10-Q/A 1 form10qa.htm MANHATTAN SCIENTIFICS FORM 10-Q/A form10qa.htm
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-Q /A
 
(Amendment No. 1)
 
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934
 
For the fiscal quarter ended March 31, 2009
 
o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
For the transition period from ______________________________to
 
Commission file number 000-28411
 
 
MANHATTAN SCIENTIFICS, INC.
 
(Exact name of small business issuer as specified in its charter)

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

405 Lexington Avenue, 32nd Floor, New York, New York, 10174
 
(Address of principal executive offices) (Zip code)
 
Issuer’s telephone number: (212) 551-0577
 
Securities registered under Section 12(g) of the Exchange Act:
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes o No þ
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer o
 
Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)
 
Smaller reporting company þ
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
 
There were 393,227,926 shares outstanding of registrant’s common stock, par value $.001 per share, as of April 30, 2009.
 
Transitional Small Business Disclosure Format (check one): Yes o No þ
 
 
1

 
 
EXPLANATORY NOTE
 
 This Amendment No. 1 (“Amendment”) on Form 10-Q/A amends the Periodic Report of Manhattan Scientifics, Inc. (the “Company”) on Form 10-Q for the quarter ended March 31, 2009 as filed with the Securities and Exchange Commission on May 15, 2010 (the "Original Filing"). This Amendment is being filed primarily to update Item 4 (Controls and Procedures), This Amendment is an amendment and restatement of the Original Filing 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 Filing.
 
 
TABLE OF CONTENTS
 
       
     
Page
       
 
PART I
   
       
Item 1.
Financial Statements
   
       
 
Consolidated Balance Sheets as of March 31, 2009 (unaudited) and December 31, 2008
 
1
       
 
Unaudited Consolidated Statements of Operations and Other Comprehensive Income for the three months ended March 31, 2009 and March 31, 2008 and for the period from July 31, 1992 (Inception) through March 31, 2009
 
2
       
 
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2009 and 2008 and for the period from July31, 1992 (Inception) through March 31, 2009
 
3
       
 
Notes to Unaudited Consolidated Financial Statements
 
5
       
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
 
12
       
Item 3
Quantitative and Qualitative Disclosures About Market Risk
 
16
       
Item 4
Controls and Procedures
 
16
       
 
PART II
   
       
Item 1.
Legal Proceedings
 
17
       
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
 
17
       
Item 3
Defaults Upon Senior Securities
 
17
       
Item 4.
Submission of Matters to a Vote of Security Holders
 
17
       
Item 5.
Other Information
 
17
       
Item 6.
Exhibits
 
17
       
SIGNATURES
 
18
 
 
2

 

 
PART I
ITEM 1. FINANCIAL STATEMENTS
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
 
   
March 31,
2009
   
December 31,
2008
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 392,000     $ 567,000  
Investments-available for sale
    108,000       129,000  
                 
Total current assets
    500,000       696,000  
                 
Investments
    2,000       2,000  
Intellectual property, net
    283,000       290,000  
                 
Other asset
    30,000       31,000  
                 
Total assets
  $ 815,000     $ 1,019,000  
                 
LIABILITIES
               
Current liabilities
               
Accounts payable and accrued expenses
  $ 287,000     $ 281,000  
Accrued interest and expenses - related parties
    495,000       552,000  
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
    1,810,000       1,861,000  
                 
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 issued and outstanding
           
Series C convertible, redeemable, authorized 14,000 shares; issued and outstanding - none
           
Common, authorized 500,000,000 shares, 393,227,926 and 378,977,926 shares issued, and outstanding, respectively
    393,228       379,726  
Additional paid-in-capital
    51,479,772       51,292,274  
Other accumulated comprehensive income
    108,000       129,000  
Deficit accumulated during the development stage
    (52,976,000 )     (52,643,000 )
                 
Total Stockholder’s deficit
    (995,000 )     (842,000 )
                 
TOTAL LIABILITIES AND STOCKHOLDER’S DEFICIT
  $ 815,000     $ 1,019,000  
 
See notes to unaudited consolidated financial statements
 
 
3

 
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
(UNAUDITED)
 
   
THREE MONTHS ENDED
MARCH 31,
   
PERIOD FROM
JULY 31, 1992
(INCEPTION)
THROUGH
 
   
2009
   
2008
   
 
MARCH 31, 2009
 
                   
Revenue
  $     $     $ 856,000  
                         
Operating costs and expenses:
                       
General and administrative
    321,000       1,239,000       45,008,000  
Research and development
          52,000       9,020,000  
Impairment charge of certain patents
                189,000  
                         
                         
Total operating costs and expenses
    321,000       1,291,000       54,217,000  
                         
                         
Loss from operations before other income and expenses
    (321,000 )     (1,291,000 )     (53,361,000 )
                         
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  
Proceeds from sale of NMXS.com common stock
                393,000  
Gain from sale of Novint Technologies Inc. common stock
          50,000       1,984,000  
Gain on issuance of investor common stock
                531,000  
Contract revenue
                3,741,000  
Interest and other expenses
    (13,000 )     (12,000 )     (1,145,000 )
Interest income
    1,000       2,000       193,000  
Equity in losses of investees
                (1,243,000 )
Gain / (loss) on disposal of equipment
                (13,000 )
                         
                         
NET LOSS
    (333,000 )     (1,251,000 )     (47,971,000 )
                         
Other comprehensive income
                       
Unrealized gain (loss) on available for sale investments
    (21,000 )           108,000  
                         
OTHER COMPREHENSIVE LOSS
  $ (354,000 )   $ (1,251,000 )     (47,863,000 )
                         
                         
BASIC AND DILUTED LOSS PER COMMON SHARE:
                       
Weighted average number of common shares outstanding
    384,519,593       319,478,985          
                         
                         
Basic and diluted loss per common share
  $ (0.00 )   $ (0.00 )        
                         
 
See notes to unaudited consolidated financial statements
 
 
4

 
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
THREE MONTHS ENDED
MARCH 31,
   
PERIOD FROM
JULY 31, 1992
(INCEPTION)
THROUGH
 
   
2009
   
2008
   
 
MARCH 31, 2009
 
                   
CASH FLOWS (TO) FROM OPERATING ACTIVITIES:
                 
Net loss
  $ (333,000 )   $ (1,251,000 )   $ (47,971,000 )
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Gain on sale of investments
          (50,000 )     (2,373,000 )
Gain on settlement of NMXS.com option
                (50,000 )
Gain from sale of equity interest in Horizon
                (885,000 )
Gain on issuance of investee common stock
                (531,000 )
Common stock issued for services
                7,998,000  
Preferred stock issued for services
                598,000  
Stock options issued for services
          1,034,000       11,072,000  
Cashless stock option exercise
                126,000  
Warrants issued for services
                2,556,000  
Convertible note issued for services
                108,000  
Financing costs payable with common stock
                191,000  
Financing costs related to beneficial conversion feature of convertible notes
                1,361,000  
Loss of equity investee
                1,207,000  
Amortization of technology license
                552,000  
Amortization of patents and intellectual property
    7,000       52,000       2,087,000  
Loss on disposal of equipment
                28,000  
Impairment charge of certain patents
                189,000  
Impairment charge on property and equipment
                8,000  
Depreciation
                1,127,000  
Changes in:
                       
Prepaid expenses and other assets
    1,000             226,000  
Accounts payable and accrued expenses
    6,000       15,000       3,363,000  
Accrued interest and expenses - related parties
    (57,000 )     9,000       495,000  
                         
                         
Net cash (used in) provided by operating activities:
    (376,000 )     (191,000 )     (18,518,000 )
                         
                         
CASH FLOWS (TO) FROM INVESTING ACTIVITIES:
                       
                         
Purchase of equipment
                    (432,000 )
Purchase of investment
                (100,000 )
Proceeds acquired from purchase of Metallicum, Inc.
                7,000  
Proceeds from sale of equipment
                18,000  
Proceeds from sale of equity interest
                    885,000  
Proceeds from settlement of NMXS.com
                50,000  
Proceeds received from sale of investment
                1,690,000  
                         
                         
Net cash provided by (used in) investing activities
                2,118,000  
                         
 
See notes to unaudited consolidated financial statements
 
 
5

 
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
(a development stage enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
   
THREE MONTHS ENDED
MARCH 31,
   
PERIOD FROM
JULY 31, 1992
(INCEPTION)
THROUGH
 
   
2009
   
2008
   
 
MARCH 31, 2009
 
                   
CASH FLOWS (TO) FROM FINANCING ACTIVITIES:
                 
Purchase of treasury stock for retirement
                (315,000 )
Note payable to stockholders
                    2,374,000  
Proceeds from convertible promissory notes
                1,060,000  
Proceeds from note payable - other
                634,000  
Repayment of note payable - other
                (435,000 )
Repayment of note payable to former officers
                (530,000 )
Net proceeds from issuance of preferred stock
                3,569,000  
Net proceeds from issuance of common stock
    201,000             10,580,000  
Loan repayment to preferred stockholder
                (148,000 )
Capital lease payments
                (13,000 )
Return of security deposit
                    16,000  
                         
Net cash provided by (used in) financing activities
    201,000             16,792,000  
                         
                         
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    (175,000 )     (191,000 )     392,000  
Cash and cash equivalents, beginning of period
    567,000       452,000        
                         
CASH AND CASH EQUIVALENTS, END OF PERIOD
  $ 392,000     $ 261,000     $ 392,000  
                         
                         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
                       
Interest paid
                111,000  
                         
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
                       
Fixed assets contributed to the company in exchange for
                       
     Series A preferred stock
                    45,000  
Issuance of 14,391,627 common shares to acquire intangible assets
                    15,000  
Special distribution of 14,391,627 common shares to stockholder in settlement of stockholder advances
                    376,000  
Issuance of 7,200,000 common shares to acquire intangible assets
                    1,440,000  
Issuance of Series A preferred stock and warrants in settlement of note payable and accrued interest
                    1,830,000  
Issuance of 1,000,000 common shares to acquire intangible assets
                    1,000,000  
Issuance of 100,000 common shares to acquire furniture and fixtures
                    49,000  
Issuance of 78,000 common shares in satisfaction of accrued expenses
                    15,000  
Issuance of 10,500 common shares to acquire furniture and fixtures
                    40,000  
Issuance of 1,400,00 common shares to acquire Teneo Computing
                    785,000  
Issuance of 1,000,000 common shares to purchase 42% of Novint
                    561,000  
Issuance of 641,274 common shares in satisfaction of note payable
                    48,000  
Issuance of 3,180,552 common shares in satisfaction of accrued expenses
                    159,000  
Issuance of 1,277,685 common shares in satisfaction of accrued expenses
                    83,000  
Issuance of 795,324 common shares in settlement of note payable
                    45,000  
Issuance of 1,184,220 common shares in satisfaction of accrued expenses
                    59,000  
Issuance of 106,000,000 common shares for conversion of convertible notes
                    1,060,000  
Issuance of 14,200,106 common shares in satisfaction of note payable
                    71,000  
Issuance of 15,000,000 common shares for acquisition of Metallicum, Inc.
                    300,000  
Issuance of 1,125,926 common shares in satisfaction of accrued expenses
          $ 45,000       45,000  
 
See notes to unaudited consolidated financial statements
 
 
6

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2009
NOTE 1 – BASIS OF PRESENTATION
 
The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the period ended December 31, 2008. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.
 
The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumption are inherent in the preparation of the Company’s financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions that could have a material effect on the reported amounts of the Company’s financial position and results of operations.
 
Operating results for the three months period ended March 31, 2009 are not necessarily indicative of the results that may be expected for the year ending December 31, 2009.
 
NOTE 2 - ORGANIZATION AND OPERATIONS
 
Manhattan Scientifics, Inc., a Delaware corporation (formerly Grand Enterprises, Inc) (“Grand”) was established on July 31, 1992 and has three wholly-owned subsidiaries: Metallicum, Inc., (“Metallicum”), Tamarack Storage Devices, Inc. (“Tamarack”) and Teneo Computing, Inc. (“Teneo”) (collectively “the Company”), a development stage enterprise. Currently, Metallicum is the only operating subsidiary; and Tamarack and Teneo are dormant. On June 12, 2008, the Company acquired Metallicum, Inc, for 15,000,000 shares of Company’s common stock, (Manhattan Scientifics, Inc., operates as a technology incubator that seeks to acquire, develop and commercialize life-enhancing technologies in various fields, with emphasis in the areas of alternative energy, and consumer and commercial electronics. In this capacity, the Company continues to identify emerging technologies through strategic alliances with scientific laboratories, educational institutions, and scientists and leaders in industry and government. The Company has a long standing relationship with Los Alamos Laboratories in New Mexico. During 2008, the Company refocused its efforts from the development of its fuel cell technologies to its current focus on the development of nanomaterials through the acquisition of Metallicum.
 
Metallicum is a nanotechnology start-up company located in Santa Fe, New Mexico. Metallicum Inc. has focused on the development and manufacture of nanostructured metals for medical implants and other applications. Metallicum intends to establish manufacturing partner relationships with major Fortune 500 metals companies and strategic partnering with significant customers in the medical device & prosthetics industries as well as in auto, truck, & aircraft manufacturing industries. Metallicum’s initial products include nanostructured bulk metals and alloys in the form of rod, bar, wire and foil. The Company conducts its operations primarily in the United States.
 
Manhattan Scientifics purchased Metallicum to acquire its licensed rights to patented technology. The technology is comprised of three US Patents (US Patent numbers 7152448, 6197129 and 6399215) for which Metallicum (subsequently, Manhattan) had been assigned an exclusive license rights by Los Alamos National Security LLC (LANL). Under the license rights, Metallicum had all rights, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements on the patents or trade secrets whether or not patentable or registrable under copyright or similar laws.
 
In January 2009, the Company entered into a patent license agreement with Los Alamos National Security, LLC for the exclusive licensing use of certain technology relating to the manufacture and application of nanostructuring metals and alloys. Pursuant to such agreement we provided a non-refundable fee and 2,000,000 shares of our common stock. Additionally, the Company is required to pay an annual license fee starting in February 2010 and royalties on future net sales.
 
The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.
 
 
7

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2009
 
NOTE 3 - GOING CONCERN UNCERTAINTY
 
These financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company continues to incur recurring losses and at March 31, 2009, had an accumulated deficit of $52,976,000. For the three months ended March 31, 2009, the Company sustained a net loss of $333,000. These factors, among others, indicate that the Company may be unable to continue as a going concern for a reasonable period of time. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is contingent upon its ability to obtain additional financing, and to generate revenue and cash flow to meet its obligations on a timely basis.
 
NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUTING POLICIES AND RELATED MATTERS
 
PRINCIPLES OF CONSOLIDATION:
 
The consolidated financial statements include the accounts of the Company and its three wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated.
 
DEVELOPMENT STAGE ENTERPRISE:
 
The Company has not generated any significant revenue since inception. The accompanying financial statements have, therefore, been prepared using the accounting formats prescribed by Financial Accounting Standards Board Statement No. 7, Accounting and Reporting by Development Stage Enterprises, (SFAS No. 7) for a development stage enterprise (DSE). Although the Company has recognized some nominal amount of revenue in the past, the Company still believes it is devoting substantial efforts on developing the business and, therefore, still qualifies as a DSE.
 
INTANGIBLE ASSETS:
 
License Agreements
 
In 2008, the Company obtained licenses to the rights of certain patents regarding nanostructured materials developed by another company as a result of the acquisition of Metallicum. The purchase price paid for these licenses was $305,000, which represents its fair value. In January 2009, the Company obtained an exclusive license on two patents and a non-exclusive license on the third patent. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. At March 31, 2009, accumulated amortization was $22,000. Under the terms of the agreement, the Company may be required to pay royalties, as defined, to the licensors.
 
USE OF ESTIMATES:
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. A significant estimate includes the carrying value of the Company’s patents, fair value of the Company’s common stock, assumptions used in calculating the value of stock options, depreciation and amortization.
 
INVESTMENTS
 
Available-for-Sale Investments
 
Investments that the Company designates as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). The Company determines the cost of the investment sold based on the specific identification method. The Company’s available-for-sale investments include:
 
 
Marketable equity securities The Company acquires these equity investments for the promotion of business and strategic objectives. The Company records the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on other equity investments, net.
 
 
8

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2009

Non-Marketable and Other Equity Investments
 
The Company accounts for non-marketable and other equity investments under either the cost or equity method and include them in other long-term assets. The non-marketable and other equity investments include:
 
 
Non-marketable cost method investments when the equity method does not apply. We record the realized gains or losses on the sale of non-marketable cost method investments in gains (losses) on other equity investments, net.
 
INCOME TAXES
 
The Company accounts for its income taxes using the Financial Accounting Standards Board Statements of Financial Accounting Standards No. 109, “Accounting for Income Taxes,” which requires the establishment of a deferred tax asset or liability for the recognition of future deductible or taxable amounts and operating loss and tax credit carryforwards. Deferred tax expense or benefit is recognized as a result of timing differences between the recognition of assets and liabilities for book and tax purposes during the year.
 
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are recognized for deductible temporary differences and operating loss, and tax credit carryforwards. A valuation allowance is established, when necessary, to reduce that deferred tax asset if it is “more likely than not” that the related tax benefits will not be realized.
 
In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (FIN-48), Accounting for Uncertainty in Income Taxes—An interpretation of FASB Statement No. 109. FIN-48 clarifies the accounting for uncertainty in income taxes recognized in an entity’s financial statements in accordance with Statement of Financial Accounting Standards No.109, Accounting for Income Taxes. This Interpretation prescribed a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In addition, FIN-48 provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company adopted the provisions of FIN-48 and they had no impact on its financial position, results of operations, and cash flows.
 
STOCK-BASED COMPENSATION
 
On January 1, 2006, the Company 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). The Company has applied the provisions of SAB 107 and SAB 110 in its adoption of SFAS 123(R). The Company adopted SFAS 123(R) using the modified prospective transition method, which requires the application of the accounting standard as of the beginning in 2006. The Company’s 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, The Company’s financial statements for prior periods include the impact of SFAS 123(R).
 
The estimated fair value of grants of stock options and warrants to nonemployees of the Company is charged to expense, if applicable, in the financial statements. The Company did not issue any options or warrants during the three months ended March 31, 2009.
 
 
9

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2009
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
Effective January 1, 2008, the Company adopted SFAS No. 157, which provides a framework for measuring fair value under GAAP. The adoption of this statement had an immaterial impact on our consolidated financial statements. The Company also adopted the deferral provisions of FSP No. 157-2, which delays the effective date of SFAS No. 157 for all nonrecurring fair value measurements of non-financial assets and liabilities until fiscal years beginning after November 15, 2008.
 
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. SFAS No. 157 also expands disclosures about instruments measured at fair value and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
 
 
Level 1 — Quoted prices for identical assets and liabilities in active markets;
   
 
Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
   
 
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
 
The Company designates cash equivalents (consisting of money market funds) and investments in securities of publicly traded companies as Level 1. The total amount of the Company’s investment classified as Level 3 is de minimis.
 
The fair value of the Company’s debt as of March 31, 2009 and December 31, 2008 approximated fair value at those times.
 
In January 2009, the Company adopted SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of FASB Statement No. 115.” SFAS No. 159 permits the Company to elect fair value as the initial and subsequent measurement attribute for certain financial assets and liabilities that are not otherwise required to be measured at fair value on an instrument-by-instrument basis. If the Company elects the fair value option, it would be required to recognize subsequent changes in fair value in the Company’s earnings. This standard also establishes presentation and disclosure requirements designed to improve comparisons between entities that choose different measurement attributes for similar types of assets and liabilities. While SFAS No. 159 became effective for the Company in 2009, the Company did not elect the fair value measurement option for any of its existing assets and liabilities and accordingly SFAS No. 159 did not have any impact on the Company’s consolidated financial statements. The Company could elect this option for new or substantially modified assets and liabilities in the future.
 
Fair value of financial instruments: The carrying amounts of financial instruments, including cash and cash equivalents, short-term investments, accounts payable, accrued expenses and notes payables approximated fair value as of March 31, 2009 and December 31, 2008 because of the relative short term nature of these instruments. At March 31, 2009 and December 31, 2008 the fair value of the Company’s debt approximates carrying value. The fair value of the Company’s available for sale securities was $108,000 at March 31, 2009 and these securities are classified as Level 1. (See Note 6).
 
BASIC AND DILUTED LOSS PER SHARE:
 
In accordance with SFAS No. 128, “Earnings Per Share,” the basic loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Basic net loss per share excludes the dilutive effect of stock options or warrants and convertible notes Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and warrants. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
 
The Company’s computation of dilutive net loss per share for the three months and year ended March 31, 2009 and December 31, 2008, does not assume any exercise of options, warrants or shares issuable upon conversion of the series B preferred stock and common shares, which totaled 40,245,000, 4,000,000 and 499,990 respectively, for the three months and year ended March 31, 2009 and December 31, 2008, as their effect is antidilutive.
 
 
10

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2009
 
Basic and diluted net loss per common share is presented in accordance with SFAS 128, “Earnings Per Share”. Basic net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the applicable reporting periods. The Company’s computation of dilutive net loss per share for the three months ended March 31, 2009 and the year ended December 31, 2008 does not assume any exercise of options or warrants or shares issuable upon conversion of the series B preferred stock and common shares, respectively, as their effect is antidilutive.
 
RECLASSIFICATIONS
 
Certain amounts from prior periods have been reclassified to conform to the current period presentation. This reclassification has resulted in no changes to the Company’s accumulated deficit or net losses presented.
 
RECENT ACCOUNTING PRONOUNCEMENTS
 
In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides additional guidance for estimating fair value in accordance with FASB Statement No. 157, Fair Value Measurements, when the volume and level of activity for the asset or liability have significantly decreased. This FSP also includes guidance on identifying circumstances that indicate a transaction is not orderly. This FSP emphasizes that even if there has been a significant decrease in the volume and level of activity for the asset or liability and regardless of the valuation technique(s) used, the objective of a fair value measurement remains the same. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. FSP FAS 157-4 is effective for interim and annual reporting periods ending after June 15, 2009, and is applied prospectively. We do not believe that the implementation of this standard will have a material impact on our financial statements.
 
In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”. This FSP amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments” to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in summarized financial information at interim reporting periods. FSP FAS 107-1 and APB 28-1 are effective for interim and annual reporting periods ending after June 15, 2009. We do not believe that the implementation of this standard will have a material impact on our financial statements.
 
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments”. This FSP amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments in the financial statements. The most significant change the FSP brings is a revision to the amount of other-than-temporary loss of a debt security recorded in earnings. FSP FAS 115-2 and FAS 124-2 are effective for interim and annual reporting periods ending after June 15, 2009. We do not believe that the implementation of this standard will have a material impact on our financial statements.
 
In November of 2008, the SEC released a proposed roadmap regarding the potential use by U.S. issuers of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”). IFRS is a comprehensive series of accounting standards published by the International Accounting Standards Board (“IASB”). Under the proposed roadmap, the Company may be required in fiscal 2015 to prepare financial statements in accordance with IFRS. However, the SEC will make a determination in 2011 regarding the mandatory adoption of IFRS. We are currently assessing the impact that this potential change would have on our consolidated financial statements, and we will continue to monitor the development of the potential implementation of IFRS.
 
In March 2009, FASB unanimously voted for the FASB “Accounting Standards Codification” (the “Codification”) to be effective beginning on July 1, 2009. Other than resolving certain minor inconsistencies in current United States Generally Accepted Accounting Principles (“GAAP”), the Codification is not supposed to change GAAP, but is intended to make it easier to find and research GAAP applicable to particular transactions or specific accounting issues. The Codification is a new structure which takes accounting pronouncements and organizes them by approximately ninety accounting topics. Once approved, the Codification will be the single source of authoritative U.S. GAAP. All guidance included in the Codification will be considered authoritative at that time, even guidance that comes from what is currently deemed to be a non-authoritative section of a standard. Once the Codification becomes effective, all non-grandfathered, non-SEC accounting literature not included in the Codification will become non-authoritative.
 
 
11

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2009
 
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force (“EITF”), the American Institute of Certified Public Accountants (“AICPA”), and the SEC did not or are not believed by us to have a material impact on our present or future financial statements.
 
The Company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
 
NOTE 5 – CAPITAL TRANSACTIONS
 
Capital transactions during three months ended March 31, 2009:
 
In February 2009, the Company issued 14,250,000 shares of common stock for approximately $201,000 from a private placement offering. The private placement originally provided for the offer and sale of up to 50,000,000 unregistered shares of the Company’s common stock at a price of $0.02 per share, for an aggregate of $1,000,000 and allowed the Company to accept or reject any oversubscription. As of March 31, 2009, the Company has sold a total of 53,657,000 shares of common stock related to the private placement for total proceeds of $1,073,000 and incurred offering costs approximating $46,000 of which $27,000 was paid in cash and 750,000 shares of common stock were issued.
 
In February 2009, we issued 1,000,000 shares to a consultant for services to be performed for a total value of $50,000 or $0.050 per share. In February 2009, we issued 300,000 shares of common stock to a consultant for past services for a total value of $15,000 or $0.05 per share which had been included in accrued expenses at December 31, 2008.
 
Capital transactions during three months ended March 31, 2008:
 
In January 2008, the Company granted options for 18,000,000 shares of common stock with an exercise price of $0.013 to the Company’s 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:
 
Discount Rate - Bond Equivalent Yield
    3.18 %
Dividend yield
    0.0 %
Volatility factor
    144.0 %
Weighted average expected life
 
5 years
 
 
In January 2008, the Company 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, the Company 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.
 
NOTE 6 – INVESTMENTS
 
The Company made an investment in Novint Technologies Inc. (“Novint”) in 2001. The Company initially recorded its investment using the equity method of accounting and wrote down the investment to $-0- in 2004 as it recorded its proportionate share of Novint’s net loss. For the years ended December 31, 2008 and 2007, the Company gave 53,191 and 92,216 shares of Novint stock as payment of accrued liabilities and notes payable, related party and recorded a gain on the exchange of those shares of $50,000 and $77,000, respectively which was based on the fair market value of the stock on the date of exchange. In addition during the year ended December 31, 2007, the Company distributed 530,000 shares of Novint related to convertible promissory notes issued during 2007. As a result, the Company recognized a gain on this distribution totaling $393,000 during the year ended December 31, 2007.
 
As of December 31, 2008, the Company owned 1,075,648 shares of Novint common stock or approximately 3%, in accordance with SFAS 157, the fair value of the Novint shares is $108,000 at March 31, 2009. The Company recorded $21,000 as other comprehensive loss due to change in fair value during the three months ended March 31, 2009.
 
The Company has an additional investment in Aprilis, Inc. which is accounted for at a cost of $2,000.
 
 
12

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2009
 
NOTE 7—OTHER ASSETS
 
Other assets consist of Artwork held for sale and deposits. The original cost of the artwork was $36,000. During the year ended December 31, 2007 the Company impaired the value of the artwork to $28,000.
 
NOTE 8 – RELATED PARTY AND FORMER OFFICER NOTES PAYABLE
 
In December 2007, the former Chief Operating Officer and former Chief Executive Officer collectively forgave $1,416,500 of their outstanding accrued salaries ($1,387,500) and note payable ($29,000) balances. The amount forgiven has been accounted for as contributed capital. Additionally, the Company repaid $5,000 of the former Chief Executive Officer’s note payable balance. The remaining unpaid notes payable balances totaling $995,000 at March 31, 2009 and December 31, 2008 comprised of loans payable of $450,000 and $545,000 to its former Chief Operating Officer and Chief Executive Officer, respectively.
 
The loans bore interest at 5.5% per annum and were initially due December 31, 2002 and have been mutually extended and settled. Under the terms of the note extensions dated December 12, 2007, the loans bear interest at 5% per annum and are now due on demand. The Company has recorded interest expense for notes payable to these former officers of approximately $12,000 and $12,000 for the three months ended March 31, 2009 and 2008, respectively. Accrued interest related to these notes payable approximated $294,000 and $282,000 as of March 31, 2009 and December 31, 2008, respectively and is included in accrued liabilities, related parties.
 
NOTE 9 – CONVERTIBLE NOTES PAYABLE – OTHER
 
During the years ended December 31, 2005 and December 31, 2004, the Company issued convertible notes in the amount of $33,000. The notes had a one year maturity date, are noninterest bearing and upon maturity convertible at the current per share price. These notes have not been paid and are currently in default.
 
NOTE 10 – PRO FORMA UNAUDITED CONSOLIDATED RESULTS OF OPERATIONS
 
In June 12, 2008, the Company completed the purchase of Metallicum, Inc., a privately held research and development company of nanostructured materials, by acquiring all of the outstanding capital stock of Metallicum, Inc. for a total purchase price of $305,000. Metallicum, Inc.’s results of operations have been included in the consolidated financial statements since the date of acquisition. As a result of the acquisition, the Company is expected to be a leading provider of nanostructured materials and uses of these materials.
 
The following pro forma consolidated results of operations for the three months ended March 31, 2008 as though the Metallicum acquisition had been completed as of January 1, 2008:
 
   
For the three months ended March31, 2008
 
       
   
Consolidated
As Reported
   
Pro Forma
Adjustments
   
Pro Forma
Consolidated
 
                   
Revenue
  $     $ 2,000     $  
                         
                         
Operating costs and expenses:
                       
General and administrative
    1,239,000       1,000       1,240,000  
Research and development costs
    52,000       1,000       553,000  
                         
Total operating costs and expenses
    1,291,000       2,000       1,293,000  
                         
Loss from operations
    (1,291,000 )           (1,291,000 )
                         
Other income (expenses):
    40,000       (1,000 )     (1,000 )
                         
                         
Net Loss
  $ (1,251,000 )   $ (1,000 )   $ (1,252,000 )
                         
                         
Loss per share
  $ 0.00     $ 0.00     $ 0.00  
                         
 
 
13

 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
Forward Looking Statements
 
This Form 10-Q/A contains “forward-looking” statements including statements regarding our expectations of our future operations. For this purpose, any statements contained in this Form 10-Q/A 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 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.
 
OVERVIEW
 
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.
 
 
14

 
 
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-Q.
 
OUR DEVELOPMENT MODEL
 
Our goal has been to influence the future through the development of potentially disruptive or sea-change technologies. Our business model has previously been to: (i) identify significant technologies, (ii) acquire them or the rights to them, (iii) secure the services of inventors, engineers or other staff who were instrumental in their creation, (iv) provide or contract for suitable work facilities, laboratories, and other aids where appropriate, (v) prototype the technologies to demonstrate “proof of principle” feasibility, (vi) secure patent and or other intellectual property protection, (vii) secure early customers for product trials where feasible and appropriate, and (viii) commercialize through licenses, sales or cooperative efforts with other manufacturing and distribution firms.
 
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 nanostructured bulk metals and alloys in the form of rod, bar, wire and foil.
 
We purchased Metallicum to acquire its licensed rights to patented technology. 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 nanostructured 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.
 
 
15

 
 
RESULTS OF OPERATIONS
 
THREE MONTHS ENDED MARCH 31, 2009 COMPARED TO THREE MONTHS ENDED MARCH 31, 2008.
 
REVENUES. We had no revenues for the three month periods ended March 31, 2009 and 2008.
 
GENERAL AND ADMINISTRATIVE. General and administrative expenses were $321,000 for the three months ended March 31, 2009 compared with $1,239,000 for the three months ended March 31, 2008. General and administrative expenses consisted of consultants, contractors, accounting, legal, travel, rent, telephone and other day to day operating expenses. General and administrative expenses decreased in 2009 as a result of a 2008 grant of options for 18,000,000 shares of common stock with an exercise price of $0.013 granted to a consultant and our former CEO who currently serves a senior 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%.
 
RESEARCH AND DEVELOPMENT. Research and development expenses were $52,000 for three months ended March 31, 2008 reflecting the amortization of our patents. We fully amortized these patents in 2008.
 
NET LOSS. Our net loss was $333,000 for three months ended March 31, 2009 compared to $1,251,000 for the three months ended March 31, 2008. The decrease in net loss resulted from lower general and administrative expenses partially offset by a $50,000 gain from the sale of stock of Novint Technologies Inc. (“Novint”) in the three months ended March 31, 2008.
 
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 March 31, 2009, 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 a decrease of $376,000 in cash and cash equivalents for the three months ended March 31, 2009, as a result of cash used by operating activities compared with a $191,000 decrease in cash and cash equivalents in the three months ended March 31, 2008 as a result of cash used by operating activities during the period. The increase in cash used was the result of a higher net loss, net of the $1,034,000 charge in 2008 for the grant of options to a consultant and our former CEO who currently serves a senior consultant, and more cash used to reduce accrued interest and expenses for related parties in 2009. As a result of the issuance of common stock, we were able to provide $201,000 from financing activities during the first quarter of 2009.
 
Working capital was a deficit of $1,310,000 on March 31, 2009 compared with a deficit of $1,165,000 on December 31, 2008.
 
Stockholders’ equity totaled a deficit of $995,000 on March 31, 2009 compared with a deficit of $842,000 on December 31, 2008. During April 2008 through January 2009, we sold approximately $1,100,000 from a private placement offering at a price of $0.02 per share.
 
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, other than Metallicum 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 March 31, 2009, we had $392,000 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.
 
 
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RECENTLY ISSUED ACCOUNTING STANDARDS
 
The Company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. A significant estimate includes the carrying value of our patents, fair value of our common stock, assumptions used in calculating the value of stock options, depreciation and amortization.
 
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.
 
License Agreements
 
In 2008, we obtained licenses to the rights of certain patents regarding nanostructured materials developed by another company as a result of the acquisition of Metallicum. The purchase price paid for these licenses was $305,000, which 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 March 31, 2009, accumulated amortization was $22,000. 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
 
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 the three months ended March 31, 2009 and 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.
 
 
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OFF BALANCE SHEET ARRANGEMENTS
 
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations liquidity, capital expenditures or capital resources and would be considered material to investors.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable
 
ITEM 4. CONTROLS AND PROCEDURES
 
(a) Evaluation of Disclosure Controls and Procedures

We conducted an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures.  The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.  Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our principal executive and principal financial officers concluded as of March 31, 2009 that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses in our internal controls over financial reporting discussed immediately below.

This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permits us to provide only management's report in this quarterly report.

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  Our internal control over financial reporting includes those policies and procedures that:

 
1. 
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
 
2.
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and
 
3.
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of our internal control over financial reporting as of March 31, 2009. Based on this assessment, management concluded that the Company did not maintain effective internal controls over financial reporting as a result of the identified material weakness in our internal control over financial reporting described below. In making this assessment, management used the framework set forth in the report entitled Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring.  

Identified Material Weakness

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

Management identified the following material weakness during its assessment of internal controls over financial reporting as of December 31, 2008:

Resources: As of December 31, 2008, we had one full-time employee in general management and no full-time employees with the requisite expertise in the key functional areas of finance and accounting.  As a result, there is a lack of proper segregation of duties necessary to insure that all transactions are accounted for accurately and in a timely manner.
 
Written Policies & Procedures: We need to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions, and prepare, review and submit SEC filings in a timely manner.
 
Audit Committee: We do not have, and are not required, to have an audit committee.  An audit committee would improve oversight in the establishment and monitoring of required internal controls and procedures.

Management’s Remediation Initiatives

During the year ended December 31, 2009, we generated revenue and are no longer a development stage company.  As our resources allow, we will add financial personnel to our management team.  We plan to prepare written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions.  We will also create an audit committee made up of our independent directors.

(b)           Changes In Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting during this fiscal quarter that materially affected, or is reasonably likely to have a materially affect, on our internal control over financial reporting.
 
 
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PART II
 
ITEM 1. LEGAL PROCEEDINGS
 
We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of March 31, 2009, we were not a party to any material litigation, claim or suit whose outcome could have a material effect on our financial statements.
 
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
In January 2009, the Company entered into a patent license agreement with Los Alamos National Security, LLC for the exclusive licensing use of certain technology relating to the manufacture and application of nanostructuring metals and alloys. Pursuant to such agreement we provided a non-refundable fee and 2,000,000 shares of our common stock.
 
In February 2009, the Company issued 14,250,000 shares of common stock for approximately $201,000 from a private placement offering. The private placement originally provided for the offer and sale of up to 50,000,000 unregistered shares of the Company’s common stock at a price of $0.02 per share, for an aggregate of $1,000,000 and allowed the Company to accept or reject any oversubscription. As of March 31, 2009, the Company has sold a total of 53,657,000 shares of common stock related to the private placement for total proceeds of $1,051,000 and incurred offering costs approximating $46,000 of which $27,000 was paid in cash and 750,000 shares of common stock were issued.
 
In February 2009, we issued 1,000,000 shares to a consultant for services to be performed for a total value of $50,000 or $0.050 per share. In February 2009, we issued 300,000 shares of common stock to a consultant for past services for a total value of $15,000 or $0.05 per share which had been included in accrued expenses at December 31, 2008.
 
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
 
Not Applicable
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
None.
 
ITEM 5. OTHER INFORMATION
 
Not Applicable.
 
ITEM 6. EXHIBITS
 
Index to Exhibits
 
31.1
Certification of Chief Executive Officer under Rule 13(a) - 14(a) of the Exchange Act.
   
31.2
Certification of Chief Financial Officer under Rule 13(a) - 14(a) of the Exchange Act.
   
32
Certification of CEO and CFO under 18 U.S.C. Section 1350
 
 
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SIGNATURES
 
 
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this  1st day of October 2010.
 
 
MANHATTAN SCIENTIFICS, INC.
     
 
By:
/s/ Emmanuel Tsoupanarias
   
Emmanuel Tsoupanarias
   
Chief Executive Officer
     
 
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:
 
Signature
Title(s)
Date
     
s/ Emmanuel Tsoupanarias
Chief Executive Officer
October 1, 2010
Emmanuel Tsoupanarias
(Principal Executive amd Accounting Officer)
 
     
/s/ Chris Theoharis
Principal Financial Officer
October 1, 2010
Chris Theoharis
   
 

 
 
 
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