Quarterly Report (10-q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

 

For the quarterly period ended September 30, 2022

 

☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

 

For the transition period from ____________to____________

 

MANHATTAN SCIENTIFICS, INC.

(Exact name of small business issuer as specified in its charter)

 

Delaware		000-28411		85-0460639
(State of Incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

244 Fifth Ave, Suite 2341

New York, New York, 10001

(Address of principal executive offices) (Zip code)

 

Issuer’s telephone number: [phone]

 

Securities registered under Section 12(b) of the Exchange Act: None

 

Securities registered under Section 12(g) of the Exchange Act:

 

Common Stock, $0.001 par value

(Title of Class)

 

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒     No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated Filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

There were 559,281,064 shares outstanding of registrant’s common stock, par value $0.001 per share, as of November 14, 2022.

 

TABLE OF CONTENTS

 

PART I
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021			3
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2022 and 2021 (unaudited)			4
	Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2022 and 2021 (unaudited)			5
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (unaudited)			6
	Notes to Condensed Consolidated Financial Statements (Unaudited)			7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation			15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk			21
Item 4.	Controls and Procedures			21
PART II
Item 1.	Legal Proceedings			23
Item 1A.	Risk Factors			23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds			23
Item 3.	Defaults Upon Senior Securities			23
Item 4.	Mine Safety Disclosure			23
Item 5.	Other Information			23
Item 6.	Exhibits			24
SIGNATURES				25

 

2

Table of Contents

 

PART I – FINANCIAL INFORMATION 

 

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

		September 30,				December 31,
		2022				2021
		(unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	288,000			$	232,000
Prepaid expenses			8,000				15,000
Due from the sale of assets - current portion			-				300,000
Total current assets			296,000				547,000
Investment in equity securities			1,064,000				2,901,000
Property and equipment, net			2,000				4,000
Other assets			2,000				2,000
Total assets		$	1,364,000			$	3,454,000
LIABILITIES
Current liabilities:
Accounts payable and accrued expenses		$	115,000			$	102,000
Accrued expenses - related parties			1,351,000				1,129,000
Notes payable, net of discounts			139,000				130,000
Total current liabilities			1,605,000				1,361,000
Total liabilities			1,605,000				1,361,000
Commitments and Contingencies - Note 7			-				-
Class D Convertible Preferred mandatory redeemable, authorized 105,761 shares, 105,761 and 105,761 shares issued and outstanding, respectively			1,058,000				1,058,000
STOCKHOLDERS’ EQUITY (DEFICIT)
Capital stock $0.001 par value
Class A Convertible Preferred, authorized 182,525, 0 and 0 shares issued and outstanding, respectively			-				-
Class B Convertible Preferred, authorized 250,000, 49,999 and 49,999 shares issued and outstanding, respectively			-				-
Class C Redeemable Convertible Preferred, authorized 14,000, 0 and 0 shares issued and outstanding, respectively			-				-
Common, authorized 950,000,000 shares, 559,281,064 and 559,281,064 shares issued, and outstanding, respectively			559,000				559,000
Additional paid-in-capital			68,996,000				68,996,000
Accumulated deficit			(70,854,000	)			(68,520,000	)
Total stockholders' equity			(1,299,000	)			1,035,000
TOTAL LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY (Deficit)		$	1,364,000			$	3,454,000

 

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

 

3

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY

 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

		THREE MONTHS ENDED								NINE MONTHS ENDED
		SEPTEMBER 30,								SEPTEMBER 30,
		2022				2021				2022				2021
Revenue		$	9,000			$	-			$	50,000			$	50,000
Operating costs:
General and administrative expenses			175,000				175,000				548,000				565,000
Research and development			2,000				3,000				7,000				8,000
Total operating costs and expenses			177,000				178,000				555,000				573,000
Loss from operations			(168,000	)			(178,000	)			(505,000	)			(523,000	)
Other income (expense):
Gain (Loss) on fair value adjustment of investments			104,000				(978,000	)			(1,809,000	)			(3,069,000	)
Gain on settlement of legal fees			-				7,000				-				7,000
Interest expense			(7,000	)			(7,000	)			(20,000	)			(20,000	)
Total other income (expense)			97,000				(978,000	)			(1,829,000	)			(3,082,000	)
NET INCOME (LOSS)		$	(71,000	)		$	(1,156,000	)		$	(2,334,000	)		$	(3,605,000	)
INCOME (LOSS) PER COMMON SHARE:
Weighted average number of common shares outstanding (Basic and Diluted)			559,281,064				559,281,064				559,281,064				559,281,064
Basic and Diluted income (loss) per common share (Basic and Diluted)		$	(0.00	)		$	(0.00	)		$	(0.00	)		$	(0.01	)

 

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

 

4

Table of Contents

 

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 and 2021

(UNAUDITED)

 

		Preferred Stock - Series B								Common Stock								Additional								Total Shareholders'
		$0.001 Par Value								$0.001 Par Value								Paid-In				Accumulated				Equity
		Shares				Amount				Shares				Amount				Capital				Deficit				(Deficit)
Balance
December 31, 2021			49,999			$	-				559,281,064			$	559,000			$	68,996,000			$	(68,520,000	)		$	1,035,000
Net loss			-				-				-				-				-				(647,000	)			(647,000	)
Balance
March 31, 2022			49,999			$	-				559,281,064			$	559,000			$	68,996,000			$	(69,167,000	)		$	388,000
Net loss			-				-				-				-				-				(1,616,000	)			(1,616,000	)
Balance
June 30, 2022			49,999			$	-				559,281,064			$	559,000			$	68,996,000			$	(70,783,000	)		$	(1,228,000	)
Net loss			-				-				-				-				-				(71,000	)			(71,000	)
Balance
September 30, 2022			49,999			$	-				559,281,064			$	559,000			$	68,996,000			$	(70,854,000	)		$	(1,299,000	)

      

		Preferred Stock - Series B								Common Stock								Additional								Total
		$0.001 Par Value								$0.001 Par Value								Paid-In				Accumulated				Shareholders'
		Shares				Amount				Shares				Amount				Capital				Deficit				Equity
Balance
December 31, 2020			49,999			$	-				559,281,064			$	559,000			$	68,996,000			$	(64,881,000	)		$	4,674,000
Net income			-				-				-				-				-				134,000				134,000
Balance
March 31, 2021			49,999			$	-				559,281,064			$	559,000			$	68,996,000			$	(64,747,000	)		$	4,808,000
Net loss			-				-				-				-				-			$	(2,583,000)			$	(2,583,000)
Balance
June 30, 2021		$	49,999			$	-			$	559,281,064			$	559,000			$	68,996,000			$	(67,330,000)			$	2,225,000
Net loss																						$	(1,156,000)			$	(1,156,000)
Balance
September 30, 2021		$	49,999			$	0			$	559,281,064			$	559,000			$	68,996,000			$	(68,486,000)			$	1,069,000

 

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

 

5

Table of Contents

 

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

		FOR THE NINE MONTHS ENDED
		SEPTEMBER 30,
		2022				2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(2,334,000	)		$	(3,605,000	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization			2,000				1,000
Loss on fair value adjustment of investments			1,809,000				3,069,000
Amortization of debt discount			19,000				20,000
Gain on settelement of legal fees			-				7,000
Changes in:
Prepaid expenses			7,000				(5,000	)
Accounts payable and accrued expenses			13,000				(12,000	)
Accounts payable and accrued expenses - related party			222,000				228,000
Net cash used in operating activities			(262,000	)			(287,000	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of investments			28,000				-
Proceeds from sale of assets held for sale			300,000				300,000
Net cash from investing activities			328,000				300,000
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of note payable			(10,000	)			-
Net cash used in financing activities			(10,000	)			-
NET INCREASE IN CASH			56,000				13,000
CASH, BEGINNING OF PERIOD			232,000				353,000
CASH, END OF PERIOD		$	288,000			$	366,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid		$	-			$	-
Income taxes paid		$	-			$	-

 

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

 

6

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022

(UNAUDITED) 

 

NOTE 1 – BASIS OF PRESENTATION

 

The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the year ended December 31, 2021, filed on April 6, 2022. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.

 

Operating results for the nine months period ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. The condensed consolidated balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the U.S. for complete financial statements.

 

As of September 30, 2022, the Company has an accumulated deficit of 70,854,000 and negative working capital of $1,309,000. 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 as going concern within one year from the date of filing these financial statements. These 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.

 

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, Inc. All significant intercompany balances and transactions have been eliminated.

 

USE OF ESTIMATES:

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. A significant estimate includes the carrying value of the Company’s patents, fair value of the Company’s common stock, assumptions used in calculating the value of stock options, depreciation and amortization.

 

7

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022

(UNAUDITED)

 

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 federally insured up to $250,000 for each financial institution we hold our accounts in. As of September 30, 2022 and December 31, 2021, we had cash balances of $34,000 and $0, exceeding the federally insured limits.

 

PROPERTY AND EQUIPMENT:

 

Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized, and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period. Depreciation is provided over the estimated useful lives of the related assets, the useful lives range between 3-10 years, using the straight-line method for financial statement purposes.

 

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 (2) 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 September 30, 2022 and December 31, 2021, 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 September 30, 2022 and December 31, 2021, 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 collected during the next three years in equal increments on the anniversary date of the agreement, May 1. During May 2022 and 2021, the Company received $300,000 and reduced the amount due from the sale of assets to the balance of $0.

 

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022

(UNAUDITED)

 

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 three months ended September 30, 2022, no allowance was recorded for credit losses.

 

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.

 

The revenue was generated was from minimum royalty payments from the license agreement.

 

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. 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 September 30, 2022 and December 31, 2021 because of the relative short term nature of these instruments.

 

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022

(UNAUDITED)

 

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, 2022, the Company holds 51,766,508 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.

 

Our financial assets and liabilities carried at fair value measured on a recurring basis as of September 30, 2022 and December 31, 2021, consisted of the following:

 

		Total fair value at September 30, 2022				Quoted prices in active markets for identical assets (Level 1)				Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)
Investment in equity securities		$	1,064,000			$	1,064,000			$	-			$	-
		Total fair value at December 31, 2021				Quoted prices in active markets for identical assets (Level 1)				Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)
Investment in equity securities		$	2,901,000			$	2,901,000			$	-			$	-

 

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.

 

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.

 

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022

(UNAUDITED)

 

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 September 30, 2022 and 2021, there were  28,922,917 and 28,922,917, respectively, potentially dilutive shares that need to be considered as common share equivalents.  As a result of the net loss for the periods presented, the potentially dilutive shares for the periods ended September 30, 2022 and 2021 are anti-dilutive.

 

The following table shows the computation of basic and diluted earnings (loss) per share for the three months ended September 30, 2022 and 2021:

 

		Three Months Ended
		September 30, 2022				September 30, 2021
Numerator:
Net income (loss)		$	(71,000	)		$	(1,156,000	)
Denominator:
Weighted-average basic shares outstanding			559,281,064				559,281,064
Effect of dilutive securities			-				-
Weighted-average diluted shares			559,281,064				559,281,064
Basic earnings (loss) per share		$	(0.00	)		$	(0.00	)
Diluted earnings (loss) per share		$	(0.00	)		$	(0.00	)

 

The following table shows the computation of basic and diluted earnings (loss) per share for the nine months ended September 30, 2022 and 2021:

 

		Nine months Ended
		September 30, 2022				September 30, 2021
Numerator:
Net income (loss)		$	(2,334,000	)		$	(3,605,000	)
Denominator:
Weighted-average basic shares outstanding			559,281,064				559,281,064
Effect of dilutive securities			-				-
Weighted-average diluted shares			559,281,064				559,281,064
Basic earnings (loss) per share		$	(0.00	)		$	(0.01	)
Diluted earnings (loss) per share		$	(0.00	)		$	(0.01	)

 

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. The estimated fair value of grants of stock options and warrants to nonemployees of the Company is charged to expense, if applicable, in the financial statements.

 

The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.

 

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022

(UNAUDITED)

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

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 has not completed its assessment of the standard but does not expect the adoption to have a material impact.

 

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 September 30, 2022, the Company owns 51,766,508 shares of Imagion, resulting in a non-controlling interest of Imagion’s issued and outstanding common stock. Based upon Imagion’s trading price on September 30, 2022, approximately $0.03 per share, the fair value of the Imagion shares was approximately $1,064,000. During the nine months ended September 30, 2022, the Company recorded a loss on fair value in its investment of $1,809,000.

 

Below is reconciliation for the changes to the investment in Imagion for the nine months ended September 30, 2022:

 

Balance as of December 31, 2021		$	2,901,000
Change due to the sale of securities			(28,000	)
Change in the unrealized fair value of securities			(1,809,000	)
Balance as of September 30, 2022		$	1,064,000

 

NOTE 4 – NOTES PAYABLE

 

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 nine months ended September 30, 2022 was $19,000.

 

On September 30, 2022, the Company made $10,000 repayments and the notes payable balance was reduced to $140,000 from $150,000.

 

On October 24, 2022, the Company made $30,000 repayments and the notes payable balance was reduced to $110,000.

 

Notes payable		$	140,000
Less: Discounts on notes payable			(1,000	)
Notes payable, net of discounts		$	139,000

 

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022

(UNAUDITED)

 

NOTE 5 – CAPTIAL TRANSACTIONS

 

Stock Activity

 

During the nine months ended September 30, 2022, the Company had not issued common stock.

 

Options

 

At September 30, 2022, the 26,500,000 outstanding options had an aggregate intrinsic value of $0. 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, 2021			26,500,000			$	0.04				6.06				26,500,000			$	15,000
Granted			-				-				-				-				-
Exercised			-				-				-				-				-
Expired			-				-				-				-				-
Outstanding as of September 30, 2022			26,500,000			$	0.04				5.61				26,500,000			$	0

 

Exercise prices and weighted-average contractual lives of 26,500,000 stock options outstanding as of September 30, 2022 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
$	0.05				3,000,000				2.75			$	0.05				3,000,000			$	0.05
$	0.06				5,000,000				2.63			$	0.06				5,000,000			$	0.06
$	0.14				3,000,000				1.75			$	0.14				3,000,000			$	0.14
$	0.02				15,500,000				7.81			$	0.02				15,500,000			$	0.02

 

The Company did not recognize compensation expense during the three months ended September 30, 2022.

 

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MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022

(UNAUDITED)

 

NOTE 6 – LICENSE AGREEMENT

 

On May 1, 2019, the Company, entered into an agreement with a non-affiliated third party (“Third Party”), providing for an exclusive license by the Company of its ECAP technology to the Third Party for a term of 17 years unless terminated sooner, a sublicense by the Company to the Third Party of its rights under that certain Exclusive Field-of-Use Patent License Agreement dated January 5, 2009 entered with the Los Alamos National Laboratory for a term until the expiration of the last valid claim to expire of the patents pursuant to such agreement and the sale by the Company of ECAP-C machines to the Third party. As part of the above license agreements, the Company will receive royalty payments, including minimum payments, based on a percentage of the Third Party’s sales. Royalties will be 10% on gross sales of licensed dental products and average of 5% on all other sales of licensed products.

 

During the nine months ended September 30, 2022, the Company received $50,000 as a minimum royalty payment.

 

NOTE 7 – COMMITMENTS AND CONTINGENCIES

 

Legal matter contingencies

 

The Company believes, based on current knowledge and after consultation with counsel, that it is not currently party to any material pending proceedings, individually or in the aggregate, the resolution of which would have a material effect on the Company. Provisions for losses are established in accordance with ASC 450, “Contingencies” when warranted. Once established, such provisions are adjusted, when there is more information available of when an event occurs requiring a change.

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

As of September 30, 2022 and December 31, 2021, the Company had accrued expenses to related parties of approximately $1,351,000 and $1,129,000.

 

As of September 30, 2022, the amounts are due to the Company’s sole officer for compensation of $336,000 and the chairman of the board for compensation of $939,000 and the members of the board of directors of $78,000.

 

NOTE 9 – SUBSEQUENT EVENTS

 

During October 2022, the Company sold 200,000 shares of IBX common stock.

 

During October 2022, the Company made $30,000 in repayment to a note holder and the notes payable balance was reduced to $110,000.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Forward Looking Statements

 

This Form 10-Q contains “forward-looking” statements including statements regarding our expectations of our future operations. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include, but are not limited to, economic conditions generally and in the industries in which we may participate. In addition, these forward-looking statements are subject, among other things, to our successful completion of the research and development of our technologies; successful commercialization of our technologies; successful protection of our patents; and effective significant industry competition from various entities whose research and development, financial, sales and marketing and other capabilities far exceeds ours. In light of these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to announce publicly revisions we make to these forward-looking statements to reflect the effect of events or circumstances that may arise after the date of this report.

 

OVERVIEW

 

Manhattan Scientifics, Inc. (the “Company” or “Manhattan Scientifics”), a Delaware corporation, was established on July 31, 1992 and has one operating wholly-owned subsidiary: Metallicum, Inc., (“Metallicum”). Manhattan Scientifics is focused on technology transfer and commercialization of these transformative technologies. 

 

The Company operates as a technology incubator that seeks to acquire, develop and commercialize life-enhancing technologies in various fields, with emphasis in the areas of nanotechnology. Nanotechnology is the use and manipulation of matter on an atomic and molecular scale. To achieve this goal, the Company is actively seeking to identify emerging technologies through strategic alliances with scientific laboratories, educational institutions, scientists and leaders in industry and government. The Company and its executives have a long-standing relationship with the 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.

 

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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, 2022, Manhattan Scientifics presently owns 51,766,508 shares of Imagion, with a fair market value of approximately $ 1,064,000, based upon the closing price per share of Imagion common stock on the ASX. 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.

 

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, 2022.

 

RESULTS OF OPERATIONS

 

THREE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2021

 

REVENUE. Revenue was $9,000 and $0 for the three months ended September 30, 2022 and 2021, respectively.

 

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 $175,000 for the three months ended September 30, 2022 compared with $175,000 for the three months ended September 30, 2021.

 

RESEARCH AND DEVELOPMENT. Research and development costs were $2,000 and $3,000, for the three months ended September 30, 2022 and 2021, respectively.

 

OTHER INCOME (EXPENSES). Total other income for the three months ended September 30, 2022 totaled $97,000 compared to the total other expense of $978,000 for the three months ended September 30, 2021. The decrease is primarily attributable to the loss on fair value adjustments of its investment in Imagion during the period for the amount of $874,000.

 

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NET INCOME (LOSS). During the three months ended September 30, 2022, the Company had net loss of $71,000, compared to net gain of $1,156,000 for the three months ended September 30, 2021. The decrease of $1,085,000 is primarily attributable to the decrease gain on fair value adjustment of investment.

 

NINE MONTHS ENDED SEPTEMBER 30, 2022 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2021

 

REVENUE. Revenue was $50,0000 and $50,000 for the nine months ended September 30, 2022 and 2021, respectively.

 

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 $548,000 for the nine months ended September 30, 2022 compared with $565,000 for the nine months ended September 30, 2021. The decrease is primarily attributable from the decrease of accounting, advertising, consulting, and legal fees.

 

RESEARCH AND DEVELOPMENT. Research and development costs were $7,000 and $8,000 for the nine months ended September 30, 2022 and 2021, respectively.

 

OTHER INCOME (EXPENSES). Total other expense for the nine months ended September 30, 2022 totaled $1,829,000 compared to the total other loss of $3,082,000 for the nine months ended September 30, 2021. The decrease of $1,260,000 is primarily attributable to the decrease loss on fair value adjustments of its investment in Imagion during the period.

 

NET INCOME (LOSS). During the nine months ended September 30, 2022, the Company had net loss of $2,334,000, compared to net loss of $3,605,000 for the nine months ended September 30, 2021. The decrease of $1,271,000 is primarily attributable to the decrease loss on fair value adjustment of investment.

 

LIQUIDITY AND CAPITAL RESOURCES

 

The Company had Stockholders’ deficit of $1,299,000 and the working capital deficit was $1,309,000 on September 30, 2022. The Company had an increase of $56,000 in cash and cash equivalents for the nine months ended September 30, 2022.

 

Based upon current projections, our principal cash requirements for the next 12 months consists of (1) fixed expenses, including consulting 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, 2022, we had $288,000 in cash. We believe our current cash position may not be 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 plan to sell IBX common stock to raise funds for operations, we have sold 750,000 shares of IBX common stock as of September 30, 2022.

 

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CASH FLOW INFORMATION

 

The Company had cash and cash equivalents of approximately $288,000 and $232,000 at September 30, 2022 and December 31, 2021, respectively. This figure represents an increase in cash of $56,000.

 

OPERATING ACTIVITIES

 

The Company used approximately $262,000 of cash for operating activities in the nine months ended September 30, 2022, as compared to using $287,000 of cash for operating activities in the nine months ended September 30, 2021.

 

The change is mainly from the decrease in the loss on fair value adjustments of its investment in Imagion during the period.

 

INVESTING ACTIVITIES

 

The Company received approximately $328,000 of cash from investing activities in the nine months ended September 30, 2022 as compared to, received approximately $300,000 of cash for investing activities in the nine months ended September 30, 2021.

 

The change is mainly from the sale of investment in Imagion in the nine months ended September 30, 2022.

 

FINANCING ACTIVITIES

 

During the nine months ended September 30, 2022, cash used in financing activities was $10,000 compared to $0 of cash for financing activities in the nine months ended September 30, 2021. The decrease was primarily a result of repayment of note payable.

 

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 generally accepted accounting principles in the United States of America.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles 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.

 

Fair Value of Financial Instruments:

 

The Company recognizes 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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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 September 30, 2022 and December 31, 2021, 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. (“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, 2022, the Company holds 51,766,508 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 ASX 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, the useful lives range between 3-10 years, using the straight-line method for financial statement purposes.

 

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 (2) 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 September 30, 2022, 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 September 30, 2022, 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.

 

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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 (3) years in equal increments on the anniversary date of the agreement, May 1. During May 2022 and 2021, the Company received $300,000 and reduced the amount due from the sale of assets to the balance of $0.

 

Marketable Securities:

 

The Company considers securities with original maturities of greater than 90 days to be available-for-sale debt 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 debt 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 three months ended September 30, 2022, no allowance was recorded for credit losses.

 

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.

 

The revenue was generated was from minimum royalty payments from the license agreement.

 

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 as under the practical expedient the lease consist of terms less than one year, and therefore is not required to capitalize the lease.

 

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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.

 

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 September 30, 2022 and 2021, there were 28,922,917 and 28,922,917, respectively, potentially dilutive shares that need to be considered as common share equivalents.  As a result of the net loss for the periods presented, the potentially dilutive shares for the periods ended September 30, 2022 and 2021 are anti-dilutive.

  

OFF BALANCE SHEET ARRANGEMENTS

 

We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations liquidity, capital expenditures or capital resources and would be considered material to investors.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

ITEM 4. CONTROLS AND PROCEDURES

 

(a) Evaluation of Disclosure Controls and Procedures

 

We conducted an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive and principal financial officers concluded as of September 30, 2022, that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in our internal controls over financial reporting discussed immediately below.

 

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Identified Material Weakness

 

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

 

Management identified the following material weakness during its assessment of internal controls over financial reporting:

 

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

 

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

 

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

 

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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We are subject from time-to-time to litigation, claims and suits arising in the ordinary course of business. As of September 30, 2022, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this Item.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

Not applicable.

 

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ITEM 6. EXHIBITS

 

Index to Exhibits

 

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
EX-101.INS**		Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document)
EX-101.SCH**		Inline XBRL Taxonomy Extension Schema Document
EX-101.CAL**		Inline XBRL Taxonomy Extension Calculation Linkbase
EX-101.DEF**		Inline XBRL Taxonomy Extension Definition Linkbase
EX-101.LAB**		Inline XBRL Taxonomy Extension Labels Linkbase
EX-101.PRE**		Inline XBRL Taxonomy Extension Presentation Linkbase
EX-104**		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

_________________ 

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

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 14^th day of November, 2022. 

 

	MANHATTAN SCIENTIFICS, INC.
	By:	/s/ Emmanuel Tsoupanarias
	Name:	Emmanuel Tsoupanarias
	Title:	Chief Executive Officer (Principal Executive, Financial and Accounting Officer)

 

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