10-K/A 1 form10k.htm MANHATTAN SCIENTIFICS FORM 10-K/A form10k.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
FORM 10-K/A
(Amendment #1)
 
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2008
 
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
 
SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______.
 
MANHATTAN SCIENTIFICS, INC.
 (Name of small business issuer 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 pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value
 (Title of Class)

Indicate by check mark if the issuer is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes [   ] No [X]

Indicate by check mark if the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [   ] No [X]

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

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-B (§229.405) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

Indicate by check mark whether the issuer is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act
 
Large accelerated filer [  ]                                                                                   Accelerated filer [  ]
 
Non-accelerated filer [  ]                                                                                     Smaller-reporting company [X]

Indicate by check mark whether the issuer is a shell company (a defined in Rule 12b-2 of the Act) Yes [   ] No [X]

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the issuer as of June 30, 2008 was $8,751,708.  For purposes of this computation, all executive officers, directors and 10% shareholders were deemed affiliates. Such a determination should not be construed as an admission that such 10% shareholders are affiliates.

As of March 10, 2009 there were 393,227,926 shares of common stock of the issuer issued and outstanding.

 
 

 
 

TABLE OF CONTENTS
   
 
 
PART I
PAGE
     
ITEM 1.
DESCRIPTION OF BUSINESS
1
ITEM 1A.
RISK FACTORS
6
ITEM 1B.
UNRESOLVED STAFF COMMENTS
9
ITEM 2.
DESCRIPTION OF PROPERTIES
9
ITEM 3.
LEGAL PROCEEDINGS
9
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
9
     
 
 PART II
 
     
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
10
ITEM 6
SELECTED FINANCIAL DATA
13
ITEM 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
14
ITEM7A
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
19
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
F-1
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
20
ITEM 9A.
CONTROLS AND PROCEDURES
20
ITEM 9B.
OTHER INFORMATION
21
     
 
 PART III
 
     
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
22
ITEM 11.
EXECUTIVE COMPENSATION
23
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
25
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
26
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
26
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
27
     
 
SIGNATURES
28

 
 

 

EXPLANATORY NOTE
 
This Amendment No. 1 (“Amendment”) on Form 10-K/A amends the Annual Report of Manhattan Scientifics,Inc.. (the “Company”) on Form 10-K for the fiscal year ended December 31, 2008, as filed with the Securities and Exchange Commission on May 6, 2009 (the "Original Filing"). This Amendment is being filed primarily to update the audit report of our former auditor and Item 9A (Controls and Procedures), This Amendment is an amendment and restatement of the Original Report in its entirety in order to provide a complete presentation. Except as stated herein, this Amendment does not reflect events occurring after the date of the filing of the Original Report.

PART I
 
Forward Looking Statements
 
This Form 10-K contains "forward-looking" statements including statements regarding our expectations of our future operations. For this purpose, any statements contained in this Form 10-K 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, competition within our chosen industry, including competition from much larger competitors, technological advances, and the failure by us to successfully develop business relationships. 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 and mass production of, among other things, the micro fuel cell, mid-range fuel cell, and haptics Internet applications; 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. All written and oral forward-looking statements made subsequent to the date of this report and attributable to us or persons acting on our behalf are expressly qualified in their entirety by this section.
 
ITEM 1. DESCRIPTION OF BUSINESS
 
COMPANY HISTORY
 
Manhattan Scientifics, Inc., a Delaware corporation, was formed through a reverse merger involving a public company in January 1998. The public company was incorporated in Delaware on August 1, 1995 under the name Grand Enterprises, Inc. ("Grand"). Grand was initially organized to market an unrelated patented product, but subsequently determined that its business plan was not feasible. In January 1998, Grand effected the reverse merger in a transaction involving Projectavision, Inc., another public company that was founded by Marvin Maslow, our former Chief Executive Officer. Projectavision was the owner of approximately 98% of Tamarack Storage Devices, Inc., a privately-held Texas corporation formed in 1992 to develop and market products based on the holographic data storage technology.  We are no longer engaged in development and commercialization of Holographic data storage technologies (technologies for the storage and retrieval of data in the form of holographically stored light patterns, rather than magnetic). We sold this portfolio of approximately 21 patents surrounding these inventions during 2002.  In January 1998, Grand formed a wholly-owned subsidiary named Grand Subsidiary, Inc. Grand Subsidiary and Tamarack merged, Tamarack being the surviving corporation, and via the merger, Tamarack became a subsidiary of Grand. As consideration for merging Tamarack with Grand Subsidiary, Grand gave Projectavision and the other stockholders of Tamarack 44,000,000 shares of our common stock. In addition, in exchange for a note payable of $1.5 million plus accrued interest of $330,000 due to Projectavision from Tamarack, Grand gave Projectavision 182,525 shares of its Series A Preferred Stock and a warrant to purchase 750,000 shares of our common stock at an exercise price of $0.10 per share, which expired on January 7, 2008.  Mr. Maslow, our former Chief Executive Officer, purchased the warrant from Projectavision for $25,000. The Series A Preferred Stock was subsequently converted into 9,435,405 shares of our common stock. In connection with this transaction, new personnel assumed the management of Grand, former management resigned, and Grand changed its name to Manhattan Scientifics, Inc.
 
Manhattan Scientifics, Inc., a development stage company, previously operated as a technology incubator that sought to acquire, develop and commercialize life-enhancing technologies in various fields, with emphasis in the areas of alternative energy, and consumer and commercial electronics. In that capacity, we have previously identified emerging technologies through strategic alliances with scientific laboratories, educational institutions, and scientists and leaders in industry and government.
 
In 2008, we purchased, in exchange for our common stock, Metallicum, Inc. and its licensed patented technology.  Through Metallicum, we hope to take advantage of a unique processing methodology for producing nanostructures in a wide range of ductile metals and alloys and we are now attempting to commercialize this new and revolutionary technology.  Nanostructured metals and alloys possess significantly enhanced mechanical properties that include, for example, increased strength without concurrent losses in ductility, and significantly increased resistance to fatigue fracture. Nanostructured commercially pure grades of titanium have proven to also possess excellent machinability as well as high toughness and strength.
 
 
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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 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-K.
 
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.  During April 2008 through January 2009, we sold approximately $1,100,000 from a private placement offering.  The private placement originally provided for the offer and sale of up to 50,000,000 unregistered shares of our common stock at a price of $0.02 per share, for an aggregate offering price of $1,000,000, and allowed us to accept or reject any oversubscription.
 
One of our most significant assets is the shares of common stock we own in Novint Technologies, Inc. (“Novint”).  We have used our Novint common stock to help raise capital and to fund operations.  During the year ended December 31, 2008, we issued 53,211 shares of Novint as payment of an accrued liability and recorded a gain on sale of those shares of $50,000.  During the year ended December 31, 2007, we distributed 92,216 shares of Novint as payment of $77,000 of a note payable due to a former officer, and issued 530,000 shares of Novint related to the issuance of convertible debt.  As of December 31, 2008, we owned 1,075,648 shares of Novint common stock.
 
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.
 
 
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OUR TECHNOLOGIES
 
1. ADVANCED MATERIALS (METALLICUM, INC.)
 
In June 2008, we acquired Metallicum, Inc. (“Metallicum”) and its licensed patented technology.  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.

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 noaostructured bulk metals and alloys in the form of rod, bar, wire and foil.

We 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 registerable under copyright or similar laws.

In January 2009, we 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 we provided a non-refundable fee and 2,000,000 shares of our common stock. Additionally, we are required to pay an annual license fee 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.  The 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. This clearance positions us closer to our goal of commercializing our technology for nanostructured metals.  We are in talks with many of the key manufacturers of dental implants and have signed material testing agreements with several manufacturers.
 
2. FUEL CELL TECHNOLOGIES
 
We have conducted research to develop both micro and mid-range fuel cell technologies. A micro fuel cell is a high-energy miniature power source that converts alcohol or hydrogen into electricity. A mid-range fuel cell is a high power density medium sized power source that converts hydrogen into electricity. Fuel cells create electricity not by burning fuel, but by the process of electrochemically arranging the fuel's atoms to produce an electric current. Water or water vapor and in some cases carbon dioxide are the only emissions. In addition to producing harmless emissions, certain fuel cells have the potential to be an alternative to traditional energy sources because they use methanol and other sources of hydrogen as fuels. Methanol can be produced inexpensively from a variety of plant sources and is considered a renewable resource. Generally, methanol is regarded to be stable and safe although it is considered to be toxic in certain countries.
 
We have acquired technologies in the fields of both micro fuel cell and mid-range fuel cells.
 
MICRO FUEL CELL TECHNOLOGY
 
We believe that micro fuel cell-based power sources have the potential to replace and/or supplement conventional batteries as a charger to provide portable power sources. If perfected, we believe micro fuel cell technology could supply energy to consumer electronic products such as cellular phones, pagers, and other microelectronic devices more efficiently than conventional batteries.
 
As a result of our shortage of capital, however, no additional investment or further resulting progress was made with micro-fuel cell technology during 2007 or 2008.  Although, this technology still has a residual value, we have chosen to focus our limited resources on other technologies.

 
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MID RANGE FUEL CELL TECHNOLOGY
 
In addition to micro fuel cells, we have made significant progress in our continuing efforts to develop and commercialize mid-range fuel cell technologies. Mid-range fuel cell technologies are directed toward higher power applications, including consumer electronics (such as laptop computers), personal transportation devices (such as bicycles and scooters), power tools and appliances (such as vacuum cleaners and lawnmowers), and portable military electronics (such as military field radios). In contrast, micro fuel cell technologies address lower power applications such as cellular phones, pagers and other microelectronics devices.

In 2003, we granted a non-exclusive worldwide license of the mid range fuel cell technology to Ballard Power Systems where we received an initial payment of $300,000 upon execution of the license agreement and the right to receive an additional $200,000 upon commercial launch by Ballard Power Systems of a product using the technology.  In January 2004, we licensed our mid-range fuel cell technology to a Singapore company with manufacturing in China as part of our efforts to provide low cost fuel cell systems to Asian and other worldwide markets. Among other things, the contract gave the licensee non-exclusive rights to produce and sell fuel cell engines based on the NovArs technology. The agreement included an upfront payment of $150,000, royalties and 17.5% equity interest in the Singapore company.  In December 2005, we sold our equity interest in the licensee back to the licensee for $885,000.
 
As a result of our shortage of capital, however, no additional investment or further resulting progress was made with mid-range fuel cell technology during 2007 or 2008.  Although, this technology still has a residual value, we have chosen to focus our limited resources on other technologies.
 
3. HAPTICS "TOUCH AND FEEL" INTERNET APPLICATIONS
 
Haptics is an emerging technology that allows computer users to have the physical sensation of manipulating and touching objects on a computer screen as if they were three-dimensional, using a special mouse. Detailed texture and viscosity can be sensed, among many other aspects of touch.  We believe that haptics technology has the potential to significantly change the way computers are utilized, and that there are many promising applications. These include 3-dimensional, touch-enabled online shopping and computer gaming.
 
During 2000, we acquired exclusive licenses and sublicenses to certain haptics Internet applications from Novint.  We also acquired 36,606 shares of Novint common stock, and contracted with the developer of the licensed technology to perform research and development of the licensed applications for contract payments of $1,500,000. In May 2001, we acquired Teneo Computing, Inc., a private corporation with rights to certain haptics applications for dental simulation and oil and gas exploration. We licensed these rights exclusively to Novint in exchange for various enhanced and amended license rights with Novint in the areas of Internet applications and interactive applications. We also acquired an additional 4,066 shares of Novint common stock, increasing our ownership in Novint to 40,672 shares, subsequently split into 4,067,200 shares. For accounting purposes, we have treated the acquisition of the Novint common stock as one transaction.
 
COMPETITION
 
The markets in which we compete are highly competitive and constantly evolving. We face competition from leading researchers and manufacturers worldwide.   Many of our competitors have longer operating histories and significantly greater financial, marketing and other resources than we have. Furthermore, our competitors may introduce new products that address our potential markets. Competition could have a material adverse effect on our business, financial condition and results of our operations.
 
We believe that the principal competitive factors in our technology markets include without limitation:
 
·  
capitalization;
·  
cost of product;
·  
type of fuel (hydrogen, methanol);
·  
first to market with product in market segment;
·  
strong intellectual portfolio;
·  
product life/reliability;
·  
strong customer base;
·  
strong manufacturing and supplier relationships; and
·  
benchmark power density and energy efficiency.
 
 
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ADVANCED MATERIALS

Our business model is based on licensing its 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 to producing thin films or cannot be economically scaled.  Metallicum does not yet face direct competition, but expects competition will emerge by 2010.
 
FUEL CELLS
 
In the last few years there has been a much greater interest in using fuel cells as an energy source for practical, lower powered applications such as automobiles and portable electronic devices. In addition, many automotive companies have indicated they will contribute several hundred million dollars as part of a global alliance with other entities to develop automotive engines powered by fuel cells. By reason of the innovative nature of the technologies we are developing, and the yet unproven markets for such technologies, the markets in which we compete may have barriers to entry. These include the perception of fuel cell technologies in general by the investment community, the costs associated with creating the infrastructure necessary for delivery of hydrogen and other fuels, and the general condition of the economy. There are others working toward similar objectives in order to penetrate these markets and we anticipate additional companies will pursue the same goals. Those whose efforts we are aware of include, without limitation, Medis Technologies, MTI Micro, Samsung, Toshiba, and Smart Fuel Cells in the area of micro fuel cells; and Ballard (now our licensee), Prononex Technologies and Plug Power, Inc. in the area of mid-range fuel cells.
 
HAPTICS "TOUCH AND FEEL" INTERNET APPLICATIONS

With respect to touch-enabled products, we are aware of several companies that claim to possess touch and feel technology. In addition, we are aware of several companies that currently market unlicensed touch and feel products.  Many potential competitors, including Microsoft, LG Electronics, Logitech, Nokia, Samsung, Intel and others have greater financial and technical resources upon which to draw in attempting to develop products.
 
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 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.

Patents are recorded at cost of $2,080,000. Amortization is charged against results of operations using the straight-line method over the estimated economic useful life. The patents were fully amortized at the end of the fiscal year ending December 31, 2008.  Amortization Expense recorded for our patents is shown as Research and Development Expense within the Consolidated Statement of Operations.
 
 
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Intellectual property is recorded at cost of $290,000 and consists of an exclusive license on two patents and a non-exclusive license on the third regarding nanostructured materials and various trade secrets regarding the manufacturing of these materials. Amortization of intellectual property is charged against results of operations using the straight line method over its estimated economic useful life.  The intellectual property related to the patents licenses and nanotechnology developed by Metallicum, Inc., is estimated to have a useful life of 10 years.  Manhattan Scientifics, Inc. directly acquired the patent licenses during 2009.  Amortization expense was $15,000 for the year ended December 31, 2008.

Research and development costs are expensed as incurred and amounted to $4,000 and $2,000 for the years ended December 31, 2008 and 2007, respectively.
 
SALES AND MARKETING
 
Although our technologies presently are in the development stage, we are engaged in an early commercialization program intended to facilitate the transition from development to licensing, manufacturing and/or sale. This program consists of preliminary dialogues with potential strategic partners, investors, manufacturers, potential licensees and/or purchasers.
 
EMPLOYEES
 
As of December 31, 2008, we had one full-time employee in general management. We do not expect any significant change in the total number of employees in the near future. Most of our research and development work has been performed by employees of our various research and development independent contractors (see below). We have historically indirectly funded the salaries of these individuals through our contract research and development payments to their employers. Although not technically our employees, we have considered these individuals to be an integral part of our research and development team.  None of our employees or contractors is members of any union or collective bargaining organization. We consider our relationships with our employee and our independent contractor employees to be good.
 
As noted above, a significant portion of our research and development has been performed by independent contractors from whom we acquired or licensed certain technologies, and their various employees.  Our independent contractors utilize a number of their own various employees to satisfy their research and development obligations to us, and their employees are considered to be part of our research and development team.
 
ITEM 1A. RISK FACTORS
 
An investment in the Common Stock involves a high degree of risk. In addition to the other information in this Report, the following risk factors should be considered carefully in evaluating the Company and our business. If you decide to buy our securities, you should be able to afford a complete loss of your investment.
 
WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP AND COMMERCIALIZE OUR TECHNOLOGIES WHICH WOULD RESULT IN CONTINUED LOSSES.
 
We are currently developing our technology and a commercial product. We have not generated any revenues and we are unable to project when we will achieve profitability, if at all. As is the case with any new technology, we expect the development process to continue. We cannot assure that our resources will be able to develop our technology fast enough to meet market requirements. We can also not assure that our technology will gain market acceptance and that we will be able to successfully commercialize the technologies. The failure to successfully develop and commercialize the technologies would result in continued losses and may require us to curtail operations.
 
BECAUSE WE HAVE EARNED VERY LITTLE IN REVENUES, THE SUCCESS OF OUR BUSINESS REQUIRES CONTINUED FUNDING. IF WE CANNONT RAISE THE MONEY WE NEED TO SUPPORT OUR OPERATIONS UNTIL WE EARN SIGNIFICANT REVENUES, WE MAY BE REQUIRED TO CURTAIL OR TO CEASE OUR OPERATIONS AND YOU COULD LOSE YOUR ENTIRE INVESTMENT.
 
Our ability to develop our business depends upon our receipt of money to continue our operations while we introduce our products and a market for them develops. If this funding is not received as needed, it is unlikely that we could continue our business, in which case you would lose your entire investment. Our ability to access the capital markets has been hindered generally by the general difficult economic climate, beginning in 2001, for small technology concept companies, without significant revenues or earnings.
 
 
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To the extent that we need additional funding, we cannot assure you that such financing will be available to us when needed, on commercially reasonable terms, or at all. If we are unable to obtain additional financing, we may be required to curtail the commercialization of our products and possibly cease our operations.
 
OUR ABILITY TO EFFECTUATE OUR BUSINESS MODEL MAY BE LIMITED, WHICH WOULD ADVERSELY EFFECT OUR BUSINESS AND FINANCIAL CONDITIONS.
 
Our future performance will depend to a substantial degree upon our ability to effectuate and generate revenues from our licensing and royalty business model. As a result, we may continue to incur substantial operating losses until such time as we are able to generate revenues from the sale or license of our products. There can be no assurance that businesses and customers will adopt our technology and products, or that businesses and prospective customers will agree to pay for or license our products. In the event that we are not able to significantly increase the number of customers that purchase or license our products, or if we are unable to charge the necessary prices or license fees, our financial condition and results of operations will be materially and adversely affected.
 
WE MAY FACE STRONG COMPETITION FROM LARGER, ESTABLISHED COMPANIES.
 
We likely will face intense competition from other companies, both globally and within the United States, in the development of haptics and fuel cell technologies, virtually all of which can be expected to have longer operating histories, greater name recognition, larger installed customer bases and significantly more financial resources and research and development facilities than Manhattan Scientifics. There can be no assurance that developments by our current or potential competitors will not render our proposed products obsolete.
 
WE MAY NOT BE ABLE TO ADEQUATELY PROTECT OUR INTELLECTUAL PROPERTY OR WE COULD BECOME INVOLVED IN LITIGATION WITH OTHERS REGARDING OUR INTELLECTUAL PROPERTY. EITHER OF THESE EVENTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.
 
We rely on a combination of intellectual property law, nondisclosure, trade secret and other contractual and technical measures to protect our proprietary right. Our success will depend, in part, on our technology’s commercial viability and on the strength of our intellectual property rights. However, we cannot assure you that these provisions will be adequate to protect our intellectual property. In addition, the laws of certain foreign countries do not protect intellectual property rights to the same extent as the laws of the United States.
 
Although we believe that our intellectual property does not infringe upon the proprietary rights of third parties, competitors may claim that we have infringed on their products.
 
We could incur substantial costs in defending ourselves in suits brought against us for alleged infringement of another party’s intellectual property rights as well as in enforcing our rights against others, and if we are found to infringe, the manufacture, sale and use of our or our customers’ or partners’ products could be enjoined. Any claims against us, with or without merit, would likely be time-consuming, requiring our management team to dedicate substantial time to addressing the issues presented. Furthermore, the parties bringing claims may have greater resources than we do.
 
OUR MANAGEMENT IS ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER ALL MATTERS REQUIRING SHAREHOLDER APPROVAL.
 
Our existing directors and executive officers are the beneficial owners of approximately 28% of the outstanding shares of common stock, excluding stock options. As a result, our existing directors, executive officers, principal shareholders and their respective affiliates, if acting together, would be able to exercise significant influence over all matters requiring shareholder approval, including the election of directors and the approval of significant corporate transactions. Such concentration of ownership may also have the effect of delaying or preventing a change in control of our company.
 
THE TRADING PRICE OF OUR COMMON STOCK MAY DECREASE DUE TO FACTORS BEYOND OUR CONTROL.
 
The trading price of our common stock is subject to significant fluctuations in response to numerous factors, including without limitation:
 
·  
variations in anticipated or actual results of operations;
 
·  
announcements of new products or technological innovations by us or our competitors;
 
 
7

 
 
·  
changes in earnings estimates of operational results by analysts;
 
·  
inability of market makers to combat short positions on the stock;
 
·  
an overall downturn in the financial markets and stock markets;
 
·  
the use of stock to pay employees and consultants if sufficient working capital is not available;
 
·  
inability of the market to absorb large blocks of stock sold into the market; and
 
·  
developments or disputes concerning our intellectual property.
 
Moreover, the stock market from time-to-time has experienced extreme price and volume fluctuations, which have particularly affected the market prices for small technology companies without significant revenues. These broad market fluctuations may adversely affect the market price of our Common Stock. If our shareholders sell substantial amounts of their common stock in the public market, the price of our common stock could fall. These sales also might make it more difficult for us to sell equity or equity-related securities in the future at a price we deem appropriate.
 
WE HAVE NOT PAID CASH DIVIDENDS AND IT IS UNLIKELY THAT WE WILL PAY CASH DIVIDENDS IN THE FORESEEABLE FUTURE.
 
We plan to use all of our earnings, to the extent we have significant earnings, to fund our operations. We do not plan to pay any cash dividends in the foreseeable future. We cannot guarantee that we will, at any time, generate sufficient surplus cash that would be available for distribution as a dividend to the holders of our Common Stock. You should not expect to receive cash dividends on our Common Stock.
 
WE MAY NOT HAVE SUFFICIENT CAPITAL TO RUN OUR OPERATIONS.

If we are unable to obtain further financing, it may jeopardize our ability to continue our operations. To the extent that additional capital is raised through the sale of equity and/or convertible debt securities, the issuance of such securities could result in dilution to our shareholders and/or increased debt service commitments. If adequate funds are not available, we may be unable to sufficiently develop or maintain our existing operations.
 
WE HAVE THE ABILITY TO ISSUE ADDITIONAL SHARES OF OUR COMMON STOCK WITHOUT ASKING FOR SHAREHOLDER APPROVAL, WHICH COULD CAUSE YOUR INVESTMENT TO BE DILUTED.
 
Our Certificate of Incorporation currently authorizes the Board of Directors to issue up to 500,000,000 shares of Common Stock and 1,000,000 shares of Preferred Stock. The power of the Board of Directors to issue shares of Common Stock or warrants or options to purchase shares of Common Stock is generally not subject to shareholder approval. Accordingly, any additional issuance of our Common Stock may have the effect of further diluting your investment.
 
We require substantial working capital to fund our business. If we raise additional funds through the issuance of equity, equity-related or convertible debt securities, those securities may have rights, preferences or privileges senior to those of the holders of our Common Stock. The issuance of additional Common Stock or securities convertible into Common Stock by our management will also have the effect of further diluting the proportionate equity interest and voting power of holders of our Common Stock.
 
WE MAY RUN OUT OF AUTHORIZED CAPITAL PRIOR TO RECEIVING SHAREHOLDER APPROVAL TO AMEND OUR CERTIFICATE OF INCORPORATION TO INCREASE OUR AUTHORIZED CAPITAL.
 
As of December 31, 2008, our certificate of incorporation, as amended, authorizes us to issue 500,000,000 shares of common stock. If we are not able to increase our authorized capital, we may not be able to raise additional funds or pay service providers which could be harmful to our business or cause us to cease operations altogether.
 
LIMITED PUBLIC MARKET FOR OUR COMMON STOCK MAY AFFECT OUR SHAREHOLDERS' ABILITY TO SELL OUR COMMON STOCK.
 
Our Common Stock currently was traded on NASDAQ's Over-The-Counter Bulletin Board through May 2007.  Our Common Stock is currently traded on the Over the Counter Pink Sheets, which is generally considered to be a less efficient market than national exchanges. Consequently, the liquidity of our securities could be impaired, not only in the number of securities which could be bought and sold, but also through SEC regulations, delays in the timing of transactions, difficulties in obtaining price quotations, reduction in security analysts' and the new media's coverage of us, if any, and lower prices for our securities than might otherwise be attained. This circumstance could have an adverse effect on the ability of an investor to sell any shares of our common stock as well as on the selling price for such shares. In addition, the market price of our common stock may be significantly affected by various additional factors, including, but not limited to, our business performance, industry dynamics or changes in general economic conditions.
 
 
8

 
 
APPLICABILITY OF "PENNY STOCK RULES" TO BROKER-DEALER SALES OF OUR COMMON STOCK COULD HAVE A NEGATIVE EFFECT ON THE LIQUIDITY AND MAREKT PRICE OF OUR COMMON STOCK.
 
A penny stock is generally a stock that is not listed on a national securities exchange or NASDAQ, is listed in the "pink sheets" or on the NASD OTC Bulletin Board, has a price per share of less than $5.00 and is issued by a company with net tangible assets less than $5 million.
 
The penny stock trading rules impose additional duties and responsibilities upon broker-dealers and salespersons effecting purchase and sale transactions in Common Stock and other equity securities, including determination of the purchaser's investment suitability, delivery of certain information and disclosures to the purchaser, and receipt of a specific purchase agreement before effecting the purchase transaction.
 
Many broker-dealers will not effect transactions in penny stocks, except on an unsolicited basis, in order to avoid compliance with the penny stock trading rules. When our Common Stock is subject to the penny stock trading rules, such rules may materially limit or restrict the ability to resell our Common Stock, and the liquidity typically associated with other publicly traded equity securities may not exist.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
N/A
 
ITEM 2. DESCRIPTION OF PROPERTIES
 
Our principal executive office is at 405 Lexington Avenue, 32nd Floor, New York, New York, 10174. We lease approximately 300 square feet of office space on a month-to-month basis. The aggregate annual rent for this office space was $6,000 in 2008.  We believe our facilities are adequate for our current and planned business operations.
 
ITEM 3. LEGAL PROCEEDINGS
 
We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of December 31, 2008, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements other than the litigation described above which was subsequently settled.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
Our Board of Directors has adopted and approved an amendment to our Certificate of Incorporation to increase the authorized common stock from 250,000,000 shares to 500,000,000 shares (the “Authorized Shares Amendment”). A majority of the stockholders entitled to vote on the Authorized Shares Amendment voted in favor of the Amendment by written consent dated May 25, 2007.
 
 
9

 

PART II
 
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
Starting on May 8, 2007, our Common Stock began trading and, currently trades, on the Over the Counter Pink Sheets under the symbol “MHTX.PK” after being removed from trading on NASDAQ's Over-The-Counter Bulletin Board under the symbol "MHTX.OB".  The following table sets forth for the periods indicated, the high and low per share bid information for our common stock for the fiscal years ended December 31, 2006, December 31, 2007 and December 31, 2008, as reported by www.nasdaq.com. Such high and low bid information reflects inter-dealer quotes, without retail mark-ups, mark-downs or commissions and may not represent actual transactions.
 
2006
 
High
   
Low
 
First Quarter
  $ 0.065     $ 0.050  
Second Quarter
  $ 0.075     $ 0.047  
Third Quarter
  $ 0.060     $ 0.027  
Fourth Quarter
  $ 0.044     $ 0.012  
                 
2007
 
High
   
Low
 
First Quarter.
  $ 0.039     $ 0.012  
Second Quarter
  $ 0.029     $ 0.014  
Third Quarter
  $ 0.030     $ 0.010  
Fourth Quarter
  $ 0.090     $ 0.011  
                 
2008
 
High
   
Low
 
First Quarter.
  $ 0.064     $ 0.030  
Second Quarter
  $ 0.053     $ 0.030  
Third Quarter
  $ 0.090     $ 0.022  
Fourth Quarter
  $ 0.063     $ 0.025  
 
As of December 31, 2008, we had 648 registered shareholders and 336,270,926 shares of Common Stock issued and outstanding.
 
DIVIDENDS.
 
We have never paid any cash dividends. We presently intend to reinvest earnings, if any, to fund the development and expansion of our business and, therefore, do not anticipate paying cash dividends on our common stock in the foreseeable future. The declaration of cash dividends will be at the discretion of our board of directors and will depend upon our earnings, capital requirements, financial position, general economic conditions and other pertinent factors.
 
RECENT SALES OF UNREGISTERED SECURITIES
 
During the past two years, we have issued unregistered securities in the following transactions in reliance on an exemption from registration pursuant to Section 4(2) of the Securities Act of 1933:
 
2008
 
In January 2008, we issued 200,000 shares of common stock for past services to consultants for a total value of $12,000 or $0.06 per share.

In January 2008, we issued 925,926 shares of common stock, $50,000 in cash, and 53,191 shares of Novint common stock in satisfaction of past legal fees totaling $133,000.

In April 2008, we issued 250,000 shares of common stock for services to a consultant for a total value of $12,500 or $0.05 per share.
 
 
10

 

In April 2008, we issued 200,000 shares of common stock for services to a consultant for a total value of $10,000 or $0.05 per share.

In June 2008, we issued 15,000,000 shares of common stock for the acquisition of Metallicum, Inc. for a total value of $305,000 or $0.02 per share..

In September 2008, we issued 750,000 shares of common stock for accrued legal services for a total value of approximately $16,000, the value of the services performed.

In October 2008, we agreed to issue 400,000 shares of common stock to a consultant for services for a total value of $14,000 or $0.035 per share. These shares were issued in November 2008.

During April 2008 through January 2009, we sold approximately $1,100,000 from a private placement offering.  The private placement originally provided for the offer and sale of up to 50,000,000 unregistered shares of our common stock at a price of $0.02 per share, for an aggregate offering price of $1,000,000, and allowed us to accept or reject any oversubscription.  The shares sold in the private placement were not issued until February 2009.  As a result, the sale of these shares is recorded as common stock on the accompanying consolidated balance sheet as of December 31, 2008 net of offering costs totaling $46,000.
 
2007
 
In May 2007, we issued 35,350,317 shares of common stock to various individuals for services with values totaling $707,006 based upon the fair value of the shares issued.
 
In May 2007, we issued 14,200,106 shares of common stock for settlement of debts totaling $71,000.
 
In October 2007, we issued 4,200,000 shares of common stock for services to an individual with a value of $60,900 based upon the fair value of the shares issued.
 
In October 2007, we issued 106,000,000 shares of common stock related to the conversion of convertible debt previously issued during 2007.  The convertible debt converted totaled $1,060,000 at which time the entire debt discount of $1,361,000 had been expensed.
 
In November 2007, we issued 1,000,000 shares of common stock to an individual for services with a value of $30,000 based upon the fair value of the shares issued.  In November 2007, we also issued 1,000,000 shares of common stock to an individual for services to be provided with a value of $30,000 based upon the fair value of the shares issued.
 
Securities Authorized for Issuance under Equity Incentive Plans
 
In 2000, our Board of Directors adopted the 2000 Equity Incentive Plan (the "2000 Plan"). The 2000 Plan authorizes the issuance of options, right to purchase Common Stock and stock bonuses to officers, employees, directors and consultants. We reserved 30,000,000 shares of our Common Stock for awards to be made under the 2000 Plan and registered the following:
 
·  
September 14, 2001, we filed a registration statement on Form S-8 to register 900,000 of these shares.
·  
November 19, 2001, we registered 550,000 shares of our common stock for issuance under the 2000 Plan.
·  
January 30, 2002, we registered an additional 975,000 shares of our common stock for issuance under the 2000 Plan.
·  
March 22, 2002, we registered an additional 925,000 shares of our common stock for issuance under the 2000 Plan.
·  
July 12, 2002, we registered an additional 990,000 shares of our common stock for issuance under the 2000 Plan.
·  
January 17, 2003, we registered an additional 8,000,000 of our common stock for issuance under the 2000 Plan.

The 2000 Plan is administered by a committee of two or more members of the Board of Directors or, if no committee is appointed, then by the Board of Directors. The 2000 Plan allows for the issuance of incentive stock options (which, pursuant to Section 422 of the Internal Revenue Code, can only be granted to employees), non-qualified stock options, stock appreciation rights, stock awards, or stock bonuses. The committee, or the Board of Directors if there is no committee, determines the type of option granted, the exercise price, the option term, which may be no more than ten years, terms and conditions of exercisability and methods of exercise. Options must vest within ten-years. Under the 2000 Plan, the exercise price may not be less than fair market value on the date of grant for the incentive stock options. The 2000 Plan also allows for the granting of Stock Appreciation Rights. No Stock Appreciation Rights have been granted. The number of shares under the 2000 Plan available for grant at December 31, 2008 was 25,281,000.
 
 
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In November 2004, our Board of Directors adopted the 2004 Consultant Stock Plan (the "2004 Plan"). The purpose of this 2004 Consultant Stock Plan is to advance our interests by helping us obtain and retain the services of persons providing consulting services upon whose judgment, initiative, efforts and/or services we are substantially dependent, by offering to or providing those persons with incentives or inducements affording such persons an opportunity to become owners of our capital stock. We reserved 2,000,000 shares of our Common Stock for awards to be made under the 2004 Plan. We filed a registration statement on Form S-8 with the SEC on November 26, 2004 to register the shares underlying the 2004 plan. The 2004 Plan is administered by a committee of two or more members of the Board of Directors or, if no committee is appointed, then by the Board of Directors. The committee, or the Board of Directors if there is no committee, determines who is eligible to receive awards under the plan, grant awards and interpret the 2004 Plan. The number of shares under the 2004 Plan available for grant at December 31, 2008 was 500,000.
 
On May 9, 2005, our Board of Directors adopted the 2005 Equity Compensation Plan (the "2005 Plan"). The purpose of this Plan is to provide incentives to attract, retain and motivate eligible persons whose present and potential contributions are important to our success, by offering them an opportunity to participate in the our future performance through awards of Options, the right to purchase Common Stock and Stock Bonuses. We reserved 10,000,000 shares of our Common Stock for awards to be made under the 2005 Plan. The 2005 Plan is administered by a committee of two or more members of the Board of Directors or, if no committee is appointed, then by the Board of Directors. The committee, or the Board of Directors if there is no committee, determines who is eligible to receive awards under the plan, grant awards and interpret the 2005 Plan. We filed a registration statement on Form S-8 with the SEC on June 8, 2005 to register the shares underlying the 2005 plan. The number of shares under the 2005 Plan available for grant at December 31, 2008 was 4,868,763.
 
Set forth in the table below is information regarding awards made through compensation plans or arrangements through December 31, 2008 the most recently completed fiscal year.

Equity Compensation Plan Information
 
Plan category
 
Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
   
Weighted-average exercise price of outstanding options, warrants and rights
   
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
 
Equity compensation plans approved by security holders
    -       -       -  
Equity compensation plans not approved by security holders
                30,649,763  
Total
    -       -       30,649,763  
 
 
12

 
 
Exercise prices and weighted-average contractual lives of stock options outstanding as of December 31, 2008 are as follows:

Options Outstanding    
Options Exercisable
 
 
 
Exercise Price
   
 
Number Outstanding
   
Weighted Average Remaining Contractual Life
   
Weighted Average Exercise Price
   
 
Number Exercisable
   
Weighted Average Exercise Price
 
$ 0.01       28,000,000       8.68       0.013       28,000,000       0.01  
  0.02       1,800,000       4.68       0.020       1,800,000       0.02  
  0.05       2,625,000       1.65       0.050       2,625,000       0.05  
  0.05       1,000,000       6.58       0.055       1,000,000       0.05  
  0.20       5,760,000       0.71       0.200       5,760,000       0.20  
  0.39       250,000       3.98       0.390       250,000       0.39  
  1.25       200,000       3.98       1.250       200,000       1.25  
  2.25       110,000       2.46       2.250       110,000       2.25  
  2.40       500,000       2.33       2.400       500,000       2.40  

All options we issued through December 31, 2008 vested within ninety days from the date of grant and expire at various dates during 2008 through 2017.

We issued the following warrants at the corresponding weighted average exercise price as of December 31, 2008.

Date
 
Number of Warrants
   
Exercise Price
 
Contractual Life
 
Number of Shares Exercisable
 
October 11, 2007
    3,200,000       .01  
10 years
    3,200,000  
November 9, 2007
    800,000       .01  
10 years
    800,000  
      4,000,000                 4,000,000  

ITEM 6. SELECTED FINANCIAL DATA
 
N/A
 
 
13

 
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion and analysis should be read in conjunction with our financial statements and accompanying notes appearing elsewhere in this Form 10-K.

OVERVIEW

We have been acquiring and licensing technologies, directing, supervising and coordinating our research and development efforts, raising capital, and initiating commercialization activities and dialogue with potential customers.

As of December 31, 2008, we had an accumulated deficit since inception, from July 31, 1992, of $52,643,000. Included in this accumulated loss are charges amounting to approximately $22,331,000 relating to the issuance of equity instruments for services. We expect operating losses to continue for the foreseeable future because we will be continuing to fund research and development efforts as well as general and administrative expenses.

We do not know if our research and development and marketing efforts will be successful, that we will ever have commercially acceptable products, or that we will achieve significant sales of any such products. We operate in an environment of rapid change in technology and we are dependent upon the services of our employees, consultants and independent contractors. If we are unable to successfully bring our technologies to commercialization, we would likely have to significantly alter our business plan and may cease operations.

YEAR ENDED DECEMBER 31, 2008 COMPARED TO YEAR ENDED DECEMBER 31, 2007.

REVENUES. We had no revenues for the years ended December 31, 2008 and 2007.

EXPENSES:  The following chart summarizes our operating expenses and other income and expenses as described below:

   
Year ended December 31,
 
   
2008
   
2007
 
Common stock issued for services
    57,000       828,000  
Options issued for services
    1,034,000       197,000  
Amortization of beneficial conversion
     feature
    -       1,361,000  
Other G&A expenses
    861,000       847,000  
Total G&A expenses
    1,952,000       3,233,000  
Research and development
    198,000       210,000  
Operating expenses
    2,150,000       3,443,000  
Other income
    -       (14,000 )
Gain on sale of Novint common stock
    (50,000 )     (470,000 )
Net interest expense
    42,000       55,000  
Net loss
    2,142,000       3,014,000  

GENERAL AND ADMINISTRATIVE. General and administrative expenses were $1,952,000 for the year ended December 31, 2008 versus general and administrative expenses of $3,233,000 for the year ended December 31, 2007, an overall decrease of $1,281,000.

General and administrative expenses were affected by common stock and options issued for services.  Excluding these items, general and administrative expenses, consisting of expenses for consultants, accounting and legal services, travel and miscellaneous expenses, remained stable.  Additionally, general and administrative costs in 2007 included costs related to the beneficial conversion feature of convertible notes.

During the year ended December 31, 2008, the Company issued 1,600,000 shares of common stock for services for a total value of $57,000.

In the first quarter of 2008, general and administrative expenses included a grant of options for 18,000,000 shares of common stock with an exercise price of $0.013 to our former CEO and a consultant.  These options replaced 16,000,000 options previously granted with an exercise price of $0.05 per share.  The value of these options totaled $1,034,000 which was valued using the Black-Scholes option pricing model based upon the following assumptions: stock price of $0.06 at grant date; 5 year term; volatility of 144%; and discount rate of 3.18%.
 
 
14

 

In the fourth quarter of 2007, we issued 4,200,000 shares of common stock for services to an individual with a value of $60,900 based upon the fair value of the shares issued and issued 1,000,000 shares of common stock to an individual for services with a value of $30,000 based upon the fair value of the shares issued and issued 1,000,000 shares of common stock to an individual for services to be provided with a value of $30,000 based upon the fair value of the shares issued.  In the second quarter of 2007, we issued 35,350,317 shares of common stock to various individuals for services with values totaling $707,000 based upon the fair value of the shares issued.

In the fourth quarter of 2007, we granted warrants for 3,200,000 shares of common stock with an exercise price of $0.013 to various individuals for past services.  The value of these warrants totaled $36,444 which were valued using the Black-Scholes option pricing model based upon the following assumptions: stock price of $0.013 at grant date; 5 year term; volatility of 135%; and discount rate of 4.50%.  We also granted in the fourth quarter an officer a warrant for 800,000 shares of common stock with an exercise price of $0.013.  The value of this warrant totaled $49,768 which was valued using the Black-Scholes option pricing model based upon the following assumptions: stock price of $0.065 at grant date; 5 year term; volatility of 142%; and discount rate of 4.50%.

In the first quarter of 2007, general and administrative expenses included a grant of options for 10,000,000 shares of common stock at an exercise price of $0.014 to our former CEO and chairman for services previously provided.  The value of these options totaled $110,000 which was valued using the Black-Scholes option pricing model based upon the following assumptions: stock price of $0.014 at grant date; 5 year term; volatility of 107%; and discount rate of 4.5%.
 
In the fourth quarter of 2007, we issued 106,000,000 shares of common stock related to the conversion of convertible debt previously issued during 2007.  The convertible debt converted totaled $1,060,000 at which time the entire debt discount of $1,361,000 had been expensed.

NET LOSS. We reported a net loss of $2,142,000 for the year ended December 31, 2008 versus a net loss of $3,014,000 for the year ended December 31, 2007, respectively, an overall decrease in net loss of $872,000, principally resulting from the common stock and options issued for services discussed above partially offset by gains in 2007 on distribution of common stock we held in Novint Technologies, Inc. (“Novint”).

For the years ended December 31, 2008 and 2007, we issued 53,191 and 622,216 shares of Novint as payment of accrued liabilities and related to convertible promissory notes issued during 2007 and recorded a gain on sale of those shares of $50,000 and $470,000, respectively.

LIQUIDITY AND PLAN OF OPERATIONS

We are a development stage company and are in the technology acquisition and development phase of our operations. 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.  Until we generate revenue from sales and licensing of technology, or receive a large infusion of cash from a potential strategic partner or through the efforts of an investment banker, we intend to continue to rely upon this methods and the limited sales of our shares or other assets, which has become increasingly difficult with our low share price, to fund operations during the next year.

At December 31, 2008, 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.

We had an increase of $115,000 in cash and cash equivalents for the year ended December 31, 2008, as a result of $700,000 of cash used in operating activities offsetting net proceeds from the issuance of common stock totaling $808,000 and $7,000 cash provided in the purchase of Metallicum.

For the year ended December 31, 2008, cash used in operating activities was $700,000 compared to $537,000 used in operating activities for the year ended December 31, 2007, the increase in cash used, equal to $163,000, primarily as a result of:

·  
an increase in the net loss (net of the non-cash gains on the sale of Novint in 2008 and 2007 and the 2007 non-cash financing costs related to the beneficial conversion feature of convertible notes) of $69,000;
·  
plus a lower amount of cash generated by changes in operating assets and liabilities in 2008 equal to $162,000,
·  
partially offset by the net effect of common stock and options issued for an increased amount of services in 2008 of $66,000.
 
 
15

 
 
Common stock and options to purchase common stock were issued for services valued at $1,091,000 for the year ended December 31, 2008 and $1,025,000 for the year ended December 31, 2007.

Stockholders’ equity totaled a deficit of $842,000 on December 31, 2008 and the working capital was a deficit of $1,165,000 on such date.

We do not expect any significant change in the total number of employees in the near future. We intend to continue to identify and target appropriate technologies for possible acquisition or licensing over the next 12 months, although we have no agreements regarding any such technologies as of the date hereof.

Based upon current projections, our principal cash requirements for the next 12 months consists of (1) fixed expenses, including rent, payroll, investor relations services, public relations services, bookkeeping services, graphic design services, consultant services, and reimbursed expenses; and (2) variable expenses, including technology research and development, milestone payments, intellectual property protection, utilities and telephone, office supplies, additional consultants, legal and accounting. As of December 31, 2008, we had $567,000 in cash. We intend to satisfy our capital requirements for the next 12 months by continuing to pursue private placements to raise capital, using our common stock as payment for services in lieu of cash where appropriate, borrowing as appropriate, and our cash on hand. However, we do not know if those resources will be adequate to cover our capital requirements.

During April 2008 through December 2008, we sold 42,707,000 shares of common stock for approximately $850,000 from a private placement offering.  The private placement originally provided for the offer and sale of up to 50,000,000 unregistered shares of our common stock at a price of $0.02 per share, for an aggregate offering price of $1,000,000, and allowed us to accept or reject any oversubscription.   We incurred offering costs totaling approximately $46,000 which was paid in cash.  Additionally, we issued 750,000 shares of common stock for legal services rendered as part of the private placement with a total value of approximately $16,000.

RECENTLY ISSUED ACCOUNTING STANDARDS

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business Combinations - Revised 2007”. SFAS 141 (R) provides guidance on improving the relevance, representational faithfulness, and comparability of information that a reporting entity provides in our financial reports about a business combination and its effects. SFAS 141R applies to business combinations where is the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. We do not expect the adoption of SFAS No. 141 to have a material impact on our consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements - an Amendment of Accounting Research Bulletin No. 51” (“SFAS No. 160”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  We are currently evaluating the effect of this pronouncement on our consolidated financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities – an amendment of FASB Statement No. 133,” (SFAS “161”) as amended and interpreted, which requires enhanced disclosures about an entity’s derivative and hedging activities and thereby improves the transparency of financial reporting.  Disclosing the fair values of derivative instruments and their gains and losses in a tabular format provides a more complete picture of the location in an entity’s financial statements of both the derivative positions existing at period end and the effect of using derivatives during the reporting period.  Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows.  SFAS No. 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  Early adoption is permitted.  At December 31, 2008, we did not have any derivative instruments or hedging activities. Management is aware of the requirements of SFAS 161 and will disclose when appropriate.
 
 
16

 

In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting Principles.”  SFAS 162 will provide framework for selecting accounting principles to be used in preparing financial statements that are presented in conformity with U.S. generally accepted accounting principles (GAAP) for nongovernmental entities.  SFAS 162 will be effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board (“PCAOB”) amendments to AU Section 411.  We do not expect the adoption of SFAS 162 will have a material impact on our financial condition or results of operation.

In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial Guarantee Insurance Contracts – an interpretation of FASB Statement No. 60.”  SFAS 163 requires that an insurance enterprise recognize a claim liability prior to an event of default (insured event) when there is evidence that credit deterioration has occurred in an insured financial obligation.  This Statement also clarifies how Statement 60 applies to financial guarantee insurance contracts, including the recognition and measurement to be used to account for premium revenue and claim liabilities. Those clarifications will increase comparability in financial reporting of financial guarantee insurance contracts by insurance enterprises. This Statement requires expanded disclosures about financial guarantee insurance contracts. The accounting and disclosure requirements of the Statement will improve the quality of information provided to users of financial statements.  SFAS 163 will be effective for financial statements issued for fiscal years beginning after December 15, 2008.  We do not expect the adoption of SFAS 163 will have a material impact on our financial condition or results of operation.

In November 2008, the FASB ratified the Emerging Issues Task Force (EITF) consensus on Issue No. 08-6, “Equity Method Investment Accounting Considerations” (EITF 08-6) which addresses certain effects of SFAS Nos. 141R and 160 on an entity’s accounting for equity-method investments. The consensus indicates, among other things, that transaction costs for an investment should be included in the cost of the equity-method investment (and not expensed) and shares subsequently issued by the equity-method investee that reduce the investor’s ownership percentage should be accounted for as if the investor had sold a proportionate share of its investment, with gains or losses recorded through earnings. EITF 08-6 is effective of us for transactions occurring after December 31, 2008.. Company has not determined the impact that this standard would have on the consolidated financial statements.

In November 2008, the FASB ratified the EITF consensus on Issue No. 08-7, “Accounting for Defensive Intangible Assets” (EITF 08-7). The consensus addresses the accounting for an intangible asset acquired in a business combination or asset acquisition that an entity does not intend to use or intends to hold to prevent others from obtaining access (a defensive intangible asset). Under EITF 08-7, a defensive intangible asset would need to be accounted as a separate unit of accounting and would be assigned a useful life based on the period over which the asset diminishes in value. EITF 08-6 is effective for us for transactions occurring after December 31, 2008. We have not determined the impact that this standard would have on the consolidated financial statements.

In January 2009, the FASB issued FSP No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue No. 99-20” (FSP No. EITF 99-20-1). This FSP provided additional guidance with respect to how entities determine whether an “other-than-temporary impairment” (OTTI) exists for certain beneficial interests in a securitized transaction, such as asset-backed securities and mortgage-backed securities, that (1) do not have a high quality rating or (2) can be contractually prepaid or otherwise settled such that the holder would not recover substantially all of its investment. FSP No. EITF 99-20-1 amended EITF Issue No. 99-20 to more closely align its OTTI guidance with that of SFAS No. 115, “Accounting for Certain Investment in Debt and Equity Securities.” This FSP was effective for us prospectively beginning October 1, 2008. We considered this FSP’s additional interpretation of EITF Issue No. 99-20 when classifying respective additional impairments as “temporary” or “other-than-temporary” beginning with the fourth quarter of 2008. This FSP had no material impact on such classifications.

GOING CONCERN

Our independent registered public accounting firms have stated in their audit report on our December 31, 2008 and 2007 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.

 
17

 
 
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.

Impairment of Long-Lived Assets:

We assess the impairment of our long-lived assets periodically in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") 144, "Accounting for the Impairment and Disposal of Long-Lived Assets". Whenever events or changes in circumstances indicate that the carrying amounts of long-lived assets may not be recoverable, we will compare undiscounted net cash flows estimated to be generated by those assets to the carrying amount of those assets. When these undiscounted cash flows are less than the carrying amounts of the assets, we will record impairment losses to write the asset down to fair value, measured by the discounted estimated net future cash flows expected to be generated from the assets. To date there has been no impairment.
Investments

Patents

Intangible assets consist of patent licensing costs incurred to date. Patents consist of mid-range fuel cell and the micro fuel cell technologies that are being amortized using the straight-line method over the estimated economic useful life of 10 years. We have capitalized $2,080,000 in patent licensing costs as of December 31, 2008. Amortization expense charged to operations was $194,000 and $208,000 for the years ended December 31, 2008 and 2007, respectively. At December 31, 2008 these parents were fully amortized.

License Agreements

In 2008,  we 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.  We obtained an exclusive license on two patents and a non-exclusive license on the third patent. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. At December 31, 2008, accumulated amortization was $15,000. Under the terms of the agreement, we may be required to pay royalties, as defined, to the licensors.

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

Convertible Notes Payable:
 
During 2007, we have issued convertible debt securities with non-detachable conversion features. The values assigned to the warrants and embedded conversion feature of the Debentures followed the guidance of the EITF Issue No. 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios”, EITF 00-19: “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, FAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” and EITF Issue No. 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments” of the FASB’s Emerging Issues Task Force. The debt discount associated with the Warrants and embedded conversion feature is amortized to interest expense over the life of the Debenture or upon earlier conversion of the Debenture using the effective yield method.
 
 
18

 

Stock-Based Compensation:
 
On January 1, 2006, we adopted SFAS 123 (revised 2004), Share-Based Payment (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all share-based awards made to employees and directors, including employee stock options and shares issued through its employee stock purchase plan, based on estimated fair values. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletins No. 107 and 110 (“SAB 107” and “SAB 110”) relating to SFAS 123(R). We have applied the provisions of SAB 107 and SAB 110 in our adoption of SFAS 123(R). We adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of the beginning in 2006. Our financial statements as of and for the year ended December 31, 2008 and 2007 reflect the impact of SFAS 123(R). In accordance with the modified prospective transition method,  Our financial statements for prior periods do not include the impact of SFAS 123(R).
 
The estimated fair value of grants of stock options and warrants to our nonemployees is charged to expense, if applicable, in the financial statements. These options vest in the same manner as the employee options granted under each of the option plans as described above. As of December 31, 2008 and 2007, we recorded compensation/service expense of $1,034,000 and $197,000, respectively.

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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
N/A

 
19

 
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 

 
FINANCIAL STATEMENTS
REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-2-3
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2008 AND 2007
F-4
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE PERIOD FROM JULY 31, 1992 (INCEPTION) THROUGH DECEMBER 31, 2008
F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) FOR THE PERIODS FROM JULY  31, 1992 (INCEPTION) THROUGH DECEMBER 31, 2008
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND FOR THE PERIOD FROM JULY 31, 1992 (INCEPTION) THROUGH DECEMBER 31, 2008
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-16

 
 
 
 

 
 
F - 1

 
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
To the Board of Directors and
Stockholders
 
Manhattan Scientifics, Inc.
New York, New York
 
We have audited the accompanying balance sheet of Manhattan Scientifics, Inc. (a development stage enterprise) (the “Company”) as of December 31, 2008, and the related statement of operations, stockholders’ deficit, and cash flows for year ended December 31, 2008. The financial statements for the period from inception (July 31, 1992 to December 31, 2007) were audited by other auditors whose reports included an explanatory paragraph that expressed substantial doubt about the Company’s ability to continue as a going concern.  The financial statements for the period from inception (July 31, 1992 to December 31, 2007) include total revenues and net loss of $856,000 and $45,496,000, respectively. Our opinion on the statements of operations, stockholders’ deficit and cash flows for the period from inception (July 31, 1992 to December 31, 2008), insofar as it relates to amounts for prior periods through December 31, 2007, is based solely on the report of the other auditors.  Manhattan Scientifics, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Scientifics, Inc. as of December 31, 2008 and the results of its operations and its cash flows for year ended December 31, 2008, and for the period from inception (July 31, 1992 to December 31, 2008) 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 2 to the financial statements, the Company has experienced recurring losses and negative cash flows from operations and has both a working capital and a stockholders’ deficit at December 31, 2008, 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 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
PMB Helin Donovan
San Francisco, CA
May 4, 2009
 
 
F - 2

 

AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
216 SIXTEENTH STREET
SUITE 600
DENVER, COLORADO 80202


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Directors and Stockholders
Manhattan Scientifics, Inc.
New York, New York
 
We have audited the accompanying consolidated balance sheet of Manhattan Scientifics, Inc. (a development stage enterprise) (the “Company”) as of December 31, 2007, and the related consolidated statements of operations, changes in stockholders' equity (capital deficit), and cash flows for the year then ended and for the period from January 1, 2004 to December 31, 2007 included in the financial statements for the period from inception (July 31, 1992) to December 31, 2008.  These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated 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 audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Manhattan Scientifics, Inc. as of December 31, 2007, and the results of its operations and its cash flows for the year then ended, and for the period from January 1, 2004 to December 31, 2007 included in the financial statements for the period from inception (July 31, 1992) to December 31, 2008, in conformity with generally accepted accounting principles 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 2 to the financial statements, the Company has experienced recurring losses and negative cash flows from operations and has both a working capital and a capital deficit at December 31, 2007, 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 2. The financial statements do not include any adjustments that might results from the outcome of this uncertainty.
 
AJ. ROBBINS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS

Denver, Colorado
January 29, 2009
 
 
F - 3

 
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED BALANCE SHEETS

ASSETS
 
December 31, 2008
   
December 31, 2007
 
Current assets:
           
Cash and cash equivalents
  $ 567,000       452,000  
Investments-available for sale
    129,000       -  
Prepaid expenses and other assets
    -       44,000  
                 
Total current assets
    696,000       496,000  
                 
Investments
    2,000       2,000  
Intellectual property, net
    290,000       -  
Patents, net of accumulated amortization of $2,080,000 and$1,886,000, respectively
    -       194,000  
Other asset
    31,000       30,000  
                 
Total assets
  $ 1,019,000       722,000  
                 
LIABILITIES
               
Current liabilities
               
Accounts payable and accrued expenses
  $ 281,000       364,000  
Accrued interest and expenses - related parties
    552,000       403,000  
Note payable to related party
    545,000       545,000  
Note payable to former officers
    450,000       450,000  
Convertible note payable - other
    33,000       33,000  
                 
Total current liabilities
    1,861,000       1,795,000  
                 
Commitments and Contingencies:
               
                 
STOCKHOLDER’S 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 issuedand outstanding
    -       -  
Series C convertible, redeemable, authorized 14,000 shares;
               
issued and outstanding - none
    -       -  
Common, authorized 500,000,000 shares, 378,977,926 and318,545,000 shares issued,  and outstanding, respectively
    379,726       319,000  
Additional paid-in-capital
    51,292,274       49,109,000  
Other accumulated comprehensive income
    129,000       -  
Deficit accumulated during the development stage
    (52,643,000 )     (50,501,000 )
                 
Total Stockholder’s deficit
    (842,000 )     (1,073,000 )
                 
TOTAL LIABILITIES AND STOCKHOLDER’S DEFICIT
  $ 1,019,000       722,000  
 
 
F - 4

 
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
 
(a development stage enterprise)
 
         
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
 

               
PERIOD FROM
 
               
JULY 31, 1992
 
   
 
   
(INCEPTION)
 
   
YEAR ENDED
   
THROUGH
 
    DECEMBER 31,     December 31, 2008  
   
2008
   
2007
   
(unaudited)
 
                   
Revenue
  $ -     $ - -     $ 856,000  
                         
Operating costs and expenses:
                       
General and administrative
    1,952,000       3,233,000       44,687,000  
Research and development
    198,000       210,000       9,020,000  
Impairment charge of certain patents
    -       -       189,000  
                         
Total operating costs and expenses
    2,150,000       3,443,000       53,896,000  
                         
Loss from operations before other income and expenses
    (2,150,000 )     (3,443,000 )     (53,040,000 )
                         
Other income and expenses:
                       
  Gain from sale of equity interest
    -       -       885,000  
  Gain on settlement of NMXS.com option
    -       -       50,000  
Gain on legal settlement
    -       14,000       14,000  
  Proceeds from sale of NMXS.com common stock
    -       -       393,000  
 Gain from sale of Novint Technologies Inc. common stock
    50,000       470,000       1,984,000  
 Gain on issuance of investor common stock
    -       -       531,000  
 Contract revenue
    -       -       3,741,000  
 Interest and other expenses
    (50,000 )     (61,000 )     (1,132,000 )
 Interest income
    8,000       6,000       192,000  
 Equity in losses of investees
    -       -       (1,243,000 )
Gain / (loss) on disposal of equipment
    -       -       (13,000 )
                         
NET LOSS
    (2,142,000 )     (3,014,000 )     (47,638,000 )
                         
Other comprehensive income
                       
     Unrealized gain on available for sale
     investments
    129,000       -       129,000  
                         
OTHER COMPREHENSIVE LOSS
  $ (2,013,000 )   $ (3,014,000 )     (47,509,000 )
                         
BASIC AND DILUTED LOSS PER COMMON SHARE:
                       
Weighted average number of common shares outstanding
    328,469,378       249,567,399          
                         
Basic and diluted loss per common share
  $ (0.01 )   $ (0.01 )        
 
 
F - 5

 

MANHATTAN SCIENTIFICS, INC. AND SUBSIDARIES
(a development stage enterprise)
Consolidated Statements of Stockholders’ Equity ( Deficit)
For the Cumulative Period from July 31, 1992 (Inception) Through December 31, 2003 (unaudited) and for the period from January 1, 2004 Through December 31, 2008 (audited)
 
 
   
Series A Preferred
   
Preferred Stock
$.001 Par Value
Series B
   
Preferred Stock
$.001 Par Value
Series C  
   
Common Stock
$.001 Par Value
   
Additional Paid-in
   
Deferred
   
Amounts Receivable From
   
Other accumulated comprehensive
   
Deficit Accumulated
During the Develop.
   
Treasury
   
 
 
     Stock      Shares      Amount      Shares      Amount       Shares        Amount      
Capital
      Comp.      Stockholders      income      
Stage
      Stock      
Total
 
Initial issuance of shares to founders on contribution of intangible assets at historic cost basis
  $ -       -     $ -       -     $ -       14,391,627     $ $14,500     $ 500     $ -     $ -     $ -     $ -     $ -     $ 15,000  
Additional founders' contribution
                                                            40,000               (40,000 )                             -  
Issuance of 1,037,000 shares of Series A preferred stock, net of issuance costs
    10,000                                                       1,020,000               (286,000 )                             744,000  
Net loss
                                                                                          $ (543,000 )             (543,000 )
Balance, March 31, 1993
    10,000                                       14,391,627       14,500       1,060,500               (326,000 )             (543,000 )             216,000  
Issuance of shares to investor at approximately $.21 per share
                                            14,391,627       14,500       2,985,500                                               3,000,000  
Issuance of shares on exercise of options
                                            479,720       1,000       49,000                                               50,000  
Services performed in exchange for Series A preferred stock issued in fiscal 1993
                                                                            127,000                               127,000  
Net loss
                                                                                            (2,292,000 )             (2,292,000 )
Balance, March 31, 1994
    10,000                                       29,262,974       30,000       4,095,000               (199,000 )             (2,835,000 )             1,101,000  
Services performed for Series A preferred stock issued in fiscal 1993
                                                                            159,000                               159,000  
Issuance of shares at approximately $.52 per share
                                            345,399               182,000                                               182,000  
Net loss
                                                                                            (2,250,000 )             (2,250,000 )
Balance, December 31, 1994
    10,000                                       29,608,373       30,000       4,277,000               (40,000 )             (5,085,000 )             (808,000 )
Issuance of 163,000 shares of Series A preferred stock
    2,000                                                       161,000                                               163,000  
Write-off of amounts receivable from stockholders
                                                            (40,000 )             40,000                               -  
Net loss
                                                                                            (972,000 )             (972,000 )
Balance, December 31, 1995
    12,000                                       29,608,373       30,000       4,398,000               -               (6,057,000 )             (1,617,000 )
Issuance of shares upon exercise of option for $15,000
                                            14,391,627       14,000       1,000                                               15,000  
Net loss
                                                                                            (284,000 )             (284,000 )
Balance, December 31, 1996
    12,000                                       44,000,000       44,000       4,399,000               -               (6,341,000 )             (1,886,000 )
 
 
F - 6

 
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDARIES
(a development stage enterprise)
Consolidated Statements of Stockholders’ Equity ( Deficit)
For the Cumulative Period from July 31, 1992 (Inception) Through December 31, 2003 (unaudited) and for the period from January 1, 2004 Through December 31, 2008 (audited)
 
   
Series A Preferred
   
Preferred Stock
$.001 Par Value
Series B
   
Preferred Stock
$.001 Par Value
Series C
   
Common Stock
$.001 Par Value
   
Additional Paid-in
   
Deferred
   
Amounts Receivable From
   
Other accumulated comprehensive
   
Deficit Accumulated
During the Develop.
   
Treasury
   
 
 
     Stock      Shares    Amount      Shares      Amount       Shares       Amount      
Capital
     
Comp.
   
Stockholders
     income       Stage       Stock      
Total
 
Initial issuance of shares to founders on contribution of intangible assets at historic cost basis
  $ -       -     $ -       -     $ -       14,391,627     $ $14,500     $ 500     $ -     $ -     $ -     $ -     $ -     $ 15,000  
Additional founders' contribution
                                                            40,000               (40,000 )                             -  
Issuance of 1,037,000 shares of Series A preferred stock, net of issuance costs
    10,000                                                       1,020,000               (286,000 )                             744,000  
Net loss
                                                                                          $ (543,000 )             (543,000 )
Balance, March 31, 1993
    10,000                                       14,391,627       14,500       1,060,500               (326,000 )             (543,000 )             216,000  
Issuance of shares to investor at approximately $.21 per share
                                            14,391,627       14,500       2,985,500                                               3,000,000  
Issuance of shares on exercise of options
                                            479,720       1,000       49,000                                               50,000  
Services performed in exchange for Series A preferred stock issued in fiscal 1993
                                                                            127,000                               127,000  
Net loss
                                                                                            (2,292,000 )             (2,292,000 )
Balance, March 31, 1994
    10,000                                       29,262,974       30,000       4,095,000               (199,000 )             (2,835,000 )             1,101,000  
Services performed for Series A preferred stock issued in fiscal 1993
                                                                            159,000                               159,000  
Issuance of shares at approximately $.52 per share
                                            345,399               182,000                                               182,000  
Net loss
                                                                                            (2,250,000 )             (2,250,000 )
Balance, December 31, 1994
    10,000                                       29,608,373       30,000       4,277,000               (40,000 )             (5,085,000 )             (808,000 )
Issuance of 163,000 shares of Series A preferred stock
    2,000                                                       161,000                                               163,000  
Write-off of amounts receivable from stockholders
                                                            (40,000 )             40,000                               -  
Net loss
                                                                                            (972,000 )             (972,000 )
Balance, December 31, 1995
    12,000                                       29,608,373       30,000       4,398,000               -               (6,057,000 )             (1,617,000 )
Issuance of shares upon exercise of option for $15,000
                                            14,391,627       14,000       1,000                                               15,000  
Net loss
                                                                                            (284,000 )             (284,000 )
Balance, December 31, 1996
    12,000                                       44,000,000       44,000       4,399,000               -               (6,341,000 )             (1,886,000 )
 
 
F - 7

 
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDARIES
(a development stage enterprise)
Consolidated Statements of Stockholders’ Equity ( Deficit)
For the Cumulative Period from July 31, 1992 (Inception) Through December 31, 2003 (unaudited) and for the period from January 1, 2004 Through December 31, 2008 (audited)
 
 
 
     
Series A Preferred
     
Preferred Stock
$.001 Par Value
Series B
     
Preferred Stock
$.001 Par Value
Series C
     
Common Stock
$.001 Par Value
     
Additional Paid-in
     
Deferred
     
Amounts Receivable From
Stock-
     
Other accumulated compre-hensive
     
Deficit Accumulated
During the Develop.
     
Treasury
         
      Stock         Shares        Amount       Shares        Amount         Shares        
 Amount  
     
Capital  
     
Comp.  
      holders       income         
Stage  
      Stock      
Total
 
Balance, December 31, 1996
    12,000                                       44,000,000     $ 44,000       4,399,000                               (6,341,000 )           $ (1,886,000 )
Purchase and retirement of 1,200,000 shares of Series A preferred stock
    (12,000 )                                                     (58,000 )                                             (70,000 )
Purchase of 7,195,814 treasury shares of common stock for $15,000
                                                                                                    (15,000 )     (15,000 )
Net loss/comprehensive loss
                                                                                            (335,000 )             (335,000 )
Balance, December 31, 1997
    -                                       44,000,000       44,000       4,341,000               -               (6,676,000 )     (15,000 )     (2,306,000 )
Purchase of 7,195,813 treasury shares of common stock for $15,000
                                                                                                    (15,000 )     (15,000 )
Special distribution of 14,391,627 shares of common stock to Projectavision, Inc.
                                                            346,000                                       30,000       376,000  
Shares deemed issued in connection with reverse merger
                                            11,000,000       11,000       (11,000 )                                                
Issuance of 182,525 shares of Series A preferred stock and warrants exercisable into 750,000 shares of common stock at an exercise price of $.10 per share in exchange for note payable of $1,500,000 and accrued interest of $330,000 including deemed dividend in connection with beneficial conversion feature of preferred stock
                                                            2,850,000                               (1,020,000 )             1,830,000  
Issuance of shares at $.20 per share, net of issuance costs
                                            5,000,000       5,000       970,000                                               975,000  
Issuance of shares to purchase intangible assets
                                            7,200,000       7,000       1,433,000                                               1,440,000  
Issuance of shares at $.58 per share for consulting services