal tax purposes that expire at various dates through 2031 and for state tax purposes expire through 2025.
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, 2021 and 2020, the provision for income taxes differs from the amount computed by applying the U.S. federal statutory tax rate (21% in 2021 and 2020) to income taxes as follows:
| | 2021 | | | 2020 | |
Tax benefit computed at 21% | | $ | - | | | $ | - | |
Change in valuation allowance | | | - | | | | - | |
Change in carryovers and tax attributes | | | - | | | | | |
Income tax provision | | $ | - | | | $ | - | |
NOTE 7 – LICENSE AGREEMENT
On May 1, 2019, the Company, entered into an agreement with a non-affiliated third party (“Third Party”), providing for an exclusive license by the Company of its ECAP technology to the Third Party for a term of 17 years unless terminated sooner, a sublicense by the Company to the Third Party of its rights under that certain Exclusive Field-of-Use Patent License Agreement dated January 5, 2009 entered with The Los Alamos National Laboratory for a term until the expiration of the last valid claim to expire of the patents pursuant to such agreement and the sale by the Company of ECAP-C machines to the Third party. As part of the above license agreements, the Company will receive royalty payments, including minimum payments, based on a percentage of the Third Party’s sales. Royalties will be 10% on gross sales of licensed dental products and average of 5% on all other sales of licensed products.
During the years ended December 31, 2021 and 2020, the Company received $50,000 and $50,000, respectively, as a minimum royalty payment.
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2021
NOTE 8 – COMMITMENTS AND CONTINGENCIES
Legal matter contingencies
The Company believes, based on current knowledge and after consultation with counsel, that it is not currently party to any material pending proceedings, individually or in the aggregate, the resolution of which would have a material effect on the Company. Provisions for losses are established in accordance with ASC 450, “Contingencies” when warranted. Once established, such provisions are adjusted when there is more information available of when an event occurs requiring a change.
NOTE 9 – RELATED PARTY TRANSACTIONS
As of December 31, 2021 and December 31, 2020, the Company had accrued expenses to related parties of approximately $1,129,000 and $853,000.
As of December 31, 2021, the amounts are due to the Company’s sole officer for compensation $276,000 and the chairman of the board for compensation of $786,000 and the members of the board of directors of $66,250.
NOTE 10 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, the Company has analyzed its operations subsequent to December 31, 2021 to the date these financial statements were issued, and there were no other material subsequent events to disclose in these financial statements, except as noted.