10-Q 1 form10q.htm MANHATTAN SCIENTIFICS, INC. FORM 10-Q form10q.htm
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
 
FORM 10-Q
 (Mark One)
 
x
 
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934
For the fiscal quarter ended March 31, 2011
     
o
 
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from __________________________ to
 
Commission file number 000-28411
 
MANHATTAN SCIENTIFICS, INC.
(Exact name of small business issuer as specified in its charter)
 
Delaware
   
000-28411
   
85-0460639
(State of Incorporation)
   
(Commission File Number)
   
(IRS Employer Identification No.)
 
405 Lexington Avenue, 32nd Floor, New York, New York, 10174

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

Securities registered under Section 12(g) of the Exchange Act:
 
Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
       
   
Accelerated filer
   
o
Non-accelerated filer
oo
       
   
Smaller reporting company
   
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
 
There were 412,769,926 shares outstanding of registrant’s common stock, par value $.001 per share, as of May 1, 2011.


 
 

 
 
TABLE OF CONTENTS
 
     
 
PART I
 
Item 1.
Financial Statements
 
 
Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010
1
 
Unaudited Consolidated Statements of Operations and Other Comprehensive Income for the three months ended March 31, 2011 and March 31, 2010
2
 
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and March 31, 2010
3
 
Condensed Notes to Unaudited Consolidated Financial Statements
4
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operation
10
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.
(Removed and Reserved)
17
Item 5.
Other Information
17
Item 6.
Exhibits
17
SIGNATURES
 
18
 
 

 
 
 

 
 
 

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

   
March 31,
2011
   
December 31, 2010
 
   
(Unaudited)
   
(Audited)
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
 
$
1,271,000
   
$
1,055,000
 
Investments-available for sale
   
65,000
     
65,000
 
Prepaid expenses and other assets
   
-
     
86,000
 
Total current assets
   
1,336,000
     
1,206,000
 
                 
Investments
   
2,000
     
2,000
 
Intellectual property, net
   
248,000
     
257,000
 
Deposit on Acquisition Option Agreement
   
460,000
     
460,000
 
Other asset
   
2,000
     
2,000
 
TOTAL ASSETS
 
$
2,048,000
   
$
1,927,000
 
                 
LIABILITIES
               
Current liabilities
               
Accounts payable and accrued expenses
 
$
270,000
   
$
271,000
 
Accrued interest and expenses — related parties
   
365,000
     
327,000
 
Deferred revenue
   
343,000
     
 
Note payable to former officers
   
450,000
     
450,000
 
Note payable — other
   
33,000
     
33,000
 
Total current liabilities
   
1,461,000
     
1,081,000
 
                 
Long-term liabilities
               
Note payable, related party
   
545,000
     
545,000
 
Accrued interest, related party
   
211,000
     
230,000
 
Total long-term liabilities
   
756,000
     
775,000
 
Total  liabilities
   
2,217,000
     
1,856,000
 
                 
Commitments and Contingencies:
   
     
 
                 
STOCKHOLDERS’ EQUITY (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 none outstanding
   
     
 
Common, authorized 500,000,000 shares, 412,769,926 and 411,769,926 shares issued, and outstanding, respectively
   
413,000
     
412,000
 
Additional paid-in-capital
   
52,785,000
     
52,726,000
 
                 
Other accumulated comprehensive income
   
65,000
     
65,000
 
Accumulative deficit
   
(53,432,000
)    
   
(53,132,000
)  
                 
Total stockholder’s equity (deficit)
   
(169,000
)    
   
71,000
  
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
 
$
2,048,000
   
$
1,927,000
 
                 
 

 
See notes to unaudited consolidated financial statements.

 
 
 
1

 
 
 
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
 
 
   
THREE MONTHS ENDED
 
   
March 31, 2011
   
March 31, 2010
 
             
Revenue
 
$
171,000
   
$
172,000
 
Cost of revenue
   
28,000
     
38,000
 
Gross profit
   
143,000
     
134,000
 
                 
Operating costs:
               
General and administrative expenses
   
431,000
     
313,000
 
                 
Total operating costs and expenses
   
431,000
     
313,000
 
                 
Loss from operations before other income and expenses
   
(288,000
)
   
(179,000
)
                 
Other income and (expenses):
               
Interest and other expenses
   
(12,000
)
   
(13,000
)
Interest income
   
-
     
-
 
                 
NET LOSS
   
(300,000
)
   
(192,000
)
                 
Comprehensive income (loss):
               
Unrealized gain (loss) on available for sale investments
   
-
     
64,000
 
                 
COMPREHENSIVE LOSS
 
$
(300,000
)
 
$
(128,000
)
                 
BASIC AND DILUTED LOSS PER COMMON SHARE:
               
Weighted average number of common shares outstanding
   
412,758,815
     
397,452,926
 
                 
Basic and diluted loss per common share
 
$
(0.00
)
 
$
(0.00
)
 

 
See notes to unaudited consolidated financial statements.

 
2

 
 

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
 
 
   
THREE MONTHS ENDED
 
   
March 31, 2011
   
March 31, 2010
 
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
 
$
(300,000
)
 
$
(192,000
)
Adjustments to reconcile net loss to net cash used in operating activities:
               
Common stock issued for services
   
60,000
     
-
 
Stock based compensation related to vesting of stock warrants
   
-
     
34,000
 
Amortization of technology license, patents and intellectual property
   
9,000
     
8,000
 
Changes in operating assets and liabilities:
               
Prepaid expenses and other assets
   
86,000
     
26,000
 
Accounts payable and accrued expenses
   
(1,000
)
   
(48,000
)
Accrued interest and expenses—related parties
   
19,000
     
26,000
 
Deferred revenue
   
343,000
     
129,000
 
                 
Net cash provided by (used in) operating activities;
   
216,000
     
(17,000
)
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
   
     
 
                 
Net cash provided by investing activities
   
     
 
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from issuance of common stock, net of offering costs
   
-
     
216,000
 
                 
Net cash provided by financing activities
   
-
     
216,000
 
                 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
   
216,000
     
199,000
  
Cash and cash equivalents, beginning of period
   
1,055,000
     
362,000
 
                 
CASH AND CASH EQUIVALENTS, END OF PERIOD
 
$
1,271,000
   
$
561,000
 
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
               
Interest paid
 
$
   
$
 
                 
Income taxes paid
 
$
   
$
 
                 
 
See notes to unaudited consolidated financial statements.
 
 
 
3

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2011

NOTE 1 – BASIS OF PRESENTATION
 
The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles in the United States of America for complete financial statements. These unaudited interim financial statements should be read in conjunction with the audited financial statements and the notes thereto included on Form 10-K for the year ended December 31, 2010. 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, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.
 
NOTE 2 – ORGANIZATION AND OPERATIONS
 
Manhattan Scientifics, Inc., a Delaware corporation (formerly Grand Enterprises, Inc) (“Grand”) was established on July 31, 1992 and has three wholly-owned subsidiaries: Metallicum, Inc., (“Metallicum”), Tamarack Storage Devices, Inc. (“Tamarack”) and Teneo Computing, Inc. (“Teneo”) (collectively “the Company”). Currently, Metallicum is the only operating subsidiary; and Tamarack and Teneo are dormant. On June 12, 2008, the Company acquired Metallicum, Inc, for 15,000,000 shares of Company’s common stock. Manhattan Scientifics, Inc., operates as a technology incubator that seeks to acquire, develop and commercialize life-enhancing technologies in various fields, with emphasis in the areas of nanotechonogies and nanomedicine. 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 manufacturing of nanostructured metals for medical implants and other applications. Metallicum intends to establish manufacturing partner relationships with major Fortune 500 metals companies and strategic partnering with significant customers in the medical device & prosthetics industries as well as in auto, truck, & aircraft manufacturing industries. Metallicum’s initial products include nanostructured bulk metals and alloys in the form of rod, bar, wire and foil. The Company conducts its operations primarily in the United States.
 
Manhattan Scientifics purchased Metallicum to acquire its licensed rights to patented technology. The technology is comprised of three US Patents (US Patent numbers 7152448, 6197129 and 6399215) for which Metallicum (subsequently, Manhattan) had been assigned an exclusive license rights by Los Alamos National Security LLC (LANL). Under the license rights, Metallicum had all rights, title and interest throughout the world in and to any and all inventions, original works of authorship, developments, concepts, know-how, improvements on the patents or trade secrets whether or not patentable or registrable under copyright or similar laws.
 
In January 2009, the Company entered into a patent license agreement with Los Alamos National Security, LLC for the exclusive licensing use of certain technology relating to the manufacture and application of nanostructuring metals and alloys. Pursuant to such agreement the Company provided a non-refundable fee and 2,000,000 shares of common stock. Additionally, the Company is required to pay an annual license fee starting in February 2010 and royalties on future net sales.
 
In September 2009, the Company entered into a technology transfer agreement with Carpenter Technologies Corporation. Wherein Carpenter will fully develop, manufacture and market a new class of high strength metals under an exclusive technology transfer agreement from Manhattan Scientifics and the Los Alamos National Laboratory. The proprietary process will enable super-strength metals and alloys to make products that weigh far less than in the past and without significant cost premiums.
 
 
 
4

 
 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2011

NOTE 2 – ORGANIZATION AND OPERATIONS (Continued)
 
The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.
 
Prior to September 2009, the Company had been considered a development stage company. As a result of the September 2009 technology sale to with Carpenter, the Company has fully commenced its planned operations and generation of significant revenues.

Accordingly, the Company has relied primarily upon private placements and subscription sales of stock to fund our continuing activities and acquisitions.
 
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
 
Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, “Generally Accepted Accounting Principles.” ASC 105-10 establishes the FASB Accounting Standards Codification TM (“Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification supersedes all existing non-SEC accounting and reporting standards. The FASB will now issue new standards in the form of Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the changes in the Codification. References made to FASB guidance have been updated for the Codification throughout this document.
 
PRINCIPLES OF CONSOLIDATION:
 
The consolidated financial statements include the accounts of the Company and its three wholly-owned subsidiaries. All material intercompany accounts and transactions have been eliminated.
 
INTANGIBLE ASSETS:
 
License Agreements
 
In 2008, the Company obtained licenses to the rights of certain patents regarding 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.  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, 2011 and December 31, 2010, accumulated amortization was $82,000 and $75,000, respectively. Under the terms of the agreement, the Company may be required to pay royalties, as defined, to the licensors.  
 
In 2009, the Company entered into a patent license agreement with Los Alamos National Security LLC for the exclusive use of certain technology relating to the manufacture and application of nanostructuring metals and alloys.  The purchase price paid for this license agreement was $33,000 based on the fair market value of 2,000,000 shares of common stock issued.  The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years. At March 31, 2011 and December 31, 2010, accumulated amortization was $8,000 and $7,000, respectively. Under the terms of the agreement the Company is required to pay an annual license fee of $10,000 starting in February 2010 and, may be required to pay royalties, as defined, to the licensors. 
 
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.
 
 
5

 
 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2011


NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS (Continued)
 
INVESTMENTS
 
Available-for-Sale Investments
 
Investments that the Company designates as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). The Company determines the cost of the investment sold based on the specific identification method. The Company’s available-for-sale investments include:
 
• 
Marketable equity securities The Company acquires these equity investments for the promotion of business and strategic objectives. The Company records the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on other equity investments, net.

Non-Marketable and Other Equity Investments
 
The Company accounts for non-marketable and other equity investments under either the cost or equity method and include them in other long-term assets. The non-marketable and other equity investments include:
 
• 
Non-marketable cost method investments when the equity method does not apply. The Company records the realized gains or losses on the sale of non-marketable cost method investments in gains (losses) on other equity investments, net.

STOCK-BASED COMPENSATION
 
The Company accounts for stock-based compensation based on the fair value of all option grants or stock issuances made to employees or directors on or after its implementation date (the beginning of fiscal 2006), as well as a portion of the fair value of each option and stock grant made to employees or directors prior to the implementation date that represents the unvested portion of these share-based awards as of such implementation date, to be recognized as an expense, as codified in ASC 718. The Company calculates stock option-based compensation by estimating the fair value of each option as of its date of grant using the Black-Scholes option pricing model.  These amounts are expensed over the respective vesting periods of each award using the straight-line attribution method. Compensation expense is recognized only for those awards that are expected to vest, and as such, amounts have been reduced by estimated forfeitures. The Company has historically issued stock options and vested and no vested stock grants to employees and outside directors whose only condition for vesting has been continued employment or service during the related vesting or restriction period.
 
The estimated fair value of grants of stock options and warrants to nonemployees of the Company is charged to expense, if applicable, in the financial statements. The Company did not issue any options or warrants during the three months ended March 31, 2011 and 2010.
 
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
Effective January 1, 2008, the Company adopted FASB ASC 820, Fair Value Measurements and Disclosures, Pre Codification SFAS No. 157, “Fair Value Measurements”, which provides a framework for measuring fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also expands disclosures about instruments measured at fair value and establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
 
Level 1 — Quoted prices for identical assets and liabilities in active markets;
 
Level 2 — Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and
 
Level 3 — Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. 
 
 
 
6

 
 

MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2011

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS (Continued)
 
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, 2011 and December 31, 2010 approximated their fair value at those times.
 
Fair value of financial instruments: The carrying amounts of financial instruments, including cash and cash equivalents, short-term investments, accounts payable, accrued expenses and notes payables approximated fair value as of March 31, 2011 and December 31, 2010 because of the relative short term nature of these instruments. At March 31, 2011 and December 31, 2010, the fair value of the Company’s debt approximates carrying value. The fair value of the Company’s available for sale securities was $65,000 at March 31, 2011 and these securities are classified as Level 1.
 
BASIC AND DILUTED LOSS PER SHARE
 
In accordance with FASB ASC 260, “Earnings Per Share,” the basic loss per share is computed by dividing the loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Basic net loss per share excludes the dilutive effect of stock options or warrants and convertible notes.  Diluted net earnings (loss) per common share is determined using the weighted-average number of common shares outstanding during the period, adjusted for the dilutive effect of common stock equivalents, consisting of shares that might be issued upon exercise of common stock options and warrants. In periods where losses are reported, the weighted-average number of common shares outstanding excludes common stock equivalents, because their inclusion would be anti-dilutive.
 
REVENUE RECOGNITION
 
To date the only revenue generated is from the sale of field technology developed by Metallicum related to the Company’s nanotechnology, services provided and sample materials (See Note 8).
 
Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Service revenue is recognized when specific milestones are reached or as service is provided if there are no discernable milestones.
 
RECENTLY ISSUED ACCOUNTING STANDARDS
 
In April 2010, the FASB reached a consensus on the Milestone Method of Revenue Recognition which provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The updated guidance is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years beginning on or after June 15, 2010, with early adoption permitted. We adopted the provisions of the guidance as of January 1, 2011 on a prospective basis. The prospective application had no impact on our consolidated financial statements for the three months ended March 31, 2011.
 
NOTE 4 – CAPITAL TRANSACTIONS
 
Capital transactions during the three months ended March 31, 2011 and 2010:
 
For the three months ended March 31, 2011, the Company issued 1,000,000 shares of common stock to a consultant for services related to the Company's nanomedicine project with Senior Scientific, Inc.  The shares were valued at $60,000 or $0.06 per share based on the current fair value of such shares on the date of the consulting agreement.
 
For the three months ended March 31, 2010, the Company received $216,000 related to a private placement offering for shares of the Company’s common stock at a price of $0.08 per share for a total of 2,700,000 shares. The private placement offering originally provided for the offer and sale of up to 5,000,000 unregistered shares of the Company’s common stock which has since been closed as of March 31, 2010 of which of total of 2,700,000 shares had been sold. 
 
 
 
7

 
 

MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2011

NOTE 5 – INVESTMENTS
 
The Company made an investment in Novint Technologies Inc. (“Novint”) in 2001. The Company initially recorded its investment using the equity method of accounting and wrote down the investment to $-0- in 2004 as it recorded its proportionate share of Novint's net loss.  
 
In prior years, the Company had significant control of Novint because of Mr. Maslow's position as a shareholder and board member of both the Company and Novint. Mr. Maslow resigned from the board of the Company in October 2007 and therefore the Company no longer has significant control of Novint. As of March 31, 2011 and December 31, 2010, the Company owned 1,075,648 shares of Novint common stock or approximately 3% and modified its accounting for the ownership position in accordance with FASB ASC 820. The fair value of the Novint shares was $65,000 and $65,000 as of March 31, 2011 and December 31, 2010, respectively.
 
The Company has an additional investment in Aprilis, Inc. which is accounted for at a cost of $2,000 as of March 31, 2011 and December 31, 2010.

NOTE 6 – RELATED PARTY AND FORMER OFFICERS NOTES PAYABLE
 
In December 2007, the former Chief Operating Officer and former Chief Executive Officer collectively forgave $1,416,500 of their outstanding accrued salaries ($1,387,500) and note payable ($29,000) balances. The amount forgiven has been accounted for as contributed capital. Additionally, the Company repaid $5,000 of the former Chief Executive Officer’s note payable balance. The remaining unpaid notes payable balances totaling $995,000 at March 31, 2011 and December 31, 2010 comprised of loans payable due on demand of $450,000 and $545,000 to its former Chief Operating Officer and Chief Executive Officer, respectively.
 
The loans bore interest at 5.5% per annum and were initially due December 31, 2002 and have been mutually extended and settled. Under the terms of the note extensions dated December 12, 2007, the loans bear interest at 5% per annum and are now due on demand. The Company has recorded interest expense for notes payable to these former officers of approximately $12,000 and $12,000 for the three months ended March 31, 2011 and 2010, respectively. Accrued interest related to these notes payable approximated $392,000 and $380,000 as of March 31, 2011 and December 31, 2010, respectively and is included in accrued liabilities, related parties.
 
NOTE 7 – 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.
 
 
8

 

 
MANHATTAN SCIENTIFICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
MARCH 31, 2011

 
NOTE 8 – TECHNOLOGY SALE AND SUB-LICENSE AGREEMENT
 
To date the only revenue generated is from the exclusive sale of field technology developed by Metallicum, services provided and sample materials.
 
Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Service revenue is recognized when specific milestones are reached or as service is provided if there are no discernable milestones.
 
On September 12, 2009, the Company entered into a contract with Carpenter Technology Corp. to sell certain nanostructured metal technologies acquired from Metallicum, Inc, its wholly owned subsidiary, to Carpenter and to provide sub-license rights to Carpenter covering license agreements that the Company has from Los Alamos Laboratories.  The agreement has two distinct elements: and sale and services agreement and a sub-license agreement.  The first element irrevocably transfers the field technology to Carpenter Technology Corporation and Carpenter many develop or use the technology for its own benefit.  Carpenter agrees to pay a sales price of $600,000 and pay royalties for products developed using this technology.  In addition, the Company can receive additional service income for assisting Carpenter in the production process.  These additional services are elective and do not affect the sale of the technology.  The second element of the agreement is a sub-license to Carpenter for patents (the LANS patents) that are licensed by the Company from  Los Alamos Laboratories.  The sub-license agreement obligates Carpenter to pay the Company a running royalty on the sales of products that require license to the LANS patents but does not have any upfront fee or annual minimum royalties.
 
The Company recognized the sales revenue upon transfer of the technology and the service income over the term of the agreement.  The royalty income will be recognized as products are developed using the field technology or sub-license.
 
As of March 31, 2011 and 2010, the Company earned $171,000 and $172,000 and recorded such amount as revenue for the three months ended March 31, 2011 and 2010.  The amount received by the Company relates to services provided under the first element of the contract regarding additional services.  The Company earned service income for time that a consultant to the Company, Dr. Lowe, made himself available to Carpenter in accordance with the Technology Transfer Agreement.   The fees earned pursuant to the agreement with Carpenter are being proportionately recognized as revenue based upon the total fees to be collected over a 42 month period.  The 42 month period is based on the time periods described in the Agreement (6 months after effective date), (12 months after effective date), and (each of the first 3 anniversaries of Annuity date where the “Annuity date” is the date of the latter of 18 months after the effective date or the date Manhattan Scientific fully satisfies its duties under of the Agreement). The cost of revenue totaling $28,000 and $38,000 for the three months ended March 31, 2011 and 2010 represents consulting fees paid to Dr. Lowe during the period.
 
NOTE 9 – SUBSEQUENT EVENTS

In May 2011, the Company issued 3,000,000 shares of common stock pursuant to a consulting agreement, dated January 1, 2011, for consulting services to be provided in connection with the Company's nonscience project with Senior Scientific, Inc.  The consulting agreement service period is for thirty six months of which three months totaling $15,000 had been accrued for as March 31, 2011 as accrued expenses.  The value of the 3,000,000 shares issued pursuant to the consulting agreement totals $60,000 or $0.06 per share based on the fair market value of such shares on the date of the agreement.  The value of such shares will be expensed over the thirty six months service period.
 
 
 
9

 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 
Forward Looking Statements
 
This Form 10-Q contains “forward-looking” statements including statements regarding our expectations of our future operations. For this purpose, any statements contained in this Form 10-Q that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” or “continue” or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within our control. These factors include, but are not limited to, economic conditions generally and in the industries in which we may participate. In addition, these forward-looking statements are subject, among other things, to our successful completion of the research and development of our technologies; successful commercialization of our technologies; successful protection of our patents; and effective significant industry competition from various entities whose research and development, financial, sales and marketing and other capabilities far exceeds ours. In light of these risks and uncertainties, you are cautioned not to place undue reliance on these forward-looking statements. Except as required by law, we undertake no obligation to announce publicly revisions we make to these forward-looking statements to reflect the effect of events or circumstances that may arise after the date of this report.
 
OVERVIEW
 
COMPANY HISTORY
 
Manhattan Scientifics, Inc., a Delaware corporation (formerly Grand Enterprises, Inc) (“Grand”) was established on July 31, 1992 and has three wholly-owned subsidiaries: Metallicum, Inc., (“Metallicum”), Tamarack Storage Devices, Inc. (“Tamarack”) and Teneo Computing, Inc. (“Teneo”) (collectively “the Company”).  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 nanotechnology.  Nanotechnology is the use and manipulation of matter on an atomic and molecular scale.  To achieve this goal, the Company continues to identify emerging technologies through strategic alliances with scientific laboratories, educational institutions, scientists and leaders in industry and government.  The Company has a long standing relationship with Los Alamos Laboratories in New Mexico.
 
ACQUISITIONS
 
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. At March 31, 2011, one milestone was met.  Metallicum was granted an exclusive license by The Los Alamos National Laboratory on patents related to nanostructured materials.  Metallicum is a nanotechnology start-up company located in Santa Fe, New Mexico. Metallicum Inc. has focused on the development and manufacture of nanostructured metals for medical implants and other applications.
 
On February 8, 2010, the Company entered into an Acquisition Option Agreement with Senior Scientific LLC (“Senior Scientific”), Edward R. Flynn, Ph.D. ("Dr. Flynn") and Scientific Nanomedicine, Inc. (“Scientific Nanomedicine” or “SNMI”).  The agreement gives us the right to acquire SNMI which holds the commercial rights to technology and intellectual property with respect to the early detection of diseases using nano technologies owned by Senior Scientific.  The technology and intellectual property was developed by Senior Scientific and its President and Chief Executive Officer Dr. Edward R. Flynn.
 
The total consideration for the acquisition of SNMI pursuant to the Acquisition Option Agreement consists of $100,000 and 20,000,000 shares of the Company’s restricted common stock.  As of December 31, 2010 and March 31, 2011, the Company has issued a total of 7,667,000 shares pursuant to the Acquisition Option Agreement of which 1,667,000 shares were for payment in lieu of required cash payment of $100,000 required under Acquisition Option Agreement.  The share payments still required pursuant to the Acquisition Option Agreement totals 14,000,000 shares as of March 31, 2011.
 
TECHNOLOGIES
 
ADVANCED METALS
 
Our licensed proprietary process will enable our commercial partners the ability to build super-strength metals and alloys to make products that weigh far less than in the past and without significant cost premiums.  In September 2009, the Company entered into a technology transfer agreement and sale with Carpenter Technology Corporation, (“Carpenter”) wherein Carpenter will fully develop, manufacture and market a new class of high strength metals under an exclusive agreement with Manhattan Scientifics.  Metallicum intends to establish other manufacturing partner relationships significant customers in the medical device and prosthetics industries.
 
 
 
 
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NANOMEDICINE
 
The Acquisition Option Agreement gives us the exclusive right to acquire SNMI which holds the commercial rights to technology and intellectual property with respect to the early detection of diseases using nano technologies owned by Senior Scientific.  The primary purpose of the technology is the development of nanotechnology for the purpose of detection and treatment of disease. We are discussing our technology with a range of medical and pharmaceutical companies to find one or more commercial partners for the development, regulatory approval and marketing of Scientific Nanomedicine’s technology.
 
The technology allows for the early detection of cancers. The technology does not require surgery, biopsy, radioactivity, or exotically expensive instruments. Nanoparticles are introduced to the body, for example by intravenous injection. A sensitive magnetic instrument is used to magnetize and measure the nanoparticles that have bound to the specific cancer cells. Other tissues, bone, scars, etc. are all transparent to the magnetic fields used, so the technology can be used to image and measure tumors in places inaccessible to other tests, and tumors while they are still small enough to be treatable. The nanoparticles are nontoxic, and the magnetic instrument is not harmful or expensive, so the tests can be repeated as needed.
 
We believe the technology will be significant for the early detection of cancer.  The importance of correct, early diagnosis is even more important given the high and rapidly increasing costs of cancer care. The survival rates for cancers found early are much higher, in many cancers over ten times higher.  The technology is currently in clinical trials in a leukemia application. Next steps are trials in staging and metastasis detection with other diseases, establishment of volume production capability for the needle and the targeted paramagnetic nanoparticles, regulatory submission, and collaborative studies with oncologists to quantify the clinical value and cost-effectiveness of the technology
 
OTHER TECHNOLOGIES
 
In the recent past, we have worked to develop and commercialize three technologies:
 
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.”
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.
We are not presently using our resources to develop these three technologies but will look for opportunities to commercialize and monetize these technologies.  We are also seeking to develop corporate opportunities to benefit our shareholders; however, other than as set forth in this annual report, we have not executed definitive 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, the need for operating and acquisition capital is a continuous concern requiring the ongoing efforts of our management.  The Company’s success will depend in part on its ability to obtain patents and product license rights, maintain trade secrets, and operate without infringing on the proprietary rights of others, both in the United States and other countries. There can be no assurance that patents issued to or licensed by the Company will not be challenged, invalidated, or circumvented, or that the rights granted thereunder will provide proprietary protection or competitive advantages to the Company.
 
 
 
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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.
 
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 or cannot be economically scaled.  Metallicum does not yet face direct competition, but expects competition will emerge as the nanostructured metals are commercialized.
 
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 with a fair market value of $33.000. Additionally, we are required to pay an annual license fee of $10,000 starting in February 2010 and royalties on future net sales.
 
The technology is expected to trim thousands of pounds from airplanes and hundreds of pounds from cars without sacrificing structural strength or adding significant cost.  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.
 
In September 2009, the Company entered into a technology transfer agreement with Carpenter wherein Carpenter will fully develop, manufacture and market a new class of high strength metals under an exclusive license from Manhattan Scientifics and the Los Alamos National Laboratory.  Until we sign contracts with other manufacturers, nearly all of our revenue will be generated from our sale of the technology to Carpenter.
 
On September 12, 2009, the Company entered into a contract with Carpenter Technology Corp. to sell certain nanostructured metal technologies acquired from Metallicum, Inc, its wholly owned subsidiary, to Carpenter and to provide sub-license rights to Carpenter covering license agreements that the Company has from Los Alamos Laboratories.  The agreement has two distinct elements: a sale and services agreement and a sub-license agreement.  The first element irrevocably transfers the field technology to Carpenter Technology Corporation and Carpenter may develop or use the technology for its own benefit.  Carpenter agreed to pay a sales price of $600,000 and pay royalties for products developed using this technology.  In addition, the Company will receive additional service income for assisting Carpenter in the production process.  These additional services were elective and do not affect the sale of the technology.  The second element of the agreement is a sub-license to Carpenter for patents (the LANS patents) that are licensed by the Company from  Los Alamos National Laboratories.  The sub-license agreement obligates Carpenter to pay the Company a running royalty on the sales of products that require a license to the LANS patents.
 
As of March 31, 2011 and December 31, 2010, the Company earned $1,859,000 and $1,687,000 from Carpenter.  The Company has received the following amounts from Carpenter:
 
During the year ended December 31, 2009, the Company received $0.6 million for the sale of certain technology;
During the year ended December 31, 2009, the Company, received a $1.0 million one-time payment for satisfying a performance obligation under the Technology Transfer Agreement
During the year ended December 31, 2010, the Company received $0.6 million of income or assisting with the development of the technology and is recognizing this income over the term of the Agreement.
During the three months ended March 31, 2011, the Company received $0.6 million of income or assisting with the development of the technology and is recognizing this income over the term of the Agreement.
 
The Company recognized the sales revenue upon transfer of the technology and satisfying the performance obligation by Manhattan to facilitate the purchase of a current generation ECAP-C production machine by Carpenter and will recognize the service income over the term of the agreement.  The royalty income will be recognized as products are developed using the field technology or sub-license.
 
 
 
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The fees earned pursuant to the agreement with Carpenter are being proportionately recognized as revenue based upon the total fees to be collected over a 42 month period.  The 42 month period is based on the time periods described in the Agreement (6 months after effective date), (12 months after effective date), and (each of the first 3 anniversaries of Annuity date where the “Annuity date” is the date of the latter of 18 months after the effective date or the date Manhattan Scientific fully satisfies its duties under of the Agreement).The cost of revenue totaling $28,000 and $131,000 for the same period representsconsulting fees paid to Dr. Lowe during the period.
 
NANOMEDICINE
 
The Acquisition Option Agreement gives us the exclusive right to acquire SNMI which holds the commercial rights to technology and intellectual property with respect to the early detection of diseases using nano technologies owned by Scientific Nanomedicine.  Scientific Nanomedicine’s technology uses targeted nanoparticles and magnetic systems to locate and quantify biological substances, such as cancer cells.  The technology makes it possible to identify and image small clusters of cancer cells substantially increasing the sensitivity for finding cancer at an earlier stage than is currently available. We are discussing our technology with a range of medical and pharmaceutical companies to find one or more commercial partners for the development, regulatory approval and marketing of Scientific Nanomedicine’s technology.
 
INTELLECTUAL PROPERTY / RESEARCH AND DEVELOPMENT
 
In 2008, 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.  The purchase price paid for these licenses was $305,000, which represents its fair value.  The Company obtained an exclusive license on two patents and a non-exclusive license on the third patent. The value attributable to license agreements is being amortized over the period of its estimated benefit period of 10 years.
 
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 with a perpetual term from the Los Alamos 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.
 
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.
 
CUSTOMERS AND SUPPLIERS
 
 To date, all of our revenue was generated by one customer, Carpenter Technology Corporation.  We did not have any significant suppliers.
 
 
 
13

 
 
 
RESULTS OF OPERATIONS
 
THREE MONTHS ENDED MARCH 31, 2011 COMPARED TO THREE MONTHS ENDED MARCH 31, 2010.
 
GROSS PROFIT. The $171,000 of revenue recognized for the three months ended March 31, 2011 related to service income and is equivalent to the $172,000 in revenue earned during the three months ended March 31, 2010. The Company earned service income for time that a consultant to the Company, Dr. Lowe, made himself available to Carpenter in accordance with the Technology Transfer Agreement. The fees earned pursuant to the agreement with Carpenter are being proportionately recognized as revenue based upon the total fees to be collected over a 42 month period.  The 42 month period is based on the time periods described in the Agreement (6 months after effective date), (12 months after effective date), and (each of the first 3 anniversaries of Annuity date where the “Annuity date” is the date of the latter of 18 months after the effective date or the date Manhattan Scientific fully satisfies its duties under of the Agreement).  The cost of revenue totaling $28,000 for the same period  represents  consulting fees paid to Dr. Lowe during the period.
 
GENERAL AND ADMINISTRATIVE. General and administrative expenses consists of consultants, contractors, accounting, legal, travel, rent, telephone and other day to day operating expenses. General and administrative expenses were $431,000 for the three months ended March 31, 2011 compared with $313,000 for the three months ended March 31, 2010.  General and administrative expenses increased primarily as a result of costs incurred related to researching patents for Senior Scientific technology and costs associated with investor relations.
 
NET LOSS. Our net loss was $300,000 for three months ended March 31, 2011 compared to a net loss of $192,000 for the three months ended March 31, 2010. The increase in net loss resulted from higher general and administrative costs and higher costs of revenues.
 
COMPREHENSIVE LOSS: Our comprehensive loss was $300,000 for three months ended March 31, 2011 compared to comprehensive loss of $128,000 for the three months ended March 31, 2010. The comprehensive loss was the result of a higher net loss in the first quarter of 2011 over the first quarter of 2010 and a $64,000 unrealized gain in the market value of our shares of Novint Technologies, Inc. (“Novint”) during the first quarter of 2010. As of March 31, 2011 and March 31, 2010, we owned 1,075,648 shares of common stock of Novint.  Novint had a quoted market price on the Pink Sheets of $0.06 as of March 31, 2011 and $0.20 as of March 31, 2010.
 
LIQUIDITY AND PLAN OF OPERATIONS
 
Stockholders’ equity totaled a deficit of $169,000 on March 31, 2011 and the working capital was $587,000 on such date. Although, we anticipate we may sell additional common stock and issue shares and/or options in exchange for services, we anticipate that our 2011 revenues received from our technology sales and service agreement will cover our overhead and the cost of our operations.
 
At March 31, 2011, 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 $216,000 in cash and cash equivalents for the three months ended March 31, 2011, as a result of cash provided by operating activities from an increase in deferred revenue partially offset by our net loss.  For the three months ended March 31, 2011, cash provided by operating activities was $216,000 compared to $17,000 used in operating activities for the three months ended March 31, 2010. The increase in cash used in operating activities, equal to $233,000, was primarily as a result of an increase in deferred revenue ($214,000).  There was no cash used in investing activities in either the first quarters of 2011 or 2010.  There was $216,000 of cash provided by financing activities in the first quarter of 2010 as the result of issuance of common stock in 2010 compared to no cash provided or used by financing activities during the first quarter of 2011.
 
Based upon current projections, our principal cash requirements for the next 12 months consists of (1) fixed expenses, including payroll, investor relations services, public relations services, bookkeeping services, consultant services, and rent; and (2) variable expenses, including technology research and development, milestone payments and intellectual property protection, and additional scientific consultants. As of March 31, 2011, we had $1,271,000 in cash. We intend to satisfy our capital requirements for the next 12 months from our cash on hand and cash generated from our technology transfer agreements which we anticipate will cover our overhead and the cost of our operations.
 
 
 
 
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RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2010, the FASB reached a consensus on the Milestone Method of Revenue Recognition which provides guidance on the criteria that should be met for determining whether the milestone method of revenue recognition is appropriate. A vendor can recognize consideration that is contingent upon the achievement of a milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. The updated guidance is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years beginning on or after June 15, 2010, with early adoption permitted. We adopted the provisions of the guidance as of January 1, 2011 on a prospective basis. The prospective application had no impact on our consolidated financial statements for the three months ended March 31, 2011.
 
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force (“EITF”), the American Institute of Certified Public Accountants (“AICPA”), and the SEC did not or are not believed by us to have a material impact on our present or future financial statements.
 
The Company has adopted all recently issued accounting pronouncements. The adoption of the accounting pronouncements, including those not yet effective, is not anticipated to have a material effect on the financial position or results of operations of the Company.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
 
Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amount of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. A significant estimate includes the carrying value of our patents, fair value of our common stock, assumptions used in calculating the value of stock options, depreciation and amortization.
 
Investments - Available-for-Sale Investments
 
Investments that we designate as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, recorded in accumulated other comprehensive income (loss). We determine the cost of the investment sold based on the specific identification method. Our available-for-sale investments include Marketable equity securities. We acquire these equity investments for the promotion of business and strategic objectives. We record the realized gains or losses on the sale or exchange of marketable equity securities in gains (losses) on other equity investments, net.
 
Stock-Based Compensation
 
The Company follows the provisions of FASB ASC 718 Compensation — Stock Compensation, which requires the measurement and recognition of compensation expense for all share-based payment awards to employees and directors based on estimated fair values. The Company estimates the expected term, which represents the period of time from the grant date that the Company expects its stock options to remain outstanding, using the simplified method as permitted by SAB 107 and SAB 110. Under this method, the expected term is estimated as the mid-point between the time the options vest and their contractual terms. The Company continues to apply the simplified method because it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected terms due to the limited period of time its equity shares have been publicly traded and the limited number of its options which have so far vested and become eligible for exercise.

The estimated fair value of grants of stock options and warrants to nonemployees of the Company is charged to expense, if applicable, in the financial statements. The Company did not issue any options or warrants during the three months ended March 31, 2011 and 2010.
 
Revenue Recognition
 
To date the only revenue generated is from the sale of technology, service agreement and sample materials.
 
Revenue is recognized when the four basic criteria of revenue recognition are met: (i) a contractual agreement exists; (ii) transfer of technology (intellectual property) has been completed or services have been rendered; (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured. Service revenue is recognized when specific milestones are reached or as service is provided if there are no discernable milestones.
 
 
 
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OFF BALANCE SHEET ARRANGEMENTS
 
We have not entered into any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations liquidity, capital expenditures or capital resources and would be considered material to investors.
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not applicable
 
ITEM 4. CONTROLS AND PROCEDURES
 
(a) Evaluation of Disclosure Controls and Procedures
 
We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management to allow for timely decisions regarding required disclosure.
 
As required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, our management conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2011. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and our management necessarily was required to apply its judgment in evaluating and implementing our disclosure controls and procedures. Based upon the evaluation described above, our management concluded that they believe that our disclosure controls and procedures were not effective, as of the end of the period covered by this report, in providing reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required disclosures, and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Management identified the weaknesses discussed below.
 
 
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Identified Material Weakness
 
A material weakness in our internal control over financial reporting is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. Although the Company does not process many transactions, management identified material weaknesses during its assessment of internal controls over financial reporting as of March 31, 2011:
 
As of March 31,2011, 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 and expertise necessary to insure that all transactions are accounted for accurately and in a timely manner.
 
Further, we do not have an audit committee.  An audit committee would improve oversight in the establishment and monitoring of required internal controls and procedures.
   
(b)
Changes In Internal Control Over Financial Reporting
 
During the quarter ended March 31, 2011, the Company prepared written policies and procedures for accounting and financial reporting to establish a formal process to close our books monthly on an accrual basis and account for all transactions, including equity transactions There were no other changes in our internal controls over financial reporting during this fiscal quarter that materially affected, or is reasonably likely to have a materially affect, on our internal control over financial reporting.
 
PART II
 
ITEM 1. LEGAL PROCEEDINGS
 
We are subject from time to time to litigation, claims and suits arising in the ordinary course of business. As of March 31, 2011, 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
 
For the three months ended March 31, 2011, the Company issued 1,000,000 shares of common stock to a consultant for services related to the Company's nanomedicine project with Senior Scientific, Inc.  The shares were valued at $60,000 or $0.06 per share based on the current fair value of such shares on the date of the consulting agreement.
 
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
 
Not Applicable
 
ITEM 4. (Removed and Reserved)
 
ITEM 5. OTHER INFORMATION
 
Not Applicable.
 
ITEM 6. EXHIBITS
 
Index to Exhibits
 
31.1
   
   
Certification of Chief Executive Officer under Rule 13(a) — 14(a) of the Exchange Act.
31.2
   
   
Certification of Chief Financial Officer under Rule 13(a) — 14(a) of the Exchange Act.
32
   
   
Certification of CEO and CFO under 18 U.S.C. Section 1350
 
 
 
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SIGNATURES
 
 
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 16th day of May, 2011.
 
 
MANHATTAN SCIENTIFICS, INC.
 
       
 
By:
/s/ Emmanuel Tsoupanarias
 
   
Emmanuel Tsoupanarias
 
   
Chief Executive Officer
 
       
 
 
 
 
 
 
 
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