10-Q 1 form10q.htm MANHATTAN SCIENTIFICS, INC. FORM 10-Q form10q.htm
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-Q
 
(Mark One)
 
x
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934
For the fiscal quarter ended June 30, 2010
     
o
 
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________________________ to
 
Commission file number 000-28411
 
MANHATTAN SCIENTIFICS, INC.
(Exact name of small business issuer as specified in its charter)
 

 
Delaware
   
000-28411
   
85-0460639
(State of Incorporation)
   
(Commission File Number)
   
(IRS Employer Identification No.)
 
405 Lexington Avenue, 32nd Floor, New York, New York, 10174
 

(Address of principal executive offices) (Zip code)
Issuer’s telephone number: (212) 551-0577
 

Securities registered under Section 12(g) of the Exchange Act:
 
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
   
   
   
o
   
Accelerated filer
   
o
Non-accelerated filer
   
   
   
o
   
Smaller reporting company
   
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
There were 401,502,926 shares outstanding of registrant’s common stock, par value $.001 per share, as of August 6, 2010.
 
 
 
1

 
 
TABLE OF CONTENTS
 
   
 
   
Page
 
   
PART I
   
   
   
   
Item 1.
   
Financial Statements
   
   
   
   
 
   
Consolidated Balance Sheets as of June 30, 2010 (unaudited) and December 31, 2009
   
    
3
   
 
   
Unaudited Consolidated Statements of Operations and Other Comprehensive Income for the three months and six months ended June 30, 2010 and 2009
   
    
4
   
 
   
Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2010 and 2009.
   
    
5
   
 
   
Condensed Notes to Unaudited Consolidated Financial Statements
   
    
6
   
Item 2.
   
Management’s Discussion and Analysis of Financial Condition and Results of Operation
   
    
12
   
Item 3
   
Quantitative and Qualitative Disclosures About Market Risk
   
    
18
   
Item 4
   
Controls and Procedures
   
    
18
   
 
   
PART II
   
   
   
   
Item 1.
   
Legal Proceedings
   
    
19
   
Item 2
   
Unregistered Sales of Equity Securities and Use of Proceeds
   
    
19
   
Item 3
   
Defaults Upon Senior Securities
   
    
19
   
Item 4.
   
(Removed and Reserved)
   
    
19
   
Item 5.
   
Other Information
   
    
19
   
Item 6.
   
Exhibits
   
    
19
   
SIGNATURES
 
   
    
20
   
 
 
 
 
2

 
 
 
PART I
ITEM 1. FINANCIAL STATEMENTS
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

   
June 30, 2010
Unaudited
   
December 31, 2009
 
   
 
   
 
 
ASSETS
 
 
   
 
 
Current assets:
 
 
   
 
 
Cash and cash equivalents
  $ 278,000     $ 362,000  
Investments-available for sale
    151,000       151,000  
Prepaid expenses and other assets
    30,000       83,000  
Unbilled revenue
    43,000       -  
                 
Total current assets
    502,000       596,000  
                 
Investments
    2,000       2,000  
Intellectual property, net
    273,000       290,000  
Other asset
    2,000       2,000  
                 
TOTAL ASSETS
  $ 779,000     $ 890,000  
                 
LIABILITIES
               
Current liabilities
               
Accounts payable and accrued expenses
  $ 259,000     $ 219,000  
Accrued interest and expenses — related parties
    561,000       491,000  
Note payable to related party
    545,000       545,000  
Note payable to former officers
    450,000       450,000  
Note payable — other
    33,000       33,000  
                 
Total current liabilities
    1,848,000       1,738,000  
                 
Total  liabilities
    1,848,000       1,738,000  
                 
Commitments and Contingencies:
           
                 
STOCKHOLDERS’ DEFICIT
               
Capital stock $.001 par value
               
Preferred, authorized 1,000,000 shares
               
Series A convertible, redeemable, 10 percent cumulative, authorized
182,525, shares; issued and outstanding — none
           
Series B convertible, authorized 250,000 shares; 49,999 shares issued and outstanding
           
Series C convertible, redeemable, authorized 14,000 shares; issued and outstanding — none
           
Common, authorized 500,000,000 shares, 400,152,926 and 397,452,926 shares issued, and outstanding, respectively
    400,000       398,000  
Additional paid-in-capital
    51,974,000       51,692,000  
                 
Other accumulated comprehensive income
    151,000       151,000  
Accumulative deficit
    (53,594,000 )         (53,089,000 )  
                 
Total stockholder’s deficit
    (1,069,000 )         (848,000 )  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
  $ 779,000     $ 890,000  
                 
 
 
See notes to unaudited consolidated financial statements.

 
3

 
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 
 
     THREE MONTHS ENDED     SIX MONTHS ENDED  
    June 30, 2010      June 30, 2009     June 30, 2010     June 30, 2009  
                         
Revenue
  $ 171,000     $ 22,000     $ 343,000     $ 22,000  
Cost of revenue 
    37,000             75,000        
Gross profit
    134,000       22,000       268,000       22,000  
                                 
General and administrative expenses
    435,000       219,000       748,000       540,000  
                                 
Total operating costs and expenses
    435,000       219,000       748,000       540,000  
                                 
Loss from operations before other income and expenses
    (301,000 )       (197,000 )       (480,000 )       (518,000 )  
                                 
Other income and (expenses):
                               
Interest and other expenses
    (12,000 )       (12,000 )       (25,000 )       (25,000 )  
Interest income
                      1,000  
                                 
NET LOSS
    (313,000 )       (209,000 )       (505,000 )       (542,000 )  
                                 
Comprehensive income (loss)
                               
Unrealized gain (loss) on available for sale investments
    (64,000     268,000             247,000  
                                 
COMPREHENSIVE LOSS
  $ (377,000 )   $ 59,000     $ (505,000 )   $ (295,000 )
                                 
BASIC AND DILUTED LOSS PER COMMON SHARE:
                               
Weighted average number of common shares outstanding
    400,152,926       394,779,300       398,810,385       389,677,788  
                                 
Basic and diluted loss per common share
  $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.00 )
 
 
See notes to unaudited consolidated financial statements.
 
 
4

 
 

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 

 
   
SIX MONTHS ENDED
 
    June 30, 2010     June 30, 2009  
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (505,000 )   $ (542,000 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Stock based compensation related to vesting of stock warrants
    68,000       30,000  
Amortization of technology license, patents and intellectual property
    17,000       15,000  
Changes in operating assets and liabilities:
               
Prepaid expenses and other assets
    53,000       1,000  
Unbilled revenue
    (43,000 )      
Accounts payable and accrued expenses
    40,000       (11,000 )  
Accrued interest and expenses—related parties
    70,000       (34,000 )
                 
Net cash (used in) operating activities;
    (300,000 )       (541,000 )  
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
           
                 
Net cash provided by (used in) investing activities
           
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from issuance of common stock, net of offering costs
    216,000       203,000  
                 
Net cash provided by financing activities
    216,000       203,000  
                 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    (84,000 )       (338,000 )  
Cash and cash equivalents, beginning of period
    362,000       567,000  
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 278,000     $ 229,000  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Interest paid
  $     $  
                 
Income taxes paid
  $     $  
                 
 
See notes to unaudited consolidated financial statements.
 
 
5

 
 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2010

NOTE 1 – BASIS OF PRESENTATION
 
The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the period ended December 31, 2009. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.
 
The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumption are inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions that could have a material effect on the reported amounts of the Company’s financial position and results of operations.
 
Operating results for the three and six months period ended June 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.
 

NOTE 2 – ORGANIZATION AND OPERATIONS
 
Manhattan Scientifics, Inc., a Delaware corporation (formerly Grand Enterprises, Inc) (“Grand”) was established on July 31, 1992 and has three wholly-owned subsidiaries: Metallicum, Inc., (“Metallicum”), Tamarack Storage Devices, Inc. (“Tamarack”) and Teneo Computing, Inc. (“Teneo”) (collectively “the Company”). Currently, Metallicum is the only operating subsidiary; and Tamarack and Teneo are dormant. On June 12, 2008, the Company acquired Metallicum, Inc, for 15,000,000 shares of Company’s common stock, (Manhattan Scientifics, Inc., operates as a technology incubator that seeks to acquire, develop and commercialize life-enhancing technologies in various fields, with emphasis in the areas of nano-techonogies and nano-medicine. In this capacity, the Company continues to identify emerging technologies through strategic alliances with scientific laboratories, educational institutions, and scientists and leaders in industry and government. The Company has a long standing relationship with Los Alamos Laboratories in New Mexico. During 2008, the Company refocused its efforts from the development of its fuel cell technologies to its current focus on the development of nanomaterials through the acquisition of Metallicum.
 
Metallicum is a nanotechnology start-up company located in Santa Fe, New Mexico. Metallicum Inc. has focused on the development and manufacture of nanostructured metals for medical implants and other applications. Metallicum intends to establish manufacturing partner relationships with major Fortune 500 metals companies and strategic partnering with significant customers in the medical device & prosthetics industries as well as in auto, truck, & aircraft manufacturing industries. Metallicum’s initial products include nanostructured bulk metals and alloys in the form of rod, bar, wire and foil. The Company conducts its operations primarily in the United States.
 
Manhattan Scientifics purchased Metallicum to acquire its licensed rights to patented technology. The technology is comprised of three US Patents (US Patent numbers 7152448, 6197129 and 6399215) for which Metallicum (subsequently, Manhattan) had been assigned an exclusive license rights by Los Alamos National Security LLC (LANL). Under the license rights, Metallicum had all rights, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements on the patents or trade secrets whether or not patentable or registrable under copyright or similar laws.
 
In January 2009, the Company entered into a patent license agreement with Los Alamos National Security, LLC for the exclusive licensing use of certain technology relating to the manufacture and application of nanostructuring metals and alloys. Pursuant to such agreement the Company provided a non-refundable fee and 2,000,000 shares of our common stock. Additionally, the Company is required to pay an annual license fee starting in February 2010 and royalties on future net sales.
 
In September 2009, the Company entered into atechnology transfer agreement with Carpenter Technologies Corporation. Wherein Carpenter will fully develop, manufacture and market a new class of high strength metals under an exclusive technology transfer agreement from Manhattan Scientifics and the Los Alamos National Laboratory. The proprietary process will enable super-strength metals and alloys to make products that weigh far less than in the past and without significant cost premiums.
 
 
 
6

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2010
 
NOTE 2 – ORGANIZATION AND OPERATIONS (Continued)
 
The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.
 
Prior to September 2009, the Company had been considered a development stage company. As a result of the September 2009 technology sale to with Carpenter, the Company has fully commenced its planned operations and generation of significant revenues.  Accordingly, the Company has relied primarily upon private placements and subscription sales of stock to fund our continuing activities and acquisitions.
 

NOTE 3 - GOING CONCERN UNCERTAINTY
 
These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company continues to incur recurring losses and at June 30, 2010, had an accumulated deficit of $53,594,000. For the three and six months ended June 30, 2010, the Company sustained a net loss of $313,000 and $505,000, respectively. These factors, among others, indicate that the Company may be unable to continue as a going concern for a reasonable period of time. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is contingent upon its ability to obtain additional financing, and to generate revenue and cash flow to meet its obligations on a timely basis.
 

NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS
 
Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, “Generally Accepted Accounting Principles.” ASC 105-10 establishes the FASB Accounting Standards Codification TM (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification supersedes all existing non-SEC accounting and reporting standards. The FASB will now issue new standards in the form of Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the changes in the Codification. References made to FASB guidance have been updated for the Codification throughout this document.
 
PRINCIPLES OF CONSOLIDATION:
 
The consolidated financial statements include the accounts of the Company and its three wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated.
 
INTANGIBLE ASSETS:
 
License Agreements
 
In 2008, the Company obtained licenses to the rights of certain patents regarding nano-structured materials developed by another company as a result of the acquisition of Metallicum. The purchase price paid for these licenses was $305,000, which represents its fair value.  The Company obtained an exclusive license on two patents and a non-exclusive license on the third patent. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. At June 30, 2010 and December 31, 2009, accumulated amortization was $61,000 and $44,000, respectively. Under the terms of the agreement, the Company may be required to pay royalties, as defined, to the licensors.  
 
In 2009, the Company entered into a patent license agreement with Los Alamos National Security LLC for the exclusive use of certain technology relating to the manufacture and application of nanostructuring metals and alloys.  The purchase price paid for this license agreement was $33,000 based on the fair market value of 2,000,000 shares of common stock issued.  The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. At June 30, 2010 and December 31, 2009, accumulated amortization was $5,000 and $3,000, respectively. Under the terms of the agreement the Company is required to pay an annual license fee of $10,000 starting in February 2010 and, may be required to pay royalties, as defined, to the licensors. 
 
 
 
7

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2010
 
 
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS (Continued)
 
USE OF ESTIMATES:
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. A significant estimate includes the carrying value of the Company’s patents, fair value of the Company’s common stock, assumptions used in calculating the value of stock options, depreciation and amortization.
 
INVESTMENTS
 
Available-for-Sale Investments
 
Investments that the Company designates as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). The Company determines the cost of the investment sold based on the specific identification method. The Company’s available-for-sale investments include:
 
• 
Marketable equity securities The Company acquires these equity investments for the promotion of business and strategic objectives. The Company records the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on other equity investments, net.
Non-Marketable and Other Equity Investments
 
The Company accounts for non-marketable and other equity investments under either the cost or equity method and include them in other long-term assets. The non-marketable and other equity investments include:
 
• 
Non-marketable cost method investments when the equity method does not apply. The Company records the realized gains or losses on the sale of non-marketable cost method investments in gains (losses) on other equity investments, net.
STOCK-BASED COMPENSATION
 
The Company accounts for stock-based compensation based on the fair value of all option grants or stock issuances made to employees or directors on or after its implementation date (the beginning of fiscal 2006), as well as a portion of the fair value of each option and stock grant made to employees or directors prior to the implementation date that represents the unvested portion of these share-based awards as of such implementation date, to be recognized as an expense, as codified in ASC 718. The Company calculates stock option-based compensation by estimating the fair value of each option as of its date of grant using the Black-Scholes option pricing model.  These amounts are expensed over the respective vesting periods of each award using the straight-line attribution method. Compensation expense is recognized only for those awards that are expected to vest, and as such, amounts have been reduced by estimated forfeitures. The Company has historically issued stock options and vested and no vested stock grants to employees and outside directors whose only condition for vesting has been continued employment or service during the related vesting or restriction period.
 
The estimated fair value of grants of stock options and warrants to nonemployees of the Company is charged to expense, if applicable, in the financial statements. The Company did not issue any options or warrants during the three and six months ended June 30, 2010 and 2009.
 
 
 
8

 
 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2010
 
 
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS (Continued)
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
Effective January 1, 2008, the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures, Pre Codification SFAS No. 157, “Fair Value Measurements”, which provides a framework for measuring fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also expands disclosures about instruments measured at fair value and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
 
Level 1 — Quoted prices for identical assets and liabilities in active markets;
 
Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
 
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
 
The Company designates cash equivalents (consisting of money market funds) and investments in securities of publicly traded companies as Level 1. The total amount of the Company’s investment classified as Level 3 is de minimis.
 
The fair value of the Company’s debt as of June 30, 2010 and December 31, 2009 approximated their fair value at those times.
 
Fair value of financial instruments: The carrying amounts of financial instruments, including cash and cash equivalents, short-term investments, accounts payable, accrued expenses and notes payables approximated fair value as of June 30, 2010 and December 31, 2009 because of the relative short term nature of these instruments. At June 30, 2010 and December 31, 2009, the fair value of the Company’s debt approximates carrying value. The fair value of the Company’s available for sale securities was $151,000 at June 30, 2010 and these securities are classified as Level 1.
 
BASIC AND DILUTED LOSS PER SHARE
 
In accordance with FASB ASC 260, “Earnings Per Share,” the basic loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Basic net loss per share excludes the dilutive effect of stock options or warrants and convertible notes Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and warrants. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
 
REVENUE RECOGNITION
 
To date the only revenue generated is from the sale of field technology developed by Metallicum related to the Company’s nanotechnology, services provided and sample materials (See Note 9).
 
Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Service revenue is recognized when specific milestones are reached or as service is provided if there are no discernable milestones.
 
RECENTLY ISSUED ACCOUNTING STANDARDS
 
In January 2010, the FASB issued “Fair Value Measurements and Disclosures - Improving Disclosures about Fair Value Measurements.”  This statement requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in FASB Statement “Fair Value Measurement”.  The amendments are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The adoption of this pronouncement did not have a material effect on our consolidated financial statements.
 
 
 
9

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2010
 
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS (Continued)
 
In September 2009, the Emerging Issues Task Force (“EITF”) issued “Revenue Arrangements with Multiple Deliverables .”  This issue addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate the consideration to each unit of accounting.  This issue eliminates the use of the residual value method for determining allocation of arrangement consideration and allows the use of an entity's best estimate to determine the selling price if vendor specific objective evidence and third-party evidence cannot be determined.  This issue also requires additional disclosure to provide both qualitative and quantitative information regarding the significant judgments made in applying this issue.  In addition, for each reporting period in the initial year of adoption, this issue requires disclosure of the amount of revenue recognized subject to the measurement requirements of this issue and the amount of revenue that would have been recognized if the related transactions were subject to the measurement requirements of Issue 00-21.  This issue is effective for revenue arrangements entered into or materially modified in fiscal years beginning after June 15, 2010.  Early adoption is permitted.  We are currently assessing the potential impact of the adoption of these rules on our consolidated financial statement disclosures.
 
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force (“EITF”), the American Institute of Certified Public Accountants (“AICPA”), and the SEC did not or are not believed by us to have a material impact on our present or future financial statements.  The Company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
 

NOTE 5 – CAPITAL TRANSACTIONS
 
During the quarter ended June 30, 2010, the Company received $216,000 related to a private placement offering for shares of the Company’s common stock at a price of $0.08 per share for a total of 2,700,000 shares. The private placement offering originally provided for the offer and sale of up to 5,000,000 unregistered shares of the Company’s common stock which has since been closed as of June 30, 2010 of which of total of 2,700,000 shares had been sold.
 

NOTE 6 – INVESTMENTS
 
The Company made an investment in Novint Technologies Inc. (“Novint”) in 2001. The Company initially recorded its investment using the equity method of accounting and wrote down the investment to $-0- in 2004 as it recorded its proportionate share of Novint's net loss.  
 
In prior years, the Company had significant control of Novint because of Mr. Maslow's position as a shareholder and board member of both the Company and Novint. Mr. Maslow resigned from the board of the Company in October 2007 and therefore the Company no longer has significant control of Novint. As of June 30, 2010 and December 31, 2009, the Company owned 1,075,648 shares of Novint common stock or approximately 3% and modified its accounting for the ownership position in accordance with FASB ASC 820. The fair value of the Novint shares was $151,000 and $151,000 as of June 30, 2010 and December 31, 2009, respectively.
 
The Company has an additional investment in Aprilis, Inc. which is accounted for at a cost of $2,000 as of June 30, 2010 and December 31, 2009.
 

NOTE 7 – RELATED PARTY AND FORMER OFFICERS NOTES PAYABLE
 
In December 2007, the former Chief Operating Officer and former Chief Executive Officer collectively forgave $1,416,500 of their outstanding accrued salaries ($1,387,500) and note payable ($29,000) balances. The amount forgiven has been accounted for as contributed capital. Additionally, the Company repaid $5,000 of the former Chief Executive Officer’s note payable balance. The remaining unpaid notes payable balances totaling $995,000 at June 30, 2010 and December 31, 2009 comprised of loans payable due on demand of $450,000 and $545,000 to its former Chief Operating Officer and Chief Executive Officer, respectively.
 
The loans bore interest at 5.5% per annum and were initially due December 31, 2002 and have been mutually extended and settled. Under the terms of the note extensions dated December 12, 2007, the loans bear interest at 5% per annum and are now due on demand. The Company has recorded interest expense for notes payable to these former officers of approximately $12,000 and $24,000 each for the three and six months ended June 30, 2010 and 2009, respectively. Accrued interest related to these notes payable approximated $356,000 and $332,000 as of June 30, 2010 and December 31, 2009, respectively and is included in accrued liabilities, related parties.
 
 
 
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MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2010
 

NOTE 8 – NOTES PAYABLE – OTHER
 
During the years ended December 31, 2005 and December 31, 2004, the Company issued convertible notes in the amount of $33,000. The notes had a one year maturity date, are noninterest bearing and upon maturity convertible at the current per share price. These notes have not been paid and are currently in default.
 

NOTE 9 – TECHNOLOGY SALE AND SUB-LICENSE AGREEMENT
 
To date the only revenue generated is from the exclusive sale of field technology developed by Metallicum, services provided and sample materials.
 
Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Service revenue is recognized when specific milestones are reached or as service is provided if there are no discernable milestones.
 
On September 12, 2009, the Company entered into a contract with Carpenter Technology Corp. to sell certain nanostructured metal technologies acquired from Metallicum, Inc, its wholly owned subsidiary, to Carpenter and to provide sub-license rights to Carpenter covering license agreements that the Company has from Los Alamos Laboratories.  The agreement has two distinct elements: and sale and services agreement and a sub-license agreement.  The first element irrevocably transfers the field technology to Carpenter Technology Corporation and Carpenter many develop or use the technology for its own benefit.  Carpenter agrees to pay a sales price of $600,000 and pay royalties for products developed using this technology.  In addition, the Company can receive additional service income for assisting Carpenter in the production process.  These additional services are elective and do not affect the sale of the technology.  The second element of the agreement is a sub-license to Carpenter for patents (the LANS patents) that are licensed by the Company from  Los Alamos Laboratories.  The sub-license agreement obligates Carpenter to pay MSI a running royalty on the sales of products that require license to the LANS patents but does not have any upfront fee or annual minimum royalties.
 
The Company recognized the sales revenue upon transfer of the technology and the service income over the term of the agreement.  The royalty income will be recognized as products are developed using the field technology or sub-license.
 
The $343,000 of revenue recognized for the six months ended June 30, 2010 related to service income. The Company earned service income for time that a consultant to the Company, Dr. Lowe, made himself available to Carpenter in accordance with the Technology Transfer Agreement.   The fees earned pursuant to the agreement with Carpenter are being proportionately recognized as revenue based upon the total fees to be collected over a 44 month period.  The 44 month period is based on the time periods described in the Agreement (6 months after effective date), (12 months after effective date), and (each of the first 3 anniversaries of Annuity date where the “Annuity date” is the date of the latter of 18 months after the effective date or the date Manhattan Scientific fully satisfies its duties under of the Agreement).The cost of revenue totaling $75,000 for the same period relates to consulting fees paid to Dr. Lowe during the period. The Company has received $300,000 and the remaining earned fees have been recorded as unbilled revenue.
 

NOTE 10 – SUBSEQUENT EVENTS
 
In July 2010, the Company issued 350,000 shares of common stock to a consultant for services valued at $24,500.  The consultant will provide public relations and marketing services for a period of six months having commenced in June 2010.
 
In July 2010, the Company issued 1,000,000 shares of common stock as a signing incentive to a new board of director valued at $70,000.
 
 
.
 
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
Forward Looking Statements
 
This Form 10-Q contains “forward-looking” statements including statements regarding our expectations of our future operations. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include, but are not limited to, economic conditions generally and in the industries in which we may participate. In addition, these forward-looking statements are subject, among other things, to our successful completion of the research and development of our technologies; successful commercialization of our technologies; successful protection of our patents; and effective significant industry competition from various entities whose research and development, financial, sales and marketing and other capabilities far exceeds ours. In light of these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to announce publicly revisions we make to these forward-looking statements to reflect the effect of events or circumstances that may arise after the date of this report.
 
COMPANY HISTORY
 
Manhattan Scientifics, Inc., a Delaware corporation (formerly Grand Enterprises, Inc) (“Grand”) was established on July 31, 1992 and has three wholly-owned subsidiaries: Metallicum, Inc., (“Metallicum”), Tamarack Storage Devices, Inc. (“Tamarack”) and Teneo Computing, Inc. (“Teneo”) (collectively “the Company”), a development stage enterprise.  Currently, Metallicum is the only operating subsidiary; and Tamarack and Teneo are dormant.  On June 12, 2008, the Company acquired Metallicum, Inc, for 15,000,000 shares of Company’s common stock,
 
Manhattan Scientifics, Inc., operates as a technology incubator that seeks to acquire, develop and commercialize life-enhancing technologies in various fields, with emphasis in the areas of nanomedicine, and nanomaterials. In this capacity, the Company continues to identify emerging technologies through strategic alliances with scientific laboratories, educational institutions, scientists and leaders in industry and government.  The Company has a long standing relationship with Los Alamos Laboratories in New Mexico. During 2008, the Company refocused its efforts from the development of its fuel cell technologies to its current focus on the development of nanomaterials through the acquisition of Metallicum.
 
Metallicum is a nanotechnology start-up company located in Santa Fe, New Mexico. Metallicum Inc. has focused on the development and manufacture of nanostructured metals for medical implants and other applications.  Metallicum intends to establish manufacturing partner relationships with major Fortune 500 metals companies and strategic partnering with significant customers in the medical device & prosthetics industries as well as in auto, truck, & aircraft manufacturing industries. Metallicum’s initial products include nanostructured bulk metals and alloys in the form of rod, bar, wire and foil.  The Company conducts its operations primarily in the United States.
 
In September 2009, the Company entered into a technology transfer sales agreement with Carpenter Technology Corporation, (“Carpenter”) wherein Carpenter will fully develop, manufacture and market a new class of high strength metals under the exclusive field technology sales agreement with Manhattan Scientifics. The proprietary process will enable super-strength metals and alloys to make products that weigh far less than in the past and without significant cost premiums. Prior to September 2009, the Company had been considered a development stage company. As a result of the September 2009 with the sale of technology to Carpenter, the Company has fully commenced its planned operations and generation of significant revenues.
 
On February 8, 2010, the Company entered into an Acquisition Option Agreement with Senior Scientific LLC (“Senior Scientific”), Edward R. Flynn, Ph.D. ("Dr. Flynn") and Scientific Nanomedicine, Inc. (“Scientific Nanomedicine”).  The agreement transfers the commercial rights to technology and intellectual property with respect to the early detection of diseases using nanotechnologies owned by Scientific Nanomedicine.  The technology and intellectual property owned by Scientific Nanomedicine was developed by Senior Scientific and its President and Chief Executive Officer Dr. Edward R. Flynn.
 
The agreement gives the Company the future exclusive right to acquire Scientific Nanomedicine and its technology.  The Company can complete the acquisition by payment of a purchase price comprising cash and shares of the Company’s common stock.  The Company intends to pursue its established business model to work in close cooperation with pharmaceutical companies and medical device manufacturers to commercialize this technology.
 
The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.
 
 
 
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In the recent past, we have worked to develop and commercialize three technologies:
 
 
Micro fuel cell technology, which is designed to become an ultra efficient miniature electricity generator that converts hydrogen into electricity by chemical means, for portable electronic devices, including cellular telephones, as a substitute for lithium ion and other batteries in common use today.

 
 
Mid-range fuel cell technology, which is an ultra efficient medium-size electricity generating device that converts hydrogen into electricity, with potential applications including personal transportation, cordless appliances, power tools, wheelchairs, bicycles, boats, emergency home generators, military field communications and laptop computers.

 
 
Haptics "Touch and Feel" computer applications, which is a technology that allows computer users to be able to touch and feel any objects they see on their computer screen with the aid of special "mouse." Detailed texture, object-weight, stickiness, viscosity and object density can be "felt" or sensed. Management believes this haptics technology may positively impact the way computers are used everywhere by introducing the ability to "touch." (Please see Haptics "Touch and Feel" Internet Applications and Investment in Novint Technologies, Inc.”
 
We are not presently using our resources to develop these three technologies but concentrating on nanometals and nanomedicine technology transfer and commercialization.  We are also seeking to develop corporate opportunities to benefit our shareholders; however, other than as set forth in this document, we have not executed agreements or finalized arrangements for any other technologies or opportunities as of the date of this Form 10-Q.
 
OUR DEVELOPMENT MODEL
 
Our goal has been to influence the future through the development of potentially disruptive or sea-change technologies. Our business model has previously been to: (i) identify significant technologies, (ii) acquire them or the rights to them, (iii) secure the services of inventors, engineers or other staff who were instrumental in their creation, (iv) provide or contract for suitable work facilities, laboratories, and other aids where appropriate, (v) prototype the technologies to demonstrate "proof of principle" feasibility, (vi) secure patent and or other intellectual property protection, (vii) secure early customers for product trials where feasible and appropriate, and (viii) commercialize through licenses, sales or cooperative efforts with other manufacturing and distribution firms.
 
Since our technologies are still in their development phase, we have generated only limited revenues. As such, the need for operating and acquisition capital is a continuous concern requiring the ongoing efforts of our management. We are not a large capital-user but have raised since our reverse merger in January 1998 approximately $18 million in capital from notes payable to stockholders, proceeds from convertible notes and net proceeds from common stock and preferred stock.  Our management intends to work diligently to raise capital on an as needed basis through private placements, registered public offerings, debt, and/or other financing vehicles.
 
We utilize the intellectual property sale/licensing model, and not a production model, though management is opportunistic and is open to explore all methods leading to commercializing our technologies. We intend to consider all appropriate avenues for the commercialization of our technologies.
 
ACQUISITION OF ADVANCED MATERIALS (METALLICUM, INC.)
 
In June 2008, we acquired Metallicum, Inc. (“Metallicum”) and its nanotechnology and its licensed rights to patents granted by Los Alamos National Security.  We entered into a stock purchase agreement with Metallicum, Inc. to acquire all of the outstanding capital in exchange for 15,000,000 shares of our common stock.  An additional 15,000,000 shares of our common stock will be payable to Metallicum in the event of meeting certain milestones. At June 30, 2010, one milestone was met.  Metallicum was granted an exclusive license by The Los Alamos National Laboratory on  patents related to nanostructured materials.  
 
Metallicum is a nanotechnology start-up company located in Santa Fe, New Mexico. Metallicum has focused on the development and manufacture of nanostructured metals for medical implants and other applications.  Metallicum intends to establish manufacturing partner relationships with major Fortune 500 metals companies and strategic partnering with significant customers in the medical device & prosthetics industries as well as in auto, truck, & aircraft manufacturing industries. Metallicum’s initial products include nanostructured bulk metals and alloys in the form of rod, bar, wire and foil.  
 
We purchased Metallicum to acquire its licensed rights to patented technology and other technologies which it had developed.  The license comprised of three US Patents (US Patent numbers 7152448, 6197129 and 6399215) for which Metallicum (subsequently, Manhattan) had been assigned an exclusive license rights by Los Alamos National Security LLC (LANL).  Under the license rights, we haveall rights, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements on the patents or trade secrets whether or not patentable or registerable under copyright or similar laws.
 
 
 
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ADVANCED MATERIALS
 
Our business model is based on licensing our technology to customers such as metals manufacturers. Although competing commercial products are provided by existing specialty metals companies, the only competing processes for creating nanostructured metals are either limited or cannot be economically scaled.  Metallicum does not yet face direct competition, but expects competition will emerge in 2010.
 
In January 2009, we entered into a perpetual patent license agreement with Los Alamos National Security, LLC for the exclusive use of certain patents relating to the manufacture and application of nanostructuring metals and alloys. Pursuant to such agreement we provided a non-refundable fee and 2,000,000 shares of our common stock with a fair market value of $33.000. Additionally, we are required to pay an annual license fee of $10,000 starting in February 2010 and royalties on future net sales.
 
The technology is expected to trim thousands of pounds from airplanes and hundreds of pounds from cars without sacrificing structural strength or adding significant cost.  In September 2009, the Company entered into a contract with Carpenter Technology Corporation, (“Carpenter”) wherein Carpenter purchased the right to fully develop, manufacture and market a new class of high strength metals using technology developed by Metallicum.
 
NANOMEDICINE
 
The term "Nanomedicine" is commonly used to describe the convergence of nanotechnology and pharmacology.  We intend to use advanced materials and the technology we may acquire from Senior Scientifics to create a nanomedicine division.
 
Nanostructured metals also have wide implications for use in the medical device and prosthetics industries including dental implants, replacements for hips, shoulders, knees and cardio vascular stents.  In December 2008, a manufacturing joint venture partner in Albuquerque, N.M. received U.S. Food and Drug Administration 510(k) clearance to market nanostructued titanium metal dental implants using our technology.  We plan to work with manufacturers to create metals that integrate with human tissue, different from today's state of the art prosthetics where human parts and mechanical man-made parts work together but retain their separate identity.
 
Manhattan Scientifics announced that it had acquired exclusive rights to commercialize the early cancer detection technology developed by Senior Scientific and a team of scientists led by Dr. Flynn, Ph.D.  The non-radiation diagnostic technology, which is in the early stages of testing, uses cancer-seeking nanotechnology. Magnetic, nano-sized cancer-targeting antibodies which bind only to cancer cells are employed, and are capable of detecting a cancerous breast tumor with only 100,000 malignant cells. The current gold-standard Mammogram requires 100 million malignant cells before a tumor can be detected. The new experimental technology is 1,000 times more sensitive and capable of detecting breast cancers 3 years earlier than with Mammograms.  Manhattan Scientifics is screening the medical device and biotechnology industries, and has entered into discussions with former senior management of the FDA in an effort to accelerate the process to bring product to the market.
 
INTELLECTUAL PROPERTY / RESEARCH AND DEVELOPMENT
 
Our ability to compete depends in part on the protection of and our ability to defend our proprietary technology and on the goodwill associated with our trade names, service marks and other proprietary rights. However, we do not know if current laws will provide us with sufficient enough protection that others will not develop technologies similar or superior to ours, or that third parties will not copy or otherwise obtain or use our technologies without our authorization.
 
The success of our business will depend, in part, to identify technology, obtain patents, protect and enforce patents once issued and operate without infringing on the proprietary rights of others. Our success will also depend on our ability to maintain exclusive rights to trade secrets and proprietary technology we own, are currently developing and will develop. We can give no assurance that any issued patents will provide us with competitive advantages or will not be challenged by others, or that the patents of others will not restrict our ability to conduct business.
 
In addition, we rely on certain technology licensed from third parties, including the Los Alamos National Laboratory and the Sandia National Laboratory and may be required to license additional technologies in the future. We do not know if these third-party licenses will be available or will continue to be available to us on acceptable commercial terms or at all. The inability to enter into and maintain any of these licenses could have a material adverse effect on our business, financial condition or results of our operations.
 
Policing unauthorized use of our proprietary technology and other intellectual property rights could entail significant expense. In addition, we do not know if third parties will bring claims of copyright or trademark infringement against us or claim that our use of certain technologies violates a patent or other intellectual property. Any claims of infringement, with or without merit, could be time consuming and expensive to defend, result in costly litigation, divert management attention, require us to enter into costly royalty or licensing arrangements or prevent us from using important technologies or methods, any of which could have a material adverse effect on our business, financial condition or results of our operations.
 
 
 
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RESULTS OF OPERATIONS
 
THREE MONTHS ENDED JUNE 30, 2010 COMPARED TO THREE MONTHS ENDED JUNE 30, 2009.
 
GROSS PROFIT. The $171,000 of revenue recognized for the three months ended June 30, 2010 related to service income. The Company earned service income for time that a consultant to the Company, Dr. Lowe, made himself available to Carpenter in accordance with the Technology Transfer Agreement. The fees earned pursuant to the agreement with Carpenter are being proportionately recognized as revenue based upon the total fees to be collected over a 44 month period.  The 44 month period is based on the time periods described in the Agreement (6 months after effective date), (12 months after effective date), and (each of the first 3 anniversaries of Annuity date where the “Annuity date” is the date of the latter of 18 months after the effective date or the date Manhattan Scientific fully satisfies its duties under of the Agreement).  The cost of revenue totaling $37,000 for the same period relates to consulting fees paid to Dr. Lowe during the period. The Company has received $300,000 and the remaining earned fees have been recorded as unbilled revenue.
 
GENERAL AND ADMINISTRATIVE. General and administrative expenses consists of consultants, contractors, accounting, legal, travel, rent, telephone and other day to day operating expenses. General and administrative expenses were $435,000 for the three months ended June 30, 2010 compared with $219,000 for the three months ended June 30, 2009.  General and administrative expenses increased primarily as a result of costs incurred related to researching patents for Senior Scientific technology and costs associated with investor relations.
 
NET LOSS. Our net loss was $313,000 for three months ended June 30, 2010 compared to $209,000 for the three months ended June 30, 2009. The increase in net loss resulted from higher general and administrative costs partially offset by higher gross profit.
 
COMPREHENSIVE LOSS: Our comprehensive loss was $377,000 for three months ended June 30, 2010 compared to $59,000 for the three months ended June 30, 2009. The comprehensive loss was the result of a higher net loss of $313,000 and a $64,000 unrealized loss in the market value of our shares of Novint Technologies, Inc. (“Novint”) during the second quarter of 2010 compared to a $209,000 net loss and a $268,000 unrealized gain in the market value of our shares of Novint in the second quarter of 2009 As of June 30, 2010 and June 30, 2009, we owned 1,075,648 shares of common stock of Novint.  Novint had a quoted market price on the Pink Sheets of $0.14 as of June 30, 2010 and $0.35 as of June 30, 2009.
 
SIX MONTHS ENDED JUNE 30, 2010 COMPARED TO SIX MONTHS ENDED JUNE 30, 2009.
 
GROSS PROFIT. The $343,000 of revenue recognized for the six months ended June 30, 2010 related to service income. The Company earned service income for time that a consultant to the Company, Dr. Lowe, made himself available to Carpenter in accordance with the Technology Transfer Agreement.   The fees earned pursuant to the agreement with Carpenter are being proportionately recognized as revenue based upon the total fees to be collected over a 44 month period.  The 44 month period is based on the time periods described in the Agreement (6 months after effective date), (12 months after effective date), and (each of the first 3 anniversaries of Annuity date where the “Annuity date” is the date of the latter of 18 months after the effective date or the date Manhattan Scientific fully satisfies its duties under of the Agreement).The cost of revenue totaling $75,000 for the same period relates to consulting fees paid to Dr. Lowe during the period.
 
GENERAL AND ADMINISTRATIVE. General and administrative expenses consists of consultants, contractors, accounting, legal, travel, rent, telephone and other day to day operating expenses. General and administrative expenses were $748,000 for the six months ended June 30, 2010 compared with $540,000 for the six months ended June 30, 2009.  General and administrative expenses increased primarily as a result of costs incurred related to researching patents for Senior Scientific technology and costs associated with investor relations.
 
NET LOSS. Our net loss was $505,000 for six months ended June 30, 2010 compared to $542,000 for the six months ended June 30, 2009. The decrease in net loss resulted from higher gross profit partially offset by higher general and administrative costs.
 
COMPREHENSIVE LOSS: Our comprehensive loss was $505,000 for six months ended June 30, 2010 compared to $295,000 for the six months ended June 30, 2009. The increase in comprehensive loss was the result of a $247,000 gain in the market value of our shares of Novint during the first six months of 2009.
 
LIQUIDITY AND PLAN OF OPERATIONS
 
Prior to September 2009, the Company had been considered a development stage company. As a result of the September 2009 technology transfer agreement and sale of technology to Carpenter, the Company has fully commenced its planned operations and generation of significant revenues.  Accordingly, we have relied primarily upon private placements and subscription sales of stock to fund our continuing activities and acquisitions. To a limited extent, we have also relied upon borrowing from our officers.  
 
Stockholders’ equity totaled a deficit of $1,069,000 on June 30, 2010 and the working capital was a deficit of $1,346,000 on such date. Although, we anticipate we may sell additional common stock and issue shares and/or options in exchange for services, we anticipate that in 2010 revenues from our technology sales and service agreement will cover our entire overhead and the cost of our operations.
 
At June 30, 2010, our significant assets include our portfolio of intellectual property relating to the various technologies, our contracts with third parties pertaining to technology development, acquisition, and licensing, and 1,075,648 shares of common stock of Novint; our cash on hand; and our strategic alliances with various scientific laboratories, educational institutions, scientists and leaders in industry and government.
 
 
 
 
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We had a decrease of $84,000 in cash and cash equivalents for the quarter ended June 30, 2010, as a result of cash  used in operating activities ($300,000) partially offset by proceeds from the issuance of our common stock ($216,000).  
 
For the six months ended June 30, 2010, cash used in operating activities was $300,000 compared to $541,000 used in operating activities for the six months ended June 30, 2009. The decrease in cash used in operating activities, equal to $241,000, was primarily as a result of a lower net loss in 2010 compared to 2009($37,000) and an increase in adjustments to net loss for non-cash activities ($204,000), primarily as a result of adjustments for stock-based compensation related to the vesting of stock warrants in 2010 ($38,000) and less cash used to pay for working capital items ($164,000) primarily due to an increase in accrued interest and expenses and accounts payable  in the six months ended June 30, 2010.
 
Based upon current projections, our principal cash requirements for the next 12 months consists of (1) fixed expenses, including payroll, investor relations services, public relations services, bookkeeping services, consultant services, and rent; and (2) variable expenses, including technology research and development, milestone payments and intellectual property protection, and additional scientific consultants. As of June 30, 2010, we had $278,000 in cash. We intend to satisfy our capital requirements for the next 12 months from our cash on hand and cash generated from our technology transfer agreements which we anticipate will cover our entire overhead and the cost of our operations.
 
For the six months ended June 30, 2010, the Company received $216,000 related to a private placement offering for shares of the Company’s common stock at a price of $0.08 per share for a total of 2,700,000 shares. The private placement offering originally provided for the offer and sale of up to 5,000,000 unregistered shares of the Company’s common stock which has since been closed as of June 30, 2010 of which of total of 2,700,000 shares had been sold. As of June 30, 2010, the Company had not issued the 2,700,000 shares related to the private placement offering and has recorded such obligation to issue such shares as stock payable which is included as part of stockholders’ deficit totaling $216,000.
 
GOING CONCERN
 
Our independent registered public accounting firms have stated in their audit report on our December 31, 2009 and 2008 consolidated financial statements, that we have experienced recurring losses and have working capital deficit. The conditions, among others, raise substantial doubt about our ability to continue as a going concern.
 
RECENTLY ISSUED ACCOUNTING STANDARDS

In January 2010, the FASB issued “Fair Value Measurements and Disclosures - Improving Disclosures about Fair Value Measurements.”  This statement requires some new disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in FASB Statement “Fair Value Measurement”.  The amendments are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  The adoption of this pronouncement did not have a material effect on our consolidated financial statements.
 
In September 2009, the Emerging Issues Task Force (“EITF”) issued “Revenue Arrangements with Multiple Deliverables .”  This issue addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting and how to allocate the consideration to each unit of accounting.  This issue eliminates the use of the residual value method for determining allocation of arrangement consideration and allows the use of an entity's best estimate to determine the selling price if vendor specific objective evidence and third-party evidence cannot be determined.  This issue also requires additional disclosure to provide both qualitative and quantitative information regarding the significant judgments made in applying this issue.  In addition, for each reporting period in the initial year of adoption, this issue requires disclosure of the amount of revenue recognized subject to the measurement requirements of this issue and the amount of revenue that would have been recognized if the related transactions were subject to the measurement requirements of Issue 00-21.  This issue is effective for revenue arrangements entered into or materially modified in fiscal years beginning after June 15, 2010.  Early adoption is permitted.  We are currently assessing the potential impact of the adoption of these rules on our consolidated financial statement disclosures.
 
 
 
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Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force (“EITF”), the American Institute of Certified Public Accountants (“AICPA”), and the SEC did not or are not believed by us to have a material impact on our present or future financial statements.
 
The Company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
 
 CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. A significant estimate includes the carrying value of our patents, fair value of our common stock, assumptions used in calculating the value of stock options, depreciation and amortization.
 
Investments - Available-for-Sale Investments
 
Investments that we designate as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). We determine the cost of the investment sold based on the specific identification method. Our available-for-sale investments include Marketable equity securities. We acquire these equity investments for the promotion of business and strategic objectives. We record the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on other equity investments, net
 
Stock-Based Compensation:
 
The Company follows the provisions of FASB ASC 718 Compensation — Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values. The Company estimates the expected term, which represents the period of time from the grant date that the Company expects its stock options to remain outstanding, using the simplified method as permitted by SAB 107 and SAB 110. Under this method, the expected term is estimated as the mid-point between the time the options vest and their contractual terms. The Company continues to apply the simplified method because it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected terms due to the limited period of time its equity shares have been publicly traded and the limited number of its options which have so far vested and become eligible for exercise.
 
The estimated fair value of grants of stock options and warrants to nonemployees of the Company is charged to expense, if applicable, in the financial statements. The Company did not issue any options or warrants during the three months ended June 30, 2010 and 2009.
 
Revenue Recognition
 
To date the only revenue generated is from the sale of technology, service agreement and sample materials.
 
Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Service revenue is recognized when specific milestones are reached or as service is provided if there are no discernable milestones.
 

 
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OFF BALANCE SHEET ARRANGEMENTS
 
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations liquidity, capital expenditures or capital resources and would be considered material to investors.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable
 
ITEM 4T. CONTROLS AND PROCEDURES
 
(a) Evaluation of Disclosure Controls and Procedures
 
We conducted an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.  Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive and principal financial officers concluded as of June 30, 2010 that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in our internal controls over financial reporting discussed immediately below.
 
This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management's report in this quarterly report.
 
Management’s Report on Internal Control Over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Our internal control over financial reporting includes those policies and procedures that:
 
 
1. 
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
 
2.
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and
 
3.
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
 
Management assessed the effectiveness of our internal control over financial reporting as of June 30, 2010. Based on this assessment, management concluded that the Company did not maintain effective internal controls over financial reporting as a result of the identified material weakness in our internal control over financial reporting described below. In making this assessment, management used the framework set forth in the report entitled Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.  
 
 
 
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Identified Material Weakness
 
A material weakness in our internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected.
 
Management identified the following material weakness during its assessment of internal controls over financial reporting as of December 31, 2009:
 
Resources: As of December 31, 2009, we had one full-time employee in general management and no full-time employees with the requisite expertise in the key functional areas of finance and accounting.  As a result, there is a lack of proper segregation of duties necessary to insure that all transactions are accounted for accurately and in a timely manner.
 
Written Policies & Procedures: We need to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions, and prepare, review and submit SEC filings in a timely manner.
 
Audit Committee: We do not have, and are not required, to have an audit committee.  An audit committee would improve oversight in the establishment and monitoring of required internal controls and procedures.
 
Management’s Remediation Initiatives
 
During the year ended December 31, 2009, we generated revenue and are no longer a development stage company. As our resources allow, we will add financial personnel to our management team. We plan to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions. We will also create an audit committee made up of our independent directors.
 
(b)
Changes In Internal Control Over Financial Reporting
During the quarter ended June 30, 2010, the Company prepared written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions There were no other changes in our internal controls over financial reporting during this fiscal quarter that materially affected, or is reasonably likely to have a materially affect, on our internal control over financial reporting.
 
PART II
 
ITEM 1. LEGAL PROCEEDINGS
 
We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of June 30, 2010, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements.
 
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None
 
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
 
Not Applicable
 
ITEM 4. (Removed and Reserved)
 
ITEM 5. OTHER INFORMATION
 
Not Applicable.
 
ITEM 6. EXHIBITS
 
Index to Exhibits
 
31.1
   
   
Certification of Chief Executive Officer under Rule 13(a) — 14(a) of the Exchange Act.
31.2
   
   
Certification of Chief Financial Officer under Rule 13(a) — 14(a) of the Exchange Act.
32
   
   
Certification of CEO and CFO under 18 U.S.C. Section 1350
 
 
 
 
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SIGNATURES
 
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 9th day of August, 2010.
 
 
   
   
   
MANHATTAN SCIENTIFICS, INC.
 
   
   
   
By: /s/ Emmanuel Tsoupanarias     
 
   
   
   
Emmanuel Tsoupanarias
Chief Executive Officer
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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