AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION JANUARY 13, 2004
REGISTRATION NO. 333-_________
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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MANHATTAN PHARMACEUTICALS, INC.
(Name of small business issuer in its charter)
DELAWARE 8731 36-3898269
(State or jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
787 SEVENTH AVENUE, 48TH FLOOR
NEW YORK, NEW YORK 10019
(212) 554-4525
(Address and telephone number of principal executive offices and
principal place of business)
COPIES TO:
MR. NICHOLAS J. ROSSETTOS CHRISTOPHER J. MELSHA, ESQ.
CHIEF FINANCIAL OFFICER MASLON EDELMAN BORMAN & BRAND, LLP
MANHATTAN PHARMACEUTICALS, INC. 90 SOUTH 7TH STREET, SUITE 3300
787 SEVENTH AVENUE, 48TH FLOOR MINNEAPOLIS, MINNESOTA 55402
NEW YORK, NEW YORK 10019 TELEPHONE: (612) 672-8200
TELEPHONE: (212) 554-4555 FACSIMILE: (612) 672-8397
FACSIMILE: (212) 554-4545
(Name, address and telephone number of agent for service)
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: From time to time after the
effective date of this Registration Statement, as shall be determined by the
selling stockholders identified herein.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________________
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] _________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
========================================== ===================== ===================== ===================== =====================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF NUMBER OF SHARES TO OFFERING PRICE PER AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
------------------------------------------ --------------------- --------------------- --------------------- ---------------------
Common stock, par value $.001 per share 21,029,163 $1.585 $33,331,223.36 $2,696.50
========================================== ===================== ===================== ===================== =====================
(1) There is also being registered hereunder an indeterminate number of shares
of common stock as shall be issuable as a result of a stock split, stock
dividend, combination or other change in the outstanding shares of common
stock.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 of the Securities Act based upon a $1.585 per
share average of high and low prices of the Registrant's common stock on
the OTC Bulletin Board on January 8, 2004.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE
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OFFERING PROSPECTUS
[MP Logo]
MANHATTAN PHARMACEUTICALS, INC.
21,029,163 SHARES
COMMON STOCK
The selling stockholders identified on pages 34-39 of this prospectus
are offering on a resale basis a total of 21,029,163 shares of our common stock,
including 10,000,000 shares issuable upon conversion of our Series A Convertible
Preferred Stock and 3,437,460 shares issuable upon the exercise of outstanding
warrants. We will not receive any proceeds from the sale of these shares by the
selling stockholders.
Our common stock is quoted on the Over-the-Counter Bulletin Board under
the symbol "MHTT."
On , 2004, the last sale price for our common stock as reported
on the OTC Bulletin Board was $ .
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THE SECURITIES OFFERED BY THIS PROSPECTUS
INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED THAT THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. A REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 2004.
TABLE OF CONTENTS
PAGE
----
Prospectus Summary........................................................................................ 3
Risk Factors.............................................................................................. 5
Note Regarding Forward Looking Statements................................................................. 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................................. 15
Business.................................................................................................. 20
Management................................................................................................ 25
Security Ownership Of Certain Beneficial Owners And Management............................................ 31
Certain Relationships and Related Transactions............................................................ 32
Market for Common Equity and Related Stockholder Matters.................................................. 33
Use of Proceeds........................................................................................... 33
Selling Stockholders...................................................................................... 34
Plan of Distribution...................................................................................... 40
Description of Capital Stock.............................................................................. 42
Disclosure Of Commission Position On Indemnification For Securities Act Liabilities....................... 44
About This Prospectus..................................................................................... 44
Where You Can Find More Information....................................................................... 44
Validity of Common Stock.................................................................................. 44
Experts................................................................................................... 45
Changes in Certifying Accountant.......................................................................... 45
Financial Statements...................................................................................... F-1
2
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this
prospectus or incorporated by reference in this prospectus. Because it is a
summary, it may not contain all of the information that is important to you.
Accordingly, you are urged to carefully review this prospectus and the documents
incorporated into this prospectus by reference in their entirety.
OUR COMPANY
We are engaged in the business of developing and commercializing
early-stage technologies, particularly biomedical and pharmaceutical
technologies. We aim to acquire proprietary rights to these technologies, by
license or acquiring an ownership interest, fund their research and development
and eventually bring the technologies to market. We currently are researching
and developing two biomedical technologies: oleoyl-estrone, an orally
administered hormone which we believe can be used to treat obesity; and lingual
spray propofol, a proprietary lingual spray technology to deliver propofol for
pre-procedural sedation prior to diagnostic, therapeutic or endoscopic
procedures.
We were incorporated in Delaware in May 1993 under the name "Atlantic
Pharmaceuticals, Inc." and, in March 2000, we changed our name to "Atlantic
Technology Ventures, Inc." On February 21, 2003, we completed a "reverse"
acquisition of privately-held Manhattan Research Development, Inc. (formerly
Manhattan Pharmaceuticals, Inc.), a Delaware corporation. To effect this
transaction, we caused Manhattan Pharmaceuticals Acquisition Corp., our
wholly-owned subsidiary, to merge with and into Manhattan Research Development,
with Manhattan Research Development surviving as our wholly owned subsidiary. In
accordance with the terms of the merger, the outstanding common stock of
Manhattan Research Development automatically converted into the right to receive
an aggregate of approximately 80 percent of our outstanding common stock (after
giving effect to the transaction). In connection with the merger, we also
changed our name to "Manhattan Pharmaceuticals, Inc."
Our executive offices are located at 787 Seventh Avenue, 48th Floor,
New York, New York, 10019 and our telephone number is (212) 554-4525. Our
Internet site is www.manhattanpharma.com.
RECENT DEVELOPMENTS
In January 2004, we completed a private placement of 3,368,637 shares
of our common stock at a per share price of $1.10. After deducting commissions
and other expenses relating to the private placement, we received aggregate net
proceeds of approximately $3,444,000. We also issued to a placement agent
engaged in connection with the private placement of 5-year warrant to purchase
336,864 shares of our common stock at a price of $1.10 per share.
In November 2003, we completed a private placement of 1,000,000 shares
of our newly-designated Series A Convertible Preferred Stock at a price of
$10.00 per share. After deducting commissions and other expenses relating to the
private placement, we received aggregate net proceeds of approximately $9.1
million. The Series A Convertible Preferred Stock accrues dividends at the rate
of 5 percent per annum, payable in semi-annual installments. The dividends are
payable in additional shares of preferred stock. Each share of Series A
Convertible Preferred Stock is convertible into shares of our common stock at a
conversion price of $1.10, or approximately 9.1 shares of common stock for each
share of preferred stock converted.
RISK FACTORS
For a discussion of some of the risks you should consider before
purchasing shares of our common stock, you are urged to carefully review and
consider the section entitled "Risk Factors" beginning on page 5 of this
prospectus.
THE OFFERING
The selling stockholders identified on pages 34-39 of this prospectus
are offering on a resale basis a total of 21,029,163 shares of the following
shares of our common stock:
3
o 3,368,637 shares of our outstanding common stock issued in
connection with our January 2004 private placement;
o 326,499 shares of our common stock issuable at a price of $1.10 per
share upon the exercise of a warrant issued to a placement agent in
connection with our January 2004 private placement;
o 6,323,261 shares of our common stock issued in connection with a
private placement by Manhattan Research Development, Inc. prior to
that company's merger with us in February 2003, of which 2,100,195
shares are issuable at a price of $0.70 per share upon the exercise
of outstanding warrants issued in connection with that private
placement;
o 10,000,000 shares of common stock are issuable upon the conversion
of our Series A Convertible Preferred Stock, which includes
1,000,000 shares of common stock issuable upon conversion of shares
of Series A Preferred Stock to be issued as payment of dividends
through November 2005;
o 909,090 shares issuable at an exercise price of $1.10 per share upon
the exercise of outstanding warrants issued as compensation to
placement agents (and their assigns) in connection with our Series A
Convertible Preferred Stock offering;
o 101,676 shares issuable at a price of $0.70 per share upon the
exercise of warrants issued to scientific advisors.
Common stock offered ......................................... 21,029,163 shares
Common stock outstanding before the offering(1) .............. 26,731,033 shares
Common stock outstanding after the offering(2) ............... 40,168,493 shares
Common Stock OTC Bulletin Board symbol ....................... MHTT
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(1) Based on the number of shares outstanding as of January 12, 2004, not
including (a) 5,357,889 shares issuable upon exercise of various
warrants and options to purchase common stock; or (b) shares issuable
upon the conversion of the Series A Preferred Stock.
(2) Assumes the issuance of all shares offered hereby that are issuable
upon conversion of our Series A Preferred Stock or upon exercise of
warrants.
4
RISK FACTORS
An investment in our common stock is very risky. You may lose the entire amount
of your investment. Prior to making an investment decision, you should carefully
review this entire prospectus and consider the following risk factors:
RISKS RELATING TO OUR BUSINESS
WE CURRENTLY HAVE NO PRODUCT REVENUES AND WILL NEED TO RAISE ADDITIONAL CAPITAL
TO OPERATE OUR BUSINESS.
To date, we have generated no product revenues. Until, and only if, we
receive approval from the U.S. Federal Drug Administration or FDA, and other
regulatory authorities for our product candidates, we cannot sell our drugs and
will not have product revenues. Therefore, for the foreseeable future, we will
have to fund all of our operations and capital expenditures almost exclusively
from our cash on hand. We will need to seek additional sources of financing,
which may not be available on favorable terms, if at all. If we do not succeed
in raising additional funds on acceptable terms, we may be unable to complete
planned pre-clinical and clinical trials or obtain approval of our product
candidates from the FDA and other regulatory authorities. In addition, we could
be forced to discontinue product development, reduce or forego sales and
marketing efforts and forego attractive business opportunities. Any additional
sources of financing will likely involve the issuance of our equity securities,
which will have a dilutive effect on our stockholders.
WE ARE NOT CURRENTLY PROFITABLE AND MAY NEVER BECOME PROFITABLE.
We have a history of losses and expect to incur substantial losses and
negative operating cash flow for the foreseeable future, and we may never
achieve or maintain profitability. Even if we succeed in developing and
commercializing one or more of our product candidates, we expect to incur
substantial losses for the foreseeable future and may never become profitable.
We also expect to continue to incur significant operating and capital
expenditures and anticipate that our expenses will increase substantially in the
foreseeable future as we:
o continue to undertake pre-clinical development and clinical trials
for our product candidates;
o seek regulatory approvals for our product candidates;
o implement additional internal systems and infrastructure;
o lease additional or alternative office facilities; and
o hire additional personnel.
We also expect to experience negative cash flow for the foreseeable future as we
fund our operating losses and capital expenditures. As a result, we will need to
generate significant revenues in order to achieve and maintain profitability. We
may not be able to generate these revenues or achieve profitability in the
future. Our failure to achieve or maintain profitability could negatively impact
the value of our common stock.
WE HAVE A LIMITED OPERATING HISTORY UPON WHICH TO BASE AN INVESTMENT DECISION.
We have no other business or prospects other than the business and
prospects that we assumed when acquiring Manhattan Research Development in
February 2003 and those acquired subsequent to that time. When we acquired it in
February 2003, Manhattan Research Development was a development-stage company
and has not yet demonstrated any ability to perform the functions necessary for
the successful commercialization of any product candidates. The successful
commercialization of our product candidates will require us to perform a variety
of functions, including:
5
o continuing to undertake pre-clinical development and clinical
trials;
o participating in regulatory approval processes;
o formulating and manufacturing products; and
o conducting sales and marketing activities.
Since inception, Manhattan Research Development's operations have been limited
to organizing and staffing, and acquiring, developing and securing our
proprietary technology and undertaking pre-clinical trials of principal product
candidates. These operations provide a limited basis for you to assess our
ability to commercialize our product candidates and the advisability of
investing in our securities.
WE MAY NOT OBTAIN THE NECESSARY U.S. OR WORLDWIDE REGULATORY APPROVALS TO
COMMERCIALIZE OUR PRODUCT CANDIDATES.
We will need FDA approval to commercialize our product candidates in
the U.S. and approvals from the FDA equivalent regulatory authorities in foreign
jurisdictions to commercialize our product candidates in those jurisdictions. In
order to obtain FDA approval of any of our product candidates, we must submit to
the FDA a New Drug Application, or NDA, demonstrating that the product candidate
is safe for humans and effective for its intended use. This demonstration
requires significant research and animal tests, which are referred to as
pre-clinical studies, as well as human tests, which are referred to as clinical
trials. Satisfaction of the FDA's regulatory requirements typically takes many
years, depends upon the type, complexity and novelty of the product candidate
and requires substantial resources for research, development and testing. We
cannot predict whether our research and clinical approaches will result in drugs
that the FDA considers safe for humans and effective for indicated uses. The FDA
has substantial discretion in the drug approval process and may require us to
conduct additional pre-clinical and clinical testing or to perform
post-marketing studies. The approval process may also be delayed by changes in
government regulation, future legislation or administrative action or changes in
FDA policy that occur prior to or during our regulatory review. Delays in
obtaining regulatory approvals may:
o delay commercialization of, and our ability to derive product
revenues from, our product candidates;
o impose costly procedures on us; and
o diminish any competitive advantages that we may otherwise enjoy.
Even if we comply with all FDA requests, the FDA may ultimately reject
one or more of our NDAs. We cannot be sure that we will ever obtain regulatory
clearance for our product candidate. Failure to obtain FDA approval of any of
our product candidate will severely undermine our business by reducing our
number of salable products and, therefore, corresponding product revenues.
In foreign jurisdictions, we must receive approval from the appropriate
regulatory authorities before we can commercialize our drugs. Foreign regulatory
approval processes generally include all of the risks associated with the FDA
approval procedures described above.
6
OUR PRIMARY PRODUCT CANDIDATES ARE IN EARLY STAGES OF CLINICAL TRIALS.
Our primary product candidates, oleoyl-estrone and lingual spray
propofol, are in the early stages of development and require extensive
pre-clinical testing before we can proceed to clinical trials. In addition,
before we can commence clinical trials in the United States on our product
candidates, we will have to submit an Investigational New Drug application, or
"IND," to the FDA. We cannot predict with any certainty if or when we might
submit an IND for regulatory approval of our product candidates.
CLINICAL TRIALS ARE VERY EXPENSIVE, TIME-CONSUMING AND DIFFICULT TO DESIGN AND
IMPLEMENT.
Human clinical trials are very expensive and difficult to design and
implement, in part because they are subject to rigorous regulatory requirements.
The clinical trial process is also time consuming. We estimate that clinical
trials of our product candidates will take at least several years to complete.
Furthermore, failure can occur at any stage of the trials, and we could
encounter problems that cause us to abandon or repeat clinical trials. The
commencement and completion of clinical trials may be delayed by several
factors, including:
o unforeseen safety issues;
o determination of dosing issues;
o lack of effectiveness during clinical trials;
o slower than expected rates of patient recruitment;
o inability to monitor patients adequately during or after treatment;
and
o inability or unwillingness of medical investigators to follow our
clinical protocols.
In addition, we or the FDA may suspend our clinical trials at any time if it
appears that we are exposing participants to unacceptable health risks or if the
FDA finds deficiencies in our IND submissions or the conduct of these trials.
THE RESULTS OF OUR CLINICAL TRIALS MAY NOT SUPPORT OUR PRODUCT CANDIDATE CLAIMS.
Even if our clinical trials are completed as planned, we cannot be
certain that their results will support our product candidate claims. Success in
pre-clinical testing and early clinical trials does not ensure that later
clinical trials will be successful, and we cannot be sure that the results of
later clinical trials will replicate the results of prior clinical trials and
pre-clinical testing. The clinical trial process may fail to demonstrate that
our product candidates are safe for humans and effective for indicated uses.
This failure would cause us to abandon a product candidate and may delay
development of other product candidates. Any delay in, or termination of, our
clinical trials will delay the filing of our NDAs with the FDA and, ultimately,
our ability to commercialize our product candidates and generate product
revenues. In addition, our clinical trials involve a small patient population.
Because of the small sample size, the results of these clinical trials may not
be indicative of future results.
PHYSICIANS AND PATIENTS MAY NOT ACCEPT AND USE OUR DRUGS.
Even if the FDA approves our product candidates, physicians and
patients may not accept and use them. Acceptance and use of our product will
depend upon a number of factors including:
o perceptions by members of the health care community, including
physicians, about the safety and effectiveness of our drugs;
7
o cost-effectiveness of our product relative to competing products;
o availability of reimbursement for our products from government or
other healthcare payers; and
o effectiveness of marketing and distribution efforts by us and our
licensees and distributors, if any.
Because we expect sales of our current product candidates, if approved, to
generate substantially all of our product revenues for the foreseeable future,
the failure of any of these drugs to find market acceptance would harm our
business and could require us to seek additional financing.
OUR DRUG-DEVELOPMENT PROGRAM DEPENDS UPON THIRD-PARTY RESEARCHERS WHO ARE
OUTSIDE OUR CONTROL.
We will depend upon independent investigators and collaborators, such
as universities and medical institutions, to conduct our pre-clinical and
clinical trials under agreements with us. These collaborators will not be our
employees and we cannot control the amount or timing of resources that they will
devote to our programs. These investigators may not assign as great a priority
to our programs or pursue them as diligently as we would if we were undertaking
such programs ourselves. If outside collaborators fail to devote sufficient time
and resources to our drug-development programs, or if their performance is
substandard, the approval of our FDA applications, if any, and our introduction
of new drugs, if any, will be delayed. These collaborators may also have
relationships with other commercial entities, some of whom may compete with us.
If our collaborators assist our competitors at our expense, our competitive
position would be harmed.
WE WILL RELY EXCLUSIVELY ON THIRD PARTIES TO FORMULATE AND MANUFACTURE OUR
PRODUCT CANDIDATES.
We have no experience in drug formulation or manufacturing and do not
intend to establish our own manufacturing facilities. We lack the resources and
expertise to formulate or manufacture our own product candidates. We currently
have no contract for the manufacture of our product candidate. We intend to
contract with one or more manufacturers to manufacture, supply, store and
distribute drug supplies for our clinical trials. If any of our product
candidates receive FDA approval, we will rely on one or more third-party
contractors to manufacture our drugs. Our anticipated future reliance on a
limited number of third-party manufacturers, exposes us to the following risks:
o We may be unable to identify manufacturers on acceptable terms or at
all because the number of potential manufacturers is limited and the
FDA must approve any replacement contractor. This approval would
require new testing and compliance inspections. In addition, a new
manufacturer would have to be educated in, or develop substantially
equivalent processes for, production of our products after receipt
of FDA approval, if any.
o Our third-party manufacturers might be unable to formulate and
manufacture our drugs in the volume and of the quality required to
meet our clinical needs and commercial needs, if any.
o Our future contract manufacturers may not perform as agreed or may
not remain in the contract manufacturing business for the time
required to supply our clinical trials or to successfully produce,
store and distribute our products.
o Drug manufacturers are subject to ongoing periodic unannounced
inspection by the FDA, the DEA, and corresponding state agencies to
ensure strict compliance with good manufacturing practice and other
government regulations and corresponding foreign standards. We do
not have control over third-party manufacturers' compliance with
these regulations and standards.
8
o If any third-party manufacturer makes improvements in the
manufacturing process for our products, we may not own, or may have
to share, the intellectual property rights to the innovation.
We may be unable to identify manufacturers on acceptable terms or at
all because the number of potential manufacturers is limited and the FDA must
approve any replacement contractor. This approval would require new testing and
compliance inspections. In addition, a new manufacturer would have to be
educated in, or develop substantially equivalent processes for, production of
our products after receipt of FDA approval, if any.
OUR THIRD-PARTY MANUFACTURERS MIGHT BE UNABLE TO FORMULATE AND MANUFACTURE OUR
DRUGS IN THE VOLUME AND OF THE QUALITY REQUIRED TO MEET OUR CLINICAL NEEDS AND
COMMERCIAL NEEDS, IF ANY.
Our future contract manufacturers may not perform as agreed or may not
remain in the contract manufacturing business for the time required to supply
our clinical trials or to successfully produce, store and distribute our
products. Drug manufacturers are subject to ongoing periodic unannounced
inspection by the FDA, the DEA, and corresponding state agencies to ensure
strict compliance with good manufacturing practice and other government
regulations and corresponding foreign standards. We do not have control over
third-party manufacturers' compliance with these regulations and standards. If
any third-party manufacturer makes improvements in the manufacturing process for
our products, we may not own, or may have to share, the intellectual property
rights to the innovation.
Each of these risks could delay our clinical trials, the approval, if
any of our product candidates by the FDA or the commercialization of our product
candidates or result in higher costs or deprive us of potential product
revenues.
WE HAVE NO EXPERIENCE SELLING, MARKETING OR DISTRIBUTING PRODUCTS AND NO
INTERNAL CAPABILITY TO DO SO.
We currently have no sales, marketing or distribution capabilities. We
do not anticipate having the resources in the foreseeable future to allocate to
the sales and marketing of its proposed products. Our future success depends, in
part, on our ability to enter into and maintain such collaborative
relationships, the collaborator's strategic interest in the products under
development and such collaborator's ability to successfully market and sell any
such products. We intend to pursue collaborative arrangements regarding the
sales and marketing of our products, however, there can be no assurance that we
will be able to establish or maintain such collaborative arrangements, or if
able to do so, that they will have effective sales forces. To the extent that we
decide not to, or are unable to, enter into collaborative arrangements with
respect to the sales and marketing of its proposed products, significant capital
expenditures, management resources and time will be required to establish and
develop an in-house marketing and sales force with technical expertise. There
can also be no assurance that we will be able to establish or maintain
relationships with third party collaborators or develop in-house sales and
distribution capabilities. To the extent that we depend on third parties for
marketing and distribution, any revenues we receive will depend upon the efforts
of such third parties, and there can be no assurance that such efforts will be
successful. In addition, there can also be no assurance that we will be able to
market and sell our product in the United States or overseas.
IF WE CANNOT COMPETE SUCCESSFULLY FOR MARKET SHARE AGAINST OTHER DRUG COMPANIES,
WE MAY NOT ACHIEVE SUFFICIENT PRODUCT REVENUES AND OUR BUSINESS WILL SUFFER.
The market for our product candidates is characterized by intense
competition and rapid technological advances. If our product candidates receive
FDA approval, they will compete with a number of existing and future drugs and
therapies developed, manufactured and marketed by others. Existing or future
competing products may provide greater therapeutic convenience or clinical or
other benefits for a specific indication than our products, or may offer
comparable performance at a lower cost. If our products fail to capture and
maintain market share, we may not achieve sufficient product revenues and our
business will suffer.
9
We will compete against fully integrated pharmaceutical companies and
smaller companies that are collaborating with larger pharmaceutical companies,
academic institutions, government agencies and other public and private research
organizations. Many of these competitors have product candidates that will
compete with ours already approved or in development. In addition, many of these
competitors, either alone or together with their collaborative partners, operate
larger research and development programs and have substantially greater
financial resources than we do, as well as significantly greater experience in:
o developing drugs;
o undertaking pre-clinical testing and human clinical trials;
o obtaining FDA and other regulatory approvals of drugs;
o formulating and manufacturing drugs; and
o launching, marketing and selling drugs.
DEVELOPMENTS BY COMPETITORS MAY RENDER OUR PRODUCTS OR TECHNOLOGIES OBSOLETE OR
NON-COMPETITIVE.
Companies that currently sell both generic and proprietary anti-obesity
compounds formulations include among others Abbot Laboratories, Inc., Amgen,
Inc., and Regeneron Pharmaceuticals, Inc. Alternative technologies are being
developed to treat obesity and overweight disease, several of which are in
advanced clinical trials. In addition, companies pursuing different but related
fields represent substantial competition. Many of these organizations competing
with us have substantially greater capital resources, larger research and
development staffs and facilities, longer drug development history in obtaining
regulatory approvals and greater manufacturing and marketing capabilities than
we do. These organizations also compete with us to attract qualified personnel,
parties for acquisitions, joint ventures or other collaborations.
IF WE FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS OR
SECURE RIGHTS TO PATENTS OF OTHERS, THE VALUE OF OUR INTELLECTUAL PROPERTY
RIGHTS WOULD DIMINISH.
Our success, competitive position and future revenues will depend in
part on our ability and the abilities of our licensors to obtain and maintain
patent protection for our products, methods, processes and other technologies,
to preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing the proprietary rights of
third parties.
To date, we hold the exclusive licenses to certain patent rights,
including rights under U.S. patents and U.S. patent applications, as well as
rights under foreign patents and patent applications. We anticipate filing
additional patent applications both in the U.S. and in other countries, as
appropriate. However, we cannot predict:
o the degree and range of protection any patents will afford us
against competitors including whether third parties will find ways
to invalidate or otherwise circumvent our patents;
o if and when patents will issue;
o whether or not others will obtain patents claiming aspects similar
to those covered by our patents and patent applications; or
o whether we will need to initiate litigation or administrative
proceedings which may be costly whether we win or lose.
10
Our success also depends upon the skills, knowledge and experience of
our scientific and technical personnel, our consultants and advisors as well as
our licensors and contractors. To help protect our proprietary know-how and our
inventions for which patents may be unobtainable or difficult to obtain, we rely
on trade secret protection and confidentiality agreements. To this end, we
require all of our employees, consultants, advisors and contractors to enter
into agreements which prohibit the disclosure of confidential information and,
where applicable, require disclosure and assignment to us of the ideas,
developments, discoveries and inventions important to our business. These
agreements may not provide adequate protection for our trade secrets, know-how
or other proprietary information in the event of any unauthorized use or
disclosure or the lawful development by others of such information. If any of
our trade secrets, know-how or other proprietary information is disclosed, the
value of our trade secrets, know-how and other proprietary rights would be
significantly impaired and our business and competitive position would suffer.
IF WE INFRINGE THE RIGHTS OF THIRD PARTIES WE COULD BE PREVENTED FROM SELLING
PRODUCTS, FORCED TO PAY DAMAGES, AND DEFEND AGAINST LITIGATION.
If our products, methods, processes and other technologies infringe the
proprietary rights of other parties, we could incur substantial costs and we may
have to:
o obtain licenses, which may not be available on commercially
reasonable terms, if at all;
o redesign our products or processes to avoid infringement;
o stop using the subject matter claimed in the patents held by others;
o pay damages; or
o defend litigation or administrative proceedings which may be costly
whether we win or lose, and which could result in a substantial
diversion of our valuable management resources.
OUR ABILITY TO GENERATE PRODUCT REVENUES WILL BE DIMINISHED IF OUR DRUGS SELL
FOR INADEQUATE PRICES OR PATIENTS ARE UNABLE TO OBTAIN ADEQUATE LEVELS OF
REIMBURSEMENT.
Our ability to commercialize our drugs, alone or with collaborators,
will depend in part on the extent to which reimbursement will be available from:
o government and health administration authorities;
o private health maintenance organizations and health insurers; and
o other healthcare payers.
Significant uncertainty exists as to the reimbursement status of newly approved
healthcare products. Healthcare payers, including Medicare, are challenging the
prices charged for medical products and services. Government and other
healthcare payers increasingly attempt to contain healthcare costs by limiting
both coverage and the level of reimbursement for drugs. Even if our product
candidates are approved by the FDA, insurance coverage may not be available, and
reimbursement levels may be inadequate, to cover our drugs. If government and
other healthcare payers do not provide adequate coverage and reimbursement
levels for any of our products, once approved, market acceptance of our products
could be reduced.
11
WE MAY NOT SUCCESSFULLY MANAGE OUR GROWTH.
Our success will depend upon the expansion of our operations and the
effective management of our growth, which will place a significant strain on our
management and on our administrative, operational and financial resources. To
manage this growth, we must expand our facilities, augment our operational,
financial and management systems and hire and train additional qualified
personnel. If we are unable to manage our growth effectively, our business would
be harmed.
WE MAY BE EXPOSED TO LIABILITY CLAIMS ASSOCIATED WITH THE USE OF HAZARDOUS
MATERIALS AND CHEMICALS.
Our research and development activities may involve the controlled use
of hazardous materials and chemicals. Although we believe that our safety
procedures for using, storing, handling and disposing of these materials comply
with federal, state and local laws and regulations, we cannot completely
eliminate the risk of accidental injury or contamination from these materials.
In the event of such an accident, we could be held liable for any resulting
damages and any liability could materially adversely effect our business,
financial condition and results of operations. In addition, the federal, state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of hazardous or radioactive materials and waste products may
require us to incur substantial compliance costs that could materially adversely
effect our business, financial condition and results of operations.
WE RELY ON KEY EXECUTIVE OFFICERS AND SCIENTIFIC AND MEDICAL ADVISORS, AND THEIR
KNOWLEDGE OF OUR BUSINESS AND TECHNICAL EXPERTISE WOULD BE DIFFICULT TO REPLACE.
We are highly dependent on our principal scientific, regulatory and
medical advisors. We do not have "key person" life insurance policies for any of
our officers. The loss of the technical knowledge and management and industry
expertise of any of our key personnel could result in delays in product
development, loss of customers and sales and diversion of management resources,
which could adversely affect our operating results.
IF WE ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL, OUR ABILITY TO GROW OUR
BUSINESS MAY BE HARMED.
We will need to hire additional qualified personnel with expertise in
pre-clinical testing, clinical research and testing, government regulation,
formulation and manufacturing and sales and marketing. We compete for qualified
individuals with numerous biopharmaceutical companies, universities and other
research institutions. Competition for such individuals, particularly in the New
York City area, is intense, and we cannot be certain that our search for such
personnel will be successful. Attracting and retaining qualified personnel will
be critical to our success.
WE MAY INCUR SUBSTANTIAL LIABILITIES AND MAY BE REQUIRED TO LIMIT
COMMERCIALIZATION OF OUR PRODUCTS IN RESPONSE TO PRODUCT LIABILITY LAWSUITS.
The testing and marketing of medical products entail an inherent risk
of product liability. If we cannot successfully defend ourselves against product
liability claims, we may incur substantial liabilities or be required to limit
commercialization of our products. Our inability to obtain sufficient product
liability insurance at an acceptable cost to protect against potential product
liability claims could prevent or inhibit the commercialization of
pharmaceutical products we develop, alone or with corporate collaborators. We
currently do not carry clinical trial insurance or product liability insurance.
Although we intend to obtain clinical trial insurance prior to the commencement
of any clinical trials, we, or any corporate collaborators, may not be able to
obtain insurance at a reasonable cost, if at all. Even if our agreements with
any future corporate collaborators entitle us to indemnification against losses,
such indemnification may not be available or adequate should any claim arise.
12
WE ARE CONTROLLED BY CURRENT OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS.
Our directors, executive officers and principal stockholders
beneficially own approximately __ percent of our outstanding common stock.
Accordingly, these persons and their respective affiliates will have the ability
to exert substantial influence over the election of our Board of Directors and
the outcome of issues submitted to our stockholders.
RISKS RELATED TO OUR SECURITIES
TRADING OF OUR COMMON STOCK IS LIMITED.
Trading of our common stock is conducted on the National Association of
Securities Dealers' Over-the-Counter Bulletin Board, or "OTC Bulletin Board."
This has adversely effected the liquidity of our securities, not only in terms
of the number of securities that can be bought and sold at a given price, but
also through delays in the timing of transactions and reduction in security
analysts' and the media's coverage of us. This may result in lower prices for
our common stock than might otherwise be obtained and could also result in a
larger spread between the bid and asked prices for our common stock.
BECAUSE IT IS A "PENNY STOCK," IT WILL BE MORE DIFFICULT FOR YOU TO SELL SHARES
OF OUR COMMON STOCK.
In addition, our common stock is a "penny stock." Broker-dealers who sell
penny stocks must provide purchasers of these stocks with a standardized
risk-disclosure document prepared by the SEC. This document provides information
about penny stocks and the nature and level of risks involved in investing in
the penny-stock market. A broker must also give a purchaser, orally or in
writing, bid and offer quotations and information regarding broker and
salesperson compensation, make a written determination that the penny stock is a
suitable investment for the purchaser, and obtain the purchaser's written
agreement to the purchase. The penny stock rules may make it difficult for you
to sell your shares of our stock. Because of the rules, there is less trading in
penny stocks. Also, many brokers choose not to participate in penny-stock
transactions. Accordingly, you may not always be able to resell shares of our
common stock publicly at times and prices that you feel are appropriate.
A SIGNIFICANT NUMBER OF SHARES OF OUR COMMON STOCK ARE OR WILL BECOME AVAILABLE
FOR SALE AND THEIR SALE COULD DEPRESS THE PRICE OF OUR COMMON STOCK.
A substantial number of shares of our common stock are being offered by
this prospectus. In addition, on February 21, 2004, up to 18,689,916 shares of
our outstanding common stock that were issued in connection with our acquisition
of Manhattan Research Development, Inc. will become available for sale pursuant
to Rule 144 under the Securities Act. We may also issue additional shares in
connection with our business and may grant additional stock options to our
employees, officers, directors and consultants or warrants to third parties.
Sales of a substantial number of shares of our common stock in the public market
after this offering could adversely affect the market price for our common stock
and make it more difficult for you to sell our shares at times and prices that
you feel are appropriate.
OUR STOCK PRICE IS, AND WE EXPECT IT TO REMAIN, VOLATILE, WHICH COULD LIMIT
INVESTORS' ABILITY TO SELL STOCK AT A
PROFIT.
The volatile price of our stock makes it difficult for investors to
predict the value of their investment, to sell shares at a profit at any given
time, or to plan purchases and sales in advance. A variety of factors may affect
the market price of our common stock. These include, but are not limited to:
o publicity regarding actual or potential clinical results relating to
products under development by our competitors or us;
13
o delay or failure in initiating, completing or analyzing pre-clinical
or clinical trials or the unsatisfactory design or results of these
trials;
o achievement or rejection of regulatory approvals by our competitors
or us;
o announcements of technological innovations or new commercial
products by our competitors or us;
o developments concerning proprietary rights, including patents;
o developments concerning our collaborations;
o regulatory developments in the United States and foreign countries;
o economic or other crises and other external factors;
o period-to-period fluctuations in our revenues and other results of
operations;
o changes in financial estimates by securities analysts; and
o sales of our common stock.
We will not be able to control many of these factors, and we believe that
period-to-period comparisons of our financial results will not necessarily be
indicative of our future performance.
In addition, the stock market in general, and the market for
biotechnology companies in particular, has experienced extreme price and volume
fluctuations that may have been unrelated or disproportionate to the operating
performance of individual companies. These broad market and industry factors may
seriously harm the market price of our common stock, regardless of our operating
performance.
WE HAVE NEVER PAID DIVIDENDS.
We have never paid dividends on our capital stock and do not anticipate
paying any dividends for the foreseeable future.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus that are
forward-looking in nature are based on the current beliefs of our management as
well as assumptions made by and information currently available to management,
including statements related to the markets for our products, general trends in
our operations or financial results, plans, expectations, estimates and beliefs.
In addition, when used in this prospectus, the words "may," "could," "should,"
"anticipate," "believe," "estimate," "expect," "intend," "plan," "predict" and
similar expressions and their variants, as they relate to us or our management,
may identify forward-looking statements. These statements reflect our judgment
as of the date of this prospectus with respect to future events, the outcome of
which is subject to risks, which may have a significant impact on our business,
operating results or financial condition. You are cautioned that these
forward-looking statements are inherently uncertain. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results or outcomes may vary materially from those described
herein. We undertake no obligation to update forward-looking statements. The
risks identified under the heading "Risk Factors" in this prospectus, among
others, may impact forward-looking statements contained in this prospectus.
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion of our results of operations
and financial condition in conjunction with our Annual Report on Form 10-KSB for
the year ended December 31, 2002, our Quarterly Report on Form 10-Q for the
quarter ended September 30, 2003, and our Current Report on Form 8-K/A filed
with the SEC on May 9, 2003, which contains the financial statements of
Manhattan Research Development, Inc. This discussion includes "forward-looking"
statements that reflect our current views with respect to future events and
financial performance. We use words such as we "expect," "anticipate,"
"believe," and "intend" and similar expressions to identify forward-looking
statements. Investors should be aware that actual results may differ materially
from our expressed expectations because of risks and uncertainties inherent in
future events, particularly those risks identified in the "Risk Factors" section
of this prospectus, and should not unduly rely on these forward looking
statements. All share and per share information in this discussion has been
adjusted for the 1-for-5 combination of our common stock effected on September
25, 2003.
RESULTS OF OPERATIONS
NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2003 VS. 2002
During the nine months ended September 30, 2003 and 2002, we had no
revenue.
For the nine months ended September 30, 2003, research and development
expense was $734,351 as compared to $624,971 for the nine months ended September
30, 2002. The increase of $109,380 is due primarily to an acceleration of
pre-clinical development of our Oleoyl-estrone drug and to the pre-clinical
development of our Propofol Lingual Spray, which was licensed in 2003 resulting
in an increase of associated expenses of approximately $149,000. This increase
is partially offset by the fact that we paid license fees of $175,000 to
Oleoyl-estrone Developments, Inc (OED) in 2002 but paid only $125,000 of license
fees to NovaDel Pharma, Inc. in 2003. We also had an increase in patent related
fees over the prior year of approximately $10,000.
For the nine months ended September 30, 2003, general and
administrative expense was $1,255,446 as compared to $198,485 for the nine
months ended September 30, 2002. The increase of $1,056,961 is due primarily to
expenses associated with hiring full time employees and consultants of
approximately $296,000 and $199,000, respectively. In addition, we had increases
in legal and accounting fees of approximately $193,000 associated with becoming
subject to the reporting obligations under the Exchange Act following completion
of the Atlantic Technology Ventures, Inc. - Manhattan Research Development, Inc.
merger in February 2003. Rent, directors fees, insurance and other expenses
increased by approximately $36,000, $34,000, $108,000 and $46,000, respectively.
Finally, in 2003, we had amortization of intangible assets of approximately
$145,000.
Net loss for the nine months ended September 30, 2003, was $4,451,290
as compared to $835,569 for the nine months ended September 30, 2002. This
increase in net loss is attributable primarily to a loss on the disposition of
intangible assets as a result of our sale of our remaining rights to CT-3 to
Indevus Pharmaceuticals, Inc. of $1,213,878 as well as an impairment of
intangible assets of $1,248,230 as a result of a decision by Bausch & Lomb not
to pursue the Avantix cataract removal technology. In addition, we had an
increase in general and administrative expenses of $1,056,961 primarily as a
result of our hiring employees and management and becoming a public company and
an increase in research and development expenses of $109,380.
YEAR ENDED DECEMBER 31, 2002 VS. DECEMBER 31, 2001
During the year ended December 31, 2002 and interim period of 2001, we
had no revenue.
15
For the year ended December 31, 2002, research and development expense
was $700,798 as compared to $55,236 for the interim period of 2001. The increase
of $645,562 is due to the fact that substantially all of the pre-clinical work
was done in 2002. In addition, we paid license fees of $175,000 in connection
with our licensing exclusive world wide rights to our product candidate
Oleoyl-estrone to Oleoyl-estrone Developments, Inc (OED) in 2002.
For the year ended December 31, 2002, general and administrative
expense was $317,384 as compared to $1,560 for the interim period of 2001. This
increase of $315,824 was primarily due to various activities that occurred in
2002 including the following: recruiting fees in connection with recruiting
management, office service fees, accounting fees for the audits, legal fees for
the contemplated merger with Atlantic Technology Ventures, Inc, patent review
and other due diligence expenses.
Interest expense was $19,138 for the year ended December 30, 2002
compared to zero in 2001. This increase was caused by bank loans entered into in
2002. The proceeds of the bank loans were used for general corporate purposes.
Net loss for the year ended December 31, 2002 was $1,037,320 as
compared to $56,796 for the interim period of 2001. This increase in net loss is
primarily due to an increase in research and development expenses of $645,562.
In addition, we had an increase in general and administrative expenses of
$315,824 and an increase in interest expense of $19,138.
LIQUIDITY AND CAPITAL RESOURCES
From inception to September 30, 2003, we incurred an accumulated
deficit of $5,545,406, and we expect to continue to incur additional losses
through the year ending September 30, 2004 and for the foreseeable future. This
loss has been incurred through a combination of research and development
activities related to the various technologies under our control and expenses
supporting those activities.
During 2002, our subsidiary, Manhattan Research Development, Inc.
(Manhattan Research) commenced a private placement and sold 239,450 shares of
common stock at $8 ($0.63 post merger) per share and received proceeds of
$1,704,318, net of expenses of $211,181. These shares converted into 3,043,332
shares of our common stock when we completed a reverse acquisition of Manhattan
Research as described below. In addition, each investor received warrants equal
to 10% of the number of shares of common stock purchased and, accordingly,
Manhattan Research issued warrants to purchase 23,945 shares of common stock in
2002 in connection with the private placement. Upon the merger, these converted
into warrants to purchase 304,333 shares of our common stock. Each warrant had
an exercise price of $8 per share, which post merger converted to $0.63. These
warrants expire in 2007.
During January and February 2003, Manhattan Research sold an additional
104,000 shares of common stock at $8 ($0.63, post merger) per share and warrants
to purchase 10,400 shares of common stock exercisable at $8 ($0.63 post merger)
through the private placement and received net proceeds of $743,691. These
shares converted into 1,321,806 shares of our common stock when we completed our
reverse acquisition of Manhattan Research. The warrants to purchase 10,400
shares of common stock converted into warrants to purchase 132,181 common shares
of the combined Company.
In addition, in connection with the private placement, Manhattan
Research issued to Joseph Stevens & Co., Inc., a NASD-member broker-dealer,
warrants to purchase 130,511 shares of its common stock that are exercisable at
$8 ($0.63 post merger) per share and expire in 2008. Upon the merger, these
warrants converted into warrants to purchase 1,658,753 shares of common stock of
the combined Company.
We have financed our operations since inception primarily through
equity and debt financing and our licensing of CT-3 to Indevus. During the nine
months ended September 30, 2003, we had a net decrease in cash and cash
equivalents of $1,619,009. This decrease primarily resulted from net cash used
in operating activities for the nine months ended September 30, 2003 of
$1,736,285. Total cash resources as of September 30, 2003 were $102,114 compared
to $1,721,123 at December 31, 2002.
16
Our available working capital and capital requirements will depend upon
numerous factors, including progress of our research and development programs,
our progress in and the cost of ongoing and planned pre-clinical and clinical
testing, the timing and cost of obtaining regulatory approvals, the cost of
filing, prosecuting, defending, and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
changes in our existing collaborative and licensing relationships, the resources
that we devote to developing manufacturing and commercializing capabilities,
technological advances, the status of our competitors, our ability to establish
collaborative arrangements with other organizations and our need to purchase
additional capital equipment.
Our continued operations will depend on whether we are able to raise
additional funds through various potential sources, such as equity and debt
financing, other collaborative agreements, strategic alliances, and our ability
to realize the full potential of our technology in development. Such additional
funds may not become available on acceptable terms and there can be no assurance
that any additional funding that the combined Company does obtain will be
sufficient to meet the combined Company's needs in the long term. Through
September 30, 2003, a significant portion of our financing has been through
private placements of common stock and warrants and debt financing. Unless our
operations generate significant revenues, we will continue to fund operations
from cash on hand and through the similar sources of capital previously
described. We can give no assurances that any additional capital that we are
able to obtain will be sufficient to meet our needs. Management believes that we
will continue to incur net losses through at least September 30, 2004. Based on
our current resources, we will need additional equity or debt financing or we
will need to generate revenues through licensing our products or entering into
strategic alliances to be able to sustain our operations until we can achieve
profitability, if ever.
On November 7, 2003, we completed a private placement of 1,000,000
shares of our newly-designated Series A Convertible Preferred Stock at a price
of $10 per share, resulting in gross proceeds to us of $10,000,000. Each share
of Series A Convertible Preferred Stock is convertible at the holder's election
into shares of our common stock at a conversion price of $1.10 per share. The
conversion price of the Series A Convertible Preferred Stock was less than the
market value of our common stock on November 7, 2003. Accordingly, we will
record a charge for the beneficial conversion feature associated with the
convertible preferred stock. Such charge is anticipated to approximate $418,000.
On February 21, 2003, we completed a reverse acquisition of privately
held Manhattan Research Development, Inc., (formerly Manhattan Pharmaceuticals,
Inc.) (Manhattan Research) a Delaware corporation. The merger was effected
pursuant to an Agreement and Plan of Merger dated December 17, 2002 (the "Merger
Agreement") by and among the Company, Manhattan Research and Manhattan
Pharmaceuticals Acquisition Corp, the Company's wholly owned subsidiary
("MPAC"). In accordance with the terms of the Merger Agreement, MPAC merged with
and into Manhattan Research, with Manhattan Research remaining as the surviving
corporation and our wholly owned subsidiary. Pursuant to the Merger Agreement,
upon the effective time of the merger, the outstanding shares of common stock of
Manhattan Research automatically converted into an aggregate of 18,689,917
shares of our common stock, which represented 80 percent of our outstanding
voting stock after giving effect to the merger. In addition, immediately prior
to the merger Manhattan Research had outstanding options and warrants to
purchase an aggregate of 172,856 shares of its common stock, which, in
accordance with the terms of the merger, automatically converted into options
and warrants to purchase an aggregate of 2,196,944 shares of our common stock.
Since the stockholders of Manhattan Research received the majority of our voting
shares, the merger was being accounted for as a reverse acquisition whereby
Manhattan Research was the accounting acquirer (legal acquiree) and we were the
accounting acquiree (legal acquirer). Based on the five-day average price of our
common stock of $0.50 per share, the purchase price approximated $2,336,000 plus
approximately $33,000 of acquisition costs, which represents 20 percent of the
market value of the combined Company's post-merger total outstanding shares of
23,362,396. In connection with the merger, we changed our name from "Atlantic
Technology Ventures, Inc." to "Manhattan Pharmaceuticals, Inc." At the time of
the merger, Manhattan Research recognized patents and licenses for substantially
all of the purchase price. As a result of acquiring Manhattan Research, the
Company received new technologies. A formal purchase price allocation was
completed in the third quarter of 2003.
17
In April 2003, we entered into a license and development agreement with
NovaDel Pharma, Inc. ("NovaDel"), under which we received certain worldwide,
exclusive rights to develop and commercialize products related to NovaDel's
proprietary lingual spray technology for delivering propofol for pre-procedural
sedation. Under the terms of this agreement, we agreed to use our commercially
reasonable efforts to develop and commercialize the licensed products, to obtain
necessary regulatory approvals and to thereafter exploit the licensed products.
The agreement also provides that NovaDel will undertake to perform, at our
expense, a substantial portion of the development activities, including without
limitation, preparation and filing of various applications with applicable
regulatory authorities.
In consideration of the license, upon the occurrence of certain
development and regulatory events, we are obligated to make payments to NovaDel
upon the occurrence of certain milestones, including filing a New Drug
Application or "NDA" that is accepted for review by the FDA for a licensed
product, filing a European Marketing Application for a licensed product, having
a filed NDA approved by the FDA, having a European Marketing Application
accepted for review within the European Union, receiving commercial approval in
Japan, Canada, Australia and South Africa, and upon receiving regulatory
approval in certain other countries. The aggregate amount of the milestone
payments is significant in light of our currently available resources. In
addition, we are obligated to pay to NovaDel an annual royalty based on a fixed
rate of net sales of licensed products, or if greater, the annual royalty is
based on our net profits from the sale of licensed products at a rate that is
twice the net sales rate. In the event we sublicense the licensed product to a
third party, we are obligated to pay royalties based on a fixed rate of fees or
royalties received from the sublicensee until such time as we recover our
out-of-pocket costs, and thereafter the royalty rate doubles. Because of the
continuing development efforts required of NovaDel under the agreement, the
royalty rates are substantially higher than customary for the industry. We are
also required to pay an up-front fee in installments contingent on whether we
receive certain amounts through financings, revenues or otherwise. To date, we
have paid and expensed $125,000 of such up-front fee.
NovaDel may terminate the agreement (i) upon 10 days' notice if we fail
to make any required milestone or royalty payments, (ii) if we fail to obtain
financing of at least $5,000,000 by March 31, 2004 (see above), or (iii) if we
become bankrupt or if a petition in bankruptcy or insolvency is filed and not
dismissed within 60 days or if we become subject to a receiver or trustee for
the benefit of creditors. Each party may terminate the agreement upon 30 days'
written notice and an opportunity to cure in the event the other party committed
a material breach or default. We may also terminate the agreement for any reason
upon 90 days' notice to NovaDel.
Our common stock is quoted on the OTC Bulletin Board under the symbol
"MHTT.OB". This has an adverse effect on the liquidity of our common stock, not
only in terms of the number of shares that can be bought and sold at a given
price, but also through delays in the timing of transactions and reduction in
security analysts' and the media's coverage of us. This may result in lower
prices for shares of our common stock than might otherwise be obtained and could
also result in a larger spread between the bid and asked prices for shares of
our common stock.
18
CRITICAL ACCOUNTING POLICIES
In December 2001, the SEC requested that all registrants discuss their
most "critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain. Our
significant accounting policies are described in Note 1 to our consolidated
financial statements included in our previously filed Annual Report on Form
10-KSB for the year ended December 31, 2002; however, we believe that none of
them is considered to be critical.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." SFAS No.146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force ("EITF") issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit and Activity." SFAS No. 146 requires that liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. This statement also established that fair value is the objective for
initial measurement of the liability. The provisions of SFAS No. 146 are
effective for exit or disposal activities that initiated after December 31,
2002. The adoption of SFAS No. 146 did not have a material impact on our
consolidated financial statements.
In December 2002, FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation- Transition and Disclosure an Amendment of SFAS No. 123." SFAS No.
148 amends SFAS No. 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123 to require prominent disclosures in both annual and
interim financial statements about the method of accounting for stock- based
employee compensation and the effect of the method used on reported results. The
Company adopted the disclosure provisions of SFAS No. 148, effective January 1,
2003.
19
BUSINESS
OVERVIEW
We are engaged in the business of developing and commercializing
early-stage technologies, particularly biomedical and pharmaceutical
technologies. We aim to acquire proprietary rights to these technologies, by
license or acquiring an ownership interest, fund their research and development
and eventually bring the technologies to market. We do not have any drugs or
other products available for sale, but we are currently researching and
developing two biomedical technologies:
o Oleoyl-estrone, an orally administered hormone attached to a
fatty-acid that has been shown to cause significant weight loss in
preclinical animal studies regardless of dietary modifications; and
o Lingual spray propofol, a proprietary lingual spray technology to
deliver propofol for pre-procedural sedation prior to diagnostic,
therapeutic or endoscopic procedures.
Although we are primarily focused on developing these technologies, we continue
to seek to acquire proprietary rights to other biomedical and pharmaceutical
technologies, by licensing or acquiring an ownership interest, funding their
research and development and bringing the technologies to market.
We were incorporated in Delaware on May 18, 1993 under the name
"Atlantic Pharmaceuticals, Inc." and in March 2000, we changed our name to
"Atlantic Technology Ventures, Inc." On February 21, 2003, we completed a
"reverse" acquisition of privately-held Manhattan Research Development, Inc.
(formerly known as Manhattan Pharmaceuticals, Inc.), a Delaware corporation. To
effect this transaction, we caused Manhattan Pharmaceuticals Acquisition Corp.,
our wholly-owned subsidiary, to merge with and into Manhattan Research
Development, with Manhattan Research Development surviving as our wholly owned
subsidiary. In accordance with the terms of the merger, the outstanding shares
of common stock of Manhattan Research Development automatically converted into
the right to receive an aggregate of approximately 80 percent of our outstanding
common stock (after giving effect to the transaction). For accounting purposes,
however, Manhattan Research Development was treated as the acquiring company. In
connection with the merger, we also changed our name to "Manhattan
Pharmaceuticals, Inc."
OLEOYL-ESTRONE
We acquired rights to oleoyl-estrone, a hormone modified by an
attachment to a fatty acid, as a result of our merger with Manhattan Research
Development in February 2003. Oleoyl-estrone is an orally administered small
molecule that has been shown to cause significant weight loss in preclinical
animal studies regardless of dietary modifications. We believe that
oleoyl-estrone causes weight loss in two ways. First, the scientific community
believes that weight loss is regulated by a part of the hypothalamus, located in
the brain, called the ponderostat. It is believed that the ponderostat regulates
the body's weight in a manner similar to the way in which a thermostat regulates
a room's temperature. Preclinical studies suggest that oleoyl-estrone resets the
ponderostat, telling the body that a lower weight is normal. We believe that
this signal then decreases appetite, which leads to weight loss that may be
maintained even after oleoyl-estrone treatment is discontinued. Second, fat
cells that have been treated with oleoyl-estrone appear to shrink in size,
indicating a local effect of oleoyl-estrone acting directly on the cells. The
apparent dual effect of oleoyl-estrone leads us to believe that the drug has the
potential to cause weight loss in a variety of obese and overweight patients.
Oleoyl-estrone was initially developed by researchers at the University
of Barcelona ("UB") in Spain. Throughout a decade of research, scientists of the
Nitrogen-Obesity Research Group at UB noted that hormones that effect metabolism
play a significant role in body weight regulation. At the same time, the obesity
research community suggested that weight is regulated by the ponderostat, a
central mechanism in the hypothalamus of the brain believed to set the point of
ideal weight. Researchers at UB believe that a hormone controls the ponderostat,
raising or lowering body weight by changing the central set point for the entire
body.
20
After examining the available work related to estrogens and changes in
body weight and body fat percentage (such as during pregnancy), researchers at
UB noted that the estrogen-like hormone, estrone, was elevated in the blood of
both obese men and women. Initially thought to be a simple estrogen, UB
researchers noticed that although estrone levels were elevated, very few obese
men manifest the effects of elevated estrogen levels. Further testing revealed
that oleoyl-estrone was the main form of estrone that existed in obese patients.
The researchers suggested that when cells become filled with fat they produce
oleoyl-estrone, signaling the brain to lose weight. They further suggested that
fat cells in obese people do not produce sufficiently high levels of
oleoyl-estrone to signal the ponderostat to suppress appetite and cause weight
loss. Based on this concept, investigators at UB believed that they could induce
weight loss by increasing levels of oleoyl-estrone in obese individuals. When
oleoyl-estrone was given to rats, the rats lost weight in a dose-dependent
manner, supporting out the idea that oleoyl-estrone is a primary weight loss
signal produced by fat cells. At the doses employed, no side effects were
observed in the rats and, in female rats, uterine size remained unchanged,
indicating that oleoyl-estrone did not act as an estrogen.
During the first quarter of 2003, we contracted and successfully
completed reference batch manufacture of oleoyl-estrone. This enabled us to
further refine the manufacturing and chemical analysis process, and to allocate
a portion of this purified drug substance for formulation studies.
LINGUAL SPRAY PROPOFOL
On April 4, 2003, we entered into a License and Development Agreement
(the "Propofol License") with NovaDel Pharma Inc. ("NovaDel") for the worldwide,
exclusive rights to NovaDel's proprietary lingual spray technology to deliver
propofol for preprocedural sedation prior to diagnostic, therapeutic or
endoscopic procedures.
Propofol is currently delivered in an oily emulsion for intravenous
infusion for induction and maintenance of general anesthesia or "monitored
anesthesia care" in operating rooms, or deep sedation in intensive care units.
Sales of intravenous propofol in 1998 were reported to be in excess of $518
million annually. Propofol has previously not been available for dosing via a
convenient route of administration for office-based and other ambulatory uses.
Accordingly, we have filed a patent application for this new method of use.
Other patents are being prepared related to Manhattan's non-oily, novel
formulation. In June 2003, the Company and NovaDel jointly announced
commencement of the Development Program.
We believe that delivering propofol via this proprietary delivery
system provides many advantages over currently formulated sedatives. In addition
to the convenience and ease of administration, the lingual spray route will
eliminate delayed onset and poor coordination of timing associated with oral
sedative administration, and allow for rapid clinical responses typical of
intravenous delivery (i.e. < 5 minutes). Lingual spray propofol is intended to
allow patients to tolerate unpleasant procedures, by relieving anxiety and
producing a pleasant, short-term amnesia. Particularly in children and adults
unable to cooperate, mild sedation expedites the conduct of numerous ambulatory
procedures that are not particularly painful, but which require the patient to
remain still for the best technical result.
Novadel's delivery systems (both patented and patent-pending) are
lingual sprays, enabling drug absorption through the oral mucosa and more rapid
absorption into the bloodstream than presently available oral delivery systems.
NovaDel refers to its delivery system as Immediate-Immediate Release (I2RTM)
because its delivery system is designed to provide therapeutic benefits within
minutes of administration. We are working with NovaDel to develop, manufacture
and commercialize the licensed product. Initial formulation work has commenced
and, while there can be no assurance, we anticipate filing an Investigational
New Drug Application (IND) by early 2004 and commencing human clinical trials
shortly thereafter.
21
MARKET AND COMPETITION
According to estimates, the market for prescription anti-obesity drugs
is approximately $10 billion, or equal to that of diabetes. It is estimated that
61 percent of Americans are overweight and that 26 percent are obese. According
to the National Institute of Health's estimate, direct costs for the treatment
of obesity in 1988 were in excess of $45 billion and accounted for nearly 8
percent of the total national cost of health care in the United States. By 1999,
direct costs for the treatment of obesity had reached $102.2 billion dollars.
Meridia(R) and Xenical(R), two currently approved anti-obesity medications,
together accounted for approximately $800 million in sales in 2001. We believe
that the disease currently lacks a treatment that is safe and effective for most
patient groups, and that oleoyl-estrone has the potential to meet the needs of
this market.
To date, Midazolam (now a generic), which is delivered both
intravenously and orally, has dominated the preprocedural sedation market,
posting sales of $536 million in 1999. However, serious adverse events are
reported in midazolam's package insert, including respiratory depression, airway
obstruction, oxygen desaturation, apnea and even respiratory arrest. In
contrast, at the doses being developed by us, we believe that Propofol Lingual
Spray may offer a safer, noninvasively administered alternative to midazolam.
Propofol's rapid onset profile will allow clinicians to more accurately time its
peak effects during procedures, as well as to determine the precise
concentration needed for desired levels of sedation.
Competition in the pharmaceutical industry, and the anti-obesity drug
market in particular, is intensely competitive. In addition to Abbott
Laboratories, Inc. and Roche Holdings AG, the makers of Meridia(R) and
Xenical,(R) respectively, some of the largest drug companies in the world have
anti-obesity drugs currently in development, including GlaxoSmithKline PLC,
Johnson & Johnson, Inc., Bristol-Myers Squibb Company, Regeneron Pharmaceutical,
Inc., Phytopharm, PLC, Amgen, Inc. These companies are all substantially larger
and more established than we are and have significantly greater financial and
other resources than we do.
INTELLECTUAL PROPERTY
Our goal is to obtain, maintain and enforce patent protection for our
products, formulations, processes, methods and other proprietary technologies,
preserve our trade secrets, and operate without infringing on the proprietary
rights of other parties, both in the United States and in other countries. Our
policy is to actively seek to obtain, where appropriate, the broadest
intellectual property protection possible for our product candidates,
proprietary information and proprietary technology through a combination of
contractual arrangements and patents, both in the U.S. and elsewhere in the
world.
We also depend upon the skills, knowledge and experience of our
scientific and technical personnel, as well as that of our advisors, consultants
and other contractors, none of which is patentable. To help protect our
proprietary know-how which is not patentable, and for inventions for which
patents may be difficult to enforce, we rely on trade secret protection and
confidentiality agreements to protect our interests. To this end, we require all
employees, consultants, advisors and other contractors to enter into
confidentiality agreements which prohibit the disclosure of confidential
information and, where applicable, require disclosure and assignment to us of
the ideas, developments, discoveries and inventions important to our business.
22
Oleoyl-estrone
We currently have worldwide, exclusive license rights to the U.S. and
foreign patents and patent applications set forth below pursuant to license
agreements with Oleoyl-estrone Developments, SL, a Spanish corporation,
regarding the use of oleoyl-estrone for the treatment of human disease:
1. US Patent No. 5,798,348 entitled "Fatty-acid monesters of
estrogens for the treatment of obesity and/or overweight." M.
Alemany, Inventor. Application filed, October 30, 1996. Patent
issued August 25, 1998.
2. European Patent No. 771.817 entitled "Fatty-acid monoesters of
estrogens for the treatment of obesity and/or overweight." M.
Alemany, Inventor. Application filed, October 28, 1996. Patent
issued May 7, 1997.
3. Patent Cooperation Treaty and Spanish Patent Application No.
ES 200100785 entitled "Fatty-acid monoesters of estrogens
acting as anti-diabetic and hypolipidemia agents." M. Alemany
Lamana, Francisco Javier Remesar Betiloch, and Jose Antonio
Fernandez Lopez, Inventors. Application filed March 28, 2001.
The U.S. and European patents have numerous, detailed, and specific
claims for both the composition of oleoyl-estrone, and its method of use for
weight loss. Our rights to these patents are subject to the terms of a February
2002 license agreement between us and Oleoyl-estrone Developments. The license
agreement provides us with an exclusive, worldwide right to the intellectual
property covered by the license agreement, including the right to grant
sublicenses. Although we are not obligated to pay royalties to Oleoyl-estrone
Developments, the license agreement requires us to make certain
performance-based milestone payments.
Propofol
Pursuant to the NovaDel license agreement, we have an exclusive,
worldwide license to NovaDel's proprietary lingual spray technology to deliver
propofol for preprocedural sedation prior to diagnostic, therapeutic or
endoscopic procedures. Our rights under the NovaDel License include license
rights to the following patents held by NovaDel:
1. U.S. Patent No. 5,955,098, entitled "Buccal Non Polar Spray or
Capsule." H.A. Dugger, III, Inventor. Application filed April
12, 1996. Patent issued September 21, 1999.
2. U.S. Patent No. 6,110,486, entitled "Buccal Polar Spray or
Capsule." H.A. Dugger, III, Inventor. Application filed
November 25, 1998. Patent issued August 29, 2000.
3. European Patent No. 0904055 entitled "Buccal, Non-Polar Spray
or Capsule." H.A. Dugger, III, Inventor. Application filed,
February 21, 1997. Patent issued April 16, 2003.
MANUFACTURING
We do not have any manufacturing capabilities. We have been in contact
with several contract "Good Manufacturing Process" (GMP) manufacturers for the
supply of both oleoyl-estrone and lingual spray propofol that will be necessary
to conduct Phase I human clinical trials. A method has been identified for
synthesizing oleoyl-estrone, and can be done through simple reactions that
produce the substance at above 99 percent purity. We believe that the production
of oleoyl-estrone will involve one contract manufacturer for clinical trials.
Bids are being received from multiple providers, so that provider redundancy can
be maintained during product launch.
23
GOVERNMENT REGULATION
Regulation by government authorities in the United States and foreign
countries is a significant factor in the research, development, manufacture, and
marketing of oleoyl-estrone and lingual spray propofol. Oleoyl-estrone and any
future product candidate will require regulatory approval before they can be
commercialized. In particular, human therapeutic products are subject to
rigorous preclinical and clinical trials and other premarket approval
requirements by the FDA and foreign authorities. Many aspects of the structure
and substance of the FDA and foreign pharmaceutical regulatory practices have
been reformed during recent years, and continued reform is under consideration
in a number of forums. The ultimate outcome and impact of such reforms and
potential reforms cannot be reasonably predicted.
Clinical trials are conducted in accordance with certain standards
under protocols that detail the objectives of the study, the parameters to be
used to monitor safety, and the efficacy criteria to be evaluated. Each protocol
must be submitted to the FDA. The phases of clinical studies may overlap. The
designation of a clinical trial as being of a particular phase is not
necessarily indicative that such a trial will be sufficient to satisfy the
parameters of a particular phase, and a clinical trial may contain elements of
more than one phase notwithstanding the designation of the trial as being of a
particular phase. We cannot assure you that the results of preclinical studies
or early stage clinical trials will predict long-term safety or efficacy of our
compounds when they are tested or used more broadly in humans. Various federal
and state statutes and regulations also govern or influence the research,
manufacture, safety, labeling, storage, record keeping, marketing, transport, or
other aspects of such products. The lengthy process of seeking these approvals
and the compliance with applicable statutes and regulations require the
expenditure of substantial resources. Any failure by us or our any future
collaborators or licensees to obtain, or any delay in obtaining, regulatory
approvals could adversely affect the marketing of our product candidates and any
other products and our ability to receive product or royalty revenue.
EMPLOYEES
We currently have 4 employees: a president & chief executive officer, a
chief financial officer & chief operating officer, a manager of clinical
development and an administrative assistant.
PROPERTIES
Since February 2003, our executive offices have been located at 787
Seventh Avenue, 48th Floor, New York, New York 10019. We currently occupy this
space pursuant to an oral understanding under which we pay rent of approximately
$6,400 per month. We are currently negotiating a longer-term written lease with
our landlord and we anticipate our monthly rental payments to remain at that
amount.
We believe that our existing facilities are adequate to meet our
current requirements. We do not own any real property.
LEGAL MATTERS
We are not a party to any material litigation and are not aware of any
threatened litigation that would have a material adverse effect on our business.
24
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Name Age Position
---- --- --------
Leonard Firestone, M.D............................... 51 President and Chief Executive Officer and Director
Nicholas J. Rossettos, C.P.A......................... 38 Chief Financial Officer, Chief Operating Officer
and Secretary
Joshua Kazam......................................... 26 Director
Michael Weiser, M.D., Ph.D........................... 40 Director
Joan Pons............................................ 53 Director
David M. Tanen....................................... 32 Director
LEONARD FIRESTONE, M.D., has been President, Chief Executive Officer
and a director of our company since completion of the merger transaction with
Manhattan Research Development in February 2003. Prior to the merger, Dr.
Firestone served as president and chief executive officer of Manhattan Research
Development since January 2003. From 2001 until he joined Manhattan Research
Development, Dr. Firestone served as chief executive officer, director, and
chief medical officer of Innovative Drug Delivery Systems, Inc., a
privately-held, specialty pharmaceutical development company focused on pain
relievers. Dr. Firestone previously was chief executive officer and chairman of
University Anesthesiology and Critical Care Medicine Foundation, Inc., one of
America's largest clinical practice management companies, from 1996 to 2001, as
well as Chair of that Foundation's Pension Trustees from 1996 to 2001. He was
awarded the endowed, University Professorship in his specialty at the University
of Pittsburgh, and also held faculty appointments at Harvard Medical School
(Massachusetts General Hospital), and Yale School of Medicine. Dr. Firestone
received an M.D. from Yale University, where he also was a resident and clinical
Fellow, and remains certified by his specialty Board. Dr. Firestone is a trained
pharmacologist as well as clinician, having served as a National Institutes of
Health (NIH) Postdoctoral Fellow at Harvard University, and has held prestigious
NIH Principal Investigatorships consecutively from 1985 - 2001 and been a member
of numerous NIH review committees and panels.
NICHOLAS J. ROSSETTOS has been our Chief Financial Officer and
Treasurer since April 2000 and our Chief Operating Officer since February 2003.
From February 1999 until joining our company, Mr. Rossettos was Manager of
Finance for Centerwatch, a pharmaceutical trade publisher headquartered in
Boston, Massachusetts, that is a wholly owned subsidiary of Thomson Corporation
of Toronto, Canada. Prior to that, from 1994, he was Director of Finance and
Administration for EnviroBusiness, Inc., an environmental and technical
management-consulting firm headquartered in Cambridge, Massachusetts. Mr.
Rossettos is a certified public accountant and holds an M.S. in Accounting and
M.B.A. from Northeastern University.
JOSHUA KAZAM has been a director of our company since the completion of
our merger transaction with Manhattan Research Development, Inc. in February
2003. He served as a director of Manhattan Research Development since December
2001. Since 2001, Mr. Kazam has been the Director of Investment for the Orion
Biomedical Fund, a New York based private equity fund focused on biotechnology
investments. Mr. Kazam attended the Wharton School of the University of
Pennsylvania where he focused in finance and entrepreneurial management.
25
MICHAEL WEISER, M.D., PH.D., has been a director of our company since
the completion of our merger transaction with Manhattan Research Development,
Inc. in February 2003. He served as a director of Manhattan Research Development
since December 2001 and as its Chief Medical Officer from its inception until
August 2001. Dr. Weiser is currently also the Director of Research of Paramount
Capital Asset Management. Dr. Weiser is also a member of Orion Biomedical GP,
LLC, and serves on the board of directors of several privately held companies.
Dr. Weiser received an M.D. from New York University School of Medicine and a
Ph.D. in Molecular Neurobiology from Cornell University Medical College. Dr.
Weiser completed a Postdoctoral Fellowship in the Department of Physiology and
Neuroscience at New York University School of Medicine and performed his
post-graduate medical training in the Department of Obstetrics and Gynecology
and Primary Care at New York University Medical Center. Dr. Weiser will dedicate
only a portion of his time to our business.
JOAN PONS has been a director of our company since February 21, 2003,
the date of our merger with Manhattan Research Development. Prior to the merger,
he served as a director of Manhattan Research Development from 2002. Since 2002,
Mr. Pons has served chief executive officer of Oleoyl-Estrone Development S.L.,
a spin-off of the University of Barcelona. Pursuant to a January 2002 license
agreement, we hold an exclusive worldwide license to several patents and patent
applications relating to oleoyl-estrone, which are owned by Oleoyl-Estrone
Development. From 1999 until joining Oleoyl-Estrone Development, Mr. Pons has
served as Director of Franchising of Pans & Company, a fast-food company. From
1972 until 1999, Mr. Pons was employed in various finance and sales capacities
by Gallina Blanca Purina S.A., a joint venture between St. Louis, Missouri based
Ralston Purina Co. and Spanish based Agrolimen S.A., most recently serving as
its National Sales & Marketing Director.
DAVID M. TANEN has been a director of our company since January 2002.
Since 1996, Mr. Tanen has served as an associate director of Paramount Capital,
where he has been involved in the founding of a number of biotechnology start-up
companies. Since February 2003, Mr. Tanen has also served as a director of
Chiral Quest, Inc. (OTC: CQST) and he also serves as an officer or director of
several other privately held development-stage biotechnology companies. Mr.
Tanen holds a law degree from Fordham University School of Law.
There are no family relationships among our executive officers or
directors.
26
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth, for the last three fiscal years, the
compensation earned for services rendered in all capacities by our chief
executive officer and the other highest-paid executive officers serving as such
at the end of 2003 whose compensation for that fiscal year was in excess of
$100,000. The individuals named in the table will be hereinafter referred to as
the "Named Officers." No other executive officer of Manhattan received
compensation in excess of $100,000 during fiscal year 2003.
Summary Compensation Table
------------------------------------------- --------------------------------------------- ---------------- ------------------
LONG-TERM
COMPENSATION ALL OTHER
ANNUAL COMPENSATION AWARDS COMPENSATION ($)
------------------------------------------- --------------------------------------------- ---------------- ------------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION ($) OPTIONS/SARS(#)
---------------------------------- -------- ----------- -------------- ------------------ ---------------- ------------------
Leonard Firestone (1) 2003 250,000 200,000 0 584,060 0
Chief Executive Officer and 2002 -- -- -- -- --
President 2001 -- -- -- -- --
---------------------------------- -------- ----------- -------------- ------------------ ---------------- ------------------
Nicholas J. Rossettos 2003 142,788 25,000 22,397(2) 292,030
Chief Operating Officer, 2002 107,645 25,000 10,000(3) 55,000 0
Chief Financial Officer, 2001 125,000 25,000 10,000(3) 10,000 0
Treasurer & Secretary
---------------------------------- -------- ----------- -------------- ------------------ ---------------- ------------------
--------------
(1) Dr. Firestone became chief executive officer of Manhattan Research
Development, Inc. in January 2003 and, following the merger with
Atlantic Technology Ventures, Inc. on February 21, 2003, he was
appointed chief executive officer of our company. The above table
reflects Dr. Firestone's combined compensation received from Manhattan
Research Development and our company during fiscal 2003.
(2) Represents salary deferred from the prior fiscal year and prior to
February 24, 2003.
(3) Represents matching contributions by us pursuant to our company's
SAR-SEP retirement plan.
27
OPTIONS AND STOCK APPRECIATION RIGHTS
The following table contains information concerning the grant of stock
options under our stock option plans and otherwise to the executive officers
identified below during the 2003 fiscal year.
Option Grants in Last Fiscal Year (Individual Grants)
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE
NAME GRANTED (#) FISCAL YEAR PRICE ($/SHARE)(1) EXPIRATION DATE
----------------------------- ------------------- ------------------ ------------------- ------------------
Dr. Firestone.............. 584,600 67 0.40 2/24/2013
Mr. Rossettos.............. 292,030(2) 33 0.40 2/24/2013
-----------
(1) Exercise price is based on the closing sale price of our common stock on
the last trading day preceding the grant date.
(2) Option vests 50 percent on February 24, 2004 and 50 percent on February 24,
2005.
28
OPTION EXERCISE AND HOLDINGS
The following table provides information with respect to the executive
officers named below concerning the exercisability of options during the 2003
fiscal year and unexercisable options held as of the end of the 2003 fiscal
year. No stock appreciation rights were exercised during the 2003 fiscal year,
and no stock appreciation rights were outstanding at the end of that fiscal
year.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values
----------------------------- -------------- ---------------- -------------------------------- ------------------------------------
VALUE OF UNEXERCISED IN-THE-MONEY
NO. OF SECURITIES UNDERLYING OPTIONS/SARS AT FY-END (MARKET
UNEXERCISED OPTIONS/SARS AT PRICE OF SHARES AT FY-END LESS
SHARES FY-END (#) EXERCISE PRICE) ($)(2)
ACQUIRED VALUE -------------------------------- ------------------------------------
NAME ON EXERCISE REALIZED (1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------------------------- -------------- ---------------- -------------- ----------------- ----------------- ------------------
Dr. Firestone 0 -- 584,600 0 689,828 0
----------------------------- -------------- ---------------- -------------- ----------------- ----------------- ------------------
Mr. Rossettos 0 -- 208,515 158,515 192,573 176,423
----------------------------- -------------- ---------------- -------------- ----------------- ----------------- ------------------
-----------
(1) Equal to the fair market value of the purchased shares at the time of the
option exercise over the exercise price paid for those shares.
(2) Based on the fair market value of our common stock on December 31, 2003 of
$1.58 per share, the closing sales price per share on that date on the OTC
Bulletin Board.
LONG TERM INCENTIVE PLAN AWARDS
No long term incentive plan awards were made to any of our executive
officers during the last fiscal year.
COMPENSATION OF DIRECTORS
Non-employee directors are eligible to participate in an automatic
stock option grant program pursuant to the 1995 stock option plan. Non-employee
directors are granted an option for 10,000 shares of common stock upon their
initial election or appointment to the board and an option for 2,000 shares of
common stock on the date of each annual meeting of our stockholders for those
non-employee directors continuing to serve after that meeting. During 2003 our
board members did not receive any cash compensation for their services as
directors, although directors are reimbursed for reasonable expenses incurred in
connection with attending meetings of the board and of committees of the board.
EMPLOYMENT AGREEMENTS
LEONARD FIRESTONE, M.D.
Upon completion of the merger transaction with Manhattan Research
Development, Inc. on February 21, 2003, Leonard Firestone, M.D. was appointed
President and Chief Executive Officer. Dr. Firestone's employment with us is
governed by a January 2003 employment agreement originally entered into between
he and Manhattan Research Development, which we assumed following the merger.
The agreement provides for term of employment that may be extended for
additional one (1) year periods thereafter. Dr. Firestone was entitled to
receive a base salary equal to $250,000 and up to an additional $150,000 upon
the successful achievement of certain performance based milestones. In addition,
in accordance with his employment agreement, upon the completion of the
Manhattan Research Development merger, Dr. Firestone received an option to
purchase an aggregate of 584,600 shares of our common stock at a price of $0.40
per share. The option vested on January 2, 2004.
29
We entered into a new employment agreement with Dr. Firestone dated
January 2, 2004. Under the terms of his new employment agreement, Dr. Firestone
is entitled to a base salary of $325,000 per year and a guaranteed bonus of
$75,000 payable on each anniversary of the employment agreement so long as Dr.
Firestone remains employed by us, and up to an additional $200,000 upon the
achievement of certain performance related milestones. In addition, Dr.
Firestone is eligible to receive a discretionary bonus in an amount up to his
base salary, as determined by the board of directors in its discretion. We also
agreed to grant to Dr. Firestone options to purchase an additional 600,000
shares of our common stock under our 2003 Stock Option Plan, which option will
vest in two equal installments on the first and second anniversaries of his
employment agreement.
NICHOLAS J. ROSSETTOS
Mr. Rossettos' employment with us is pursuant to a February 2003
employment agreement. This agreement has a two-year term ending on February 21,
2005, which may be extended for additional one (1) year periods thereafter.
Under the agreement, Mr. Rossettos is entitled to an annual salary of $150,000
in addition to health, disability insurance and other benefits. Pursuant to his
employment agreement, on February 24, 2003, Mr. Rossettos was granted an option
to purchase an aggregate of 1,460,150 shares of common stock at a price of $0.40
per share. The option vests in two equal installments on each of February 24,
2004 and February 24, 2005. Mr. Rossettos and his dependents are eligible to
receive paid medical and long term disability insurance and such other health
benefits as we make available to other senior officers and directors. Mr.
Rossettos reports to the Chief Executive Officer and President.
JOSHUA KAZAM
Mr. Kazam provides services to our company pursuant to a consulting
agreement dated March 1, 2003. The consulting agreement provides that Mr. Kazam
will render services to us in connection with corporate financing activities and
preparation of grant applications that we may from time to time need. We are
required to pay to Mr. Kazam $4,167 per month during the term of the consulting
agreement. The consulting agreement provides for a term of one year, which may
be extended for 30 day periods thereafter. The consulting agreement also
provides that either we or Mr. Kazam may terminate the agreement upon 30 days'
notice.
MICHAEL WEISER, M.D., PH.D.
Dr. Weiser provides services to our company pursuant to a consulting
agreement dated March 1, 2003. The consulting agreement provides that Dr. Weiser
will provide scientific advisory services to us in the areas of obesity and drug
delivery. We are required to pay to Dr. Weiser $6,250 per month during the term
of the consulting agreement. The consulting agreement provides for a term of one
year, which may be extended for 30 day periods thereafter. The consulting
agreement also provides that either we or Mr. Kazam may terminate the agreement
upon 30 days' notice.
30
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the our common stock as of January 12, 2004, by (i) each person
known by us to be the beneficial owner of more than 5 percent of the outstanding
common stock, (ii) each director, (iii) each executive officer, and (iv) all
executive officers and directors as a group. The number of shares beneficially
owned is determined under rules promulgated by the SEC, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under
those rules, beneficial ownership includes any shares as to which the individual
has sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within 60 days of the date hereof,
through the exercise or conversion of any stock option, convertible security,
warrant or other right. Including those shares in the tables does not, however,
constitute an admission that the named stockholder is a direct or indirect
beneficial owner of those shares. Unless otherwise indicated, each person or
entity named in the table has sole voting power and investment power (or shares
that power with that person's spouse) with respect to all shares of capital
stock listed as owned by that person or entity. Unless otherwise indicated, the
address of each of the following persons is 787 Seventh Avenue, 48th Floor, New
York, New York 10019.
SHARES
NAME BENEFICIALLY OWNED PERCENT OF CLASS
---- ------------------ ----------------
Leonard Firestone(1)................................. 584,060 2.1
Nicholas J. Rossettos(2)............................. 208,515 *
Joshua Kazam......................................... 244,025 *
Michael Weiser....................................... 1,367,561 5.1
Joan Pons(3)......................................... 4,157,037 15.5
David M. Tanen(4).................................... 377,814 1.4
All directors and officers as a group (5) 6,939,012 26.6
Lindsay A. Rosenwald(6).............................. 3,345,961 12.4
Oleoylestrone Developments, SL(7).................... 4,157,037 15.5
Josep Samitier 1-5, Barcelona Science Park
08028 Barcelona Spain
Jay Lobell(8)........................................ 4,078,890 15.1
365 West End Avenue
New York, New York 10024
-----------
* Less than 1.0%
(1) Includes 584,060 shares issuable upon the exercise (at a price of
$0.40 per share) of a vested option.
(2) Includes shares underlying options that are currently exercisable,
or will be exercisable within 60 days: (i) 10,000 shares issuable
upon exercise at a price of $20.94 per share; (ii) 10,000 shares
issuable upon exercise at a price of $4.375 per share of an option;
(iii) 17,500 shares issuable upon the exercise at a price of $1.25
per share; (iv) 25,000 shares issuable upon exercise at a price of
$1.00 per share; and (v) 146,015 shares issuable upon exercise at a
price of $0.40 per share. Does not include the following shares
issuable upon exercise of options that are not currently
exercisable: (a) 146,015 shares issuable upon the exercise (at a
price of $0.40 per share) of an option that vests on February 24,
2005; (b) 2,500 shares issuable upon the exercise (at a price of
$1.25 per share) of an option vesting on February 19, 2005; and (c)
10,000 shares issuable upon the exercise (at a price of $1.25 per
share) of an option that vests in February 2007.
(3) Represents shares beneficially owned by Oleoylestrone Developments,
SL, of which Mr. Pons is chief executive officer.
31
(4) Includes shares underlying options that are currently exercisable,
or will be exercisable within 60 days: (i) 8,833 shares issuable
upon exercise at a price of $1.25 per share and (ii) 400 shares
issuable upon exercise at a price of $0.40 per share. Does not
include the following shares issuable upon exercise of options that
are not currently exercisable: (i) 667 shares issuable upon exercise
(at a price of $1.25 per share) of an option that vests on January
28, 2005 and (ii) 2,500 shares issuable upon exercise (at a price of
$1.25 per share) of an option that vests on January 28, 2005.
(5) Includes 801,808 shares issuance upon exercise of options. Does not
include any shares held by Oleoylestrone Developments, SL, of which
Mr. Pons is chief executive officer.
(6) Includes 221,109 shares of common stock issuable upon conversion of
24,322 shares of Series A Convertible Preferred Stock held by Dr.
Rosenwald. Dr. Rosenwald is the sole owner of both Huntington Street
Corporation and June Street Corporation. Dr. Rosenwald is also the
Chairman of Paramount Capital, Inc. Dr. Weiser and Messrs. Kazam and
Tanen are employed by Paramount Capital, Inc. or one of its
affiliates.
(7) Mr. Pons is the chief executive officer of Oleoylestrone
Developments, SL.
(8) Includes 88,345 shares of common stock issuable upon conversion of
9,718 shares of Series A Convertible Preferred Stock held by Mr.
Lobell. Also includes 3,788,441 shares of common stock held by eight
separate trusts with respect to which Mr. Lobell is either trustee
or manager and in either case has investment and voting power,
including 220,855 shares of common stock issuable upon conversion of
24,294 shares of Series A Convertible Preferred Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to the terms of a license agreement dated February 15, 2002 by
and between Manhattan Research Development, Inc., our wholly owned subsidiary,
and Oleoylestrone Developments, SL, we have an exclusive, worldwide license to
U.S. and foreign patents and patent applications relating to certain
technologies. Although we are not obligated to pay royalties to Oleoylestrone
Developments, the license agreement requires us to make certain
performance-based milestone payments. See "Business - Intellectual Property." As
a result of our acquisition of Manhattan Research Development in February 2003,
Oleoylestrone Developments owns approximately 16 percent of our outstanding
common stock. Additionally, Mr. Pons, a member of our board of directors, is
chief executive officer of Oleoylestrone Developments. We believe that our
agreement with Oleoylestrone Developments was made on terms no less favorable to
us than could have been obtained from unaffiliated third parties.
Dr. Weiser and Mr. Kazam, directors of our company, each provide
consulting services to us pursuant in exchange for monthly compensation of
$6,250 and $4,167, respectively. See "Management - Employment Agreements."
Dr. Weiser and Messrs. Kazam and Tanen, all of whom are directors of
our company, are employees of Paramount Capital, Inc. or its affiliates, a
corporation of which Dr. Lindsay A. Rosenwald is the chairman and sole
shareholder. Dr. Rosenwald beneficially owns approximately 12.4 percent of our
common stock and various trusts established for the benefit of Dr. Rosenwald or
members of his immediate family beneficially own 14.2 percent of our outstanding
common stock. Collectively, Dr. Weiser and Messrs. Kazam and Tanen beneficially
own 7.4 percent of our outstanding common stock.
32
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON STOCK
Our common stock was listed on the Nasdaq SmallCap Market until August
2001 and since that times it has been quoted on the Over-the-Counter Bulletin
Board, or "OTC Bulletin Board." Our common stock trades on the OTC Bulletin
Board under the symbol "MHTT.OB." The following table lists the high and low
price for our common stock (as adjusted for our 1-for-5 stock combination
effected on September 25, 2003) as quoted on the OTC Bulletin Board during each
quarter within the last two fiscal years:
PRICE RANGE
--------------- --- ---------------
QUARTER ENDED HIGH LOW
--------------------------------------------- --------------- ---------------
March 31, 2002.............................. $1.500 $0.800
June 30, 2002............................... 1.700 0.600
September 30, 2002.......................... 0.950 0.500
December 31, 2002........................... 0.850 0.250
March 31, 2003.............................. $0.850 $0.250
June 30, 2003............................... 1.650 0.600
September 30, 2003.......................... 2.500 1.100
December 31, 2003........................... 2.000 1.200
The quotations from the OTC Bulletin Board reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
RECORD HOLDERS
The number of holders of record of our common stock as of January 9,
2004 was 370. The number of record holders of our Series A Convertible Preferred
Stock was 154 as of January 2, 2004.
DIVIDENDS
We have not paid or declared any dividends on our common stock and we
do not anticipate paying dividends on our common stock in the foreseeable
future.
USE OF PROCEEDS
We will not receive any proceeds from the resale of any of the shares
offered by this prospectus by the selling stockholders.
33
SELLING STOCKHOLDERS
The following table sets forth the number of shares of the common stock
owned by the selling stockholders as of January 12, 2004, and after giving
effect to this offering.
NUMBER OF NUMBER OF
SHARES SHARES
OFFERED BY OFFERED BY
NUMBER OF SELLING SELLING
OUTSTANDING STOCKHOLDER STOCKHOLDER PERCENTAGE
SHARES SHARES ISSUABLE UPON ISSUABLE BENEFICIAL
BEFEFICIALLY OFFERED BY CONVERSION UPON OWNERSHIP
OWNED BEFORE SELLING OF SERIES A EXERCISE AFTER
NAME OFFERING(1) STOCKHOLDER STOCK(1) OF WARRANTS OFFERING
---------------------------------------- -------------- -------------- -------------- -------------- --------------
SHARES ISSUED IN CONNECTION WITH JANUARY 2004 PRIVATE PLACEMENT
Atlas Fund,LLC............................. 1,818,181 1,818,181 0 0 --
MHR Capital Partners, L.P.................. 1,323,186 764,988 0 0 --
Jacob Gottlieb ............................ 2,045,453(2) 227,272 0 0 --
Mark Rechesky.............................. 454,546 454,546 0 0 --
Hillel Goldstein........................... 14,546 14,546 0 0 --
Sai Devabhaktuni........................... 45,455 45,455 0 0 --
Mark Rosenberg............................. 9,091 9,090 0 0 --
Emily Fine................................. 18,182 18,181 0 0 --
Tariq Fancy................................ 2,728 2,728 0 0 --
Luciano M. Murelli......................... 13,650 13,650 0 0 --
Paramount Capital, Inc..................... 925,576 0 0 326,499 --
Subtotal: 3,368,637 326,499
SHARES ISSUED IN CONNECTION WITH SERIES A PREFERRED STOCK PRIVATE PLACEMENT
Allied Diesel Service, Inc. Employee
Profit Sharing Plan....................... 24,290 0 24,290 0 --
Alfonse M. D'Amato Defined Benefit Plan..... 97,180 0 97,180 0 --
Andrew Grossman D/C Profit Sharing Plan..... 25,887 0 24,290 0 *
Anthony Argyrides........................... 26,498 0 24,290 2,208 --
Anthony Polak "S"........................... 181,670(3) 0 24,290 0 *
Anthony Polak IRA........................... 181,670(3) 0 24,290 0 *
Artero Inc.................................. 132,500 0 58,310 0 *
Artero Profit Sharing Plan.................. 27,900 0 24,290 0 *
Asher Family Trust.......................... 48,590 0 48,590 0 --
Autobuy Inc................................. 24,290 0 24,290 0 --
Barbara Coffee.............................. 24,290 0 24,290 0 --
Barbara Scharf.............................. 24,290 0 24,290 0 --
Bill McCurtain.............................. 24,290 0 24,290 0 --
Brapo Associates............................ 24,290 0 24,290 0 --
Bruce Gomberg............................... 24,290 0 24,290 0 --
Catharina Polak Trust....................... 24,290 0 24,290 0 --
Catherine Hicks............................. 24,290 0 24,290 0 --
Charles Harris.............................. 97,180 0 97,180 0 --
Charles Re Profit Sharing Plan.............. 26,287 0 24,290 0 *
Daniel Berkowitz IRA........................ 24,790 0 24,290 0 *
David Lasco................................. 97,180 0 97,180 0 --
David Minkoff............................... 26,498 0 24,290 2,208 --
David Phipps................................ 24,290 0 24,290 0 --
David Swerdloff IRA......................... 24,290 0 24,290 0 --
Davis & Barbara Gaynes...................... 24,290 0 24,290 0 --
Dean M. Erickson '79 Irrevocable Trust...... 68,020 0 68,020 0 --
Domanco Ventura Capital..................... 24,290 0 24,290 0 --
34
NUMBER OF NUMBER OF
SHARES SHARES
OFFERED BY OFFERED BY
NUMBER OF SELLING SELLING
OUTSTANDING STOCKHOLDER STOCKHOLDER PERCENTAGE
SHARES SHARES ISSUABLE UPON ISSUABLE BENEFICIAL
BEFEFICIALLY OFFERED BY CONVERSION UPON OWNERSHIP
OWNED BEFORE SELLING OF SERIES A EXERCISE AFTER
NAME OFFERING(1) STOCKHOLDER STOCK(1) OF WARRANTS OFFERING
---------------------------------------- -------------- -------------- -------------- -------------- --------------
Drew Netter IRA............................. 24,290 0 24,290 0 --
Edgar & Kim Massabni........................ 24,290 0 24,290 0 --
Edward Lewitt............................... 24,290 0 24,290 0 --
Elias Sayour Foundation..................... 25,942 0 24,290 0 *
Elizabeth Genzer Trust...................... 24,290 0 24,290 0 --
Elliot & Ronald Fatoullah................... 25,617 0 24,290 0 *
Emeric R. Holderith......................... 9,720 0 9,720 0 --
Equity Interest Inc......................... 24,290 0 24,290 0 --
Far Ventures................................ 32,893 0 24,290 0 *
Florence E. Luvera.......................... 24,290 0 24,290 0 --
Frederick Polak............................. 25,090 0 24,290 0 *
Gary Stadtmauer............................. 24,290 0 24,290 0 --
Girish C. Sham.............................. 24,290 0 24,290 0 --
Harari Family LLC........................... 24,290 0 24,290 0 --
Howard Tooter............................... 24,290 0 24,290 0 --
Jack Polak.................................. 24,290 0 24,290 0 --
Jerry & Lilli Weinger....................... 97,180 0 97,180 0 --
Joan Grillo................................. 24,290 0 24,290 0 --
John Gross IRA.............................. 24,885 0 24,290 0 *
Jon Rubin Trust............................. 24,290 0 24,290 0 --
Jonathan Rothchild.......................... 134,300 0 87,460 0 *
Jonathan Young IRA.......................... 48,590 0 48,590 0 --
Joseph & Dorothy Papp....................... 24,290 0 24,290 0 --
Joseph Cavanagh............................. 97,180 0 97,180 0 --
Judith & Jerry Huff......................... 9,720 0 9,720 0 --
Kevin Clarke IRA............................ 24,290 0 24,290 0 --
Kim Cirelli................................. 24,290 0 24,290 0 --
Landing Wholesale Group Defined............. 19,440 0 19,440 0 --
Larry & Rebecca Warner...................... 11,660 0 11,660 0 --
Lee Pearlmutter Trust....................... 9,7200 0 9,720 0 --
Leonard Greenbaum........................... 35,333 0 24,290 11,043 --
Leslie & Sybil Rosenberg.................... 24,290 0 24,290 0 --
Mark Engelbert.............................. 24,290 0 24,290 0 --
Margrit Polak "S"........................... 24,630 0 24,290 0 *
Mark Children's Trust....................... 24,290 0 24,290 0 --
Maura Kelly................................. 24,290 0 24,290 0 --
Michael & Lorraine Gelardi.................. 25,290 0 24,290 0 *
Michael Berlinger........................... 24,290 0 24,290 0 --
Michael Stone............................... 48,590 0 48,590 0 --
Michele Tarica.............................. 24,290 0 24,290 0 --
MRC Computer Profit Sharing Plan............ 24,590 0 24,290 0 *
Murray & Claire Stadtmauer.................. 24,590 0 24,290 0 *
Nancy Lane.................................. 24,290 0 24,290 0 --
Nanette Grossman............................ 24,290 0 24,290 0 --
Norton & Joan Hight......................... 24,690 0 24,290 0 *
Paul McMillman & Susan Herzog............... 24,290 0 24,290 0 --
Penny Chin.................................. 7,290 0 7,290 0 --
Peter Guardino IRA.......................... 24,290 0 24,290 0 --
Philip Wasserman............................ 24,290 0 24,290 0 --
35
NUMBER OF NUMBER OF
SHARES SHARES
OFFERED BY OFFERED BY
NUMBER OF SELLING SELLING
OUTSTANDING STOCKHOLDER STOCKHOLDER PERCENTAGE
SHARES SHARES ISSUABLE UPON ISSUABLE BENEFICIAL
BEFEFICIALLY OFFERED BY CONVERSION UPON OWNERSHIP
OWNED BEFORE SELLING OF SERIES A EXERCISE AFTER
NAME OFFERING(1) STOCKHOLDER STOCK(1) OF WARRANTS OFFERING
---------------------------------------- -------------- -------------- -------------- -------------- --------------
Randall Hight............................... 48,710 0 48,590 0 *
Richard Kent................................ 97,180 0 97,180 0 --
Richard Wallace............................. 24,290 0 24,290 0 --
RL Capital Partners......................... 26,191 0 242,940 0 *
Robert Nash................................. 24,290 0 24,290 0 --
Robert Rosenberg............................ 24,290 0 24,290 0 --
Robert Shapiro.............................. 24,390 0 24,290 0 *
Fiserve Securities A/C/F Roger R.
Marks IRA................................. 24,687 0 24,290 0 *
Rolanda Mendelle............................ 24,290 0 24,290 0 --
Ronald Lazar................................ 29,692 0 24,290 61,837 *
Ronald Lazar IRA............................ 78,282 0 72,880 0 *
Royal Pool.................................. 24,290 0 24,290 0 --
Scott & Charlotte Kaiden.................... 24,290 0 24,290 0 --
Sheila Fligel............................... 24,290 0 24,290 0 --
Siegfried Mangels........................... 24,290 0 24,290 0 --
Sim Farar................................... 97,180 0 97,180 0 --
Steve Roman................................. 24,290 0 24,290 0 --
Surinvest, Inc.............................. 48,590 0 48,590 0 --
Susan Zverin................................ 24,690 0 24,290 0 *
Teddy Chasanoff............................. 24,290 0 24,290 0 --
Tim Moi..................................... 9,720 0 9,720 0 --
William & Deborah Hicks..................... 9,720 0 9,720 0 --
William H. Peterson Living Trust............ 48,590 0 48,590 0 --
William Liange.............................. 24,290 0 24,290 0 --
Wolfe F. Model.............................. 24,687 0 24,290 0 *
Albert Fried, Jr............................ 48,590 0 48,590 0 --
Alexander Pomper............................ 48,590 0 48,590 0 --
Alfred J. Sollami........................... 53,540 0 53,450 0 --
Balanced Invesment LLC...................... 348,028 0 242,940 0 *
Benito Bucay................................ 24,290 0 24,290 0 --
Bruno Widmer................................ 24,290 0 24,290 0 --
Cooper A. McIntosh, MD...................... 24,290 0 24,290 0 --
David Jaroslawicz........................... 97,180 0 97,180 0 --
David J. Bershad............................ 72,880 0 72,880 0 --
David W. Ruttenberg......................... 48,590 0 48,590 0 --
E & M RP Trust.............................. 145,770 0 145,770 0 --
Eugenia VI Venture Holdings, Ltd............ 485,890 0 485,890 0 --
Gary Strauss................................ 64,140 0 64,140 0 --
Hahn Family Grandchildrens Trust............ 48,590 0 48,590 0 --
Harry & Susan Newton........................ 99,180 0 97,180 0 *
Howard Gittis............................... 97,180 0 97,180 0 --
Isaac & Ivette Dabah 2002 Trust............. 97,180 0 97,180 0 --
James Daly.................................. 24,290 0 24,290 0 --
J. Jay Lobell...............................4,078,890(4) 0 97,180 0 14.8
Jose & Magdalena Sanchez-Padilla............ 24,290 0 24,290 0 --
Joseph Hickey............................... 97,180 0 97,180 0 --
Joseph Natiello............................. 97,180 0 97,180 0 --
Joseph Vale................................. 194,350 0 194,350 0 --
Keys Foundation............................. 583,060 0 583,060 0 --
36
NUMBER OF NUMBER OF
SHARES SHARES
OFFERED BY OFFERED BY
NUMBER OF SELLING SELLING
OUTSTANDING STOCKHOLDER STOCKHOLDER PERCENTAGE
SHARES SHARES ISSUABLE UPON ISSUABLE BENEFICIAL
BEFEFICIALLY OFFERED BY CONVERSION UPON OWNERSHIP
OWNED BEFORE SELLING OF SERIES A EXERCISE AFTER
NAME OFFERING(1) STOCKHOLDER STOCK(1) OF WARRANTS OFFERING
---------------------------------------- -------------- -------------- -------------- -------------- --------------
Rosenwald 2000 Family Trust................. 520,011 0 242,940 0 1.0
Larry & Shirley Kessel...................... 24,290 0 24,290 0 --
Lindsay A. Rosenwald, M.D...................2,536,864 0 243,220 0 8.6
Marc Florin IRA............................. 48,590 0 48,590 0 --
Mario Pasquel & Begona Miranda.............. 29,150 0 29,150 0 --
Mega International Corp..................... 29,150 0 29,150 0 --
Michael H. Schwartz Profit Sharing Plan..... 48,590 0 48,590 0 --
PCC Tagi (Series K) LLC..................... 971,770 0 971,770 0 --
Perceptive Life Sciences Master Fund,
Ltd....................................... 291,530 0 291,530 0 --
Quogue Capital, LLC......................... 97,180 0 97,180 0 --
Regen Capital II............................ 48,590 0 48,590 0 --
Rene Dominguez.............................. 14,580 0 14,580 0 --
Richard Molinsky............................ 48,590 0 48,590 0 --
Robert J. Leaf.............................. 48,590 0 48,590 0 --
Roberto Segovia............................. 26,636 0 24,290 0 *
Roger & Margaret Coleman.................... 48,590 0 48,590 0 --
Roger Lipton................................ 48,590 0 48,590 0 --
Scott A. Katzmann........................... 106,890 0 106,890 0 --
Scott Whitaker.............................. 24,290 0 24,290 0 --
Simon Family Trust dtd 1/21/83.............. 24,290 0 24,290 0 --
Steven M. Oliveira 1998 Charitable.......... 48,590 0 48,590 0 --
The Alfred J. Anzalone Family Limited....... 48,590 0 48,590 0 --
Tis Prager.................................. 72,880 0 72,880 0 --
Tokenhouse Trading S.P...................... 194,085 0 97,180 0 *
Vitel Ventures Corporation ................. 242,890 0 242,940 0 --
Winton Capital Holdings Ltd................. 242,940 0 242,940 0 --
Wolcot Capital, Inc......................... 48,590 0 48,590 0 --
ZWD Investments, LLC........................ 485,890 0 485,890 0 --
David Fresne................................ 20,320 0 0 20,320 --
Kevin Cannon................................ 17,667 0 0 17,667 --
Eric Foster................................. 2,208 0 0 2,208 --
Anthony Polak............................... 181,670(3) 0 0 132,495 *
Isaiah Edwards.............................. 6,625 0 0 6,625 --
Rod Dudley.................................. 4,417 0 0 4,417 --
Robin Arias................................. 4,417 0 0 4,417 --
Tim Moi..................................... 884 0 0 884 --
Daniel D'Amato.............................. 20,540 0 0 20,540 --
Joe Jaigobind............................... 17,668 0 0 17,668 --
Chirag Choudrey............................. 2,208 0 0 2,208 --
Joe Richman................................. 3,268 0 0 3,268 --
Paramount Capital, Inc...................... 925,576 0 0 599,077 --
SUBTOTAL: 0 10,000,000 909,090
37
NUMBER OF NUMBER OF
SHARES SHARES
OFFERED BY OFFERED BY
NUMBER OF SELLING SELLING
OUTSTANDING STOCKHOLDER STOCKHOLDER PERCENTAGE
SHARES SHARES ISSUABLE UPON ISSUABLE BENEFICIAL
BEFEFICIALLY OFFERED BY CONVERSION UPON OWNERSHIP
OWNED BEFORE SELLING OF SERIES A EXERCISE AFTER
NAME OFFERING(1) STOCKHOLDER STOCK(1) OF WARRANTS OFFERING
---------------------------------------- -------------- -------------- -------------- -------------- --------------
SHARES ISSUED IN CONNECTION WITH JANUARY 2003 OFFERING BY MANHATTAN RESEARCH DEVELOPMENT, INC.
Robert L. McEntire.......................... 174,757 158,870 0 15,887 --
Stanley & Lucile Slocum.................... 174,757 158,870 0 15,887 --
Paul & Teri Salwasser....................... 79,014 71,080 0 7,934 --
Donald Halla................................ 79,014 71,080 0 7,934 --
William E. Froelich III..................... 79,014 71,080 0 7,934 --
Jean Melchior............................... 79,014 71,080 0 7,934 --
Alabama Properties LLC 79,014 71,080 0 7,934 --
Fred Mancheski.............................. 79,014 71,080 0 7,934 --
John O. Dunkin.............................. 79,014 71,080 0 7,934 --
Louis Reif.................................. 79,014 71,080 0 7,934 --
Neel B. Ackerman, Jr. & and Martha N.
Ackerman.................................. 79,014 71,080 0 7,934 --
Mike Pinney................................. 79,014 71,080 0 7,934 --
William & Lynette Duffel.................... 79,014 71,080 0 7,934 --
Jan Arnett.................................. 79,014 71,080 0 7,934 --
The Bahr Family Limited Partnership......... 79,014 71,080 0 7,934 --
Rauls Family Limited Partnership............ 524,273 476,612 0 47,661 --
Richard Addeo............................... 349,516 317,742 0 31,774 --
Barry J. Lind Revocable Trust............... 267,136 238,306 0 28,830 --
John G. Pollock............................. 44,738 40,671 0 4,067 --
Michael O'Brien............................. 43,689 39,717 0 3,972 --
James Bistrow............................... 43,689 39,717 0 3,972 --
Thomas & Tasha Worden....................... 43,689 39,717 0 3,972 --
Arturo Filipe............................... 43,689 39,717 0 3,972 --
Wayne Adams................................. 43,689 39,717 0 3,972 --
Joan & Robert Johnsen....................... 43,689 39,717 0 3,972 --
Jerrold F. Rosenbaum........................ 43,689 39,717 0 3,972 --
Walter Lukens............................... 43,689 39,717 0 3,972 --
Robert Edgley............................... 43,689 39,717 0 3,972 --
David O. Lind............................... 43,689 39,717 0 3,972 --
Arno D. Hausmann............................ 43,689 39,717 0 3,972 --
Frank T. Donaldson.......................... 43,689 39,717 0 3,972 --
Gat Lee..................................... 43,689 39,717 0 3,972 --
Vetter Builders, Inc........................ 43,689 39,717 0 3,972 --
Joseph P. Metz.............................. 43,689 39,717 0 3,972 --
Ronald Cowan................................ 43,689 39,717 0 3,972 --
Peter & Barbara Freyburger.................. 43,689 39,717 0 3,972 --
Isaac Dweck................................. 43,689 39,717 0 3,972 --
Derek Soliday............................... 43,689 39,717 0 3,972 --
Kenneth Hornik.............................. 43,689 39,717 0 3,972 --
Andrew Gamba................................ 43,689 39,717 0 3,972 --
David M. Cikanek Revocable Living
Trust dtd 9/8/2000........................ 43,689 39,717 0 3,972 --
Lester Krasno............................... 43,689 39,717 0 3,972 --
Hyman Lezell Trust.......................... 43,689 39,717 0 3,972 --
Ronald Bartsch.............................. 43,689 39,717 0 3,972 --
JC Investments.............................. 347,868 284,320 0 63,548 --
Stanley & Lynn Sides........................ 26,213 23,830 0 2,383 --
Med-Tec Investors........................... 43,689 39,717 0 3,972 --
Kevin Klier................................. 43,689 39,717 0 3,972 --
Greg Dovolis................................ 43,689 39,717 0 3,972 --
Louis Cerbone............................... 43,689 39,717 0 3,972 --
Paul Martin................................. 69,903 63,548 0 6,355 --
William S. Tyrell........................... 43,689 39,717 0 3,972 --
38
NUMBER OF NUMBER OF
SHARES SHARES
OFFERED BY OFFERED BY
NUMBER OF SELLING SELLING
OUTSTANDING STOCKHOLDER STOCKHOLDER PERCENTAGE
SHARES SHARES ISSUABLE UPON ISSUABLE BENEFICIAL
BEFEFICIALLY OFFERED BY CONVERSION UPON OWNERSHIP
OWNED BEFORE SELLING OF SERIES A EXERCISE AFTER
NAME OFFERING(1) STOCKHOLDER STOCK(1) OF WARRANTS OFFERING
---------------------------------------- -------------- -------------- -------------- -------------- --------------
Richard Pollak.............................. 41,942 38,129 0 3,813 --
Theresa Incagnoli........................... 27,961 25,419 0 2,542 --
R.J. Burkhalter............................. 17,476 15,887 0 1,589 --
Roger & Mary Bradshaw....................... 17,476 15,887 0 1,589 --
S. Alan Lisenby............................. 174,757 158,870 0 15,887 --
David & Nancy Pudelsky...................... 43,689 39,717 0 3,972 --
Gary Strauss................................ 55,922 50,838 0 5,084 --
Michael Mullen.............................. 509,205 0 0 509,205 --
Patricia Sorbara............................ 325,304 0 0 325,304 --
Michelle Markowitz.......................... 325,304 0 0 325,304 --
Robert Petrozzo............................. 142,983 0 0 142,983 --
Vito Balsamo................................ 95,322 0 0 95,322 --
Michael Tripodi............................. 39,811 0 0 39,811 --
Fabio Migliacci............................. 25,419 0 0 25,419 --
Charles M. Raspa............................ 21,842 0 0 21,842 --
Kris Destefano.............................. 15,887 0 0 15,887 --
Alexandra Milazzo........................... 12,709 0 0 12,709 --
Ross Insera................................. 11,942 0 0 11,942 --
Kevin Brody................................. 11,942 0 0 11,942 --
Leonard Inserra............................. 11,942 0 0 11,942 --
Ryan Reed................................... 11,942 0 0 11,942 --
Jeff Blake Woolf............................ 11,942 0 0 11,942 --
Scott Tierney............................... 9,928 0 0 9,928 --
Drew Tranchina.............................. 7,943 0 0 7,943 --
Alex Elejade................................ 7,943 0 0 7,943 --
Peter Orthos................................ 7,943 0 0 7,943 --
Anthony Stephen Mundy....................... 7,943 0 0 7,943 --
Harry Mucovic............................... 4,367 0 0 4,367 --
Lawrence Helbringer......................... 3,970 0 0 3,970 --
Michael Gordon.............................. 3,492 0 0 3,492 --
Subtotal: 4,223,066 0 2,100,195
ISSUANCES TO CONSULTANTS AND ADVISORS
Stanley Heshka.............................. 25,419 0 0 25,419 --
Louis Arrone................................ 25,419 0 0 25,419 --
Joseph Vaselli.............................. 25,419 0 0 25,419 --
Larry Jameson............................... 25,419 0 0 25,419 --
Subtotal: 0 0 101,676
TOTALS 7,591,703 10,000,000 3,437,460
-----------
* Less than 1%.
(1) Includes shares of common stock issuable upon the conversion of Series A
stock that are issuable as payment of 5 percent dividends payable during
the two-year period commencing November 5, 2003. For purposes of this
table, such shares have also been included in each selling stockholder's
holdings in the "Shares beneficially owned before offering" column.
(2) Includes 1,818,181 shares held by Atlas Fund, LLC, of which Mr. Gottlieb
has voting and investment power.
(3) Includes: (i) 24,290 shares issuable upon conversion of Series A Preferred
Stock held in the name of Anthony Polak IRA, (ii) 24,290 shares issuable
upon conversion of Series A Preferred Stock held in the name of Anthony
Polak "S" and (iii) 132,495 shares issuable upon exercise of a warrant.
(4) Includes 3,788,441 shares held by various trusts with respect to which Mr.
Lobell is trustee or otherwise has investment or voting power, including
the shares held by the Rosenwald 2000 Family Trust.
39
PLAN OF DISTRIBUTION
We are registering the shares offered by this prospectus in part on
behalf of the selling stockholders. The selling stockholders, which as used
herein includes donees, pledgees, transferees or other successors-in-interest
selling shares of common stock or interests in shares of common stock received
after the date of this prospectus from a selling stockholder as a gift, pledge,
partnership distribution or other transfer, may, from time to time, sell,
transfer or otherwise dispose of any or all of their shares of common stock or
interests in shares of common stock on any stock exchange, market or trading
facility on which the shares are traded or in private transactions. These
dispositions may be at fixed prices, at prevailing market prices at the time of
sale, at prices related to the prevailing market price, at varying prices
determined at the time of sale, or at negotiated prices.
The selling stockholders may use any one or more of the following
methods when disposing of shares or interests therein:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the
shares as agent, but may position and resell a portion of the block
as principal to facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
o an exchange distribution in accordance with the rules of the
applicable exchange;
o privately negotiated transactions;
o short sales;
o through the writing or settlement of options or other hedging
transactions, whether through an options exchange or otherwise;
o broker-dealers may agree with the selling stockholders to sell a
specified number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The selling stockholders may, from time to time, pledge or grant a
security interest in some or all of the shares of common stock owned by them
and, if they default in the performance of their secured obligations, the
pledgees or secured parties may offer and sell the shares of common stock, from
time to time, under this prospectus, or under an amendment to this prospectus
under Rule 424(b)(3) or other applicable provision of the Securities Act
amending the list of selling stockholders to include the pledgee, transferee or
other successors in interest as selling stockholders under this prospectus. The
selling stockholders also may transfer the shares of common stock in other
circumstances, in which case the transferees, pledgees or other successors in
interest will be the selling beneficial owners for purposes of this prospectus.
In connection with the sale of our common stock or interests therein,
the selling stockholders may enter into hedging transactions with broker-dealers
or other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
40
The aggregate proceeds to the selling stockholders from the sale of the
common stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any. Each of the selling stockholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents. We will not receive any of the proceeds from this offering. Upon
any exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.
The selling stockholders also may resell all or a portion of the shares
in open market transactions in reliance upon Rule 144 under the Securities Act
of 1933, provided that they meet the criteria and conform to the requirements of
that rule.
Paramount Capital, Inc. and Joseph Stevens & Co. are each deemed to be
underwriters in connection with the offering of their respective shares under
this prospectus because each of these selling stockholders are registered
broker-dealers. Other selling stockholders and any broker-dealers that act in
connection with the sale of securities might be deemed to be "underwriters"
within the meaning of Section 2(11) of the Securities Act, and any commissions
received by such broker-dealers and any profit on the resale of the securities
sold by them while acting as principals might be deemed to be underwriting
discounts or commissions under the Securities Act.
To the extent required, the shares of our common stock to be sold, the
names of the selling stockholders, the respective purchase prices and public
offering prices, the names of any agents, dealer or underwriter, any applicable
commissions or discounts with respect to a particular offer will be set forth in
an accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if
applicable, the common stock may be sold in these jurisdictions only through
registered or licensed brokers or dealers. In addition, in some states the
common stock may not be sold unless it has been registered or qualified for sale
or an exemption from registration or qualification requirements is available and
is complied with.
We have advised the selling stockholders that the anti-manipulation
rules of Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the selling stockholders and their affiliates.
In addition, we will make copies of this prospectus (as it may be supplemented
or amended from time to time) available to the selling stockholders for the
purpose of satisfying the prospectus delivery requirements of the Securities
Act. The selling stockholders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We have agreed to indemnify the selling stockholders against
liabilities, including liabilities under the Securities Act and state securities
laws, relating to the registration of the shares offered by this prospectus.
We have agreed with the selling stockholders to keep the registration
statement of which this prospectus constitutes a part effective until the
earlier of (1) such time as all of the shares covered by this prospectus have
been disposed of pursuant to and in accordance with the registration statement
or (2) the date on which the shares may be sold pursuant to Rule 144(k) of the
Securities Act.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering and assuming the issuance of all of
the shares covered by this prospectus that are issuable upon the exercise or
conversion of convertible securities, there will be 36,473,357 shares of our
common stock issued and outstanding. The shares purchased in this offering will
be freely tradable without registration or other restriction under the
Securities Act, except for any shares purchased by an "affiliate" of our company
(as defined in the Securities Act).
41
Our currently outstanding shares that were issued in reliance upon the
"private placement" exemptions provided by the Act are deemed "restricted
securities" within the meaning of Rule 144. Restricted securities may not be
sold unless they are registered under the Securities Act or are sold pursuant to
an applicable exemption from registration, including an exemption under Rule 144
of the Securities Act. The 18,689,916 restricted shares of our common stock that
were issued in connection with the merger with Manhattan Research Development,
Inc. will become eligible for resale on February 21, 2004, provided that all of
the other requirements of Rule 144 can be satisfied.
In general, under Rule 144 as currently in effect, any person (or
persons whose shares are aggregated) including persons deemed to be affiliates,
whose restricted securities have been fully paid for and held for at least one
year from the later of the date of issuance by us or acquisition from an
affiliate, may sell such securities in broker's transactions or directly to
market makers, provided that the number of shares sold in any three month period
may not exceed the greater of 1 percent of the then-outstanding shares of our
common stock or the average weekly trading volume of our shares of common stock
in the over-the-counter market during the four calendar weeks preceding the
sale. Sales under Rule 144 are also subject to certain notice requirements and
the availability of current public information about our company. After two
years have elapsed from the later of the issuance of restricted securities by us
or their acquisition from an affiliate, such securities may be sold without
limitation by persons who are not affiliates under the rule.
Following the date of this prospectus, we cannot predict the effect, if
any, that sales of our common stock or the availability of our common stock for
sale will have on the market price prevailing from time to time. Nevertheless,
sales by existing stockholders of substantial amounts of our common stock could
adversely affect prevailing market prices for our stock.
DESCRIPTION OF CAPITAL STOCK
GENERAL
Our certificate of incorporation, as amended to date, authorizes us to
issue up to 150,000,000 shares of common stock and 10,000,000 shares of
preferred stock. Of the authorized preferred stock, 1,500,000 shares have been
designated as Series A Convertible Preferred Stock, of which there are currently
1,000,000 shares issued and outstanding. As of January 12, 2004, we had
26,731,033 shares of common stock issued and outstanding. The transfer agent and
registrar for both our common stock and our Series A Convertible Preferred Stock
is Continental Stock Transfer and Trust Company, New York, New York..
COMMON STOCK
Holders of our common stock are entitled to one vote for each share on
all matters to be voted on by our stockholders. Holders of our common stock do
not have any cumulative voting rights. Common stockholders are entitled to share
ratably in any dividends that may be declared from time to time on the common
stock by our board of directors from funds legally available for dividends.
Holders of common stock do not have any preemptive right to purchase shares of
common stock. There are no conversion rights or sinking fund provisions for our
common stock.
42
SERIES A CONVERTIBLE PREFERRED STOCK
CONVERSION
Each Series A share is convertible at the holder's election and without
any further consideration to us into approximately 9.1 shares of common stock
The Series A shares will automatically convert into common stock upon the
earlier of (i) the date that we complete a financing resulting in gross proceeds
of at least $10 million (excluding the sale of the Series A shares themselves)
based on a pre-money valuation of our company of at least $30 million, or (ii)
at such time as the closing price of our common stock exceeds 200 percent of the
Series A conversion price (i.e., $1.10) for a period of at least 20 consecutive
trading days.
REDEMPTION
Provided that the resale of the shares of common stock issuable upon
conversion of the Series A stock are registered under an effective registration
statement filed with the SEC, after November 5, 2004 we may redeem the Series A
stock at a redemption price equal to $10.00 per share. We are required to
provide the Series A stockholders with at least 30 days' written notice of the
redemption date and the Series A stockholders may convert their Series A shares
at any time prior to the close of business on the redemption date.
VOTING RIGHTS
On all matters submitted for stockholder approval, each share of Series
A stock shall be entitled to such number of votes as is equal to the number of
common shares into which such preferred shares are convertible. In addition, so
long as at least 50 percent of the number of Series A shares issued in
connection with our private placement of such shares are outstanding, the
affirmative vote of at least two-thirds of all outstanding Series A shares
voting separately as a class shall be necessary to permit, effect or validate
any one or more of the following:
o the amendment, alteration or repeal of any provision of our
certificate of incorporation or bylaws so as to adversely affect the
relative rights and preferences of the Series A stock;
o the declaration or payment of any dividend or distribution on any
securities of our company other than the Series A stock;
o the authorization, issuance or increase of any security ranking
prior to or on parity with the Series A stock in connection with a
dissolution, sale of all or substantially all of our assets or other
"Liquidation Event," or with respect to the payment of any dividends
or distributions;
o the approval of any Liquidation Event; and
o the effect any amendment of our certificate of incorporation or
bylaws that would materially adversely affect the rights of the
Series A stock.
LIQUIDATION PREFERENCES
Upon (i) the liquidation, dissolution or winding up of our company,
whether voluntary or involuntary, (ii) the sale of all or substantially all of
our assets, or (iii) a voluntary or involuntary bankruptcy, the holders of the
Series A shares will be entitled to be paid, prior to any payments made to the
holders of any securities ranking junior to the Series A shares, including
common stockholders, an amount equal to $10.00 per share, plus any accrued
dividends.
43
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Pursuant to our certificate of incorporation and bylaws, we may
indemnify an officer or director who is made a party to any proceeding, because
of his position as such, to the fullest extent authorized by Delaware General
Corporation Law, as the same exists or may hereafter be amended. In certain
cases, we may advance expenses incurred in defending any such proceeding.
To the extent that indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
our company pursuant to the foregoing provisions, we have been informed that, in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. If a claim for indemnification against such liabilities (other
than the payment by us of expenses incurred or paid by a director, officer or
controlling person of our company in the successful defense of any action, suit
or proceeding) is asserted by any of our directors, officers or controlling
persons in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of that issue.
ABOUT THIS PROSPECTUS
This prospectus is not an offer or solicitation in respect to these
securities in any jurisdiction in which such offer or solicitation would be
unlawful. This prospectus is part of a registration statement that we filed with
the Securities and Exchange Commission. The registration statement that contains
this prospectus (including the exhibits to the registration statement) contains
additional information about our company and the securities offered under this
prospectus. That registration statement can be read at the SEC web site or at
the SEC's offices mentioned under the heading "Where You Can Find More
Information." We have not authorized anyone else to provide you with different
information or additional information. You should not assume that the
information in this prospectus, or any supplement or amendment to this
prospectus, is accurate at any date other than the date indicated on the cover
page of such documents.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires us to file information with the SEC
concerning our business and operations. Accordingly, we file annual, quarterly,
and special reports, proxy statements and other information with the SEC. You
can inspect and copy this information at the Public Reference Facility
maintained by the SEC at Judiciary Plaza, 450 5th Street, N.W., Room 1024,
Washington, D.C. 20549. You can receive additional information about the
operation of the SEC's Public Reference Facilities by calling the SEC at
1-800-SEC-0330. The SEC also maintains a web site at http://www.sec.gov that
contains reports, proxy and information statements and other information
regarding companies that, like us, file information electronically with the SEC.
VALIDITY OF COMMON STOCK
Legal matters in connection with the validity of the shares offered by
this prospectus will be passed upon by Maslon Edelman Borman & Brand, LLP,
Minneapolis, Minnesota.
44
EXPERTS
The consolidated financial statements of Manhattan Research
Development, Inc. (formerly Manhattan Pharmaceuticals, Inc.) as of December 31,
2002, and for the year then ended and for the period from January 1, 2002 to
December 31, 2002, as related to the period from August 6, 2001 (date of
inception) to December 31, 2002, included in this prospectus, have been included
herein in reliance on the report, which includes an explanatory paragraph
relating to the Company's ability to continue as a going concern, of J.H. Cohn
LLP, independent public accountants, given on the authority of that firm as
experts in accounting and auditing.
The consolidated financial statements of Manhattan Research
Development, Inc. (formerly Manhattan Pharmaceuticals, Inc.) as of December 31,
2001, and for the period from August 1, 2001 (date of inception) to December 31,
2001, included in this prospectus, have been included herein in reliance on the
report, which includes an explanatory paragraph relating to the Company's
ability to continue as a going concern, of Weinberg & Company, P.A., independent
public accountants, given on the authority of that firm as experts in accounting
and auditing.
CHANGES IN CERTIFYING ACCOUNTANT
ATLANTIC TECHNOLOGY VENTURES, INC.
On December 5, 2002, KPMG LLP declined to stand for re-election as the
independent auditors of Atlantic Technology Ventures, Inc. (now known as
Manhattan Pharmaceuticals, Inc.) ("Atlantic"). Atlantic thereafter engaged J.H.
Cohn, LLP as its new independent auditors.
The audit reports of KPMG on the consolidated financial statements of
Atlantic Technology Ventures, Inc. and its subsidiaries (a development state
company) as of and for the years ended December 31, 2001 and 2000, and for the
period from July 13, 1993 (inception) to December 31, 2001, did not contain any
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope, or accounting principles, except as follows:
KPMG's report on the consolidated financial statements as of and for
the year ended December 31, 2001, contained a separate paragraph stating that
"the Company has suffered recurring losses from operations and has limited
liquid resources that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty."
During the years ended December 31, 2001 and 2000 and the subsequent
interim periods through December 5, 2002, there were no disagreements between
Atlantic and KPMG on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which disagreements, if not
resolved to the satisfaction of KPMG, would have caused KPMG to make reference
to the subject matter of the disagreement with its report.
On December 5, 2002, Atlantic requested that KPMG provide a letter
addressed to the Securities and Exchange Commission stating whether KPMG agrees
with the above statements, and, if not, stating the respects in which KPMG does
not agree. A copy of the letter provided by KPMG in response to that request,
which is dated as of December 12, 2002, was filed as an exhibit to Atlantic's
current report on Form 8-K filed with the SEC on December 12, 2002.
On December 9, 2002, Atlantic engaged J.H. Cohn as its independent
public accountants for the fiscal year ending December 31, 2002 and to audit its
financial statements. During its two most recent fiscal years and the subsequent
interim period preceding the engagement of J.H. Cohn, Atlantic did not consult
J.H. Cohn on any matter requiring disclosure under Item 304(a)(2) of Regulation
S-B promulgated by the SEC. The selection of J.H. Cohn was based on the
recommendation of Atlantic's audit committee.
45
MANHATTAN RESEARCH DEVELOPMENT, INC.
On January 23, 2003, Manhattan Research Development, Inc. (formerly
Manhattan Pharmaceuticals, Inc.) ("Manhattan") dismissed Weinberg & Company,
P.A. as Manhattan's independent auditors. Manhattan thereafter engaged J.H.
Cohn, LLP as its new independent auditors.
The audit report of Weinberg & Company, P.A. on the financial
statements of Manhattan (a development state company) as of and for the year
ended December 31, 2001 and for the period from August 6, 2001 (inception) to
December 31, 2001, did not contain any adverse opinion or disclaimer of opinion,
nor were they qualified or modified as to uncertainty, audit scope, or
accounting principles, except as follows:
Weinberg & Company's report on the consolidated financial statements as
of and for the year ended December 31, 2001, contained a separate paragraph
stating that:
"The financial statements referred to above have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 1
and 2 to the financial statements, the Company, which has suffered
recurring losses from operations, completed a merger on February 21, 2003
with Manhattan Pharmaceuticals, Inc., which has also suffered recurring
losses from operations. The combined Company will have limited resources.
Such matters raise substantial doubt about the ability of the Company to
continue as a going concern. Management's plan in regard to these matters
are also described in Note 1. The financial statements referred to above
do not include any adjustments that might result from the outcome of this
uncertainty."
During the period from August 6, 2001 (date of inception) through
December 31, 2001, there were no disagreements between Manhattan and Weinberg &
Company, P.A. on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which disagreements, if not
resolved to the satisfaction of Weinberg & Company, P.A., would have caused
Weinberg & Company, P.A. to make reference to the subject matter of the
disagreement with its report.
Since at the time of Manhattan's dismissal of Weinberg & Company, P.A.
Manhattan was a privately-held company and not subject to the reporting
requirements of the Exchange Act of 1934, Manhattan did not request and Weinberg
& Company, P.A. did not provide, a letter addressed to the Securities and
Exchange Commission stating whether Weinberg & Company, P.A. agreed with the
above statements.
On January 23, 2003, Manhattan engaged J.H. Cohn as its independent
public accountants for the fiscal year ending December 31, 2002 and to audit its
financial statements. During the period from August 6, 2001 (date of inception)
through December 31, 2002 and the subsequent interim period preceding the
engagement of J.H. Cohn, Manhattan did not consult J.H. Cohn on any matter
requiring disclosure under Item 304(a)(2) of Regulation S-B promulgated by the
SEC. The selection of J.H. Cohn was approved by Manhattan's board of directors.
46
INDEX TO FINANCIAL STATEMENTS
Audited Consolidated Financial Statements of Manhattan Research Development, Inc.
(formerly Manhattan Pharmaceuticals, Inc.):
Report of J. H. Cohn LLP................................................................................. F-2
Report of Weinberg & Company, P.A........................................................................ F-3
Balance Sheets as of December 31, 2002 and 2001.......................................................... F-4
Statements of Operations for the Year Ended December 31, 2002 and Periods from August 6, 2001 (Date of
Inception) to December 31, 2001 and 2002.............................................................. F-5
Statement of Changes in Stockholders' Equity (Deficiency) for the Year Ended December 31, 2002 and
Periods from August 6, 2001 (Date of Inception) to December 31, 2001 and 2002...................... F-6
Statements of Cash Flows for the Year Ended December 31, 2002 and Periods from August 6, 2001 (Date of
Inception) to December 31, 2001 and 2002........................................................... F-7
Notes to Financial Statements......................................................................... F-8
Unaudited Interim Financial Statements of Manhattan Pharmaceuticals, Inc.:
Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002.................. F-13
Condensed Consolidated Statements of Operations for the Three and Nine Months Ending September 30, 2003
and September 30, 2002 and from August 6, 2001 (inception) to September 30, 2003................... F-14
Condensed Consolidated Statement of Stockholders' Equity (Deficiency) as of September 30, 2003........ F-15
Condensed Consolidated Statements of Cash Flows for the Three and Nine Months Ending September 30,
2003, and from August 6, 2001 (inception) through September 30, 2003............................... F-16
Notes to Condensed Consolidated Financial Statements.................................................. F-17
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors
Manhattan Research Development, Inc.
We have audited the accompanying balance sheet of MANHATTAN RESEARCH
DEVELOPMENT, INC. (formerly Manhattan Pharmaceuticals, Inc.) (a development
stage company) as of December 31, 2002, and the related statements of
operations, changes in stockholders' equity (deficiency) and cash flows for the
year then ended and for the period from January 1, 2002 to December 31, 2002 as
related to the period from August 6, 2001 (date of inception) to December 31,
2002. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Manhattan Research Development,
Inc. as of December 31, 2002, and its results of operations and cash flows for
the year then ended and for the period from January 1, 2002 to December 31, 2002
as related to the period from August 6, 2001 (date of inception) to December 31,
2002, in conformity with accounting principles generally accepted in the United
States of America.
The financial statements referred to above have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1 and 2 to the
financial statements, the Company, which has suffered recurring losses from
operations, completed a merger on February 21, 2003 with Manhattan
Pharmaceuticals, Inc., which has also suffered recurring losses from operations.
The combined Company will have limited resources. Such matters raise substantial
doubt about the ability of the Company to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1. The
financial statements referred to above do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ J.H. Cohn LLP
Roseland, New Jersey
February 14, 2003, except for Notes 1, 2 and
10 which are as of February 21, 2003
F-2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of:
Manhattan Pharmaceuticals, Inc.
(A development stage company)
We have audited the accompanying balance sheet of Manhattan Pharmaceuticals,
Inc. (a development stage company) as of December 31, 2001 and the related
statements of operations, changes in stockholders' deficiency and cash flows for
the period from August 6, 2001 (inception) to December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Manhattan Pharmaceuticals, Inc. as
of December 31, 2001, and the results of its operations and its cash flows for
the period from August 6, 2001 (inception) to December 31, 2001, in conformity
with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 9 to the
financial statements, the Company has a net loss from operations of $56,796
since inception, a negative cash flow from operating activities of $27,500 since
inception, a working capital deficiency of $56,796 and a stockholders'
deficiency of $56,796. These matters raise substantial doubt about the Company's
ability to continue as a going concern. Management's plan in regards to these
matters is also described in Note 9. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ WEINBERG & COMPANY, P.A.
WEINBERG & COMPANY, P.A.
Boca Raton, Florida
November 1, 2002
F-3
MANHATTAN RESEARCH DEVELOPMENT, INC.
(A Development Stage Company)
BALANCE SHEETS
DECEMBER 31, 2002 AND 2001
ASSETS 2002 2001
----------- -----------
Current assets - cash $ 1,721,123 $ --
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 164,899
Accrued expenses 15,973 $ 29,296
Note payable to bank 600,000
Notes payable to stockholder 206,000 27,500
Due affiliate 96,328
----------- -----------
Total liabilities 1,083,200 56,796
----------- -----------
Commitments
Stockholders' equity (deficiency):
Common stock, $.001 par value; 10,000,000 shares
authorized; 6,197,250 and 4,000,000 shares issued
and outstanding 6,197 4,000
Additional paid-in capital 1,763,710
Unearned consulting costs (37,868)
Deficit accumulated during the development stage (1,094,116) (56,796)
Subscription receivable (4,000)
----------- -----------
Total stockholders' equity (deficiency) 637,923 (56,796)
----------- -----------
Totals $ 1,721,123 $ --
=========== ===========
See Notes to Financial Statements.
F-4
MANHATTAN RESEARCH DEVELOPMENT, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 2002 AND PERIODS FROM
AUGUST 6, 2001 (DATE OF INCEPTION)
TO DECEMBER 31, 2001 AND 2002
Year Ended August 6, 2001
December 31, to December 31,
2002 2001 2002
----------- ----------- -----------
Revenue $ -- $ -- $ --
----------- ----------- -----------
Operating expenses:
Selling, general and administrative expenses 348,021 1,560 349,581
Research and development expenses 670,161 55,236 725,397
----------- ----------- -----------
Totals 1,018,182 52,796 1,074,978
----------- ----------- -----------
Loss from operations (1,018,182) (56,796) (1,074,978)
Interest expense 19,138 19,138
----------- ----------- -----------
Net loss $(1,037,320) $ (56,796) $(1,094,116)
=========== =========== ===========
See Notes to Financial Statements.
F-5
MANHATTAN RESEARCH DEVELOPMENT, INC.
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIENCY)
YEAR ENDED DECEMBER 31, 2002 AND PERIODS FROM
AUGUST 6, 2001 (DATE OF INCEPTION)
TO DECEMBER 31, 2001 AND 2002
Common Stock Additional Unearned
------------------- Paid-in Consulting
Shares Amount Capital Costs
------ ------ ------- -----
Stock issued at $.001 per share for subscription
receivable 4,000,000 $4,000
Net loss
----------- ------ ---------- --------
Balance, December 31, 2001 4,000,000 4,000
Proceeds from subscription receivable
Stock issued at $.001 per share for license
rights 1,000,000 1,000
Stock options issued for consulting services $ 60,589 $(60,589)
Amortization of unearned consulting
costs 22,721
Sales of common stock at $1.60 per share
through private placement, net of
expenses of $211,281 1,197,250 1,197 1,703,121
Net loss
----------- ------ ---------- --------
Balance, December 31, 2002 6,197,250 $6,197 $1,763,710 $(37,868)
=========== ====== ========== ========
During
the Develop-
Subscription ment
Receivable Stage Total
---------- ----------- -----------
Stock issued at $.001 per share for subscription
receivable $(4,000)
Net loss $ (56,796) $ (56,796)
------- ----------- -----------
Balance, December 31, 2001 (4,000) (56,796) (56,796)
Proceeds from subscription receivable 4,000 4,000
Stock issued at $.001 per share for license
rights 1,000
Stock options issued for consulting services
Amortization of unearned consulting
costs 22,721
Sales of common stock at $1.60 per share
through private placement, net of
expenses of $211,281 1,704,318
Net loss (1,037,320) (1,037,320)
------- ----------- -----------
Balance, December 31, 2002 $ -- $(1,094,116) $ 637,923
======= =========== ===========
See Notes to Financial Statements.
F-6
MANHATTAN RESEARCH DEVELOPMENT, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2002 AND PERIODS FROM
AUGUST 6, 2001 (DATE OF INCEPTION)
TO DECEMBER 31, 2001 AND 2002
August 6, 2001
to December 31,
Year Ended ----------------------------
December 31, 2002 2001 2002
----------------- ----------- -----------
Operating activities:
Net loss $(1,037,320) $ (56,796) $(1,094,116)
Adjustments to reconcile net loss to net
cash used in operating activities:
Common stock issued for license rights 1,000 1,000
Amortization of unearned consulting
services 22,721 22,721
Changes in operating assets and
liabilities:
Accounts payable 164,899 164,899
Accrued expenses (13,323) 29,296 15,973
Due affiliate 96,328 96,328
----------- ----------- -----------
Net cash used in operating
activities (765,695) (27,500) (793,195)
----------- ----------- -----------
Financing activities:
Proceeds from issuance of notes payable to
stockholders 206,000 27,500 233,500
Repayments of notes payable to stockholders (27,500) (27,500)
Proceeds from issuance of note payable to
bank 600,000 600,000
Proceeds from subscription receivable 4,000 4,000
Proceeds from sale of common stock, net 1,704,318 1,704,318
----------- ----------- -----------
Net cash provided by financing
activities 2,486,818 27,500 2,514,318
----------- ----------- -----------
Net increase in cash 1,721,123 -- 1,721,123
Cash, beginning of period -- -- --
----------- ----------- -----------
Cash, end of period $ 1,721,123 $ -- $ 1,721,123
=========== =========== ===========
Supplemental disclosure of cash flow data:
Interest paid $ 15,665 $ 15,665
=========== ===========
Supplemental schedule of noncash investing and financing activities:
Stock options issued for consulting services $ 60,589 $ 60,589
=========== ===========
See Notes to Financial Statements.
F-7
MANHATTAN RESEARCH DEVELOPMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BUSINESS:
Manhattan Research Development, Inc. (the "Company" or "Manhattan
Research") was incorporated on August 6, 2001 under the laws of
the State of Delaware. The Company's name was changed from
Manhattan Pharmaceuticals, Inc. to Manhattan Research
Development, Inc. on February 21, 2003. The Company is a
development stage biopharmaceutical company that holds an
exclusive world-wide, royalty-free license to certain
intellectual property (the "Property") owned by Oleoyl-Estrone
Developments, SL ("OED") of Barcelona, Spain (the "University").
Oleoyl-Estrone is an orally administered small molecule that has
been shown to cause significant weight loss in preclinical animal
studies regardless of dietary modifications.
On February 21, 2003, Manhattan Pharmaceuticals, Inc. (formerly
known as "Atlantic Technology Ventures, Inc.") ("Manhattan
Pharmaceuticals") completed a reverse acquisition of the Company.
Manhattan Pharmaceuticals is a publicly-held company. The Company
was privately-held until the merger. The merger was effected
pursuant to an Agreement and Plan of Merger dated December 17,
2002 (the "Merger Agreement") by and among the Company, Manhattan
Pharmaceuticals and Manhattan Pharmaceuticals Acquisition Corp.
("MPAC") which was a wholly-owned subsidiary of Manhattan
Pharmaceuticals. In accordance with the terms of the Merger
Agreement, MPAC merged with and into the Company, with the
Company remaining as the surviving corporation and a wholly-owned
subsidiary of Manhattan Pharmaceuticals. Pursuant to the Merger
Agreement, upon the effective time of the merger, the outstanding
shares of common stock of the Company automatically converted
into an aggregate of 93,449,584 shares of common stock of
Manhattan Pharmaceuticals, which represented 80% of the
outstanding voting stock of Manhattan Pharmaceuticals after
giving effect to the merger. In addition, immediately prior to
the merger the Company had outstanding options and warrants to
purchase an aggregate of 864,280 shares of its common stock,
which, in accordance with the terms of the merger, automatically
converted into options and warrants to purchase an aggregate of
10,984,719 shares of the common stock of Manhattan
Pharmaceuticals. Since the stockholders of the Company received
the majority of the voting shares of Manhattan Pharmaceuticals,
the merger will be accounted for as a reverse acquisition whereby
the Company will be the accounting acquirer (legal acquiree) and
Manhattan Pharmaceuticals will be the accounting acquiree (legal
acquirer) as further explained in Note 10.
Manhattan Pharmaceuticals is engaged in the business of
developing and commercializing early-stage technologies,
particularly biomedical and pharmaceutical technologies. During
2002, Manhattan Pharmaceuticals had rights to technologies
relating to three different drug candidates with potential
application in the areas of cataract, anti-inflammatory and
anti-microbial treatments. However, management of the combined
Company intends to initially focus after the merger on the
development and commercialization of the technologies owned or
licensed by the Company.
NOTE 2 - LIQUIDITY:
The Company reported a net loss of $1,037,320 for the year ended
December 31, 2002. The net loss from August 6, 2001 (date of
inception) to December 31, 2002 amounted to $1,094,116. As
discussed above and in Note 10, the Company and Manhattan
Pharmaceuticals completed their reverse acquisition on February
21, 2003. Manhattan Pharmaceuticals has also suffered recurring
losses from its operations. Based on the resources available to
the Company and Manhattan Pharmaceuticals at December 31, 2002,
management believes that the combined Company will continue to
incur net losses through at least December 31, 2003 and will need
additional equity or debt financing or will need to generate
revenues through the licensing of its products or by entering
into strategic alliances to be able to sustain its operations
until it can achieve profitability, if ever. These matters raise
substantial doubt about the Company's ability to continue as a
going concern.
F-8
MANHATTAN RESEARCH DEVELOPMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
The combined Company's ability to continue its operations will
depend on its ability to raise additional funds through various
potential sources such as equity and debt financing,
collaborative agreements and strategic alliances, and its ability
to realize the full potential of its technology in development.
Additional funds are currently not available on acceptable terms
and may not become available. There can be no assurance that any
additional funding that the combined Company obtains will be
sufficient to meet the combined Company's needs in the short- and
long-term. Through December 31, 2002, a significant portion of
the financing obtained by the Company and Manhattan
Pharmaceuticals has been through private placements of common
stock, preferred stock and warrants, the issuance of common stock
for stock options and warrants exercised and debt financing.
Until and unless the combined Company's operations generate
significant revenues, the combined Company will attempt to
continue to fund operations from cash on hand and through the
sources of capital previously described. From November 2002
through February 20, 2003, the combined Company has raised
$2,747,600 from financing activities.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 certain reported amounts of assets and
liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of expenses during the reporting period.
Actual results could differ from those estimates.
Research and development expenses:
Research and development expenses are expensed as incurred.
Income taxes:
The Company accounts for income taxes pursuant to the asset
and liability method which requires deferred income tax assets
and liabilities to be computed for temporary differences
between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts
in the future based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected
to be realized. The income tax provision is the tax payable or
refundable for the period plus or minus the change during the
period in deferred tax assets and liabilities.
Stock-based compensation:
Options, warrants and stock awards issued to nonemployees and
consultants are recorded at their fair value as determined in
accordance with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," and EITF
No. 96-18, "Accounting for Equity Instruments That are Issued
to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" and recognized as expense over the
related vesting period.
F-9
MANHATTAN RESEARCH DEVELOPMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - NOTE PAYABLE TO BANK:
At December 31, 2002, the Company had a $600,000 note payable to
a bank with an annual interest rate of 3.23% due on January 5,
2003. The note is collateralized by a stockholder's personal
investment account of $600,000.
In January 2003, the Company made a partial repayment of
principal in the amount of $400,000. The remaining principal
balance was repaid on March 5, 2003 without any penalty.
NOTE 5 - NOTES PAYABLE TO STOCKHOLDER:
At December 31, 2002 and 2001, the Company had issued unsecured
notes payable totaling $206,000 and $27,500, respectively, to a
stockholder. The notes bear interest at 5% and became due on
demand when the Company received $1,000,000 from the sale of
equity securities.
NOTE 6 - DUE AFFILIATE:
On July 1, 2002, the Company entered into an office services
agreement (the "Services Agreement") with a company owned by a
principal stockholder of the Company. Pursuant to the Services
Agreement, which expires on July 1, 2003, the Company pays
$15,000 per month for the use of office space and management
services. For the year ended December 31, 2002, the Company was
charged $90,000, which is included in selling, general and
administrative expenses.
NOTE 7 - LICENSE AND CONSULTING AGREEMENTS:
On February 15, 2002, the Company entered into a License
Agreement (the "License Agreement") with OED. Under the terms of
the License Agreement, OED granted to the Company a world-wide
license to make, use, lease and sell the products incorporating
the Property (see Note 1). OED also granted to the Company the
right to sublicense to third parties the Property or aspects of
the Property with the prior written consent of OED. OED retains
an irrevocable, nonexclusive, royalty-free right to use the
Property solely for its internal, noncommercial use. The License
Agreement shall terminate automatically upon the date of the last
to expire patent contained in the Property or upon the Company's
bankruptcy. OED may terminate the License Agreement in the event
of a material breach by the Company that is not cured within the
notice period. The Company may terminate the License Agreement
for any reason upon 60 days notice.
Under the License Agreement, the Company agreed to pay to OED
certain licensing fees which are being expensed as they are
incurred. Through December 31, 2002, the Company paid $175,000 in
licensing fees which is included in research and development
expense. In addition, pursuant to the License Agreement, the
Company issued 1,000,000 shares of its common stock to OED. The
Company valued these shares at their then estimated fair value of
$1,000.
In connection with the License Agreement, the Company has agreed
to future milestone payments to OED as follows:
(i) $250,000 upon the treatment of the first patient in a Phase
I clinical trial under a Company-sponsored investigational new
drug application ("IND"); (ii) $250,000 upon the treatment of
the first patient in a Phase II clinical trial under a
Company-sponsored IND; (iii) $750,000 upon the first successful
completion of a Company-sponsored Phase II clinical trial under
a Company-sponsored IND; (iv) $2,000,000 upon the first
successful completion of a Company-sponsored Phase III clinical
trial under a Company sponsored IND; and (v) $6,000,000 upon the
first final approval of the first new drug application for the
first licensed product by the United States Food and Drug
Administration.
F-10
MANHATTAN RESEARCH DEVELOPMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
In addition to the License Agreement, the Company entered into a
consulting agreement with OED. The agreement became effective in
February 2002, at a fee of $6,250 per month, and will terminate
when the License Agreement terminates. The fees associated with
the consulting agreement are expensed as incurred. OED agreed to
serve as a member of the Company's Scientific Advisory Board and
to render consultative and advisory services to the Company. Such
services include research, development and clinical testing of
the Company's technology as well as the reporting of the findings
of such tests, assistance in the filing of patent applications
and oversight and direction of efforts in regards to personnel
for clinical development.
NOTE 8 - INCOME TAXES:
The estimated tax effects of significant temporary differences
and carryforwards that gave rise to net deferred income tax
assets as of December 31, 2002 and 2001 are as follows:
2002 2001
--------- ---------
Net deferred tax assets:
Net operating loss carryforwards $ 417,000 $ 22,000
Research and experimentation credit
carryforwards 26,000
Stock options granted to consultants 24,000
--------- ---------
467,000 22,000
Less valuation allowance (467,000) (22,000)
--------- ---------
Net deferred tax assets $ -- $ --
========= =========
Since realization of the benefits from the temporary differences
is not considered by management to be more likely than not, a
full valuation allowance has been provided to reduce deferred tax
assets to zero. The valuation allowance increased by $445,000 and
$22,000 during the year ended December 31, 2002 and the period
from August 6, 2001 (date of inception) to December 31, 2001,
respectively.
At December 31, 2002, the Company has net operating loss
carryforwards of approximately $1,044,000 for Federal and state
tax purposes which expire through 2022. At December 31, 2002, the
Company also has research and experimentation credit
carryforwards of approximately $26,000 for Federal and state tax
purposes which expire through 2022 for Federal purposes and until
fully utilized for state purposes.
For Federal and state tax purposes, the Company's net operating
loss and tax credit carryforwards may be subject to certain
limitations on annual utilization attributable to equity
transactions that result in changes in ownership, as defined by
the Tax Reform Act of 1986.
NOTE 9 - STOCKHOLDERS' EQUITY (DEFICIENCY):
The Company issued 4,000,000 shares of common stock to 38
investors during December 2001 for subscriptions receivable of
$4,000 or $.001 per share. During 2002, the Company received the
$4,000.
F-11
In August 2002, the Company entered into one-year agreements with
four consultants and issued a total of 40,000 options to these
consultants to purchase 40,000 shares of the Company's common
stock at an exercise price of $.01 per share expiring in August
2007. The Company valued these options at $60,589 and is
amortizing the expense through August 2003. Therefore, the
Company has expensed $22,721 in 2002 and has deferred $37,868.
During 2002, no options were exercised.
During 2002, the Company commenced a private placement and sold
1,197,250 shares of common stock at $1.60 per share and received
proceeds of $1,704,318, net of expenses of $211,181. Each
investor received warrants equal to 10% of the number of shares
of common stock purchased and, accordingly, the Company issued
119,275 warrants in 2002 in connection with the private
placement. Each warrant has an exercise price of $1.60 per share
and expires in 2007.
During January and February 2003, the Company sold an additional
520,000 shares of common stock at $1.60 per share and 52,000
warrants through the private placement and received net proceeds
of approximately $832,000.
In addition, in connection with the private placement, the
Company issued to Joseph Stevens & Co., Inc., a NASD-member
broker-dealer, warrants to purchase 652,555 shares of the
Company's common stock that are exercisable at $1.60 per share
and expire in 2008.
NOTE 10- MERGER:
Pursuant to the Merger Agreement (see Note 1), upon the effective
time of the merger, the outstanding shares of common stock of the
Company automatically converted into an aggregate of 93,449,584
shares of common stock of Manhattan Pharmaceuticals, which
represented 80% of the outstanding voting stock of Manhattan
Pharmaceuticals after giving effect to the merger. In addition,
immediately prior to the merger the Company had outstanding
options and warrants to purchase an aggregate of 864,280 shares
of its common stock, which, in accordance with the terms of the
merger, automatically converted into options and warrants to
purchase an aggregate of 10,984,719 shares of the common stock of
Manhattan Pharmaceuticals. Since the stockholders of the Company
received the majority of the voting shares of Manhattan
Pharmaceuticals, the merger will be accounted for as a reverse
acquisition whereby the Company will be the accounting acquirer
(legal acquiree) and Manhattan Pharmaceuticals will be the
accounting acquiree (legal acquirer). Based on the five day
average price of the common stock of Manhattan Pharmaceuticals of
$0.10 per share as of February 21, 2003, the Company's purchase
price for the acquisition of Manhattan Pharmaceuticals
approximates $2,336,000, which represents 20 percent of the
market value of the combined Company's post-merger total
outstanding shares of 116,811,980. Based on the preliminary
information currently available, the Company expects to recognize
patents and licenses for substantially all of the purchase price.
Upon completion of formal purchase price allocation there may be
a decrease in the amount assigned to intangible assets and a
corresponding increase in in-process research and development.
F-12
MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Balance Sheets
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
ASSETS 2003 2002
----------- -----------
Current assets:
Cash and cash equivalents $ 102,114 $ 1,721,123
Marketable equity securities, available for sale, at market 319,320
Prepaid expenses 27,009 --
----------- -----------
Total current assets 448,443 1,721,123
Property and equipment, net 10,004 --
Deposits 19,938 --
Deferred costs related to private placement 50,754 --
----------- -----------
Total assets $ 529,139 $ 1,721,123
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable $ 760,524 $ 164,899
Accrued expenses 435,069 15,973
Note payable to bank -- 600,000
Notes payable to stockholder 70,000 206,000
Due affiliate -- 96,328
----------- -----------
Total liabilities 1,265,593 1,083,200
----------- -----------
Commitments and Contingencies
Stockholders' equity (deficiency):
Common stock, $.001 par value. Authorized 150,000,000
shares; 23,362,396 and 15,753,008 shares issued and outstanding
at September 30, 2003 and December 31, 2002, respectively 23,362 15,753
Additional paid-in capital 4,826,177 1,754,154
Deficit accumulated during development stage (5,545,406) (1,094,116)
Accumulated other comprehensive loss (40,587) --
Unearned consulting costs -- (37,868)
----------- -----------
Total stockholders' equity (deficiency) (736,454) 637,923
----------- -----------
Total liabilities and stockholders' equity (deficiency) $ 529,139 $ 1,721,123
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
F-13
MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Unaudited)
CUMULATIVE
PERIOD FROM
AUGUST 6, 2001
THREE MONTHS NINE MONTHS (INCEPTION) TO
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ---------------------------- ------------
2003 2002 2003 2002 2003
------------ ------------ ------------ ------------ ------------
Revenue $ -- $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------ ------------
Costs and expenses:
Research and development 377,820 172,719 734,351 624,971 1,459,748
General and administrative 412,730 148,144 1,255,446 198,485 1,605,027
Impairment of intangible assets 1,248,230 -- 1,248,230 -- 1,248,230
------------ ------------ ------------ ------------ ------------
Total operating expenses 2,038,780 320,863 3,238,027 823,456 4,313,005
------------ ------------ ------------ ------------ ------------
Operating loss (2,038,780) (320,863) (3,238,027) (823,456) (4,313,005)
------------ ------------ ------------ ------------ ------------
Other (income) expense:
Interest and other income (564) -- (4,704) -- (4,704)
Interest expense 933 6,299 4,089 12,113 23,227
Loss on disposition of intangible assets 1,213,878 -- 1,213,878 -- 1,213,878
------------ ------------ ------------ ------------ ------------
Total other (income) expense 1,214,247 6,299 1,213,263 12,113 1,232,401
------------ ------------ ------------ ------------ ------------
Net loss $ (3,253,027) $ (327,162) $ (4,451,290) $ (835,569) $ (5,545,406)
============ ============ ============ ============ ============
Net loss per common share:
Basic and diluted $ (0.14) $ (0.03) $ (0.20) $ (0.07)
============ ============ ============ ============
Weighted average shares of common stock outstanding:
Basic and diluted 23,362,396 12,709,676 22,061,978 12,281,365
============ ============ ============ ============
See accompanying notes to unaudited condensed consolidated financial statements.
F-14
MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statement of Stockholders' Equity (Deficiency)
(Unaudited)
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
--------------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE
----------- ----------- ----------- -----------
Balance at January 1, 2003, as adjusted for
a 1-for-5 stock combination 15,753,008 $ 15,753 $ 1,754,154 $(1,094,116)
Common stock issued, net of expenses 1,321,806 1,322 742,369 --
Effect of reverse acquisition 6,287,582 6,287 2,329,954 --
Amortization of unearned consulting costs -- -- -- --
Unrealized loss on marketable equity securities -- -- -- --
Payment for fractional shares for stock combination -- -- (300) --
Net loss -- -- -- (4,451,290)
----------- ----------- ----------- -----------
Balance at September 30, 2003 23,362,396 $ 23,362 $ 4,826,177 $(5,545,406)
=========== =========== =========== ===========
TOTAL
ACCUMULATED STOCK-
OTHER UNEARNED HOLDERS'
COMPREHENSIVE CONSULTING EQUITY
LOSS COSTS (DEFICIENCY)
----------- ----------- -----------
Balance at January 1, 2003, as adjusted for
a 1-for-5 stock combination -- $ (37,868) $ 637,923
Common stock issued, net of expenses -- -- 743,691
Effect of reverse acquisition -- -- 2,336,241
Amortization of unearned consulting costs -- 37,868 37,868
Unrealized loss on marketable equity securities (40,587) -- (40,587)
Payment for fractional shares for stock combination -- -- (300)
Net loss -- -- (4,451,290)
----------- ----------- -----------
Balance at September 30, 2003 (40,587) $ -- $ (736,454)
=========== =========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
F-15
MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Company)
Condensed Consolidated Statements of Cash Flows
(Unaudited)
CUMULATIVE
PERIOD FROM
AUGUST 1, 2001
NINE MONTHS (INCEPTION) TO
ENDED SEPTEMBERS 30, SEPTEMBER 30,
---------------------------- -----------
2003 2002 2003
----------- ----------- -----------
Cash flows from operating activities:
Net loss $(4,451,290) $ (835,569) $(5,545,406)
Adjustments to reconcile net loss to
net cash provided by (used in) operating activities:
Common stock issued for license rights -- -- 1,000
Amortization of unearned consulting costs 37,868 16,147 60,589
Amortization of intangible assets 145,162 -- 145,162
Depreciation 4,233 -- 4,233
Loss on impairment of intangible assets 1,248,230 -- 1,248,230
Loss on disposition of intangible assets 1,213,878 -- 1,213,878
Changes in operating assets and liabilities, net of acquisition:
Decrease in prepaid expenses 11,298 -- 11,298
Increase in accounts payable 271,889 161,846 436,788
(Decrease) increase in accrued expenses (121,225) 14,400 (105,252)
(Decrease) increase in due affiliate (96,328) 51,315 --
Increase in interest payable -- 1,346 --
----------- ----------- -----------
Net cash used in operating activities (1,736,285) (590,515) (2,529,480)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (6,554) -- (6,554)
Cash paid in connection with acquisition (32,808) -- (32,808)
Proceeds from sale of license 200,001 -- 200,001
----------- ----------- -----------
Net cash provided by investing activities 160,639 -- 160,639
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuances of notes payable to stockholders -- 2,500 233,500
Repayments of notes payable to stockholders (136,000) -- (163,500)
Proceeds from issuance of note payable to bank -- 600,000 600,000
Repayment of note payable to bank (600,000) -- (600,000)
Proceeds from subscriptions receivable -- -- 4,000
Payment for fractional shares for stock combination 300 -- 300
Proceeds from sale of common stock, net 743,091 -- 2,447,409
Increase in deferred costs related to private placement (50,754) (8,706) (50,754)
----------- ----------- -----------
Net cash provided by (used in) financing activities (43,363) 593,794 2,470,955
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (1,619,009) 3,279 102,114
Cash and cash equivalents at beginning of period 1,721,123 -- --
----------- ----------- -----------
Cash and cash equivalents at end of period $ 102,114 $ 3,279 $ 102,114
=========== =========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 502 $ 10,676 $ 26,934
=========== =========== ===========
Supplemental disclosure of noncash investing and financing activities:
Stock options issued for consulting services $ -- -- $ 60,589
Issuance of common stock for acquisition 2,336,242 -- 2,336,242
Marketable equity securities received in connection with
sale of license 359,907 -- 359,907
=========== =========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
F-16
MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003
(1) BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information. Accordingly, the
financial statements do not include all information and footnotes required by
accounting principles generally accepted in the United States of America for
complete annual financial statements. In the opinion of management, the
accompanying condensed consolidated financial statements reflect all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation. Interim operating results are not necessarily
indicative of results that may be expected for the year ending December 31, 2003
or for any subsequent period. These consolidated financial statements should be
read in conjunction with the Annual Report on Form 10-KSB of Manhattan
Pharmaceuticals, Inc. and its subsidiaries ("Manhattan" or the "Company") as of
and for the year ended December 31, 2002 and the Form 8-K/A of Manhattan
Pharmaceuticals, Inc. filed on May 9, 2003 containing the financial statements
of Manhattan Research Development, Inc.
(2) LIQUIDITY
The Company has reported a net loss of $1,037,320 for the year ended December
31, 2002 and a net loss of $4,451,290 for the nine months ended September 30,
2003. The net loss from date of inception, August 6, 2001, to September 30, 2003
amounts to $5,545,406.
As discussed in Note 6, on February 21, 2003 the Company completed a reverse
acquisition of privately held Manhattan Research Development, Inc. Management
believes that the combined Company will continue to incur net losses through at
least September 30, 2004. Based on the resources of the combined Company
available at September 30, 2003, management believes that the combined Company
will need additional equity or debt financing or will need to generate revenues
through licensing its products or entering into strategic alliances to be able
to sustain its operations until it can achieve profitability, if ever.
The combined Company's continued operations will depend on its ability to raise
additional funds through various potential sources such as equity and debt
financing, collaborative agreements, strategic alliances and its ability to
realize the full potential of its technology in development. Additional funds
may not become available on acceptable terms, and there can be no assurance that
any additional funding that the combined Company does obtain will be sufficient
to meet the combined Company's needs in the short and long term. Through
September 30, 2003, a significant portion of the Company's financing has been
through private placements of common stock and warrants and debt financing.
Until and unless the combined Company's operations generate significant
revenues, the combined Company will attempt to continue to fund operations from
cash on hand and through the sources of capital previously described.
As described in Note 10, on November 7, 2003, the Company completed a private
placement of 1,000,000 shares of its newly-designated Series A Convertible
Preferred Stock at a price of $10 per share, resulting in gross proceeds to the
Company of $10,000,000. Each share of Series A Convertible Preferred Stock is
convertible at the holder's election into shares of the company's common stock
at a conversion price of $1.10 per share. The conversion price of the Series A
Convertible Preferred Stock was less than the market value of the Company's
common stock on November 7, 2003. Accordingly, the Company will record a charge
for the beneficial conversion feature associated with the convertible preferred
stock. Such charge is anticipated to approximate $418,000.
The Company's common stock is quoted on the Over-the-Counter Bulletin Board (the
"OTCBB") under the ticker symbol "MHTT.OB." This has an adverse effect on the
liquidity of our common stock, not only in terms of the number of shares that
can be bought and sold at a given price, but also through delays in the timing
of transactions and reduction in security analysts' and the media's coverage of
the Company. This may result in lower prices for shares of the Company's common
stock than might otherwise be obtained and could also result in a larger spread
between the bid and asked prices for the common stock.
F-17
MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2003
On July 25, 2003, the Board of Directors adopted a resolution authorizing an
amendment to the certificate of incorporation providing for a 1-for-5
combination. A resolution approving the 1-for-5 combination was thereafter
consented to in writing by holders of a majority of the Company's outstanding
common stock. The proposed 1-for-5 combination became effective on September 25,
2003. Accordingly, all share and per share information in these unaudited
condensed consolidated financial statements has been restated to retroactively
reflect the 1-for-5 combination.
(3) COMPUTATION OF NET LOSS PER COMMON SHARE
Basic net loss per common share is calculated by dividing net loss applicable to
common shares by the weighted-average number of common shares outstanding for
the period. Diluted net loss per common share equals basic net loss per common
share, since common stock potentially issuable from the exercise or conversion
of stock options, stock warrants, stock subscriptions and convertible preferred
stock would have an anti dilutive effect because the Company incurred a net loss
during each period presented. The potentially dilutive shares of common stock
from stock options, stock warrants, stock subscriptions, and convertible
preferred stock, which have not been included in the diluted calculations since
their effect is antidilutive, was 4,111,935 as of September 30, 2003.
(4) ISSUANCE OF STOCK, STOCK OPTIONS AND WARRANTS
On February 24, 2003, the Company granted employees options to purchase an
aggregate of 876,090 shares of common stock outside of the Company's 1995 Stock
Option Plan. An aggregate of 584,060 shares subject to these options vest on the
first anniversary of the grant date and the remaining 292,030 shares subject to
these options vest in two equal installments on each of the first and second
anniversaries of the grant date, provided the optionee continues in service. The
options were granted at the market price on the day of issuance and are
exercisable for a period of ten years regardless of whether the grantee
continues to be employed by the Company.
The Company uses the intrinsic value method of accounting for stock options
pursuant to the provisions of APB Opinion No. 25. Had compensation costs been
determined in accordance with the fair value method prescribed by SFAS No. 123
for all options issued to employees, the Company's net loss applicable to common
shares and net loss per common share (basic and diluted) for plan options would
have been increased to the pro forma amounts indicated below. There were no
options granted during the third quarter of 2003. There were no options granted
or outstanding in the 2002 periods.
F-18
THREE NINE
MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2003 2003
----------- -----------
Net loss, as reported $(3,253,027) $(4,451,290)
Deduct: Total stock-based employee
compensation expense determined
under fair value method (74,763) (228,210)
----------- -----------
Net loss, pro forma $(3,327,790) $(4,679,500)
=========== ===========
Net loss per common share - basic
As reported $ (0.14) $ (0.20)
Pro forma (0.14) (0.21)
(5) PRIVATE PLACEMENT OF COMMON SHARES
During 2002, the Company's subsidiary, Manhattan Research Development,
Inc. (Manhattan Research) commenced a private placement and sold 239,450 shares
of common stock at $8 ($0.63 post merger) per share and received proceeds of
$1,704,318, net of expenses of $211,281. These shares converted into 3,043,332
shares of the Company's common stock when the Company completed the reverse
acquisition of Manhattan Research as described below. In addition, each investor
received warrants equal to 10% of the number of shares of common stock purchased
and, accordingly, Manhattan Research issued warrants to purchase 23,945 shares
of common stock in 2002 in connection with the private placement. Upon the
merger, these converted into warrants to purchase 304,333 shares of the
Company's common stock. Each warrant had an exercise price of $8 per share,
which post merger converted to approximately $0.63. These warrants expire in
2007.
During January and February 2003, Manhattan Research sold an additional 104,000
shares of common stock at $8 ($0.63, post merger) per share and warrants to
purchase 10,400 shares of common stock exercisable at $8 ($0.63 post merger)
through the private placement and received net proceeds of $743,691. These
shares converted into 1,321,806 shares of the Company's common stock when the
Company completed its reverse acquisition of Manhattan Research. The warrants to
purchase 10,400 shares of common stock converted into warrants to purchase
132,181 common shares of the combined Company.
In addition, in connection with the private placement, Manhattan Research issued
to Joseph Stevens & Co., Inc., a NASD-member broker-dealer, warrants to purchase
130,511 shares of its common stock that are exercisable at $8 ($0.63 post
merger) per share and expire in 2008. Upon the merger, these warrants converted
into warrants to purchase 1,658,753 shares of common stock of the combined
Company.
(6) MERGER
On February 21, 2003, the Company (formerly known as "Atlantic Technology
Ventures, Inc.") completed a reverse acquisition of privately held Manhattan
Research Development, Inc. (formerly Manhattan Pharmaceuticals, Inc.), a
Delaware corporation. The merger was effected pursuant to an Agreement and Plan
of Merger dated December 17, 2002 (the "Merger Agreement") by and among the
Company, Manhattan Research and Manhattan Pharmaceuticals Acquisition Corp, the
Company's wholly owned subsidiary ("MPAC"). In accordance with the terms of the
Merger Agreement, MPAC merged with and into Manhattan Research, with Manhattan
Research remaining as the surviving corporation and a wholly owned subsidiary of
the Company. Pursuant to the Merger Agreement, upon the effective time of the
merger, the outstanding shares of common stock of Manhattan Research
automatically converted into an aggregate of 18,689,917 shares of the Company's
common stock, which represented 80 percent of the Company's outstanding voting
stock after giving effect to the merger. In addition, immediately prior to the
merger Manhattan Research had outstanding options and warrants to purchase an
aggregate of 172,856 shares of its common stock, which, in accordance with the
terms of the merger, automatically converted into options and warrants to
purchase an aggregate of 2,196,944 shares of the Company's common stock. Since
the stockholders of Manhattan Research received the majority of the voting
shares of the Company, the merger was accounted for as a reverse acquisition
whereby Manhattan Research was the accounting acquirer (legal acquiree) and the
Company was the accounting acquiree (legal acquirer). Based on the five-day
average price of the Company's common stock of $0.50 per share, the purchase
price approximated $2,336,000, plus approximately $33,000 of acquisition costs,
which represents 20 percent of the market value of the combined Company's
post-merger total outstanding shares of 23,362,396. In connection with the
merger, the Company changed its name from "Atlantic Technology Ventures, Inc."
to "Manhattan Pharmaceuticals, Inc." At the time of the merger, Manhattan
Research recognized patents and licenses for substantially all of the purchase
price. A formal purchase price allocation was completed in the third quarter of
2003 and did not result in changes to the initial estimate. As a result of
acquiring Manhattan Research, the Company received new technologies.
F-19
A summary of the purchase price allocation is as follows:
Common stock issued $ 2,336,242
Acquisition costs paid 32,808
-----------
Total purchase price 2,369,050
Net liabilities assumed in acquisition 798,128
-----------
Excess purchase price (allocated to
intangible assets) $ 3,167,178
===========
Assets purchased:
Prepaid expenses $ 38,307
Property and equipment 7,683
Deposits 19,938
-----------
65,928
-----------
Liabilities assumed:
Accounts payable 323,735
Accrued expenses 540,321
-----------
864,056
-----------
Net liabilities assumed $ (798,128)
===========
The following pro forma financial information presents the combined results of
operations of Manhattan Pharmaceuticals and Manhattan Research as if the
acquisition had occurred as of January 1, 2003 and 2002, after giving effect to
certain adjustments, including the issuance of Manhattan Pharmaceuticals common
stock as part of the purchase price. For the purpose of this pro forma
presentation, both Manhattan Pharmaceuticals' and Manhattan Research's financial
information is presented for the three and nine months ended September 30, 2003
and 2002, respectively. The pro forma condensed consolidated financial
information does not necessarily reflect the results of operations that would
have occurred had Manhattan Pharmaceuticals and Manhattan Research been a single
entity during such periods.
F-20
THREE MONTHS
ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
2002 2003 2002
------------ ------------ ------------
Revenues $ -- $ -- $ --
Net loss $ (1,019,353) $ (4,650,838) $ (2,315,120)
Weighted-average shares of common
stock outstanding: Basic 12,709,676 22,150,857 12,709,676
Basic net loss per common share $ (0.08) $ (0.21) $ (0.18)
(7) LICENSE AND DEVELOPMENT AGREEMENT
In April 2003, the Company entered into a license and development agreement with
NovaDel Pharma, Inc. ("NovaDel"), under which the Company received certain
worldwide, exclusive rights to develop and commercialize products related to
NovaDel's proprietary lingual spray technology for delivering propofol for
pre-procedural sedation. Under the terms of this agreement, the Company agreed
to use its commercially reasonable efforts to develop and commercialize the
licensed products, to obtain necessary regulatory approvals and to thereafter
exploit the licensed products. The agreement also provides that NovaDel will
undertake to perform, at the Company's expense, a substantial portion of the
development activities, including without limitation, preparation and filing of
various applications with applicable regulatory authorities.
In consideration of the license, upon the occurrence of certain development and
regulatory events, the Company is obligated to make payments to NovaDel upon the
occurrence of certain milestones, including filing a New Drug Application or
"NDA" that is accepted for review by the FDA for a licensed product, filing a
European Marketing Application for a licensed product, having a filed NDA
approved by the FDA, having a European Marketing Application accepted for review
within the European Union, receiving commercial approval in Japan, Canada,
Australia and South Africa, and upon receiving regulatory approval in certain
other countries. The aggregate amount of the milestone payments is significant
in light of the Company's currently available resources. In addition, the
Company is obligated to pay to NovaDel an annual royalty based on a fixed rate
of net sales of licensed products, or if greater, the annual royalty is based on
the Company's net profits from the sale of licensed products at a rate that is
twice the net sales rate. In the event the Company sublicenses the licensed
product to a third party, the Company is obligated to pay royalties based on a
fixed rate of fees or royalties received from the sublicensee until such time as
the Company recovers its out-of-pocket costs, and thereafter the royalty rate
doubles. Because of the continuing development efforts required of NovaDel under
the agreement, the royalty rates are substantially higher than customary for the
industry. The Company is also required to pay an up-front fee in installments
contingent on whether the Company receives certain amounts through financings,
revenues or otherwise. To date, the Company has paid and expensed $125,000 of
such up-front fee.
NovaDel may terminate the agreement (i) upon 10 days' notice if the Company
fails to make any required milestone or royalty payments, (ii) if the Company
fails to obtain financing of at least $5,000,000 by March 31, 2004 (see Note
10), or (iii) if the Company becomes bankrupt or if a petition in bankruptcy or
insolvency is filed and not dismissed within 60 days or if the Company becomes
subject to a receiver or trustee for the benefit of creditors. Each party may
terminate the agreement upon 30 days' written notice and an opportunity to cure
in the event the other party committed a material breach or default. The Company
may also terminate the agreement for any reason upon 90 days' notice to NovaDel.
F-21
(8) ASSET SALE
On August 22, 2003, the Company sold all of its remaining rights to the CT-3
technology to Indevus Pharmaceuticals, Inc. ("Indevus"), the Company's licensee
for aggregate consideration of approximately $559,000. The purchase price was
paid through a combination of cash and shares of Indevus' common stock. On the
same date, the Company settled its arbitration with Dr. Sumner Burstein, the
inventor of the CT-3 technology, which includes a complete mutual release from
all claims that either party had against the other. As a result of the sale of
the Company's rights to the CT-3 technology to Indevus, the Company recorded a
one-time charge of $1,213,878 in the quarter ended September 30, 2003. In
addition, on August 8, 2003, Bausch & Lomb informed the Company that it had
elected not to pursue its development of the Avantix technology effective August
11, 2003. According to the terms of Company's agreement with Bausch & Lomb, the
Company may re-acquire the technology from Bausch & Lomb and sell or re-license
the technology to a third party. The price to re-acquire the technology from
Bausch & Lomb is 50 percent of the proceeds from a third party sale to a maximum
of $3 million. The Company has no further obligation under the agreement. As a
result of Bausch & Lomb's decision not to develop the Avantix technology, the
Company recorded a one-time charge of $1,248,230 in the quarter ended September
30, 2003 for the impairment of the related intangible asset.
(9) REVERSE STOCK SPLIT
On July 25, 2003, the Board of Directors adopted a resolution authorizing an
amendment to the certificate of incorporation providing for a 1-for-5
combination. A resolution approving the 1-for-5 combination was thereafter
consented to in writing by holders of a majority of the Company's outstanding
common stock. The proposed 1-for-5 combination became effective on September 25,
2003. Accordingly, all share and per share information in these unaudited
condensed consolidated financial statements has been restated to retroactively
reflect the 1-for-5 combination.
(10) SUBSEQUENT EVENTS
On November 7, 2003, the Company completed a private placement of 1,000,000
shares of its newly-designated Series A Convertible Preferred Stock at a price
of $10 per share, resulting in gross proceeds to the Company of $10,000,000.
Each share of Series A Convertible Preferred Stock is convertible at the
holder's election into shares of the company's common stock at a conversion
price of $1.10 per share. The conversion price of the Series A Convertible
Preferred Stock was less than the market value of the Company's common stock on
November 7, 2003. Accordingly, the Company will record a charge for the
beneficial conversion feature associated with the convertible preferred stock.
Such charge is anticipated to approximate $418,000.
The proceeds from the private placement will be used to fund clinical and
non-clinical research and development, working capital and general corporate
purposes. Maxim Group, LLC of New York, together with Paramount Capital, Inc.,
acted as the placement agent in connection with the private placement.
F-22
21,039,530 SHARES
COMMON STOCK
MANHATTAN PHARMACEUTICALS, INC.
---------------
PROSPECTUS
---------------
_____________________ , 2004
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under provisions of the certificate of incorporation and bylaws of the
Registrant, directors and officers will be indemnified for any and all
judgments, fines, amounts paid in settlement and reasonable expenses, including
attorneys fees, in connection with threatened, pending or completed actions,
suits or proceedings, whether civil, or criminal, administrative or
investigative (other than an action arising by or in the right of the
Registrant), if such director or officer has been wholly successful on the
merits or otherwise, or is found to have acted in good faith and in a manner he
or she reasonably believes to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. In addition,
directors and officers will be indemnified for reasonable expenses in connection
with threatened, pending or completed actions or suits by or in the right of
Registrant if such director or officer has been wholly successful on the merits
or otherwise, or is found to have acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Registrant, except in the case of certain findings by a court that such person
is liable for negligence or misconduct in his or her duty to the Registrant
unless such court or the Delaware Court of Chancery also finds that such person
is nevertheless fairly and reasonably entitled to indemnity. The Registrant's
Certificate of Incorporation also eliminates the liability of directors of the
Registrant for monetary damages to the fullest extent permissible under Delaware
law.
Section 145 of the Delaware General Corporation Law states:
(a) A corporation shall have the power to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action arising by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in or
not opposed to the best interests of the corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his conduct
was unlawful.
(b) A corporation shall have power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect to any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expense which the Court of Chancery or
such other court shall deem proper.
II-1
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Registrant estimates that expenses payable by the Registrant is
connection with the offering described in this Registration Statement will be as
follows:
SEC registration fee .................................... $ 2,700
Legal fees and expenses ................................. 25,000
Accounting fees and expenses ............................ 15,000
Printing and engraving expenses.......................... 5,000
Miscellaneous ........................................... 5,000
----------
Total ................................................... $ 52,700
==========
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
The following sales of unregistered securities reflect the Registrant's
1-for-5 stock combination effected September 25, 2003.
Dian Griesel
On March 8, 2001, the Registrant entered into an agreement with The
Investor Relations Group, Inc., or "IRG," under which IRG agreed to provide the
Registrant investor relations services. The issuance of the warrants did not
involve any public offering and therefore was exempt from registration pursuant
to Section 4(2) of the Securities Act. Pursuant to this agreement the Registrant
issued to Dian Griesel warrants to purchase 24,000 shares of its common stock.
The term of the warrants is five years and the exercise price of the warrants is
$4.375, and they vested in 1,000 share monthly increments over a 24-month
period.
Issuance to Fusion Capital
On May 7, 2001, the Registrant entered into a common stock purchase
agreement with Fusion Capital Fund II, LLC in which Fusion Capital agreed to
purchase up to $6.0 million of the Registrant's common stock over a 30-month
period, subject to a 6-month extension or earlier termination at our discretion.
The Registrant paid a $120,000 finder's fee relating to this transaction to
Gardner Resources, Ltd. and issued to Fusion Capital Fund II, LLC 120,000 common
shares as a commitment fee. Those shares had an estimated fair value of $444,000
at the time of issuance. On November 30, 2001, Fusion Capital waived the $3.40
floor price provided for in the purchase agreement and purchased under the
agreement 83,333 shares of the Registrant's common stock at a price of $1.20,
representing an aggregate purchase price of $100,000. These issuances to Fusion
Capital did not involve any public offering and were therefore exempt from
registration pursuant to Section 4(2) of the Securities Act of 1933.
Issuance to BH Capital Investments, L.P. and Excalibur Limited Partnership
On August 1, 2001, the Registrant agreed to issue 7,000 shares of its
common stock to each of BH Capital Investments, L.P. and Excalibur Limited
Partnership in return for their commitment to provide the Registrant with $3.5
million of financing in connection with an asset purchase for which the
Registrant had submitted a bid. The registrant issued those shares but
ultimately did not purchase those assets. Issuance of these shares did not
involve any public offering and therefore was exempt from registration pursuant
to Section 4(2) of the Securities Act of 1933.
II-2
Issuance to Proteus Capital Corp.
On August 9, 2001, the Registrant entered into an agreement with
Proteus Capital Corp ("Proteus") in which Proteus agreed to assist the
Registrant with raising additional funds. Pursuant to this agreement, the
Registrant granted Douglas J. Newby and Samuel Gerszonowicz, both principals of
Proteus, one warrant each to purchase 50,000 shares of the Registrant's common
stock at $2.95 per share, which was the average closing stock price for the two
weeks ending August 17, 2001. The warrants were fully vested on the date of the
agreement and were outstanding at December 31, 2001. The term of the warrants is
five years. Issuance of these warrants did not involve any public offering and
therefore was exempt from registration pursuant to Section 4(2) of the
Securities Act of 1933.
2001 Private Placement
On December 3, 2001, the Registrant issued to certain investors in a
private placement an aggregate of 1,666,663 shares of its common stock and
warrants exercisable for a further 1,666,663 shares of its common stock. The
purchase price per share of common stock was $1.20. The term of the warrants is
five years and the per-share exercise price is $1.45.
In connection with this private placement, the Registrant issued to
Joseph Stevens & Company, Inc. on December 3, 2001, as part of its placement
fee, warrants to purchase 166,666 shares of common stock. The term of the
warrants is five years and the per-share exercise price is $1.45.
The issuances did not involve any public offering and therefore were
exempt from the registration requirements of Section 5 of the Securities Act
pursuant to Section 4(2) of the Securities Act.
Issuance to Consultant
In April 2002, the Registrant issued 75,000 shares of its common stock
to a consultant in exchange for consulting and advisory services valued at
$15,000 rendered to the Registrant. The registrant relied upon the exemption
from federal registration under Section 4(2) of the Securities Act, based on its
belief that the issuance did not involve a public offering, the consultant was
sophisticated in financial and business matters and the consultant had access to
information pertaining to our company.
Issuance to Fusion Capital Fund II, LLC
Pursuant to a common stock purchase agreement dated May 7, 2001,
between the Registrant and Fusion Capital Fund II, LLC, the Registrant issued
10,000 shares of its common stock in May 2002 in exchange for aggregate proceeds
of $1,666,67. This issuance was exempt from federal registration requirements
pursuant to Section 4(2) of the Securities Act because the Registrant had a
reasonable basis to conclude that Fusion Capital Fund II, LLC was an accredited
investor, was sophisticated in financial and business matters and because the
issuance did otherwise involve a public offering.
Issuance in connection with Acquisition of Manhattan Research Development, Inc.
In connection with the Registrant's merger with Manhattan Research
Development, Inc., effective as of February 21, 2003, it issued an aggregate of
18,689,916 shares of its common stock to the former stockholders of Manhattan
Research Development in exchange for their shares of Manhattan Research
Development common stock. In addition, at the time of the merger, Manhattan
Research Development had outstanding warrants to purchase an aggregate of
864,280 shares of its common stock, which automatically converted into warrants
to purchase an aggregate of 2,196,943 shares of the Registrant's common stock.
The form of warrant such warrant was attached as Exhibit 4.1 to the Registrant's
Form 10-QSB for the quarter ended March 31, 2003. The Registrant relied on the
exemption from federal registration under Section 4(2) of the Securities Act,
based on its belief that the issuance of such securities did not involve a
public offering, as there were fewer than 35 "non-accredited" investors, all of
whom, either alone or through a purchaser representative, had such knowledge and
experience in financial and business matters so that each was capable of
evaluating the risks of the investment.
II-3
Series A Convertible Preferred Stock
On November 5, 2003, the Registrant issued 1,000,000 shares of its
Series A Convertible Preferred Stock at a total offering price of $10,000,000.
Each share of Series A Convertible Preferred Stock is convertible into
approximately 9.1 shares of common stock. The Registrant engaged Maxim Group LLC
and, indirectly, Paramount Capital, Inc. as placement agents and paid aggregate
commissions of $700,000, plus non-accountable expenses of $150,000. The
Registrant also issued to the placement agents warrants to purchase an aggregate
of 9,090,909 shares of common stock at a price of $1.10 per share. The offer and
sale of the Series A Convertible Preferred Stock and the placement agent
warrants did not involve a public offering and was made solely to "accredited
investors," and was, therefore, exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) and Rule 506 promulgated thereunder.
January 2004 Private Placement
On January 12, 2004, the Registrant issued 3,368,637 shares of common
stock at a price of $1.10 per share. The Registrant engaged Paramount Capital,
Inc. as a placement agent in connection with the private placement, paying an
aggregate commission of approximately $251,000, plus non-accountable expenses of
$10,000. The Registrant also issued to the placement agent a warrant to purchase
326,499 shares of common stock exercisable at a price of $1.10 per share. The
offer and sale of the shares of common stock and the placement agent warrants
did not involve a public offering and was made solely to accredited investors,
and was, therefore, exempt from the registration requirements of the Securities
Act pursuant to Section 4(2) and Rule 506 promulgated thereunder.
ITEM 16. EXHIBITS.
The following exhibits are filed as part of this Registration
Statement:
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Merger among the Company, Manhattan
Pharmaceuticals Acquisition Corp. and Manhattan Research
Development, Inc. (formerly Manhattan Pharmaceuticals, Inc.)
dated December 17, 2002 (incorporated by reference to Exhibit
2.1 from Form 8-K filed March 5, 2003).
3.1 Certificate of incorporation, as amended through September 25,
2003 (incorporated by reference top Exhibit 3.1 to the
Registrant's Form 10-QSB for the quarter ended September 30,
2003).
3.2 Bylaws, as amended to date (incorporated by reference from
Registrant's registration statement on Form SB-2, as amended
(File No. 33-98478)).
3.3 Certificate of Designations of Series A Convertible Preferred
Stock.
4.1 Form of unit certificate (incorporated by reference from
Registrant's registration statement on Form SB-2, as amended
(File No. 33-98478)).
II-4
Exhibit No. Description
----------- -----------
4.2 Specimen common stock certificate (incorporated by reference
from Registrant's registration statement on Form SB-2, as
amended (File No. 33-98478)).
4.3 Form of redeemable warrant certificate (incorporated by
reference from Registrant's registration statement on Form
SB-2, as amended (File No. 33-98478)).
4.4 Form of redeemable warrant agreement between the Registrant
and Continental Stock Transfer & Trust Company (incorporated
by reference from Registrant's registration statement on Form
SB-2, as amended (File No. 33-98478)).
4.5 Form of underwriter's warrant certificate (incorporated by
reference from Registrant's registration statement on Form
SB-2, as amended (File No. 33-98478)).
4.6 Form of underwriter's warrant agreement between the Registrant
and Joseph Stevens & Company, L.P. (incorporated by reference
from Registrant's registration statement on Form SB-2, as
amended (File No. 33-98478)).
4.7 Form of subscription agreement between Registrant and the
selling stockholders (incorporated by reference from
Registrant's registration statement on Form SB-2, as amended
(File No. 33-98478)).
4.8 Form of bridge warrant (incorporated by reference from
Registrant's registration statement on Form SB-2, as amended
(File No. 33-98478)).
4.9 Warrant issued to John Prendergast to purchase 37,500 shares
of Registrant's common stock (incorporated by reference from
Exhibit 10.24 to the Registrant's Form 10-QSB for the quarter
ended March 31, 1997).
4.10 Warrant No. 1 issued to Joseph Stevens & Company, Inc. to
purchase 150,000 shares of Registrant's Common Stock
exercisable January 4, 2000 (incorporated by reference to
Exhibit 10.28 to the Registrant's Form 10-KSB for the year
ended December 31, 1999).
4.11 Warrant No. 2 issued to Joseph Stevens & Company, Inc. to
purchase 150,000 shares of Registrant's Common Stock
exercisable January 4, 2001 (incorporated by reference to
Exhibit 10.29 to the Registrant's Form 10-KSB for the year
ended December 31, 1999).
4.12 Warrant No. 3 issued to Joseph Stevens & Company, Inc. to
purchase 150,000 shares of Registrant's Common Stock
exercisable January 4, 2002 (incorporated by reference to
Exhibit 10.30 to the Registrant's Form 10-KSB for the year
ended December 31, 1999).
4.13 Warrant certificate issued May 12, 2000, by the Registrant to
TeraComm Research, Inc. (incorporated by reference from
Exhibit 10.3 to the registrant's Form 10-QSB for the quarter
ended June 30, 2000).
4.14 Form of stock purchase warrants issued on September 28, 2000
to BH Capital Investments, L.P., exercisable for shares of
common stock of the Registrant (incorporated by reference to
Exhibit 10.6 to the Registrant's Form 10-QSB for the quarter
ended September 30, 2000).
4.15 Form of stock purchase warrants issued on September 28, 2000
to Excalibur Limited Partnership, exercisable for shares of
common stock of the Registrant (incorporated by reference to
Exhibit 10.7 to the Registrant's Form 10-QSB for the quarter
ended September 30, 2000).
II-5
Exhibit No. Description
----------- -----------
4.16 Warrant certificate issued March 8, 2001 by the Registrant to
Dian Griesel (incorporated by reference to Exhibit 10.56 to
the Registrant's Form 10-QSB for the quarter ended March 31,
2001).
4.17 Form of warrant issued by Manhattan Research Development,
Inc., which automatically converted into warrants to purchase
shares of the Registrant's common stock upon the merger
transaction with such company (incorporated by reference to
Exhibit 4.1 to the Registrant's Form 10-QSB for the quarter
ended March 31, 2003).
4.18 Form of warrant issued to placement agents in connection with
the Registrant's November 2003 private placement of Series A
Convertible Preferred Stock and the Registrant's January 2004
private placement.
5.1 Opinion of Maslon Edelman Borman & Brand, LLP.
10.1 1995 stock option plan, as amended (incorporated by reference
to Exhibit 10.18 to the Registrant's Form 10-QSB for the
quarter ended September 30, 1996).
10.2 Common stock purchase agreement dated March 16, 2001, between
Registrant and Fusion Capital Fund II, LLC (incorporated by
reference from Exhibit 10.55 of the Registrant's Form 10-QSB
for the quarter ended March 31, 2001).
10.3 Common stock purchase agreement dated as of May 7, 2001,
between Registrant and Fusion Capital Fund II, LLC
(incorporated by reference to Exhibit 10.57 of Amendment No. 1
to the Registrant's registration statement on Form SB-2/A
filed June 29, 2001 (File 333-61974)).
10.4 Form of registration rights agreement between Registrant and
Fusion Capital Fund II, LLC (incorporated by reference to
Exhibit 10.58 of Amendment No. 1 to the Registrant's
registration statement on Form SB-2/A filed June 29, 2001
(File 333-61974)).
10.5 Third Amendment to Employment Agreement dated February 21,
2003 between the Registrant and Nicholas J. Rossettos
(incorporated by reference to Exhibit 10.3 to the Registrant's
Form 10-QSB for the quarter ended March 31, 2003).
10.6 Employment Agreement dated January 2, 2003, between Manhattan
Research Development, Inc. and Leonard Firestone, as assigned
to the Registrant effective as of February 21, 2003
(incorporated by reference to Exhibit 10.4 to the Registrant's
Form 10-QSB for the quarter ended March 31, 2003).
10.7 Employment Agreement dated February 28, 2003, between the
Registrant and Nicholas J. Rossettos (incorporated by
reference to Exhibit 10.5 to the Registrant's Form 10-QSB for
the quarter ended March 31, 2003).
10.8 License Agreement dated on or about February 28, 2002 between
Manhattan Research Development, Inc. (f/k/a Manhattan
Pharmaceuticals, Inc.) and Oleoyl-Estrone Developments SL
(incorporated by reference to Exhibit 10.6 to the Registrant's
Form 10-QSB for the quarter ended March 31, 2003).++
10.9 License Agreement dated April 4, 2003 between the Registrant
and NovaDel Pharma, Inc. (incorporated by reference to Exhibit
10.1 to the Registrant's Form 10-QSB for the quarter ended
June 30, 2003).++
II-6
Exhibit No. Description
----------- -----------
10.10 Employment Agreement dated January 2, 2004 between the
Registrant and Leonard Firestone.
16.1 Letter of KPMG LLP (incorporated by reference to Exhibit 99
filed with the Registrant's Form 8-K filed on December 12,
2002).
23.1 Consent of J.H. Cohn LLP.
23.2 Consent of Weinberg & Company, P.A.
23.3 Consent of Maslon Edelman Borman & Brand, LLP (included as
part of Exhibit 5.1).
24.1 Power of Attorney (included on signature page hereof).
-----------
++ Confidential treatment has been requested as to certain portions of
these exhibits pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.
ITEM 28. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect
in the prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the registration statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering; and
II-7
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-8
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, State of New York, on January 13,
2004.
MANHATTAN PHARMACEUTICALS, INC.
By: /s/ Leonard Firestone
-------------------------------------
Leonard Firestone
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature to this Registration Statement appears
below hereby constitutes and appoints David M. Tanen and Nicholas J. Rossettos
as his or her true and lawful attorney-in-fact and agent, with full power of
substitution, to sign on his or her behalf individually and in the capacity
stated below and to perform any acts necessary to be done in order to file all
amendments to this Registration Statement and any and all instruments or
documents filed as part of or in connection with this Registration Statement or
the amendments thereto and each of the undersigned does hereby ratify and
confirm all that said attorney-in-fact and agent, or his substitutes, shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1933,
this Registration Statement has been signed as of the 13th day of January, 2004,
by the following persons in the capacities indicated.
NAME TITLE
---- -----
/s/ Leonard Firestone President and Chief Executive Officer (Principal Executive
--------------------------------------- Officer)
Leonard Firestone
/s/ Nicholas J. Rossettos Chief Operating Officer, Chief Financial Officer,
--------------------------------------- Treasurer and Secretary (Principal Financial and
Nicholas J. Rossettos Accounting Officer)
/s/ Joshua Kazam Director
---------------------------------------
Joshua Kazam
/s/ Joan Pons Director
---------------------------------------
Joan Pons
/s/ David M. Tanen Director
---------------------------------------
David M. Tanen
/s/ Michael Weiser Director
---------------------------------------
Michael Weiser
II-9
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF DOCUMENT
------- -----------------------
3.3 Certificate of Designation of Series A Convertible Preferred
Stock
4.18 Form of warrant issued to placement agents in connection with
November 2003 private placement of Series A Convertible
Preferred Stock.
5.1 Opinion of Maslon Edelman Borman & Brand, LLP
10.10 Employment Agreement dated January 2, 2004, between Registrant
and Leonard Firestone
23.1 Consent of J.H. Cohn LLP
23.2 Consent of Weinberg & Company, P.A.
23.3 Consent of Maslon Edelman Borman & Brand, LLP (included as
part of Exhibit 5.1)
24.1 Power of Attorney (included on signature page hereof)
II-10