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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

                                   (Mark One)
            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2001

             [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

               For the transition period from _______ to _______.

                        Commission File Number 000-28411

                           MANHATTAN SCIENTIFICS, INC.
                           ---------------------------
                 (Name of small business issuer in its charter)

                Delaware                                  850460639
                --------                                  ---------

   (State or other jurisdiction of            I.R.S. Employer Identification No.
    incorporation or organization)

641 Fifth Avenue, Suite 36F, New York, New York             10022
-----------------------------------------------             -----

(Address of principal executive offices)                  (Zip Code)

                    Issuer's telephone number: (212) 752-0505
                    -----------------------------------------

         Securities registered under Section 12(g) of the Exchange Act:
                          Common Stock, $.001 par value
                          -----------------------------
                                (Title of Class)

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

Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure is contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]

State issuer's revenues for its most recent fiscal year: $0. State the number of
shares outstanding of each of the issuer's classes of common equity, as of
December 31, 2001: 116,295,195 shares of common stock.

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days: As of April 12, 2002: $14,526,148

Transitional Small Business Disclosure Format (check one)    Yes [ ]  No [X]

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                           Forward Looking Statements

         This Form 10-KSB contains forward-looking statements, including
statements regarding our expectations of our future operations. For this
purpose, any statements contained in this Form 10-KSB 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 to our successful completion of the
research and development of our technologies; successful commercialization and
mass production of, among other things, the micro fuel cell, mid-range fuel
cell, and haptics internet applications; successful protection of our patents;
and effective significant industry competition from various entities whose
research and development, financial, sales and marketing and other capabilities
far exceeds ours. In light of these risks and uncertainties, you are cautioned
not to place undue reliance on these forward-looking statements. We note that
the safe harbor contained in the Private Securities Litigation Reform Act of
1995 is not applicable to the disclosure in this Form 10-KSB.

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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

         Manhattan Scientifics, Inc., a development stage company, is a
technology incubator that seeks to acquire, develop and bring to market
life-enhancing technologies in various fields, with emphasis in the areas of
alternative energy, consumer and commercial electronics. We identify emerging
technologies through strategic alliances with scientific laboratories,
educational institutions, and scientists and leaders in industry and government.
We believe that our scientific and business expertise, resourcefulness and
creativity place us in a position to advance these technologies from the
development stage through commercialization.

         We have been active developing four technologies:

         o        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 batteries in common use today. We
                  believe this technology has the potential to significantly
                  increase product use life over the current state-of-the-art
                  battery technologies.

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

         o        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 become
                  disruptive and many positively impact the way computers are
                  used everywhere by introducing the ability to "touch".

         o        Holographic data storage, which is a technology for the
                  storage and retrieval of data in the form of holographically
                  stored light patterns rather than magnetically. The Company
                  has developed the underlying technology to present maturity
                  and is now actively engaged in the sale or license of
                  approximately 22 patents surrounding these inventions.

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         In addition, we own approximately 4,911,300 shares, and have warrants
to purchase an additional 1,500,000 shares, of common stock of NMXS.Com, Inc.
(f/k/a New Mexico Software, Inc.), a public company that owns, develops and
markets what it believes to be fast and efficient Internet technologies for the
management of digital images.

         We are also working to identify potential new technologies for possible
acquisition, licensing, and development, as well as to develop corporate
opportunities to benefit our shareholders; however, we have no executed
agreements or finalized arrangements for any other technologies or opportunities
as of the date of this Form 10-KSB.

OUR DEVELOPMENT MODEL

         Our goal is to influence the future through the development of
potentially disruptive or sea-change technologies. Our business model is to: (i)
identify significant technologies, (ii) acquire same, (iii) secure the services
of inventors, engineers or other staff who were instrumental in its creation,
(iv) provide 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 appropriate, and (viii)
commercialize through licenses, sales or cooperative efforts with other
well-capitalized and or experienced manufacturing and distribution firms.

         In addition to technology development, we seek to develop appropriate
corporate opportunities from time to time for the benefit of the Company and its
shareholders.

         By fostering the simultaneous development of multiple technologies, we
believe we increase our likelihood of success while decreasing our risk through
diversification.

         We have assembled a team of management and professionals who work to
achieve our corporate mission. In the highly competitive environment of emerging
technologies, we believe swiftness of identification, evaluation and acquisition
is essential to success. We believe we have the ability to act and react rapidly
as well as comprehensively, and we believe this has enabled us to acquire
technologies notwithstanding competition from larger companies and government
entities.

         Since our technologies are still in their development phase, we have
generated only limited revenues. As such, the need for operating and acquisition
capital is a continuous concern requiring the ongoing efforts of our management.
The Company is not a large capital-user and has raised approximately $9.7
million capital since 1998. Nevertheless there is need to continue to raise
capital on an as needed basis through private placements, registered public
offerings, debt, and/or other financing vehicles. Raising capital was more
difficult in 2001 than in the past due to the general economic downturn of 2001
and the effects of the September 11 terrorist attacks on the World Trade Center
buildings in New York and the Pentagon in Washington D.C. We have successfully
concluded a number of capital-raising financings during the first quarter of
2002 and our management intends to work diligently to continue to raise capital
for the Company.

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         We utilize the intellectual property licensing model, and not a
production model, though management is opportunistic and is open to explore all
methods leading to commercializing its technologies. Our plan is to establish
and maintain research and development which typically requires seed-level
funding in early stages. We intend to consider all appropriate avenues for the
commercialization of our technologies.

         We currently consider ourselves to operate in one business segment:
technology incubation.

OUR TECHNOLOGIES

1. FUEL CELL TECHNOLOGIES

         We are conducting research to develop both micro and mid-range fuel
cell technologies. A micro fuel cell is a high energy miniature power source
that converts alcohol or hydrogen into electricity. A mid-range fuel cell is a
high power density medium sized power source that converts alcohol or hydrogen
into electricity. Fuel cells, which have no moving parts, create electricity not
by burning fuel, but by the process of electrochemically arranging the fuel's
atoms to produce an electric current. Water or water vapor and carbon dioxide
are the only emissions. In addition to producing harmless emissions, certain
fuel cells have the potential to be an alternative to traditional energy sources
because they use methanol and other sources of hydrogen as fuels. Methanol can
be produced inexpensively from a variety of plant sources and is considered a
renewable resource. Methanol is also regarded to be stable and safe.

         We have acquired technologies in the fields of both micro fuel cell and
mid-range fuel cells.

MICRO FUEL CELL TECHNOLOGY

         We believe that micro fuel cell-based power sources have the potential
to replace conventional batteries to provide portable power sources. If
perfected, we believe micro fuel cell technology could supply power to consumer
electronic products such as cellular phones, pagers, and other microelectronic
devices more efficiently than conventional batteries. We believe micro fuel
cells would be re-fuelable with insignificant amounts of methanol and water or
other fuels and would significantly increase available energy over current
state-of-the-art battery technology. Until recently, fuel cell technology had
not been practical for consumer electronics because of the size of the devices
necessary to produce electrical energy. We believe that new materials and
miniaturization technology has the potential to make micro fuel cell technology
commercially feasible.

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         We believe we have achieved promising results through our research to
date. In 1998, we demonstrated a pre-prototype of our micro fuel cell technology
by completing a fuel-cell driven cellular telephone call. In 1999, we
demonstrated that an eight cell array, which is approximately the size of a
credit card, running on methanol and water, was able to run a pager. We were
also selected by Industry Week Magazine that year to receive a Technology of the
Year Award in recognition of our work on the micro fuel cell. During 2000, we
developed a test micro fuel cell that achieved a specific energy output three
times greater than standard lithium ion batteries then in use for cellular
telephones. We also introduced a working prototype of a portable cell phone
charging system at an international fuel cell symposium. We have pursued the
development of safe and convenient fueling ampoules (patents pending) with fuels
such as methanol and hydrogen. Hydrogen supplied from a packaged chemical
hydride device has been demonstrated as a way of obtaining higher power
performances from miniature portable fuel cells. We have demonstrated a working
16-cell array of fuel cells, the size of a business card, built on a single
plastic substrate with vacuum and spray depositions, as a prototype of
mass-produced fuel cells. During 2001, we had six new patents issued in various
countries, including the U.S., continued and expanded our scope of research and
development of this technology, and demonstrated various fuel cells arrays,
including a hydrogen-powered portable cell-phone charger holster. Once we have
completed development of the micro fuel cell, we anticipate that we will attempt
to secure a manufacturing and distribution arrangement with an established
commercial partner.

MID RANGE FUEL CELL TECHNOLOGY

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

         In 2001, we continued our research and development of this technology
and announced the testing of a small, ultra light, and significantly more
powerful (3KW capability) prototype of the mid-range fuel cell. We also
announced the testing of a scooter powered by the more powerful fuel cell. Late
in 2001, a prototype bicycle powered by our mid range fuel cell received an
Invention of the Year 2001 citation from Time Magazine.

         We were also active during 2001 in efforts to begin commercialization
of this technology. We have considered proposed licensing and financing
arrangements from third parties but have not yet entered into any agreements. We
intend to continue to develop licensing and financing opportunities for this
technology.

         During 2000, we were hired by the U.S. Army to develop a mid-range fuel
cell evaluation prototype suitable for powering military field radios. The
Army's evaluation tests were completed in December, 2000 and were generally
favorable. Further action will depend upon funding of Army projects and our
state of manufacturing readiness.

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         During 2000 we also completed delivery of the concept prototype fuel
cell powered bicycle described above, in collaboration with the Aprilia company,
an Italian motorcycle, scooter, and bicycle manufacturer. The bicycle was
exhibited to the public at the Bologna Motor Show in December, 2000.

         We also contracted with the Electrolux Corporation to develop a fuel
cell evaluation prototype suitable to power a portable vacuum cleaner.
Evaluation tests were successfully completed and further action will depend upon
our state of manufacturing readiness.

         In addition to the foregoing specific contracts, we intend to explore
other potential applications for the mid-range fuel cell technology, as well as
potential strategic relationships with third parties relating to investment,
mass manufacturing, and mass marketing of the technology.

2. HAPTICS "TOUCH AND FEEL" INTERNET APPLICATIONS

         During 2000, we acquired exclusive licenses and sublicenses to certain
haptics internet applications from Novint Technologies, Inc. Haptics is an
emerging technology that allows computer users to have the physical sensation of
manipulating and touching objects on a computer screen as if they were
three-dimensional, using a special mouse. Detailed texture and viscosity can be
sensed, among many other aspects of touch. We also acquired 36,606 shares of
Novint Technologies, Inc. common stock , and contracted with the developer of
the licensed technology to perform research and development of the licensed
applications for contract payments of $1,500,000. In May, 2001, we acquired
Teneo Computing, Inc., a private corporation with rights to certain haptics
applications for dental simulation and oil and gas exploration. We licensed
these rights exclusively to Novint in exchange for various enhanced and amended
license rights with Novint in the areas of internet applications and interactive
applications. We also acquired an additional 4,066 shares of Novint common
stock, increasing our ownership in Novint to 40,672 shares, (approximately 42
percent of that company). During 2001, Novint worked to develop and begin
commercialization of the dental simulation and oil and gas exploration
applications, among other things.

         We believe that haptics technology has the potential to revolutionize
the way computers are utilized, and that there are other very promising
applications. These include 3-dimensional, touch-enabled online shopping and
computer gaming. We believe that our ownership of Novint stock will benefit our
shareholders as Novint develops these and other promising haptics applications .

3. HOLOGRAPHIC DATA STORAGE TECHNOLOGY

         Our wholly owned subsidiary, Tamarack Storage Devices, Inc. (a/k/a/
Holostor (TM)), has conducted research and development activities relating to
holographic data storage technology since approximately 1992. Holographic data
storage technology relates to the storage and retrieval of data in the form of
light patterns.

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         We currently have 24 patents filed relating to holographic data storage
technology, of which 23 patents have been issued and one has been abandoned. The
patents cover a range of concepts from optical design to media chemistry. Prior
to becoming our subsidiary, Tamarack was engaged in the development of
holographic data storage technology both independently and as member of a
consortium of microelectronic companies funded privately and by the United
States government through its Defense Advanced Research Projects Agency. This
research and development has continued independently since our acquisition of
Tamarack.

         We believe holographic data storage technology has the potential to
provide significantly greater storage densities than conventional magnetic
surface recording, and significantly faster retrieval times. The theoretical
limits for the holographic storage density is measured in terabits, that is,
millions of bits per cubic centimeter. Holographic data storage may provide
greater storage capabilities because data is stored in three dimensional light
patterns. Holographic storage may also make data retrieval more efficient. In
contrast to single bits of data being stored and retrieved in a stream from
conventional magnetic medium, holographic data storage may retrieve pages of
information. In addition, the means of reading data is believed to be faster
than traditional storage.

         To date, holographic data storage in general has not advanced into the
marketplace as a viable storage method because of technical challenges inherent
in developing a suitable holographic storage medium, which is a substance that
can store data in the form of light patterns. For this reason, we previously
focused our research and development work upon the development of a suitable
holographic storage medium that overcomes these technical challenges,
specifically in the field of photopolymers. While some progress was made, it
does not appear likely that this technology will be commercializable in the near
future. Accordingly, we have decided not to continue active development of this
technology, and instead seek to sell or license it in its present state of
development to appropriate third parties.

4. DIGITAL IMAGE MANAGEMENT TECHNOLOGY (INVESTMENT IN NMXS.COM, INC.)

         We presently own approximately 4,911,300 shares of common stock (and
have options to acquire another 1,500,000 shares) of NMXS.Com, Inc., a public
company located in Albuquerque, New Mexico. The shares were acquired in 1999
(and the options were acquired in 2001). NMXS.Com markets internet
technology-based software for the high-speed transmission of high-resolution
graphic images, video clips and audio recordings, among other things. NMXS.Com's
proprietary software provides image archiving, asset packaging, data mining and
secure commerce over the internet transaction capabilities.

         We believe NMXS.Com has mature, market-ready, turnkey products and
services and is positioned to capitalize on the growing trend of businesses
converting their photographs, drawings, artwork and other visual images into
formats that can be stored and retrieved electronically. The company provides
solutions particularly suited to companies seeking to develop a presence on the
internet or become involved in conducting business over the internet.

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         Our original acquisition of shares in NMXS.Com was effected in 1999
through a transaction with its predecessor, New Mexico Software, Inc., a
privately held New Mexico corporation. New Mexico Software became public
pursuant to a reverse merger transaction. Prior to the reverse merger, we
invested $100,000 in New Mexico Software and agreed to provide New Mexico
Software with business and management consulting services in return for equity.

         At present, two of our directors are also directors of NMXS.Com.
(Messrs. Maslow and Bach). Additional details concerning NMXS.Com and its
operations and technologies may be found in the Annual Report (10K-SB) of that
company. Competition

         The markets in which we compete are highly competitive and constantly
evolving. We face competition from leading researchers and manufacturers
worldwide. For example, in the last few years there has been a much greater
interest in using fuel cells as an energy source for practical applications such
as automobiles and portable electronic devices. In addition, Ford Motor Company
has indicated it will contribute several hundred million dollars as part of a
global alliance with other entities to develop automotive engines powered by
fuel cells.

         The markets in which we compete have no substantial barriers to entry.
Accordingly, there are others working toward similar objectives in order to
penetrate these markets and we anticipate additional companies will pursue the
same goals. Those whose efforts we are aware of include, without limitation,
Medis El, Inc., Micro Fuel Cell Technology Inc. and Motorola, Inc. in the area
of micro fuel cells; Ballard and H Power Corp. in the area of mid-range fuel
cells; and InPhase/Bell Labs and Aprilis/Polaroid in the area of holographic
storage media. We believe that the principal competitive factors in our
technology markets are:

         o        proprietary technology;

         o        product quality;

         o        the ability to customize technology to a customer's particular
                  use;

         o        manufacturing capabilities through related party
                  relationships;

         o        financing; and

         o        price.

         Many of our competitors have longer operating histories and
significantly greater financial, marketing and other resources than we have.
Furthermore, our competitors may introduce new products that address our
potential markets. Competition could have a material adverse effect on our
business, financial condition and results of our operations.

INTELLECTUAL PROPERTY

         Our ability to compete depends in part on the protection of 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.

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         With respect to the technologies that we are developing, we have a
total of 43 unique inventions for which patents have been filed or issued
worldwide. With respect to those inventions, 37 patents have issued worldwide
(29 of which are in the U.S.), 5 have received Notices of Allowance, 9 are
Patent Cooperation Treaty pending filings, and 77 have progressed to national
phase filings (4 of which are in the U.S.). We also have one registered
trademark. With respect to the micro fuel cell device, 14 patents have been
issued (six in the U.S.), 21 are pending, and there is one registered trademark
issued. With respect to the mid-range fuel cell, we have 5 notices of allowance
and 65 patents pending (4 in the U.S.). With respect to the holographic storage
technology, we have 23 U. S. patents issued. In addition, we continue to
evaluate whether to pursue additional applications to protect our intellectual
property.

         The success of our business will depend, in part, on our ability to
secure the issuance of our pending patents, obtain related patents, protect and
enforce patents once issued and operate without infringing on the proprietary
rights of others. Our success will also depend on our ability to maintain
exclusive rights to trade secrets and proprietary technology we own, are
currently developing and will develop. We can give no assurance that any issued
patents will provide us with competitive advantages or will not be challenged by
others, or that the patents of others will not restrict our ability to conduct
business.

         In addition, we rely on certain technology licensed from third parties
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 marketing program intended to facilitate the transition
from development to manufacturing and sales. This program consists of
preliminary dialogues with potential strategic partners, investors, and
manufacturers concerning the funding and implementation of potential
manufacturing and distribution activities.

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EMPLOYEES

         As of December 31, 2001, we had three full-time employees (including
two unsalaried employees in general management, and one compensated employee in
research and development), and two part-time unsalaried employees. In addition,
there were approximately 30 other people working on our behalf as employees of
our various research and development independent contractors (see below). We
indirectly funded the salaries of these individuals through our contract
research and development payments to their employers. Although not technically
our employees, we consider these individuals to be an integral part of our
research and development team.

         None of our employees is a member of any union or collective bargaining
organization. We consider our relationships with employees to be good.

         A significant portion of our research and development is performed by
independent contractors from whom we acquired or licensed certain technologies,
and their various employees. As of December 31, 2001, we had three independent
contractors conducting research and development for us. Robert Hockaday, the
inventor of the micro fuel cell, performs research and development under
contract through his company Energy Related Devices, Inc. The inventor of the
mid-range fuel cell technology we acquired, Dr. Arthur Koschany, also performs
research and development under contract through his company, Novars
Geselleschaft fur neue Technologien, GmbH. Thomas Anderson, one of the
developers of haptics "touch and feel" technologies, also has performed research
and development under contract through his company, Novint Technologies, Inc.
Our independent contractors utilize a number of their own various employees to
satisfy their research and development obligations to us, and their employees
are considered to be part of our research and development team.

COMPANY HISTORY

         Manhattan Scientifics, Inc., a Delaware corporation, was formed through
a reverse merger involving a public company in January 1998. The public company
was incorporated in Delaware on August 1, 1995 under the name Grand Enterprises,
Inc. Grand 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 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 described above. 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 shareholders 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, exercisable at any time prior to January
8, 2003, which warrant as of the date of this Form 10-KSB, remains unexercised
and outstanding. 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.

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ITEM 2. DESCRIPTION OF PROPERTY

         Our principal executive office is located at 641 Fifth Avenue, New
York, New York. We lease approximately 1,200 square feet of office space
pursuant to a two-year lease that was extended on December 31, 2001. For the
first two years, the aggregate rental cost for this office space was $60,000,
which increased to $66,000 as of January 1, 2002. Throughout our tenancy in this
space, our CEO Marvin Maslow has reimbursed a significant portion of these costs
through a privately owned corporation, as a benefit to our shareholders to
offset high New York City rents. Through June 2000, CEO Maslow reimbursed us for
approximately 80% of these amounts, after which we have been reimbursed in
varying percentages. During 2001, CEO Maslow reimbursed us a total of $12,000.
As of January 1, 2002, we are being reimbursed for approximately 20% of rent
costs.

         In addition to our principal executive office, we also lease space at
127 Eastgate Industrial Park, Los Alamos, New Mexico. Energy Related Devices,
Inc. continues to perform research and development for the Company's micro fuel
cell technology in laboratories at the same location. The Company's annualized
rental cost for its space is $3,660.

         We believe our facilities are adequate for our current and planned
business operations.

ITEM 3. LEGAL PROCEEDINGS

         We are not currently subject to any legal proceedings. We may from time
to time become a party to various legal proceedings arising in the ordinary
course of business.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.

                                     PART II

ITEM 5. MARKET PRICE OF AND DIVIDENDS OF OUR COMMON EQUITY AND RELATED
        STOCKHOLDER MATTERS.

         The following table sets forth for the periods indicated, the high and
low per share bid information for our common stock on the OTC Bulletin Board
System. Such high and low bid information reflects inter-dealer quotes, without
retail mark-up, mark down or commissions and may not represent actual
transactions.

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                                   Bid Prices

2001                                                             High      Low
                                                                ------    ------

First Quarter.......................................            $2.34     $0.69
Second Quarter......................................             1.30      0.71
Third Quarter.......................................             0.97      0.38
Fourth Quarter......................................             0.76      0.31

2000                                                             High      Low
                                                                ------    ------

First Quarter.......................................            $7.63     $4.00
Second Quarter......................................             5.60      2.13
Third Quarter.......................................             5.00      2.03
Fourth Quarter......................................             3.31      1.31

         As of December 31, 2001, we had 383 registered shareholders (however,
this amount does not include shareholders who hold shares in street name, which
can be significant) and 116,295,195 shares of Common Stock issued and
outstanding.

DIVIDENDS.

         We have never paid any cash dividends. We presently intend to reinvest
earnings, if any, to fund the development and expansion of our business and,
therefore, do not anticipate paying cash dividends on our common stock in the
foreseeable future. The declaration of cash dividends will be at the discretion
of our board of directors and will depend upon our earnings, capital
requirements, financial position, general economic conditions and other
pertinent factors.

RECENT SALES OF UNREGISTERED SECURITIES

         During the past three years, we have issued unregistered securities in
the following transactions:

         In April 2002, we contracted to sell 400,000 shares of our common stock
to one accredited investor for $100,000.

         In April 2002, we sold 600,000 shares of our common stock to one
accredited investor for $150,000.

         In January 2002, we sold 285,700 shares of our common stock to one
accredited investor for $100,000.

         In January 2002, we sold 850,000 shares of our common stock to one
accredited investor for $255,000.

         In September 2001, the Company issued 335,000 shares of common shares
in connection with the conversion of Series B preferred shares at a rate of 1
Series B preferred share to 10 common shares.

         In September 2001, the Company issued 150,000 shares at market price of
$.45 per share to two consultants for providing legal and public relations
services rendered.

         In August 2001, the Company issued 3,000 shares at market price of $.75
to a consultant for services rendered.

                                       13
<PAGE>

         In July 2001, the Company issued 2,000,000 shares of common stock in
connection with the conversion of Series C preferred shares at a rate of 1
Series C preferred share to 200 common shares.

         In July 2001, the Company issued 234,257 shares at market price of $.84
and $.50 per share to two consultants for marketing and media services rendered.

         In July 2001, we sold 200,000 shares of our common stock to one
accredited investor for $100,000.

         In June 2001, we sold 135,000 shares of our common stock to one
accredited investor for $97,200.

         In May 2001, we sold 100,000 shares of our common stock to one
accredited investor for $80,000.

         In April 2001, we sold 200,000 shares of our common stock to one
accredited investor for $120,000.

         In April 2001, we sold 112,500 shares of our common stock to one
accredited investor for $69,750.

         In March 2001, we sold 200,000 shares of our common stock to one
accredited investor for $144,000.

         In March 2001, we sold 150,000 shares of our common stock to one
accredited investor for $100,000.

         From March 2001 through December, 2001, we issued an aggregate of
811,250 shares of our common stock to a consulting company, in lieu of cash, as
compensation for services rendered and to be rendered. We also issued 15,000
shares of our common stock to this company in March 2001 for additional fees
owed.

         In March 2001, we issued 6,000 shares of our common stock to three
individuals (2,000 shares each), as compensation for services rendered to us.

         In February 2001, we agreed to issue 150,000 shares of our common stock
to NMXS.Com, Inc. (of whom we are an affiliate) in exchange for NMXS.Com, Inc.'s
agreement to issue warrants to us to purchase 1,500,000 shares of NMXS.Com,
Inc.'s common stock.

         In January, 2001, we issued 44,012 shares of our common stock to an
individual, in lieu of cash, as compensation for legal patent services rendered
to us.

                                       14

<PAGE>

         In December 2000, we sold 800,000 shares of our common stock to one
accredited investor for $1,000,000. In connection with this transaction, we also
issued to this investor a warrant certificate to purchase a variable quantity of
common shares (between 200,000 and 1,000,000 shares) at a variable strike price
(between $.01 and $1.25), based upon the market share price at time of exercise.

         In December 2000, we issued 50,000 shares of our common stock to an
individual, in lieu of cash, as compensation for services rendered to us.

         In November, 2000, we sold 800,050 shares of our common stock to five
accredited investors for an aggregate of $1,000,063.

         In October 2000, we issued 1,000 shares of our common stock to an
individual, in lieu of cash, as partial compensation for services rendered to
us.

         In September 2000, we issued 5,500 shares of our common stock to an
individual, in lieu of cash, as compensation for office furnishings and
fixtures.

         In July 2000, we issued options to purchase 110,000 shares of our
common stock at $2.25 per share to an individual, in lieu of cash, as
compensation for providing investor relations services to us.

         In July 2000, we issued 5,000 shares of our common stock to an
individual, in lieu of cash, as compensation for office furnishings and
fixtures.

         In June 2000, we sold 14,000 shares of our Series C Preferred Stock to
two accredited investors for an aggregate of $1,400,000. We also issued 710,000
shares of our common stock to these investors in connection with this
transaction.

         In the fourth quarter of 1999, we sold 1,048,000 shares of our common
stock to nine accredited investors for $786,000.

         In the fourth quarter of 1999, we sold 245,165 shares of our Series B
Preferred Stock to ten accredited investors for $1,470,990.

         On October 15, 1999, we sold 1,600 shares of our common stock to an
individual as compensation in lieu of cash for computer repair and crash
recovery services rendered to us.

         On August 5, 1999, we sold 1,000,000 shares of our common stock to
Novars Gesellschaft fur neu Technologien GmbH for the acquisition of certain
mid-range fuel cell technologies.

         On May 6, 1999, we sold 10,000 shares of our common stock to McKee
Wallwork, in lieu of cash for conducting a market survey in connection with
NMXS.Com, Inc. prior to our investment in that company.

         On May 6, 1999, we sold 100,000 shares of our common stock to the
Peters Corporation or its designee, in lieu of cash as compensation for
corporate furnishings.

                                       15

<PAGE>

         As of January 4, 1999, we sold options to Stanton Crenshaw
Communications to purchase 350,000 shares of our common stock at an exercise
price of $0.20 per share in exchange for public relations services. In addition,
we agreed to issue to Stanton Crenshaw $2,500 worth of our common stock per
month, commencing as of April 1, 1999, also in exchange for ongoing public
relations services. The shares accrue monthly based upon the closing price of
our stock on the last day of each month, and are to be issued quarterly. As of
March 1, 2002 we have issued Stanton Crenshaw Communications, Inc. 84,064 shares
of our common stock.

         The issuance and sale of the above-referenced securities was made in
reliance on Section 4(2) of the Securities Act of 1933, as amended, as
transactions not involving any public offering.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

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

OVERVIEW

         In January 1998, Manhattan Scientifics, Inc. then a non-operating
public corporation with nominal net assets acquired all of the outstanding
common stock of Tamarack Storage Devices, Inc. by issuing 44 million shares of
its common stock including approximately 43,120,000 shares issued to
Projectavision, a public company which gave the stockholders of Tamarack actual
control of the combined company. In addition, Manhattan Scientifics, Inc. issued
182,525 shares Series A preferred stock and a warrant to purchase 750,000 shares
of its common stock at an exercise price of 10 cents per share in exchange for a
note payable of $1.5 million plus accrued interest of $330,000 due to
Projectavision from Tamarack. In connection with the legal form of this
transaction, Tamarack became a wholly-owned subsidiary of Manhattan Scientifics,
Inc. For accounting purposes, the acquisition was treated as a recapitalization
of Tamarack rather than a business combination. Tamarack as the accounting
acquiror of the public shell did not record goodwill or any other intangible
asset for this "Reverse Acquisition". The historical financial statements are
those of Tamarack. Tamarack, a development stage enterprise, was a Texas
corporation formed in July 1992. Since inception, Tamarack has been, and
continues to be, involved in the research and development of products based on
holographic data storage technology. Loss per share has been restated for all
periods prior to the acquisition to include the number of equivalent shares
received by Tamarack's stockholders in the Reverse Acquisition.

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

                                       16


<PAGE>

         As of December 31, 2001, we had an accumulated loss since inception,
1992, of $32,455,000. Of this accumulated loss, approximately $16,350,000 was
derived from non-cash charges that were required by generally accepted
accounting principles and approximately $6,700,000 from Tamarack prior to our
acquisition of Tamarack. Non-cash charges are recorded expenditures that do not
require an outlay of cash. Accordingly cash losses from inception to December
31, 2001 were approximately $9,305,000. We expect operating losses to continue
for the foreseeable future because we will be continuing to fund research and
development efforts as well as general and administrative expenses prior to
receiving any revenues from our technologies.

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

COMPARISON OF FISCAL YEAR ENDED DECEMBER 31, 2001 TO FISCAL YEAR ENDED DECEMBER
31, 2000.

         NET LOSS. We reported a net loss of $6,662,000, or $.06 per common
share, basic and diluted, for the year ended December 31, 2001, versus a net
loss of $6,136,000, or $.06 per common share, basic and diluted, for the year
ended December 31, 2000. The increase of $526,000, or 9%, is primarily a result
of the fact that, in 2001, we recorded a charge for the issuance of options,
stock for services and financing costs, whereas in the fiscal 2000 period, we
did not issue any options and a minimal amount of stock for services.

         REVENUES. We had no revenues for the year ended December 31, 2001 and
$250,000 of revenue for the year ended December 31, 2000.

         OPERATING COSTS AND EXPENSES. Operating costs and expenses for the year
ended December 31, 2001 totaled $6,432,000, an increase of $1,424,000, or 28%,
versus costs and expenses of $5,008,000 for the year ended December 31, 2000.
These costs and expenses are detailed below.

         GENERAL AND ADMINISTRATIVE. General expenses were $4,468,000 for the
year ended December 31, 2001, which consisted of consultants, contractors,
accounting, legal, travel, rent, telephone and other day to day operating
expenses, versus general and administrative expenses of $1,915,000 for the year
ended December 31, 2000. This increase of $2,553,000, or 133%, is primarily a
result of the fact that, in 2001, we recorded a charge for the issuance of
options, stock for services and financing costs, whereas in the fiscal 2000
period, we did not issue any options and a minimal amount of stock for services.
We anticipate no significant change in general and administrative expenses in
the near future.

         RESEARCH AND DEVELOPMENT. Research and development expenses were
$1,964,000 for the year ended December 31, 2001, which consisted of payments on
research and development agreements with various contractors, amortization of
patents, ,and salary to our Chief Polymer Scientist. Research and development
expenses amounted to $3,093,000 for the year ended December 31, 2000. This
decrease of $1,129,000, or 37% resulted from our reduced spending commitments
for research and development. We expect research and development costs to
increase as we develop our existing technologies and acquire or license new
ones.

                                       17

<PAGE>

LIQUIDITY AND PLAN OF OPERATIONS

         We are a development stage company and are in the technology
acquisition and development phase of its 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, and as described
below, we have also relied upon borrowing from the Company's two senior
officers, CEO Maslow and COO Harrod, and through a bank guarantee made by Mr.
Maslow of a traditional loan. Until we generate revenue from sales and licensing
of technology, or receive a large infusion of cash from a potential strategic
partner, we intend to continue to rely upon these methods of funding our
operations during the next year.

         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, our holdings
of approximately 4.9 million shares of common stock in NMXS.Com, Inc.(which had
a market value of approximately $1,660,000 as of December 31, 2001), and 40,672
shares of common stock of Novint Technologies, Inc.; our cash on hand; and our
strategic alliances with various scientific laboratories, educational
institutions, scientists and leaders in industry and government.

         Stockholders' equity totaled $1,512,000 on December 31, 2001 and the
working capital was a deficit of $1,222,000 on such date.

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

On January 19, 2001, Lancer Management Group, LLC, the beneficial owner
of 39% of the outstanding shares of our common stock, indicated its willingness
to advance funds, on an as-needed basis, to continue our operations through
December 31, 2003, upon reasonable terms and conditions to be agreed. On March
26, 2002, Lancer indicated that it was no longer willing to advance funds as
indicated in that letter.


         Based upon current projections, our principal cash requirements for the
next 12 months consists of (1) fixed expenses, including rent, payroll, investor
relations services, public relations services, bookkeeping services, graphic
design services, consultant services, and reimbursed expenses; and (2) variable
expenses, including technology research and development, milestone payments,
intellectual property protection, utilities and telephone, office supplies,
additional consultants, legal and accounting. As of December 31, 2001, we had
$79,000 in cash (since January 1,2002, we raised $505,000 in private
placements). As of December 31, 2000, we had $1,520,000 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.

RECENTLY ISSUED ACCOUNTING STANDARDS

         The Financial Accounting Standards Board ("FASB") recently issued
Statements of Financial Accounting Standards Nos. 141 and 142 ("SFAS 141" and
"SFAS 142"). Both of these pronouncements are effective fiscal years beginning
after December 31, 2001. Under SFAS 141, a company must use the purchase method
of accounting for all business acquisitions. SFAS 142 requires a company to
periodically evaluate for impairment (as opposed to amortize) goodwill and
intangible assets. The Company does not believe the implementation of SFAS 141
or SFAS 142 will have a material effect on its financial position or results of
operations.

                                       18



<PAGE>

ITEM 7. FINANCIAL STATEMENTS

                                       19
<PAGE>
<TABLE>

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIAIRIES
(a development stage enterprise)
<CAPTION>
<S>                                                                                                      <C>
CONTENTS

                                                                                                         PAGE
                                                                                                         ----

FINANCIAL STATEMENTS

   Independent auditors' report                                                                          F-2

                                                                                                         F-3

   Consolidated balance sheet as of December 31, 2001                                                    F-4

   Consolidated statements of operations for the years ended December 31, 2001, 2000 and
      the period from July 31, 1992 (inception) through December 31, 2000                                F-5

   Consolidated statements of stockholders' equity (capital deficiency) for the
      years ended December 31, 2001 and for the cumulative period from July 31,
      1992 (inception) through December 31, 2001                                                         F-6

   Consolidated statements of cash flows for the years ended December 31, 2001, 2000 and
      for the period from July 31, 1992 (inception) through December 31, 2001                            F-9

   Notes to financial statements                                                                        F-10





                                                                                                         F-1
</TABLE>

<PAGE>


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
Manhattan Scientifics, Inc.


We have audited the accompanying consolidated balance sheet of Manhattan
Scientifics, Inc. (a development stage enterprise) and subsidiaries ("the
Company") as of December 31, 2001 and the related consolidated statements of
operations, stockholders' equity (capital deficiency), and cash flows for the
years ended December 31, 2001 and 2000 and for the period from July 31, 1992
(inception) through December 31, 2001. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements for the period from July 31, 1992 (inception) through December 31,
1994 (not presented separately herein except for the statements of stockholders"
equity (capital deficiency) were audited by other auditors whose report dated
March 24, 1995, expressed an unqualified opinion on those statements. The other
auditors report has been furnished to us, and our opinion, insofar as it relates
to the amounts included for such prior periods, is based solely on the report of
such auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors for the
cumulative information for the period from July 31, 1992 (inception) through
December 31, 1994, the financial statements enumerated above present fairly, in
all material respects, the consolidated financial position of Manhattan
Scientifics Inc. and subsidiaries as of December 31, 2001 and the consolidated
results of their operations and their consolidated cash flows for the years
ended December 31, 2001 and 2000 and for the period from July 31, 1992
(inception) through December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A to the
financial statements, the Company has suffered recurring losses from operations,
and negative cash flows from operations that raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note A. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.




Richard A. Eisner & Company, LLP

Florham Park, New Jersey
February 14, 2002


                                                                             F-2

<PAGE>
<TABLE>

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


CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2001
<CAPTION>
<S>                                                                              <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                     $     79,000
   Prepaid expenses and other assets                                                   84,000
                                                                                 -------------

      Total current assets                                                            163,000

Property and equipment, net                                                           113,000
Patents, net                                                                        1,667,000
Investment in Novint Technologies, Inc.                                               410,000
Technology license, net                                                               537,000
Security deposit                                                                        7,000
                                                                                 -------------

                                                                                 $  2,897,000
                                                                                 =============

LIABILITIES
Current liabilities:
   Accounts payable and accrued expenses                                         $    573,000
   Note payable to officers                                                           525,000
   Note payable - other                                                               287,000
                                                                                 -------------

      Total current liabilities                                                     1,385,000
                                                                                 -------------

Commitments

STOCKHOLDERS' EQUITY
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; 84,999 shares issued and
   outstanding Series C convertible, redeemable, authorized 14,000 shares;
   issued
      and outstanding - none
Common, authorized 250,000,000 shares, 116,295,195 shares issued,
   and outstanding, 19,115 shares issuable                                            115,000
Additional paid-in capital                                                         39,084,000
Deferred compensation                                                                (227,000)
Deficit accumulated during the development stage                                  (37,460,000)
                                                                                 -------------

      Total stockholders' equity                                                    1,512,000
                                                                                 -------------

                                                                                 $  2,897,000
                                                                                 =============

SEE NOTES TO FINANCIAL STATEMENTS                                                         F-4

</TABLE>
<PAGE>
<TABLE>

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>

                                                                                                PERIOD FROM
                                                                                               JULY 31, 1992
                                                                      YEAR ENDED                (INCEPTION)
                                                                      DECEMBER 31,                THROUGH
                                                             -------------------------------    DECEMBER 31,
                                                                  2001             2000             2001
                                                             --------------   --------------   --------------
<S>                                                          <C>              <C>              <C>
Revenues                                                                      $     250,000    $     250,000
                                                                              --------------   --------------

Operating costs and expenses:
   General and administrative                                $   4,468,000        1,915,000       28,879,000
   Research and development                                      1,964,000        3,093,000        6,680,000
                                                             --------------   --------------   --------------

      Total operating costs and expenses                         6,432,000        5,008,000       35,559,000
                                                             --------------   --------------   --------------

Loss from operations before other income and expenses           (6,432,000)      (4,758,000)     (35,309,000)

Other income and expenses:
   Contract revenue                                              3,602,000
   Interest and other expense                                      (41,000)         (26,000)        (610,000)
   Interest income                                                  16,000           48,000          167,000
   Equity in losses of investees                                  (205,000)                         (305,000)
                                                             --------------   --------------   --------------

NET LOSS/COMPREHENSIVE LOSS                                     (6,662,000)      (4,736,000)   $ (32,455,000)
                                                                                               ==============
Dividends on preferred stock beneficial conversion feature                       (1,400,000)
                                                             --------------   --------------

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS                 $  (6,662,000)   $  (6,136,000)
                                                             ==============   ==============

BASIC AND DILUTED LOSS PER SHARE:
   Weighted average number of common shares
      outstanding                                              110,921,175      102,355,000
                                                             ==============   ==============

   Basic and diluted loss per share                          $        (.06)   $        (.06)
                                                             ==============   ==============




SEE NOTES TO FINANCIAL STATEMENTS                                                                         F-5
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

                                                                   Preferred Stock       Preferred Stock
                                                                   $.001 Par Value       $.001 Par Value
                                                                 -------------------   -------------------       Common Stock
                                                    Series A        Series B                Series C             $.001 Par Value
                                                    Preferred    -------------------   -------------------  ------------------------
                                                    Stock        Shares       Amount   Shares       Amount  Shares         Amount
                                                    ---------    ------       ------   ------       ------  ------------   ---------
<S>                                                 <C>          <C>          <C>      <C>          <C>      <C>           <C>
Initial issuance of shares to founders on
contribution
 of intangible assets at historic cost basis                                                                 14,391,627    $ 14,500
Additional founders' contribution
Issuance of 1,037,000 shares of Series A preferred
 stock, net of issuance costs                       $ 10,000
Net loss
                                                    ---------                                               ------------   ---------

Balance, March 31, 1993                               10,000                                                 14,391,627      14,500
Issuance of shares to investor at approximately
 $.21 per share                                                                                              14,391,627      14,500
Issuance of shares on exercise of options                                                                       479,720       1,000
Services performed in exchange for Series A
 preferred stock issued in fiscal 1993
Net loss
                                                    ---------                                               ------------   ---------

Balance, March 31, 1994                               10,000                                                 29,262,974      30,000
Services performed for Series A preferred stock
 issued in fiscal 1993
Issuance of shares at approximately $.52 per share                                                              345,399
Net loss
                                                    ---------                                               ------------   ---------

Balance, December 31, 1994                            10,000                                                 29,608,373      30,000
Issuance of 163,000 shares of Series A
 preferred stock                                       2,000
Write-off of amounts receivable from stockholders
Net loss
                                                    ---------                                               ------------   ---------

Balance, December 31, 1995                            12,000                                                 29,608,373      30,000
Issuance of shares upon exercise of option for
 $15,000                                                                                                     14,391,627      14,000
Net loss
                                                    ---------                                               ------------   ---------

Balance, December 31, 1996                            12,000                                                 44,000,000      44,000
Purchase and retirement of 1,200,000 shares of
 Series A preferred stock                            (12,000)
Purchase of 7,195,814 treasury shares of common
 stock for $15,000
Net loss/comprehensive loss
                                                    ---------                                               ------------   ---------

Balance, December 31, 1997 (carried forward)               0                                                 44,000,000      44,000


<CAPTION>

                                                                          Deficit
                                                           Amounts      Accumulated
                                                         Additional     Receivable       During the
                                                           Paid-in        From           Development     Treasury
                                                           Capital      Stockholders       Stage          Stock           Total
                                                         ----------     ------------    ------------    ---------      ------------
<S>                                                      <C>            <C>             <C>              <C>           <C>
Initial issuance of shares to founders on
contribution
 of intangible assets at historic cost basis             $     500                                                     $    15,000
Additional founders' contribution                           40,000      $   (40,000)                                             0
Issuance of 1,037,000 shares of Series A preferred
 stock, net of issuance costs                            1,020,000         (286,000)                                       744,000
Net loss                                                                                $  (543,000)                      (543,000)
                                                         ----------     ------------    ------------    ---------      ------------

Balance, March 31, 1993                                  1,060,500         (326,000)       (543,000)                       216,000
Issuance of shares to investor at approximately
 $.21 per share                                          2,985,500                                                       3,000,000
Issuance of shares on exercise of options                   49,000                                                          50,000
Services performed in exchange for Series A
 preferred stock issued in fiscal 1993                                      127,000                                        127,000
Net loss                                                                                 (2,292,000)                    (2,292,000)
                                                         ----------     ------------    ------------    ---------      ------------

Balance, March 31, 1994                                  4,095,000         (199,000)     (2,835,000)                     1,101,000
Services performed for Series A preferred stock
 issued in fiscal 1993                                                      159,000                                        159,000
Issuance of shares at approximately $.52 per share         182,000                                                         182,000
Net loss                                                                                 (2,250,000)                    (2,250,000)
                                                         ----------     ------------    ------------    ---------      ------------

Balance, December 31, 1994                               4,277,000          (40,000)     (5,085,000)                      (808,000)
Issuance of 163,000 shares of Series A
 preferred stock                                           161,000                                                         163,000
Write-off of amounts receivable from stockholders          (40,000)          40,000                                              0
Net loss                                                                                   (972,000)                      (972,000)
                                                         ----------     ------------    ------------    ---------      ------------

Balance, December 31, 1995                               4,398,000                0      (6,057,000)                    (1,617,000)
Issuance of shares upon exercise of option for
 $15,000                                                     1,000                                                          15,000
Net loss                                                                                   (284,000)                      (284,000)
                                                         ----------     ------------    ------------    ---------      ------------

Balance, December 31, 1996                               4,399,000                0      (6,341,000)                    (1,886,000)
Purchase and retirement of 1,200,000 shares of
 Series A preferred stock                                  (58,000)                                                        (70,000)
Purchase of 7,195,814 treasury shares of common
 stock for $15,000                                                                                      $ (15,000)         (15,000)
Net loss/comprehensive loss                                                                (335,000)                      (335,000)
                                                         ----------     ------------    ------------    ---------      ------------

Balance, December 31, 1997 (carried forward)             4,341,000                0      (6,676,000)      (15,000)      (2,306,000)
</TABLE>


The accompanying notes are an integral part of these financial statements

                                                                           F-6

<PAGE>

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)

Consolidated Statements of Stockholders' Equity (Capital Deficiency) (continued)
(Notes A and G)
For the Cumulative Period From July 31, 1992 (Inception) Through December 31,
1999 (continued)


<TABLE>
<CAPTION>
                                                                   Preferred Stock       Preferred Stock
                                                                   $.001 Par Value       $.001 Par Value
                                                                 -------------------   -------------------       Common Stock
                                                    Series A        Series B                Series C             $.001 Par Value
                                                    Preferred    -------------------   -------------------  ------------------------
                                                    Stock        Shares       Amount   Shares       Amount  Shares         Amount
                                                    ---------    ------       ------   ------       ------  ------------   ---------
<S>                                                 <C>          <C>          <C>      <C>          <C>      <C>           <C>
Balance, December 31, 1997
(brought forward)                                   $      0                                                 44,000,000    $ 44,000

Purchase of 7,195,813 treasury
  shares of common stock
  for $15,000
Special distribution of
  14,391,627 shares of common
  stock to Projectavision, Inc.
Shares deemed issued in connection
  with reverse merger                                                                                        11,000,000      11,000
Issuance of 182,525 shares of
  Series A preferred stock and
  warrants exercisable into 750,000
  shares of common stock at an
  exercise price of $.10 per share
  in exchange for note payable of
  $1,500,000 and accrued interest
  of $330,000 including deemed
  dividend in connection with
  beneficial conversion feature
  of preferred stock
Issuance of shares at $.20 per
  share, net of issuance costs                                                                                5,000,000       5,000
Issuance of shares to purchase
  intangible assets                                                                                           7,200,000       7,000
Issuance of shares at $.58 per
  share for consulting services                                                                               1,000,000       1,000
Issuance of warrants on February
  10, 1998, to purchase 2,000,000
  shares of common stock exercisable
  at $.75 per share at fair value
  for services resulting from
  cashless exercise feature
Issuance of shares at $.18 per share                                                                           275,000
Issuance of shares on conversion
  of 182,525 shares of Series A
  preferred stock                                                                                             9,435,405      10,000
Issuance of shares at $.05 per share                                                                         20,340,000      20,000
Issuance of stock options and
  warrants at fair value
  for services
Net loss/comprehensive loss
                                                                              ------                        ------------   ---------

Balance, December 31, 1998 (carried forward)                                      0                          98,250,405      98,000

</TABLE>
<TABLE>

<CAPTION>

                                                                            Deficit
                                                             Amounts      Accumulated
                                                           Additional     Receivable     During the
                                                             Paid-in        From         Development    Treasury
                                                             Capital      Stockholders     Stage         Stock           Total
                                                           ------------   ------------  -------------   ---------     -------------
<S>                                                        <C>            <C>           <C>             <C>           <C>
Balance, December 31, 1997 (brought forward)               $ 4,341,000    $         0   $ (6,676,000)   $(15,000)     $ (2,306,000)

Purchase of 7,195,813 treasury shares of common
      stock for $15,000                                                                                  (15,000)          (15,000)
Special distribution of 14,391,627 shares of
      common stock to Projectavision, Inc.                     346,000                                    30,000           376,000
Shares deemed issued in connection
      with reverse merger                                      (11,000)
Issuance of 182,525 shares of Series A preferred
      stock and warrants exercisable into 750,000
      shares of common stock at an exercise price of
      $.10 per share in exchange for note payable of
      $1,500,000 and accrued interest of $330,000
      including deemed dividend in connection with
      beneficial conversion feature of preferred stock       2,850,000                    (1,020,000)                    1,830,000
Issuance of shares at $.20 per share, net of
      issuance costs                                           970,000                                                     975,000
Issuance of shares to purchase intangible assets             1,433,000                                                   1,440,000
Issuance of shares at $.58 per share for
      consulting services                                      579,000                                                     580,000
Issuance of warrants on February 10, 1998, to purchase
      2,000,000 shares of common stock exercisable at
      $.75 per share at fair value for services resulting
      from cashless exercise feature                           660,000                                                     660,000
Issuance of shares at $.18 per share                            50,000                                                      50,000
Issuance of shares on conversion of 182,525 shares
      of Series A preferred stock                              (10,000)
Issuance of shares at $.05 per share                           997,000                                                   1,017,000
Issuance of stock options and warrants at fair value
      for services                                           2,165,000                                                   2,165,000
Net loss/comprehensive loss                                                               (4,580,000)                   (4,580,000)
                                                           ------------   ------------  -------------   ---------      ------------

Balance, December 31, 1998 (carried forward)                14,370,000              0    (12,276,000)          0         2,192,000

The accompanying notes are an integral part of these financial statements

                                                                             F-7
</TABLE>

<PAGE>

MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)

Consolidated Statements of Stockholders' Equity (Capital Deficiency)(continued)
(Notes A and G)
For the Cumulative Period From July 31, 1992 (Inception) Through
December 31, 1999 (continued)


<TABLE>
<CAPTION>
                                                  Preferred Stock       Preferred Stock
                                                  $.001 Par Value       $.001 Par Value
                                                -------------------   -------------------       Common Stock
                                   Series A        Series B                Series C             $.001 Par Value
                                   Preferred    -------------------   -------------------  ------------------------
                                   Stock        Shares       Amount   Shares       Amount  Shares         Amount
                                   ---------    ---------    ------   ------       ------  ------------   ---------
<S>                                <C>          <C>          <C>      <C>          <C>      <C>           <C>
Balance, December 31, 1998
   (brought forward)               $      0         0        $   0        0        $   0    98,250,405    $ 98,000
Issuance of shares in
satisfaction of accrued expenses                                                                78,000
Issuance of shares at $.49 per
   share for consulting services                                                                10,000
Issuance of shares at $.49 per
   share to purchase furniture
   and fixtures                                                                                100,000
Issuance of shares at market
   prices as consulting services
   were performed                                                                               17,269
Issuance of shares to purchase
   intangible assets                                                                         1,000,000       1,000
Issuance of shares at $1.25 per
   share for services                                                                            1,600
Issuance of stock options
   immediately exercisable
   at fair value for services
Issuance of warrants on
   February 10, 1998 to purchase
   2,000,000 shares of common
   stock exercisable at $.75 per
   share for consulting services
   resulting from notification of
   warrant holder of intent to
   exercise
Shares issuable at $1.27 per
   share in connection with note
   payable
Issuance of shares on exercise
   of 100,000 options at $.20 per
   share                                                                                       100,000
Issuance of Series B convertible
   preferred shares at $6.00 per
   share including deemed
   dividend in connection with
   beneficial conversion feature
   of preferred stock                            245,165
Issuance of shares at $.75
   per share                                                                                   533,000       1,000

Net loss/comprehensive loss
                                   ---------    ---------    ------   ------       ------  ------------   ---------

Balance, December 31, 1999         $      0      245,165         0                         100,090,274    $100,000
                                   =========    =========    ======   ======       ======  ============   =========


<CAPTION>
                                                                                  Deficit
                                                           Amounts              Accumulated
                                         Additional      Receivable             During the
                                           Paid-in          From                Development        Treasury
                                           Capital       Stockholders              Stage             Stock         Total
                                        -------------    ------------           -------------      ---------   ------------

<S>                                     <C>              <C>                    <C>                <C>         <C>
Balance, December 31, 1998
   (brought forward)                    $ 14,370,000     $         0            $(12,276,000)      $      0    $ 2,192,000
Issuance of shares in
   satisfaction of accrued expenses           15,000                                                                15,000
Issuance of shares at $.49 per
   share for consulting services               5,000                                                                 5,000
Issuance of shares at $.49 per
   share to purchase furniture
   and fixtures                               49,000                                                                49,000
Issuance of shares at market
   prices as consulting services
   were performed                             15,000                                                                15,000
Issuance of shares to purchase
   intangible assets                         999,000                                                             1,000,000
Issuance of shares at $1.25 per
   share for services                          2,000                                                                 2,000
Issuance of stock options
   immediately exercisable
   at fair value for services              6,572,000                                                             6,572,000
Issuance of warrants on
   February 10, 1998 to purchase
   2,000,000 shares of common
   stock exercisable at $.75 per
   share for consulting services
   resulting from notification of
   warrant holder of intent to
   exercise                                1,090,000                                                             1,090,000
Shares issuable at $1.27 per
   share in connection with note
   payable                                   191,000                                                               191,000
Issuance of shares on exercise
   of 100,000 options at $.20 per
   share                                      20,000                                                                20,000
Issuance of Series B convertible
   preferred shares at $6.00 per
   share including deemed
   dividend in connection with
   beneficial conversion feature
   of preferred stock                      2,942,000                              (1,471,000)                    1,471,000
Issuance of shares at $.75
   per share                                 399,000                                                               400,000

Net loss/comprehensive loss                                                       (9,800,000)             0     (9,800,000)
                                        -------------    ------------           -------------      ---------   ------------

Balance, December 31, 1999              $ 26,669,000     $         0            $(23,547,000)                  $ 3,222,000
                                        =============    ============           =============      =========   ============
</TABLE>


The accompanying notes are an integral part of these financial statements


                                                                             F-8


<PAGE>

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

CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                                                 PERIOD FROM
                                                                                                                JULY 31, 1992
                                                                                                                 (INCEPTION)
                                                                                          YEAR ENDED               THROUGH
                                                                                         DECEMBER 31,            DECEMBER 31,
                                                                                      2001            2000            2001
                                                                                 -------------   -------------   -------------
<S>                                                                              <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                                      $ (6,662,000)   $ (4,736,000)   $(32,454,000)
   Adjustments to reconcile net loss to net
     cash used in operating activities:
      Common stock issued for services                                              1,844,000         214,000       2,660,000
      Preferred stock issued for services                                             598,000
      Stock options issued for services                                               335,000         342,000       9,414,000
      Warrants issued for services                                                    782,000       2,532,000
      Financing costs payable with common stock                                       191,000
      Loss of equity investee                                                         205,000         305,000
      Depreciation and amortization                                                   734,000         267,000       1,676,000
      Changes in:
        Prepaid expenses                                                              (30,000)        (12,000)        (42,000)
        Accounts payable and accrued expenses                                         332,000           8,000         928,000
        Note receivable                                                                10,000
        Accounts receivable                                                            87,000         (87,000)
                                                                                 -------------   -------------   -------------

           Net cash used in operating activities                                   (2,373,000)     (3,994,000)    (14,192,000)
                                                                                 -------------   -------------   -------------

CASH FLOWS FROM INVESTING ACTIVITIES;
   Purchase of equipment                                                               (3,000)        (65,000)       (423,000)
   Purchase of investment                                                            (100,000)
   Proceeds from sale of equipment                                                     14,000
                                                                                 -------------   -------------   -------------

           Net cash used in investing activities                                       (3,000)        (65,000)       (509,000)
                                                                                 -------------   -------------   -------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Purchase of treasury stock                                                        (100,000)
   Proceeds from note payable to stockholders                                         250,000       2,399,000
   Proceeds from note payable - other                                                 300,000         300,000
   Repayment of note payable - other                                                  (13,000)        (13,000)
   Net proceeds from issuance of preferred stock                                    1,400,000       3,569,000
   Net proceeds from issuance of common stock                                         698,000       2,711,000       8,793,000
   Loan repayment to preferred stockholder                                           (148,000)
   Capital lease payments                                                             (13,000)
   Security deposit paid                                                               (7,000)
                                                                                 -------------   -------------   -------------

           Net cash provided by financing activities                                  935,000       4,411,000      14,780,000
                                                                                 -------------   -------------   -------------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                               (1,441,000)        352,000          79,000
Cash and cash equivalents, beginning of period                                      1,520,000       1,168,000
                                                                                 -------------   -------------   -------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                                         $     79,000    $  1,520,000    $     79,000
                                                                                 =============   =============   =============

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
   Interest paid                                                                                 $      7,000    $     14,000

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
   Fixed assets contributed to the Company in exchange for Series A preferred                                    $     45,000
stock
   Issuance of 14,391,627 common shares to acquire intangible assets                                             $     15,000
   Special distribution of 14,391,627 shares of common stock 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 shares to acquire furniture and fixtures                                   $     40,000    $     40,000
   Issuance of 1,400,000 of common shares to acquire Teneo Computing             $    785,000                    $    785,000
   Issuance of 1,000,000 of common shares to purchase 42% of Novint              $    561,000                    $    561,000
Technologies

                                                                                                                         F-9
</TABLE>

SEE NOTES TO FINANCIAL STATEMENTS

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001


NOTE A - ORGANIZATION AND OPERATIONS

Manhattan Scientifics, Inc. (formerly Grand Enterprises, Inc. ("Grand"), and its
wholly-owned subsidiaries Tamarack Storage Devices, Inc. and Teneo Computing,
Inc. ("Teneo") (collectively "the Company"), a development stage enterprise,
operates in a single business segment as a technology incubator that seeks to
acquire, develop and bring to market technologies with an emphasis on consumer
and commercial electronics. At December 31, 2001, the Lauer Entities (Lancer
Management Group, LLC) claim beneficial ownership of approximately 39% of the
Company's common stock.

In January 1998, Manhattan Scientifics, Inc., then a non-operating public
corporation with nominal net assets acquired all of the outstanding common stock
of Tamarack Storage Devices, Inc. ("Tamarack") by issuing 44 million shares of
its common stock including approximately 43,120,000 shares issued to
Projectavision, a public company which gave the stockholders of Tamarack actual
control of the combined company. In addition, Manhattan Scientifics, Inc. issued
182,525 shares Series A preferred stock and a warrant to purchase 750,000 shares
of its common stock at an exercise price of $.10 per share in exchange for a
note payable of $1.5 million plus accrued interest of $330,000 due to
Projectavision from Tamarack. In connection with the legal form of this
transaction, Tamarack became a wholly-owned subsidiary of Manhattan Scientifics,
Inc. For accounting purposes, the acquisition was treated as a recapitalization
of Tamarack rather than a business combination. Tamarack as the accounting
acquiror of the public shell did not record goodwill or any other intangible
asset for this "Reverse Acquisition". The historical financial statements are
those of Tamarack. Tamarack, a development stage enterprise, was a Texas
corporation formed in July 1992. Tamarack was involved in the research and
development of products based on holographic data storage technology. Loss per
share has been restated for all periods prior to the acquisition to include the
number of equivalent shares received by Tamarack's stockholders in the Reverse
Acquisition.

Prior to this transaction, Projectavision owned approximately 98% of Tamarack.
Projectavision through cash investments acquired approximately 65% of Tamarack
through December 31, 1996. During late 1997 and early 1998, as a result of a
treasury stock transaction between Tamarack and its two founding stockholders,
Projectavision came to own approximately 97% of the outstanding shares of
Tamarack. In lieu of repayment of certain advances made by Projectavision
amounting to approximately $376,000, Tamarack made a special dividend
distribution to Projectavision of the 14,391,627 treasury shares increasing
Projectavision's ownership of Tamarack to 98%. The value ascribed to this
transaction amounted to a reduction of the treasury stock at historical cost and
a contribution to additional paid-in capital of $346,000 as part of the reverse
acquisition.

Concurrently with the Reverse Acquisition, Tamarack merged with DKY, Inc., a
newly formed company. In connection with this transaction, Tamarack, as the
surviving entity, obtained certain license/intellectual property assignment
rights held by DKY, Inc. In addition, the Company issued 7,200,000 common shares
to acquire certain intangible assets from DKY, Inc.'s stockholder valued at $1.4
million.

In May 2001 as part and parcel of a series of transactions between the Company
and Novint Technologies, Inc. ("Novint") modifying an earlier agreement, the
Company acquired all of the outstanding common stock of Teneo by issuing
1,400,000 common shares to the stockholders of Teneo valued at $785,000 and 42%
of the outstanding common stock of Novint by issuing 1,000,000 common shares to
Novint valued at $561,000. Teneo and Novint are both development stage
enterprises involved in research and development of proprietary technologies and
products in the area of haptics (see Note D). Haptics is an emerging technology
that allows computer users to have the physical sensation of manipulating and
touching objects on a computer screen as if they were three-dimensional, using a
special mouse.

The Company, has been engaged primarily in directing, supervising and
coordinating research and development efforts and raising funds. The Company
conducts its operations primarily in the United States and Germany.

                                                                            F-9
<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE A - ORGANIZATION AND OPERATIONS (CONTINUED)

There is no assurance that the Company's research and development and marketing
efforts will be successful, or that the Company will achieve significant sales
of any products derives therefrom. The Company has incurred net losses and
negative cash flows from operations since its inception. In addition, the
Company operates in an environment of rapid change in technology and is
dependent upon the services of its employees and its consultants. If the Company
is unable to successfully commercialize its technologics, it is unlikely that it
will continue in business.

On January 19, 2001, Lancer Management Group, LLC, the beneficial owner of 39%
of the outstanding shares of our common stock, indicated its willingness to
advance funds, on an as-needed basis, to continue our operations through
December 31, 2003, upon reasonable terms and conditions to be agreed. On March
26, 2002, Lancer indicated that it was no longer willing to advance funds as
indicated in that letter.

The accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplates continuation of the Company as a going concern and realization of
assets and settlement of liabilities and commitments in the normal course of
business. The Company will continue to require the infusion of capital until
operations become profitable. During 2002, the Company anticipates raising
additional capital, generating revenues and continuing to monitor their expenses
primarily in the area of personnel.


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS

[1]      CASH AND CASH EQUIVALENTS:

         The Company maintains cash and cash equivalents with various financial
         institutions. The Company performs periodic evaluations of the relative
         credit standing of the financial institutions which is considered in
         the Company's investment strategy.

[2]      PRINCIPLES OF CONSOLIDATION:

         The consolidated financial statements include the accounts of the
         Company and its two wholly-owned subsidiaries. All material
         intercompany accounts and transactions have been eliminated.

[3]      PROPERTY AND EQUIPMENT:

         Property and equipment are recorded at cost. The cost of maintenance
         and repairs is charged against results of operations as incurred.
         Depreciation is charged against results of operations using the
         straight-line method over the estimated economic useful life of the
         asset.

[4]      INTANGIBLE ASSETS:

         Patents and licenses are recorded at cost. Amortization is charged
         against results of operations using the straight-line method over the
         estimated economic useful life. Patents related to the mid-range fuel
         cell, micro fuel cell and solar fuel cell technologies are estimated to
         have an economic useful life of 10 years. Licenses relating to the
         haptics technology are estimated to have economic useful lives ranging
         from two to three years.

                                                                            F-10

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
         (CONTINUED)

[5]      INCOME TAXES:

         The Company recognizes deferred tax liabilities and assets for the
         expected future tax consequences of events that have been included in
         the financial statements or tax returns. Under this method, deferred
         tax liabilities and assets are determined on the basis of the
         differences between the tax basis of assets and liabilities and their
         respective financial reporting amounts ("temporary differences") at
         enacted tax rates in effect for the years in which the differences are
         expected to reverse.

[6]      PER SHARE DATA:

         The basic and diluted per share data has been computed on the basis of
         the net loss available to common stockholders for the period divided by
         the historic weighted average number of shares of common stock
         outstanding. All potentially dilutive securities (see Note F) have been
         excluded from the computations since they would be antidilutive.

[7]      RESEARCH AND DEVELOPMENT EXPENSES:

         Costs of research and development activities are expensed as incurred.

[8]      ADVERTISING EXPENSES:

         The Company expenses advertising costs which consist primarily of
         promotional items and print media, as incurred. Advertising expenses
         amounted to $6,000, $35,000, and $71,000 for the years ended December
         31, 2001 and 2000 and for the cumulative period July 31, 1992
         (inception) through December 31, 2001, respectively.

[9]      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.

[10]     INVESTMENTS:

         The Company recorded its investments in NMXS.com, Inc. and Novint at
         cost and uses the equity method of accounting to record its share of
         income or loss. See Notes D[1] and D[2].

[11]     REVENUE RECOGNITION:

         Revenue was recognized in 2000 upon production and delivery of fuel
         cell prototypes. Contract revenues represent primarily reimbursed
         expenditures incurred in prior years in connection with a government
         research contract. The significant aspects of this contract were
         completed in 1997 and the Company does not expect any reimbursements
         beyond 1997. Amounts reimbursed represent miscellaneous other income.
         The Company expects to earn revenues from the sale or licensing of its
         products and such revenue will be recognized in accordance with the
         terms of the underlying agreements at the time such transactions are
         consummated.

                                                                            F-11

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
         (CONTINUED)

[12]     IMPAIRMENT OF LONG-LIVED ASSETS

         Long-lived assets, including patents and technology licenses to be held
         and used are reviewed for impairment whenever events or changes in
         circumstances indicate that the related carrying amounts may not be
         recoverable using expected future undiscounted cash flows. When
         required, impairment losses on assets to be held and used are
         recognized based on the excess of the asset's carrying amount over its
         fair value as determined by selling prices for similar assets or
         application of other appropriate valuation techniques. Long-lived
         assets to be disposed of are reported at the lower of their carrying
         amount of fair value less disposal costs.

[13]     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

         The Financial Accounting Standards Board ("FASB") recently issued
         Statements of Financial Accounting Standards Nos. 141 and 142 ("SFAS
         141" and "SFAS 142"). Both of these pronouncements are effective fiscal
         years beginning after December 31, 2001. Under SFAS 141, a company must
         use the purchase method of accounting for all business acquisitions.
         SFAS 142 requires a company to periodically evaluate for impairment (as
         opposed to amortize) goodwill and intangible assets with indefinite
         lives. The Company does not believe the implementation of SFAS 141 or
         SFAS 142 will have a material effect on its financial position or
         results of operations. The FASB also issued SFAS No. 144 "Accounting
         for the Impairment or Disposal of Long-Lived Assets" which supercedes
         SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
         Long-Lived Assets to be Disposed of." SFAS 144 requires that long-lived
         assets be measured at the lower of carrying amount or fair value, less
         cost to sell, whether reported in continuing operations or in
         discontinued operations. SFAS 144 is effective for fiscal years
         beginning after December 15, 2001 and interim periods within those
         years. The Company does not believe that the implementation of SFAS 144
         will have a material impact on its financial position or results of
         operations.


NOTE C - PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2001 consists of the following:

                                  USEFUL LIVES
                                    IN YEARS
                                    --------

       Furniture and fixtures          5          $   98,000
       Computers                       3              44,000
       Equipment                       5             173,000
                                                  -----------

                                                     315,000
       Less accumulated depreciation                 202,000
                                                  -----------

                                                  $  113,000
                                                  ===========

The Company depreciates property and equipment using the straight-line method
over five years. The depreciation expense for 2001 was approximately $39,000.

                                                                            F-12

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE D - INVESTMENTS

[1]      NMXS.COM, INC.:

         On June 3, 1999, the Company entered into an agreement with NMXS.com,
         Inc. (formerly New Mexico Software, Inc.) and invested $100,000
         ($70,000 June 1999 and $30,000 July 1999) for 5,416,300 shares of
         common stock which resulted in the Company owning approximately 49% of
         NMXS.com. The initial investment amount exceeded the underlying net
         equity by approximately $63,000. The Company treated such excess as an
         expense to fund the development of software.

         During 1999, in connection with NMXS.com's transactions in its own
         common stock, the Company's ownership was first reduced to 31% and then
         in August 1999, the Company realized gains amounting to approximately
         $532,000 and its ownership percentage was further diluted to 28% when
         NMXS.com became public through a reverse merger. The Company's equity
         in the net losses of NMXS.com exceeded such gains. As a result of net
         losses through December 31, 1999 amounting to $632,000, including the
         above transactions, the Company's investment in NMXS.com was reduced to
         zero.

         Similarly during 2000, the Company realized gains amounting to
         approximately $305,000 resulting from NMXS.com's capital transactions,
         which diluted the Company's ownership interest to 26%. The Company's
         equity in net losses of NMXS.com during 2000 exceeded such gain.

         On June 24, 2000, in connection with a private placement offering, the
         Company delivered 100,000 shares of NMXS.com stock to a stockholder.
         The Company recognized a gain of approximately $169,000 from this
         transaction. The gain was offset by losses of $481,000 in 2000. In
         addition, the Company delivered an option to purchase an additional
         100,000 shares of the Company's holdings in NMXS.com for a purchase
         price of $1 per share.

         On July 27, 2000 the Company exchanged 5,000 shares of NMXS.com stock
         for the purchase of furniture and fixtures.

         On February 20, 2001 the Company entered into a stock swap agreement
         with NMXS.com. The agreement provides for the exchange of cashless
         assignable warrants to purchase 1,500,000 shares of NMXS.com common
         stock at an exercise price of $0.50 per share for 150,000 restricted
         shares of the Company's common stock. The transaction was recorded as
         an investment valued at $225,000, which represents the market value of
         the Company's common stock exchanged on the date of the agreement.

         On April 12, 2001 the Company sold 250,000 shares of its NMXS.com
         common stock to a third party for a $62,500 note payable at over three
         years.

         On June 27, 2001, the Company issued 150,000 shares of its NMXS.com
         common stock to a third party as a prepayment for services.

         During 2001 the Company realized gains amounting to approximately
         $29,000 resulting from NMXS.com capital transactions. The Company's
         equity in net losses of NMXS.com during 2001 exceeded such gain.

                                                                            F-13

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE D - INVESTMENTS (CONTINUED)

[1]      NMXS.COM, INC. (CONTINUED)

         As of December 31, 2001, the Company owns approximately 22% of
         NMXS.com. The Company will not record any earnings associated with
         NMXS.com until the losses recognized during the period the equity
         method was suspended have been recovered. As of December 31, 2001 the
         cumulative losses in excess of the amount invested amounted to
         $149,000. As of December 31, 2001 the market value of the Company's
         investment in NMXS.com is approximately $1,700,000. In addition,
         through August 1999, pursuant to the stock purchase agreement with
         NMXS.com, the Company provided NMXS.com with management services
         without remuneration. Also, in consideration for his services through
         December 2000, including board membership provided to NMXS.com the
         Company's chief executive officer received a salary of $60,000 and
         leased a car from NMXS.com. During 2001 the Company's chief executive
         officer did not receive any compensation from NMXS.com.

         The following is a summary of financial data derived from the 2001
         audited financial statements of NMXS.com, regarding financial position
         and results of operations of NMXS.com as of December 31, 2001 and for
         the year ended December 31, 2001:

           Current assts (including cash of $57,000)         $      668,000
           Furniture and equipment                                  652,000
           Goodwill                                                  97,000
           Other assets                                              54,000
                                                             ---------------

                                                             $    1,471,000
                                                             ===============
           Liabilities                                       $    1,363,000
           Stockholders' equity                                     108,000
                                                             ---------------

                                                             $    1,471,000
                                                             ===============
           Revenue                                           $    1,279,000
                                                             ===============
           Net loss                                          $   (2,162,000)
                                                             ===============

[2]      NOVINT:

         In June 2000 the Company entered into an agreement with Novint ("2000
         agreement") to exclusively sub-license a development stage computer
         software technology on a worldwide basis, to fund research and
         development of such technology, and to exchange certain securities. In
         May 2001, the Company entered into a series of transactions with Novint
         and Teneo, ("2001 agreement") through which the 2000 agreement was
         modified. Pursuant to the 2001 agreement the Company acquired all of
         the outstanding common stock of Teneo and 42% of the outstanding common
         stock of Novint, the Company also agreed to fund additional amounts to
         Novint to fulfill the Company's $1,500,000 research and development
         commitment under 2000 agreement. The Company is obligated to pay Novint
         a 5% royalty fee on net revenue from products developed from the Novint
         technology. As of December 31, 2001 the Company and Novint have not
         completed negotiating a research and development funding agreement to
         replace the 2000 agreement, however the Company has funded $58,000 for
         research and development in addition to the $1,500,000 funded pursuant
         to the 2000 agreement.

                                                                            F-14

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE D - INVESTMENTS (CONTINUED)

[2]      NOVINT: (CONTINUED)

         In May of 2001, the Company issued 1,400,000 shares of common stock,
         valued at $785,000, to acquire all the outstanding common stock of
         Teneo. The entire purchase price has been allocated to the Teneo
         haptics technology and its related technology license and it is being
         amortized over two years. During 2001 the Company has recorded
         approximately $245,000 in amortization expense related to the Teneo
         technology. In May of 2001, the Company also issued 1,000,000 shares of
         common stock, valued at $561,000, to acquire 42% of the outstanding
         common stock of Novint. The initial $561,000 investment in Novint
         exceeded the underlying net equity in Novint by approximately $523,000.
         The excess purchase price over the underlying net equity in Novint has
         been assigned to the Novint haptics technology and its related license
         and it is being amortized over three years.

         During 2001 the Company has recorded approximately $109,000 in
         amortization expense relating to the Novint technology. This charge is
         included in the loss from equity method investments in the statement of
         operations.

         As part of the 2001 agreement Novint exclusively licensed the Teneo
         haptics technology from the Company. In consideration for the license
         Novint has agreed to assume all of the current and future obligations
         of Teneo as it relates to Teneo's license agreement with Harvard
         University ("Harvard"), the patent holder for the Teneo haptics
         technology. Novint, through its license with Teneo, is obligated to
         make certain royalty and research and development payments to Harvard.
         Novint will be required to make royalty payments of 5% of net revenue,
         up to $1 million, and 2.5% of net revenue, in excess $1 million, on
         sales derived from the Teneo technology. Novint is also obligated to
         make certain research payments to Harvard.

         At December 31, 2001 the Company owns approximately 42% of Novint.
         During 2001 the Company recorded a loss of $80,000 pursuant to its
         ownership interest in Novint. Included in the aforementioned loss is
         approximately $42,000 in gains from transactions in Novint common
         stock. During 2001 Novint recorded $815,000 of revenue relating to
         contract research and development payments from the Company. The
         following is a summary of financial data regarding financial position
         and results of operations derived from the 2001 audited financial
         statements of Novint as of December 31, 2001 and for the period May 16,
         2001 (date of acquisition) to December 31, 2001:

               Current assets (including cash of $14,000)         $     442,000
               Property and equipment                                   210,000
               Other assets                                             117,000
                                                                  --------------

                                                                  $     769,000
                                                                  ==============
               Liabilities                                        $     255,000
               Stockholders' equity                                     514,000
                                                                  --------------

                                                                  $     769,000
                                                                  ==============
               Revenue                                            $   1,015,000
                                                                  ==============
               Net loss                                           $    (248,000)
                                                                  ==============

                                                                            F-15

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE E - NOTES PAYABLE

In August 2000, the Company obtained a line of credit from a financial
institution in the amount of $300,000. This line of credit bears interest at a
rate of the 30-day Dealer Commercial paper rate plus 2.60%. This line of credit
will terminate on July 31, 2002. As of December 31, 2001, the Company was
indebted in the amount of $287,000 which includes interest for the month of
December 2001. This line of credit is guaranteed by the Chief Executive Officer
of the Company. Interest expense for the year ended December 31, 2001 amounted
to $13,000.

In August 1999, the Company borrowed $275,000 from the Chief Operating Officer.
The loan bears interest at the rate of 5.5% per annum and is due upon the
earlier of 18 months or the date of a private placement raising at least
$1,500,000. Repayment of the loan was extended for a six-month term until June
30, 2002. The Chief Operating Officer had originally delivered to the Company
$275,000 to exercise options, each exercisable to purchase common stock, but
such exercise was rescinded and the options have been treated as if not
exercised. No shares were delivered as a result of this transaction. Interest
expense for the year ended December 31, 2001 amounted to $15,000.

In August 1999, a stockholder provided bridge financing to the Company in the
amount of $500,000. Interest on the loan was at 13.5% per annum. The loan was
repaid in October 1999 with a subsequent borrowing from another stockholder as
described below.

In October 1999, the Company obtained a $500,000 loan from a stockholder (the
Peters Corporation) with interest at prime plus 1%. The loan was paid in full in
December 1999 plus interest amounting to $7,000. In connection with this loan,
the Company arranged to have 150,000 common shares of the Company delivered to
the Peters Corporation from another stockholder. The fair market value of the
Company's stock was approximately $1.27 per share at the date of the
transaction. Subsequently, the Company agreed to issue to the third party
shareholder 150,000 common shares in replacement of shares provided by the third
party. The Company recognized a charge in 1999 of $191,000 for the value of the
shares delivered with a corresponding credit to additional paid-in capital.

In August 2001, the Company borrowed $250,000 from the Chief Executive Officer.
The loan bears interest at the rate of 5.5% per annum and was due December 31,
2001. Pursuant to a loan and security agreement this loan was extended to August
31, 2002. Interest expense for the year ended December 31, 2001 amounted to
$14,000.


NOTE F - CAPITAL TRANSACTIONS

[1]      COMMON STOCK:

         The following common stock transactions include the effects of
         restating of stockholders' equity for the shares received in the
         recapitalization/merger as a result of the reverse acquisition. The
         exchange rate of such shares was 9.59 Manhattan Scientifics, Inc.
         common shares for each Tamarack common share. Accordingly, the
         Company's financial statement presentation indicates that there were
         44,000,000 common shares outstanding immediately prior to consummating
         the reverse merger.

         Effective July 31, 1992, the Company issued 14,391,627 shares of common
         stock to the founders for certain intangible assets.

                                                                            F-16

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE F - CAPITAL TRANSACTIONS (CONTINUED)

[1]      COMMON STOCK: (CONTINUED)

         During 1994, the Company effected the following stock transactions:

                  Issued 14,391,627 shares of common stock to Projectavision,
                  Inc. at approximately $.21 per share in accordance with a
                  stock purchase agreement.

                  Issued 479,720 shares of common stock on exercise of options
                  at a price of approximately $.10 per share.

                  Issued 345,399 shares of common stock at a price of
                  approximately $.52 per share.

         During 1996, the Company issued 14,391,627 shares of common stock for
         $15,000.

         During 1997, the Company repurchased 7,195,814 shares of common stock
         for $15,000.

         During 1998, the Company effected the following transactions:

                  In January 1998, repurchased 7,195,813 shares of common stock
                  for $15,000.

                  In January 1998, the Company made a special distribution to
                  Projectavision of 14,391,627 common shares held in treasury.

                  In January 1998, in accounting for the reverse merger
                  transaction, the Company was deemed to have issued 11 million
                  common shares for the net monetary assets of Grand which was
                  nominal.

                  In January 1998, issued 5,000,000 shares of common stock for
                  $.20 per share in a private placement offering.

                  In January 1998, issued 7,200,000 shares of common stock at
                  $.20 per share to acquire certain intangible assets.

                  In February 1998, issued 1,000,000 shares of common stock with
                  a market value of $.58 per share for consulting services.

                  In April 1998, issued 275,000 shares of common stock at $.18
                  per share to an accredited investor in a private placement
                  offering.

                  In July 1998, issued 9,435,405 shares of common stock on
                  conversion of 182,525 shares of Series A convertible preferred
                  stock, and included 309,155 of common shares representing
                  payment in satisfaction of accumulated dividend of
                  approximately $100,000 at date of conversion.

                  In July 1998, as part of the private placement transaction
                  described below, the Company issued 10 million common stock
                  purchase warrants at an exercise price of $.05 per share to
                  the "Lauer Entities". In addition, the Company arranged for
                  this third party to purchase 43,170,512 shares of the
                  Company's common stock from Projectavision, Inc. Furthermore,
                  the Company agreed to issue 20 million shares of common stock
                  to this third party at a price of $.05 per share, together
                  with rights to assign such shares to certain other third
                  parties. Such rights were assigned to the certain other third
                  parties as noted directly below.

                                                                            F-17

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE F - CAPITAL TRANSACTIONS (CONTINUED)

[1]      COMMON STOCK: (CONTINUED)

         From August 1998 through December 1998, issued 20,340,000 shares of its
         common stock at $.05 per share in a private placement offering.

         During 1999, the Company effected the following transactions:

                  In August 1999, issued 1,000,000 shares of common stock for
                  $1.00 per share to acquire certain intangible assets.

                  In October 1999, issued 78,000 shares in satisfaction of
                  accrued expenses.

                  In October 1999, issued 100,000 shares at $.49 per share to
                  acquire furniture and fixtures that were issuable in May.

                  In October 1999, issued 10,000 shares at $.49 per share for
                  consulting services that were issuable in May.

                  In October 1999 issued 17,269 shares at market prices from
                  April through September as consulting services were performed.

                  In October 1999, exercised 100,000 options into 100,000 shares
                  of common stock at $.20 per share.

                  In December 1999, issued 1,600 shares of its common stock at
                  $1.25 per share for services rendered.

                  In December 1999, issued 533,000 shares of common stock at
                  $.75 per share in a private placement offering.

         During 2000, the Company effected the following transactions:

                  In January 2000, issued 515,000 shares of common stock at $.75
                  per share in a private placement offering.

                  In January 2000, issued 4,942 shares of common stock, at
                  market price, for consulting services performed.

                  In January 2000, issued 1,076,923 shares of common stock,
                  pursuant to the July 28, 1999 exercise of warrants by
                  Equilink, LLC.

                  In April 2000, issued 1,500 shares of common stock, at market
                  price, for consulting services performed.

                  In June 2000, issued 700,000 shares of common stock in
                  connection with the private placement offering of Series C
                  preferred shares.

                  In July 2000 issued 5,833 shares of common stock, at market
                  price, for consulting services performed.

                  In July 2000 issued 5,000 shares of common stock, at market
                  price, to acquire furniture and fixtures.

                  In August 2000 issued 10,000 shares of common stock in
                  connection with the private placement offering of Series C
                  preferred shares (completed June 2000).

                                                                            F-18

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE F - CAPITAL TRANSACTIONS (CONTINUED)

[1]      COMMON STOCK: (CONTINUED)

                  In August 2000, the Company issued 100,000 options to purchase
                  stock at $.40 per share for services rendered.

                  In September 2000 issued 5,500 shares of its common stock to
                  acquire furniture and fixtures.

                  In October 2000, issued 3,750 shares of common stock, at
                  market price, for services rendered.

                  In October 2000, issued 1,000 shares of common stock, at
                  market price, for services rendered.

                  On October 20, 2000, the Board of Directors of the Company
                  authorized to increase the total number of authorized shares
                  of common stock from 150,000,000 to 250,000,000.

                  In November 2000, issued 800,050 shares of common stock at
                  $1.25 per share in a private placement offering.

                  In December 2000, issued 600,000 shares of common stock in
                  connection with the conversion of Series B preferred shares at
                  a rate of 1 Series B preferred share to 10 common shares.

                  In December 2000, issued 50,000 shares of common stock, at
                  market price, for services rendered.

                  In December 2000, issued 800,000 shares of common stock at
                  $1.25 per share in a private placement offering.

         During 2001, the Company effected the following transactions:

                  In January 2001, issued 5,040 shares of common stock at market
                  price for services rendered.

                  In January 2001, issued 666,660 shares of common stock in
                  connection with the conversion of Series B preferred shares at
                  a rate of 1 Series B preferred share to 10 common shares.

                  In January 2001, 75,000 options were exercised for 73,064
                  shares of common stock on a cashless basis.

                  In February 2001, issued 150,000 shares of common stock in
                  exchange for 1,500,000 warrants of NMXS.com (see Note D).

                  In February 2001, issued 46,370 shares of common stock at
                  market price for services rendered.

                  In March 2001, issued 150,000 shares of common stock at $0.67
                  per share in a private placement offering.

                  In March 2001, issued 200,000 shares of common stock at $0.72
                  per share in a private placement offering.

                  In March 2001, issued 414,247 shares of common stock at market
                  price for services rendered.

                  In April 2001, issued 97,500 shares of common stock at the
                  market price for consulting services performed.

                                                                            F-19

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE F - CAPITAL TRANSACTIONS (CONTINUED)

[1]      COMMON STOCK: (CONTINUED)

                  In April 2001, issued 112,500 shares of common stock at $0.62
                  per share in a private placement offering.

                  In April 2001, issued 3,125 shares of common stock at market
                  price for services rendered.

                  In May 2001, issued 800,000 shares of common stock in
                  connection with the conversion of Series C preferred shares at
                  the rate of 1 Series C preferred share to 200 common shares.

                  In May 2001, issued 200,000 shares of common stock at $0.60
                  per share in a private placement offering

                  In May 2001, issued 100,000 shares of common stock at $0.80
                  per share in a private placement offering.

                  In May 2001, issued 197,500 shares of common stock at market
                  price for services rendered.

                  In May 2001, issued 942,281 shares of common stock upon
                  exercise of warrants by a stockholder.

                  In May of 2001, issued 1,400,000 shares of common stock,
                  valued at $784,000, to acquire all the outstanding common
                  stock of Teneo.

                  In May of 2001 issued 1,000,000 shares of common stock, valued
                  at $560,000, to acquire 42% of the outstanding common stock of
                  Novint.

                  In June of 2001, issued 135,000 shares of common stock at
                  $0.72 per share in a private placement offering.

                  In June of 2001, issued 15,000 shares of common stock pursuant
                  to the exercise 15,000 options at $0.20 per share.

                  In June 2001, issued 720,382 shares of common stock at market
                  prices for services rendered.

                  In July 2001, issued 200,000 shares of common stock at $0.50
                  per share in a private placement offering.

                  In July 2001, issued 2,000,000 shares of common stock in
                  connection with the conversion of Series C preferred shares at
                  a rate of 1 Series C preferred share to 200 common shares.

                  In July 2001, issued 229,165 shares of common stock at market
                  prices for services rendered.

                  In August 2001, issued 7,386 shares of common stock at market
                  price for services rendered.

                  In September 2001, issued 335,000 shares of common stock in
                  connection with the conversion of Series B preferred shares at
                  the rate of 1 Series B preferred share to 10 common shares.

                  In September 2001, issued 350,000 shares of common stock at
                  $0.45 for payment of research and development costs.

                  In September 2001, issued 155,208 shares of common stock at
                  the market price for services rendered.

                                                                            F-20

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE F - CAPITAL TRANSACTIONS (CONTINUED)

[1]      COMMON STOCK: (CONTINUED)

                  In October 2001, issued 77,451 shares of common stock at the
                  market price for payment of research and development costs.

                  In November 2001, issued 322,549 shares of common stock at the
                  market price for payment of research and development costs.

                  In November 2001, issued 510,000 shares of common stock at the
                  market price for service rendered.

                  In December 2001, issued 10,000 shares of common stock at the
                  market price for services rendered.

[2]      PREFERRED STOCK:

         During 1993, in accordance with a Share Purchase Agreement, the Company
         issued 1,037,000 shares of its Series A preferred stock in exchange for
         consideration of $1,037,000 in cash, goods and services provided to the
         Company by an unrelated third party.

         During 1995, the Company issued an additional 163,000 shares of its
         Series A preferred stock in settlement of all amounts due to the above
         mentioned third party in exchange for services value at $163,000.

         During 1997, the Company repurchased all outstanding shares of its
         Series A preferred stock from the above mentioned third party for
         $70,000. In conjunction with this transaction, the Board of Directors
         canceled and retired the then existing Series A preferred stock.

         On January 8, 1998, the Board of Directors of the Company authorized
         1,000,000 shares of preferred stock having a par value of $.001 per
         share to be issued in such series and to have such rights, preferences
         and designations as determined by the Board of Directors.

         On January 8, 1998, the Board of Directors of the Company authorized
         182,525 shares of Series A convertible redeemable preferred stock
         having a par value of $.001. Dividends, which are cumulative, are paid
         semi-annually in cash or common stock at the Company's option at a rate
         of ten percent per share based on a liquidation value of $10 per share.
         The Series A shares are convertible at the rate of fifty shares of the
         Company's common stock for each Series A preferred share, are
         redeemable at the option of the Company at $15 per share, have
         preference in case of liquidation, and have voting rights equal to
         fifty votes per share.

         On January 8, 1998, in connection with the reverse merger transaction,
         the Company issued 182,525 shares of its Series A convertible
         redeemable preferred stock and a warrant to purchase 750,000 shares of
         the Company's common stock at a price of $.10 per share in settlement
         of a note payable due to Projectavision, Inc. in the amount of
         $1,500,000 plus accrued interest of $330,000. The note required
         interest at 6% per annum. Interest expense related to this note payable
         for 1997 amounted to $90,000. The Company recorded a deemed dividend of
         $1,020,000 in accordance with EITF D-60 as a result of the beneficial
         conversion feature of such preferred shares at the date of issuance
         with a corresponding increase to additional paid-in capital. The amount
         of the deemed dividend was computed based upon the excess of the market
         value of equivalent common shares which approximated $2,737,000 plus
         the fair value of the warrant of $113,000, over the deemed proceeds in
         the exchange for the settlement of the obligation with Projectavision.
         The warrant was valued using the Black-Scholes option pricing model.
         The following

                                                                            F-21

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE F - CAPITAL TRANSACTIONS (CONTINUED)

[2]      PREFERRED STOCK: (CONTINUED)

         assumptions were used computing the fair value of the warrant; weighted
         risk free interest rate of 5.49%; zero dividend yield; volatility of
         Company common stock of 43% and an expected life of the warrant of ten
         years.

         On July 28, 1998, the holder of the Series A convertible redeemable
         preferred stock converted their shares into 9,435,405 shares of the
         Company's common stock.

         In December 1999, the Company issued 245,165 shares of Series B
         convertible preferred stock at $6.00 per share in a private placement
         offering. The shares are convertible at a rate of ten common shares for
         each preferred share. These shares have voting rights and dividend
         rights as if each share had been converted to common stock.

         The 1999 financial statements reflect the deemed dividend on the Series
         B preferred stock of $1,471,000 in accordance with EITF 98-5 resulting
         from the calculation of the beneficial conversion feature based on the
         quoted market price of the common stock. The amount of the deemed
         dividend was computed based upon the excess of the market value of
         equivalent common shares deemed issued over the proceeds received from
         the sale of the convertible preferred stock. The amount of the deemed
         dividend has been limited to the offering proceeds.

         In June 2000, the Company authorized 14,000 shares of Series C
         convertible, redeemable preferred stock at $100 per share. The Series C
         shares are convertible into common shares after 180 days, such
         conversion is based upon a formula dividing the product of the stated
         value of the preferred stock by the number of shares of Series C
         preferred stock to be converted on the date of conversion by the
         average closing price. The average closing price is the product of $.50
         and the average closing bid price of the Company's common stock as
         reported by the quotation system on which the common stock is quoted,
         for the ten trading days immediately preceding the date that notice of
         conversion of the shares is furnished to the Company. In no event shall
         the Series C preferred stock be converted into more than an aggregate
         of 2,800,000 shares of common stock or less than an aggregate of
         933,334 shares of common stock. For the purposes of determining the
         conversion ratio, the average closing price shall not be less than $.50
         or greater than $1.50. The Series C shares are redeemable for the
         stated value of the stock at the option of the Company from time to
         time on or prior to 180 days from June 21, 2000, any or all of the
         outstanding shares.

         The 2000 financial statements reflect the deemed dividend on the Series
         C preferred stock of $1,400,000 in accordance with EITF 98-5 resulting
         from the calculation of the beneficial conversion feature based on the
         quoted market price of the common stock. The amount of the deemed
         dividend was computed based upon the excess of the market value of
         equivalent common shares deemed issued over the proceeds received from
         the sale of the convertible preferred stock. The amount of the deemed
         dividend has been limited to the offering proceeds.

         In 2001, pursuant to a conversion ratio of 10 common shares to 1
         preferred share, 100,166 shares of the Company's Series B preferred
         stock were converted into 1,001,660 shares of the Company's common
         stock. Also, in 2001 all 14,000 shares of the Company's Series C
         preferred stock were converted into 2,800,000 shares of the Company's
         common stock. The 2,800,000 shares of common stock issued pursuant to
         the Series C conversion was the maximum allowable under the Series C
         preferred stock conversion formula.

                                                                            F-22

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE F - CAPITAL TRANSACTIONS (CONTINUED)

[3]      STOCK OPTIONS:

         The Company has elected to account for its employee stock options in
         accordance with Accounting Principles Board Opinion No. 25, Accounting
         for Stock Issued to Employees ("APB No. 25"). Under APB No. 25,
         generally, no compensation expense is recognized in the accompanying
         financial statements in connection with the awarding of stock option
         grants to employees provided that, as of the grant date, all terms
         associated with the award are fixed and the quoted market price of the
         Company's stock, as of the grant date, is not more than the amount an
         employee must pay to acquire the stock as defined; however, to the
         extent that stock options are granted to nonemployees, for goods or
         services, the fair value of these options are included in operating
         results as an expense.

         A summary of the Company's stock option activity and related
         information is as follows:
<TABLE>
<CAPTION>
                                                                                              WEIGHTED         NUMBER OF
                                                         NUMBER OF           EXERCISE         AVERAGE           COMMON
                                                          COMMON            PRICE PER         EXERCISE          SHARES
                                                          SHARES              SHARE            PRICE          EXERCISABLE
                                                     ---------------     ---------------     ----------     ---------------
<S>                                                      <C>              <C>                  <C>             <C>
       Outstanding as of December 31, 1997                         0                                                     0
       Granted                                            26,325,000      $0.05 - $0.20        $0.17            26,325,000
       Canceled                                          (15,000,000)         0.20              0.20           (15,000,000)
                                                     ----------------                                       ---------------

       Outstanding as of December 31, 1998                11,325,000                                            11,325,000
       Granted                                            16,750,000       0.05 - 0.20          0.05            16,750,000
       Exercised                                            (100,000)                                             (100,000)
                                                     ----------------                                       ---------------

       Outstanding as of December 31, 1999                27,975,000                                            27,975,000
       Granted                                               610,000       2.25 - 2.40          2.37               110,000
                                                     ----------------                                       ---------------

       Outstanding as of December 31, 2000                28,585,000                                            28,085,000
       Granted                                               450,000       0.39 - 1.25          0.77               450,000
       Exercised                                             (90,000)                                              (90,000)
       Options vested pursuant to deferred
          compensation agreement                                              2.40              2.40               100,000
                                                     ----------------                                       ---------------

       Outstanding as of December 31, 2001                28,945,000                                            28,545,000
                                                     ================                                       ===============

</TABLE>

         All options issued during 2001, 2000 and 1999 vested within ninety days
         from the date of grant and expire at various dates during 2008 and
         2011.

         Tamarack Storage Devices, Inc. 1992 Stock Option Plan was terminated in
         connection with the reverse merger transaction. All options outstanding
         were canceled at that time.

                                                                            F-23

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE F - CAPITAL TRANSACTIONS (CONTINUED)

[3]      STOCK OPTIONS: (CONTINUED)

         In 2000, the Company adopted its 2000 Stock Option Plan (the "Plan").
         Under the Plan, incentive and nonqualified stock options, stock
         appreciation rights ("SAR's") and restricted stock may be granted to
         key employees and consultants at the discretion of the Board of
         Directors. Any incentive option granted under the Plan will have an
         exercise price of not less than 100% of the fair market value of the
         shares on the date on which such option is granted. With respect to an
         incentive option granted to a participant who owns more than 10% of the
         total combined voting stock of the Company or of any parent or
         subsidiary of the Company, the exercise price for such option must be
         at least 110% of the fair market value of the shares subject to the
         option on the date on which the option is granted. A nonqualified
         option granted under the Plan (i.e., an option to purchase the common
         stock that does not meet the Internal Revenue Code's requirements for
         incentive options) must have an exercise price of not less than 100% of
         the fair market value of the stock on the date of grant. The directors
         determine the vesting of the options under the Plan at the date of
         grant. A maximum of 30,000,000 options can be awarded under the Plan.
         The terms of grant permit a noncash exercise.

         SAR's entitle a participant to receive a cash payment equal to the
         difference between the fair market value of a share of common stock on
         the exercise date and the exercise price of the SAR. The terms of the
         SAR are determined by the board of directors at the date of grant.

         Awards of restricted stock are grants of shares of common stock that
         are subject to a restricted period during which such shares may not be
         sold, assigned, transferred or gifted.

         On July 28, 1998 in connection with a private placement transaction,
         the holders of 15 million options relinquished those options. 10
         million of such options were recast as warrants to purchase shares of
         the Company's common stock at an exercise price of $.05 per share and
         given to a third party as a portion of the consideration for the
         private placement. No value such was ascribed to the 10 million
         warrants as they have deemed to be issued in connection with the
         private placement. The remaining 5 million options were also recast as
         warrants to purchase shares of the Company's common stock at an
         exercise price of $.05 per share and given to the original option
         holders. The in the money feature of such options amounted to
         $1,100,000 and was recorded as compensation and was classified in
         general and administrative expense in the statements of operations for
         the year ended December 31, 1998. The incremental fair value associated
         with those warrants was computed using the Black-Scholes method which
         approximated $115,000. On May 6, 1999, 500,000 options were repriced to
         $.05 which were previously granted at $.20 on January 8, 1998 to a
         director of the Company. The in the money feature of such options
         amounted to $220,000 and was recorded as compensation and was
         classified in general and administrative expense in the statement of
         operations for the year ended December 31, 1999.

         In September 2001, the Company granted 250,000 stock options to a
         consultant for services. The exercise price for these options was
         $0.39, which was the market price of the stock on the date of the
         grant. The stock options became fully vested forty-five days from the
         date of grant. These stock options were valued using the Black-Scholes
         option pricing model with the following assumptions; expected term,
         three years, risk free interest rate, 4.75%, dividend yield, zero and
         volatility, 133%. As of December 31, 2001 the Company has recorded a
         charge of approximately $72,000 relating to these stock options.

                                                                            F-24

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE F - CAPITAL TRANSACTIONS (CONTINUED)

[3]      STOCK OPTIONS: (CONTINUED)

         Disclosures required by Statement of Financial Accounting Standards No.
         123, Accounting for Stock-Based Compensation ("SFAS No. 123"),
         including pro forma operating results had the Company prepared its
         financial statements in accordance with the fair value based method of
         accounting for stock-based compensation are shown below.

         Proforma net loss available to common shareholders for 2001 was
         ($6,968,000) Proforma basic and diluted loss per share for 2001 was
         ($0.06)

         Exercise prices and weighted-average contractual lives of stock options
         outstanding as of December 31, 2001 are as follows:

                         OPTIONS OUTSTANDING             OPTIONS EXERCISABLE
               -------------------------------------    -----------------------
                               WEIGHTED
                                AVERAGE     WEIGHTED                   WEIGHTED
                               REMAINING    AVERAGE                    AVERAGE
    EXERCISE      NUMBER      CONTRACTUAL   EXERCISE       NUMBER      EXERCISE
     PRICE     OUTSTANDING       LIFE        PRICE      EXERCISABLE     PRICE
    -------    ------------     ------      --------    ------------   --------

     $0.05      21,525,000       7.4        $ 0.05       21,525,000    $  0.05
     0.20        6,360,000       6.8          0.20        6,360,000       0.20
     0.39          250,000       9.75         0.39          250,000       0.39
     1.25          200,000       9.25         1.25          200,000       1.25
     2.25          110,000       5.5          2.25          110,000       2.25
     2.40          500,000       8.8          2.40          100,000       2.40

                                                                            F-25

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE F - CAPITAL TRANSACTIONS (CONTINUED)

[4]      WARRANTS:

         The Company issued the following warrants at the corresponding weighted
         average exercise price as of December 31, 2001:

                                                                      WEIGHTED
                                                                      AVERAGE
                                                                      EXERCISE
                                                        WARRANTS       PRICE
                                                      ------------  ------------

          Outstanding as of December 31, 1997                   0         $0.16
          Issued                                       17,750,000
                                                      ------------

          Outstanding as of December 31, 1998          17,750,000
          Converted into stock options                 (2,500,000)         0.05
                                                      ------------

          Outstanding as of December 31, 1999          15,250,000
          Converted into common stock                  (2,000,000)         0.75
                                                      ------------

          Outstanding as of December 31, 2000          13,250,000
          Issued                                          942,281          0.01
          Converted into common stock                    (942,281)         0.01
                                                      ------------

          Outstanding as of December 31, 2001          13,250,000
                                                      ============

                        NUMBER OF       EXERCISE   CONTRACTUAL  NUMBER OF SHARES
      DATE              WARRANTS         PRICE         LIFE        EXERCISABLE
   ---------------    ------------    ----------    ---------    ---------------
   January 8, 1998        750,000      $    .10     10 years            750,000

   July 28, 1998       12,500,000           .05     10 years         12,500,000
                      ------------                               ---------------

                       13,250,000                                    13,250,000
                      ============                               ===============


         On May 6, 1999, 2,500,000 warrants held by the Chief Executive Officer
         were converted into 2,500,000 options.

         In January 2000, the Company issued 1,076,923 shares of common stock,
         pursuant to the July 28, 1999 exercise of warrants by Equilink, LLC.

         In March of 2001, the Company executed a warrant agreement with an
         existing stockholder as compensation for services. The agreement allows
         the stockholder to purchase a variable quantity of common stock
         (between 200,000 and 1,000,000 shares) at a variable strike price
         (between $.01 and $1.25) based upon a market share price formula at the
         time of exercise. The fair value associated with a minimum exercise of
         200,000 warrants was computed using the Black-Scholes option pricing
         model which approximated $150,000, which is included as a charge for
         financing costs in the statement of operations. In May 2001, the
         Company issued 942,281 shares of common stock at a market price of
         $0.83 per share pursuant to the May 15, 2001 exercise of warrants by
         the stockholder. An additional charge of $632,000 was recorded in the
         statement of operations upon exercise of the warrants.

                                                                            F-26

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE G - INCOME TAXES

There is no provision for federal, state or local income taxes for the periods
ended December 31, 2001 and 2000, since the Company has incurred net operating
losses.

The Company's deferred tax asset as of December 31, 2001 represents benefits
from equity related compensation charges and entirely net operating loss
carryforwards of approximately $4,362,000 and $5,500,000, respectively, which is
reduced by a valuation allowance of approximately $9,862,000 since the future
realization of such tax benefit is not presently determinable.

As of December 31, 2001, the Company has a net operating loss carryforward of
approximately $23,560,000 expiring in 2008 through 2021 for federal income tax
purposes and 2004 for state income tax purposes. As a result of ownership
changes, internal revenue code Section 382 limits the amount of such net
operating loss carryforward available to offset future taxable income to
approximately $13,859,000 in the aggregate.

The difference between the statutory federal income tax (rate) benefit applied
to the Company's net loss and the Company's effective income tax rate for the
year ended December 31, 2001 and 2000 is summarized as follows:

                                                            YEAR ENDED
                                                            DECEMBER 31,
                                                        --------------------
                                                          2001         2000
                                                        -------      -------

             Statutory federal income tax rate            (35)%        (35)%
             Increase in valuation allowance               35 %         35 %
                                                        -------      -------

                                                          0.0 %        0.0 %
                                                        =======      =======


NOTE H - COMMITMENTS

[1]      LICENSE AND DEVELOPMENT AGREEMENTS:

         In March 1997, the Company entered into a Cooperative Research and
         Development Agreement (the "CRADA Agreement") with the Regents of the
         University of California to develop a polymeric based recording media
         that will satisfy all of the requirements for a holographic media
         storage device. The work was to be completed within 25 months from the
         original date of execution. Each party shall have the first option to
         retain title to any subject inventions made by its employees during the
         work under this agreement. The agreement provides that the Company's
         contribution to funding will be $264,000. The CRADA research and
         development expenses charged to the statement of operations for the
         year ended December 31, 2001 and 2000 and for the cumulative period
         July 31, 1992 through December 31, 2001 amounted to $0, $0 and $83,000,
         respectively.

                                                                            F-27

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE H - COMMITMENTS (CONTINUED)

[1]      LICENSE AND DEVELOPMENT AGREEMENTS: (CONTINUED)

         On January 11, 1998, the Company entered into a research and
         development agreement with Energy Related Devices, Inc. ("ERDI"). The
         term of the agreement is for the later of three years from the
         commencement date as defined in the agreement or the delivery of a
         prototype suitable for commercial sale or license regarding the fuel
         cell product defined in the agreement. The Company is obligated to fund
         up to $1 million in accordance with certain milestones as defined in
         the agreement. Upon the delivery of a prototype suitable for commercial
         sale or license regarding the fuel cell product, the Company's
         obligation will be to pay ERDI $10,000 per month until the Company
         funds or determines not to fund the research and development of ERDI's
         solar cell invention. Through December 31, 2000, the Company has
         provided $1,000,000 to ERDI for research and development activities. In
         addition, the Company is providing for key-man life insurance coverage
         on the primary stockholder of ERDI. In May 1999, the Company committed
         to additional funding of ERDI. For the year ended December 31, 2001,
         the Company has funded an additional $805,000.

         In August 1999, the Company entered into a license option agreement
         with the Regents with the University of California for Cyclodextrin
         Polymer Separation materials. The agreement grants the Company an
         exclusive option to negotiate an exclusive world-wide license under
         University's patent rights. The initial term expired on February 29,
         2000 and was extended for a second term to February 28, 2001. The
         Company decided not to renew the license option agreement beyond
         February 28, 2001. The Company paid $10,000 in 2000.

         On March 7, 2000, the Company entered into a license option agreement
         with a third party for nanoporous polymer molecular filter
         technologies. The agreement grants the Company an exclusive option to
         negotiate an exclusive world-wide license under the third party's
         patent rights. The initial term expired on September 15, 2000 and was
         renewed for an additional six months. The Company paid $10,000 to
         execute the license option agreement and another $10,000 for its
         renewal. The Company has decided not to renew the agreement.

[2]      CONSULTING AGREEMENTS:

         During 1998, the Company entered into a consulting agreement (the
         "Agreement") with a former stockholder of Tamarack to provide research
         related activities. In connection with the Agreement, the consultant
         receives approximately $2,300 per month for such services and is
         eligible for a lump sum payment of $50,000 upon the attainment of a
         revenue milestone as defined in the Agreement. In accordance with the
         Agreement, the Company issued stock options to purchase 250,000 shares
         of the Company's common stock at $.20 per share.

         200,000 of such options are subject to conditional vesting and are not
         currently exercisable. The vesting of these options is based upon the
         attainment of certain milestones as follows; 50,000 options upon
         successful testing and acceptance by a third party of the holographic
         storage media; 50,000 options upon commencement of commercial
         production of devices incorporating holographic storage media; 100,000
         options upon attainment of $250,000 of gross revenues resulting from
         sales of devices incorporating the holographic storage media. These
         options are subject to variable plan accounting treatment in accordance
         with APB No. 25 and as such, the Company will record a charge to
         operations if the criteria for vesting are attained. The measurement
         date will be determined based upon the vesting.

                                                                            F-28

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE H - COMMITMENTS (CONTINUED)

[2]      CONSULTING AGREEMENTS: (CONTINUED)

         In February 2001, the Company entered into a marketing and management
         consulting agreement. In connection with this agreement the consulting
         firm will receive a fee payable in stock. The term of the agreement is
         for one year plus a one year automatic renewal. In March 2001, the
         Company issued 200,000 shares of common stock to the consulting firm as
         compensation for services rendered and to be rendered. The market value
         of the stock on the date of issuance was $1.25 per share. This amount
         is reflected in prepaid expenses and it is being amortized over the
         initial term of the agreement. In addition, as of December 31, 2001,
         the Company has issued 897,500 and 626,250 additional shares to this
         consulting firm in private placement transactions and for services
         rendered, respectively. These additional shares were valued at $684,700
         and $430,730, respectively.

[3]      EMPLOYMENT AGREEMENT:

         On August 30, 1999, the Company entered into an employment and
         noncompetition agreement with an individual to provide research related
         activities. The term of the agreement was for one year commencing on
         September 1, 1999 and was renewed. The agreement allows for four one
         year renewal options unless terminated by either party. The employment
         agreement was renewed for an additional year effective September 1,
         2000. Base salary is $90,000 per annum with available additional cash
         compensation as defined in the agreement. In addition, the employee
         received stock options to purchase 500,000 shares of common stock at
         $.40 per share. The market price of the Company's common shares was
         $1.25 per share on the date of grant. The total fair value of such
         options approximated $425,000. In accordance with the agreement,
         100,000 options vest each year on the anniversary date. The charge for
         the 100,000 options that vested during 2001 approximated $85,000.

[4]      INTANGIBLE ASSET ACQUISITION:

         On August 6, 1999, the Company entered into an agreement with NovARS
         GmbH ("Novars") to acquire all of the intellectual property rights of
         Novars. As compensation, the Company issued 1,000,000 shares of its
         common stock. The purchase price was estimated at $1,000,000 based upon
         the value of the common shares issued at the date of the transaction as
         determined by management. In addition, the Company is obligated to pay
         a three percent royalty in perpetuity on the revenues earned by the
         Company as defined in the agreement.

         In conjunction with the above, the Company entered into a three year
         research and development agreement with Novars with automatic one year
         renewals unless terminated by either party. In accordance with this
         agreement, the Company advanced $200,000 in August 1999. The Company
         has amended the research and development agreement to provide for
         additional funding based on a milestone timetable, as of December 31,
         2001 the Company has funded an additional $1,620,000 and issued 350,000
         shares of its common stock valued at $158,000 to be used for funding
         research and development costs.

[5]      LEASES:

         The Company is obligated under two separate operating leases for office
         space located in Los Alamos, New Mexico and New York City. The Company
         renewed its lease in New York City for one year pursuant to the lease's
         original terms. The Company has renegotiated its lease in Los Alamos
         New Mexico. Subsequent to December 31, 2001 the Company will only lease
         certain offices in Los Alamos New Mexico, while certain related parties
         will lease the laboratory space previously leased by the Company. The
         Company received reimbursement of $36,000 against rent charges for the
         year ended December 31, 2001 from related parties. Rent expense charged
         to operations was approximately $68,000 for the year ended December 31,
         2001 and $34,000 for the year ended December 31, 2000. Minimum future
         rental payments under these leases is approximately $68,000 through
         December 31, 2002.

                                                                            F-29

<PAGE>

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

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001

NOTE I - RELATED PARTY TRANSACTIONS

The law firm of one director received approximately $100,000 and $157,000 of
compensation for legal services rendered to the Company during the years ended
December 31, 2001 and 2000, respectively.

The accounting firm of one of our directors received approximately $66,000 and
$120,000 of compensation for accounting services rendered to the Company during
the years ended December 31, 2001 and 2000, respectively.

NMXS.com, Inc. paid the Company's chief executive a yearly salary of $36,000 and
leases a car as consideration for his services.

During 1998, the Company entered into a research and development agreement with
Energy Related Devices, Inc. ("ERDI"), ERDI is majority-owned by a shareholder
of the Company (see Note H[1]).

The Company's Chief Operations Officer loaned the Company $275,000. This loan is
due on June 30, 2002 (see Note E).

In August 2001, the Company borrowed $250,000 from its Chief Executive Officer.
In addition, the Company's Chief Executive Officer guaranteed a loan on the
Company's behalf. The Company has issued a loan and security agreement with
respect to these transactions in which, among other things, the Company agreed
to pledge certain of its assets (including intellectual property) as security.


NOTE J - CONTINGENCY

During the third quarter of 2001 a former consultant threatened to bring a claim
against the Company. As of the date of filing this 10K-SB no claim has been
filed, nor does the Company anticipate such filing. The Company believes that
the consultants' threats are without merit and would defend vigorously against
any claims.


NOTE K - SUBSEQUENT EVENT

During 2002, the Company issued 1,735,700 shares of its common stock to third
parties at prices ranging from $0.25 to $0.35, in four private placement
transactions. The Company received gross proceeds of $505,000 from the
aforementioned private placement transactions.

In addition the Company has a commitment from a third party to purchase an
additional 400,000 shares of its common stock for $100,000.

                                                                            F-30
<PAGE>

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

         None.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(a) OF THE EXCHANGE ACT

         The names, ages and biographical information of each of our directors
and executive officers as of December 31, 2001 are set forth below. There are no
existing family relationships between or among any of our executive officers or
directors.

    Name               Age           Position
    ----               ---           --------

Marvin Maslow          64        Chairman of the Board and Chief Executive
                                 Officer since January 1998

Jack Harrod            60        Chief Operating Officer since August 1998

Scott L. Bach          39        Director and Secretary since January 1998

David A. Teich         45        Director since May 1999 and Treasurer since
                                 December 2000

         MARVIN MASLOW has served as our chief executive officer and chairman of
the Board since January 1998. From June 1990 through September 1996, Mr. Maslow
served as chief executive officer of Projectavision, Inc., a company he
co-founded to develop and market video projection technology. Since November
1996, Mr. Maslow has served as chief executive officer and chairman of the board
of Tamarack Storage Devices, Inc., our wholly-owned subsidiary. Since August
1999, Mr. Maslow has also served as a director of NMXS.com, Inc., a company in
which we own approximately 23% of the outstanding common stock. Since June,
2000, Mr. Maslow has also served as a director of Novint Technologies, Inc., a
company in which we own approximately 45%. For more than 20 years, Mr. Maslow
has been President of Normandie Capital Corp., a private investment and
consulting company. Mr. Maslow is credited with the starting up and financing of
more than 20 enterprises during his career. Mr. Maslow received an A.A.S. degree
from the Rochester Institute of Technology in 1957 and an honorable discharge
form the U.S. Army Signal Corps in 1963.

         JACK HARROD has served as our chief operating officer since August
1998. From November 1966 to March 1998, Mr. Harrod held a variety of executive
positions at Texas Instruments, including executive vice president. Mr. Harrod
received a B.S. in Electrical Engineering from the College of Engineering,
University of Arkansas in 1964.

                                       20


<PAGE>

         SCOTT L. BACH has served as our director and secretary since January
1998. Since November 1996, Mr. Bach has served as secretary and director of
Tamarack Storage Devices, Inc., our wholly-owned subsidiary. Since August 1999,
Mr. Bach has also served as a director of NMXS.com, Inc., and since June, 2000,
he has served as a director of Novint Technologies, Inc. In 1995, Mr. Bach
founded Bach & Associates, a law firm concentrating in commercial matters. From
1988 to 1995, he was associated with the law firm of Robinson Silverman Pearce
Aronsohn & Berman. From 1987 to 1988, he was associated with the law firm of
Zalkin, Rodin & Goodman. Mr. Bach received a B.A. from Queens College, City
University of New York in 1984 and a J.D. from Hofstra Law School in 1987.

         DAVID A. TEICH has served as our director since May 1999 and Treasurer
since December 2000. Mr. Teich is the managing partner of Teich, Beim & Moro,
P.C. Since January 1999, Mr. Teich's accounting firm has acted as our internal
controller. Mr. Teich graduated with a B.B.A. degree from Pace University in
1979, became a certified public accountant in 1982, and has been employed by his
firm in various capacities, including accountant, manager, partner and managing
partner since 1989.

         The term of office of the directors is one year, expiring on the date
of the next meeting of stockholders and thereafter until their respective
successors shall have been elected and qualified.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

         Based solely upon a review of Forms 3 and 4 furnished to us pursuant to
Rule 16a-3(e) and statements from directors and executive officers that no
report on Form 5 is due, no reporting person failed to file reports required
under Section 16(a) of the Exchange Act of 1934, as amended, with respect to our
securities

                                       21

<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

         The following tables set forth all compensation awarded by us to our
executive officers for the fiscal years ended December 31, 1999, 2000 and 2001.
<TABLE>
<CAPTION>
                                               SUMMARY COMPENSATION TABLE

=================================================================================================================
                                           ANNUAL COMPENSATION                   LONG-TERM COMPENSATION
                                  ----------------------------------- -------------------------------------------
                                                                               AWARDS               PAYOUTS
                                                                      ------------------------- -----------------

                                                                                   SECURITIES              ALL
                                                           OTHER      RESTRICTED   UNDER-LYING    LTIP    OTHER
                                                           ANNUAL       STOCK       OPTIONS/    PAYOUTS   COMP-
     NAME AND                        SALARY    BONUS    COMPENSATION   AWARD(s)       SARS        (S)    ENSATION
PRINCIPAL POSITION         YEAR       ($)       ($)         ($)           ($)         (#)         ($)      ($)
----------------------- --------- ---------- --------- -------------- ---------- -------------- -------- --------
<S>                        <C>        <C>       <C>       <C>         <C>        <C>                 <C>      <C>
Marvin Maslow,             1999       $0        $0        $ 69,195(1)      --    13,700,000(6)       --       --
CEO/Chairman            --------- ---------- --------- -------------- ---------- -------------- -------- --------
                           2000       $0        $0        $109,788(2)      --             -          --       --
                        --------- ---------- --------- -------------- ---------- -------------- -------- --------
                           2001       $0        $0        $ 40,800(3)      --             -          --       --
                        --------- ---------- --------- -------------- ---------- -------------- -------- --------

=================================================================================================================
Jack Harrod,               1999       $0        $0        $ 48,000(4)      --             -          --       --
COO                     --------- ---------- --------- -------------- ---------- -------------- -------- --------
                           2000       $0        $0        $ 48,000(4)      --             -          --       --
                        --------- ---------- --------- -------------- ---------- -------------- -------- --------
                           2001       $0        $0        $ 36,000(4)      --             -          --       --
                        --------- ---------- --------- -------------- ---------- -------------- -------- --------

=================================================================================================================
Scott Bach,                1999       $0        $0        $     0     $40,000(5)    500,000(7)       --       --
Secretary/Director      --------- ---------- --------- -------------- ---------- -------------- -------- --------
                           2000       $0        $0        $     0          --             -          --       --
                        --------- ---------- --------- -------------- ---------- -------------- -------- --------
                           2001       $0        $0        $     0          --        60,000(8)       --       --
                        --------- ---------- --------- -------------- ---------- -------------- -------- --------

=================================================================================================================
David Tiech,               1999       $0        $0        $     0          --       500,000(9)       --       --
Treasurer/Director      --------- ---------- --------- -------------- ---------- -------------- -------- --------
                           2000       $0        $0        $     0          --             -          --       --
                        --------- ---------- --------- -------------- ---------- -------------- -------- --------
                           2001       $0        $0        $     0          --       200,000(10)      --       --
                        --------- ---------- --------- -------------- ---------- -------------- -------- --------

=================================================================================================================
</TABLE>

     (1)  Includes $4,000 in monthly non-accountable expenses paid by us, and a
          $20,000 annual salary and a car allowance of $1,195 paid by NMSX.Com,
          Inc.

     (2)  Includes $4,000 in monthly non-accountable expenses paid by us, and a
          $56,988 annual salary and a car allowance of $4,800 paid for by
          NMSX.Com, Inc.

     (3)  Includes $36,000 of salary and a car allowance of $4,800 paid by
          NMSX.Com, Inc

     (4)  Includes $4,000 in monthly non-accountable expenses paid by us in 1999
          and 2000 and $3,000 paid by us in 2001.

     (5)  Represents 40,000 shares of common stock of NMSX.Com, Inc . valued at
          $1.00 per share awarded by NMSX.Com, Inc . to Mr. Bach as compensation
          for his services as director of NMSX.Com, Inc .

                                       22

<PAGE>

     (6)  Represents 13,700,000 stock options at an exercise price of $.05 per
          share which were cashless assignable options over a 10 year period.

     (7)  On January 8, 1998, Mr. Bach was granted 500,000 options for his
          services as a director of ours at an exercise price of 20 cents per
          share. These options were recast at an exercise price of 5 cents per
          share on May 6, 1999. On May 6, 1999, Mr. Bach was granted 500,000
          additional options for his services as an officer of ours, at the
          exercise price of 5 cents per share. At that time, it was determined
          that the duration of all of Mr. Bach's options, 1 million in the
          aggregate, would be 10 years from May 6, 1999, and that the options
          would be "cashless" and assignable.

     (8)  Represents 60,000 Stock Options of New Mexico Software, Inc. at a
          exercise price of $.3125 per share, awarded by New Mexico Software,
          Inc. to Mr. Bach as compensation for his services as director of New
          Mexico Software, Inc.

     (9)  On May 6, 1999, Mr. Teich was granted 500,000, "cashless," assignable
          options for his services as a director of ours, at the exercise price
          of 5 cents per share, and having a duration of 10 years from May 6,
          1999. On January 2, 2001, Mr. Teich exercised 75,000 options.

     (10) On January 8, 2001, Mr. Teich received 200,000 Stock Options at an
          exercise price of $1.25 as compensation for his services as a director
          of our company.

COMPENSATION OF DIRECTORS AND OFFICERS

         Our officers and directors do not presently receive any cash
compensation from us for their service as officers and/or directors, except for
equity in the form of stock options in lieu of cash, at the discretion of our
Board of Directors. Our officers and/or directors who are uncompensated full
time employees of ours, Messrs. Maslow and Harrod, have previously received a
$4,000 per month non-accountable expense allowance from time to time.

EMPLOYMENT AGREEMENTS

         We currently have no employment agreements with our officers or
directors, though we intend to enter into such agreements with our CEO and COO.
On September 1, 1999, we entered into an employment agreement, as amended on
September 15, 1999, with Robert E. Hermes, Ph.D., our Senior Staff Scientist.
Unless either party provides notice to the other of their intention not to renew
the agreement, Mr. Hermes' employment will extend until September 2004. Mr.
Hermes receives an annual salary of $96,000 and is eligible to receive 500,000
stock options, which vest over a five-year period, in part subject to the
discretion of our Board of Directors.

BOARD OF DIRECTORS INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS

         Mr. Maslow, our director and chief executive officer, participated in
deliberations of the Board of Directors concerning officer compensation.

                                       23
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The following table sets forth, as of the date of this Form 10K-SB, the
names, addresses and number of shares of common stock beneficially owned by (i)
all persons known to us to be the beneficial owners of more than 5% of the
outstanding shares of common stock, (ii) each of our directors, (iii) each of
our executive officers, and (iv) all of our directors and executive officers as
a group. Except as indicated, each beneficial owner listed exercises sole voting
power and sole dispositive power over the shares beneficially owned. Share
ownership in each case includes shares issuable upon exercise of options
exercisable within 60 days after December 31, 2001 for purposes of computing the
percentage of common stock owned by such person but not for purposes of
computing the percentage owned by any other person.

                                                                   Percentage of
                                                    Number of       Outstanding
                                                     Shares            Shares
                                                  Beneficially      Beneficially
Name and Address                                     Owned             Owned
                                                  ------------      ------------

Marvin Maslow (1)................................. 13,700,000             10.5%
c/o Manhattan Scientifics, Inc.
641 Fifth Avenue, Suite 36F
New York, New York 10022

Robert Hockaday (2).
c/o Manhattan Scientifics, Inc.                     6,953,000              5.9%
641 Fifth Avenue, Suite 36F
New York, New York 10022

Scott L. Bach (3).................................  1,090,000                *
c/o Manhattan Scientifics, Inc.
641 Fifth Avenue, Suite 36F
New York, New York 10022

Jack Harrod (4)...................................  4,750,000              4.0%
c/o Manhattan Scientifics, Inc.
641 Fifth Avenue, Suite 36F
New York, New York 10022

David A. Teich (5)................................    648,064                *
Teich, Beim & Moro, P.C.
Two Executive Boulevard, Suite 103
Suffern, New York 10901

Michael Lauer (6)................................. 55,000,000             43.5%
375 Park Avenue, Suite 2006
New York, New York    10152

All executive officers and directors as a group    20,188,064               15%
(4 persons).

*      Represents Less than 1%.

         (1) Includes stock options that are immediately exercisable to purchase
         12,400,000 shares of Common Stock at a price of $0.05 per share.

         (2) Mr. Hockaday, an independent contractor, is not an employee,
         executive officer or director of ours.

                                       24

<PAGE>

         (3) Includes 100,000 shares of Common Stock and options that are
         immediately exercisable to purchase 990,000 shares of Common Stock at a
         price of $0.05 per share.

         (4) Includes 2,000,000 shares of Common Stock and options that are
         immediately exercisable to purchase 2,750,000 shares of Common Stock at
         a price of $0.20 per share.

         (5) Includes of 23,064 shares of Common Stock; options that are
         immediately exercisable to purchase 425,000 shares of Common Stock at a
         price of $0.05 per share; and options, which were granted on January 8,
         2001 and may be exercised on April 8, 2001, to purchase 200,000 shares
         of Common Stock at a price of $1.25 per share

         (6) Michael Lauer has voting and dispositive powers over various
         entities that are the beneficial holders of our securities. Includes
         45,000,0000 shares of Common Stock and option that are immediately
         exercisable to purchase 10,000,000 shares of Common Stock at a price of
         $.05 per share.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Twenty percent of our annual rent of $60,000 in New York was paid by
Normandie Capital Corp., a company owned by Mr. Maslow, our chief executive
officer. Forty thousand dollars of our annual rent of $47,000 for former
executive offices and laboratories in Los Alamos, New Mexico was paid by Energy
Related Devices, Inc., one of our stockholders (and an independent contractor to
us).

         On January 19, 2001, Lancer Management Group, LLC, the beneficial owner
of 39% of the outstanding shares of our common stock, indicated its willingness
to advance funds, on an as-needed basis, to continue our operations through
December 31, 2003, upon reasonable terms and conditions to be agreed. On March
26, 2002, Lancer indicated that it was no longer willing to advance funds as
indicated in that letter.

         In August 2001, we borrowed $250,000 from Mr. Maslow. In addition Mr.
Maslow previously guaranteed a loan on our behalf to Merrill Lynch for the
maximum principal amount of $300,000. Accordingly, we issued a loan and security
agreement to Mr. Maslow with respect to these transactions in which, we agreed
to pledge the Company's assets as security.

         NMXS.com, Inc. has previously paid Mr. Maslow, our chief executive
officer, an annual salary of $56,988 and leased a car for his use as
consideration for his services.

         Bach & Associates, a law firm of which Mr. Bach, our secretary and
director, is the sole proprietor, received $157,000 and $100,000 in 2000 and
2001, respectively, as compensation for legal services rendered to us

         Teich, Beim & Moro, P.C., an accounting firm in which Mr. Teich, our
treasurer and a director, is a principal, received $120,000 and $66,000 in 2000
and 2001, respectively, as compensation for accounting services rendered to us.

                                       25

<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)      EXHIBITS

Exhibit
Number                Description of Exhibit
                      ----------------------

2.1      Agreement and Plan of Reorganization (1)

2.2      Agreement and Plan of Merger (1)

2.3      Certificate of Incorporation (1)

2.4      Amendment to Certificate of Incorporation (1)

2.5      Series C Preferred Stock Certificate of Designations

2.6      Bylaws (1)

4.1      Specimen Common Stock Certificate (1)

10.1     License/Assignment Agreement with Robert (b) Glenn Hockaday, and DKY,
         Inc. (1)

10.2     Research and Development Agreement with Energy Related Devices, Inc.
         (1)

10.3     Letter Agreement with Energy Related Devices, Inc. and Robert Glenn
         Hockaday (1)

10.4     Intellectual Property Assignment and Research and Development Agreement
         with Novars Gesellschaft fur neue Technologien GmbH (1)

10.5     License Option Agreement with The Regents of the University of
         California (1)

10.6     Lease of Executive Offices (1)

10.7     Lease of New Mexico Facilities (1)

10.8     1998 Stock Option Plan (1)

10.9     Employment Agreement with Robert Hermes (1)

10.10    Agreement with Stanton Crenshaw Communications (1)

                                       26

<PAGE>

10.11    Agreement with Equilink (1)

10.12    Stock Purchase Agreement between Manhattan Scientifics, Inc.,
         Projectavision, Inc., and Lancer Partners, L.P. (2)

10.13    License Option Agreement with Mr. Edward Vanzo (3)

10.14    2000 Stock Plan (5)

10.15    Note to Marvin Maslow in the amount of $250,000(6)

10.16    Loan and Security Agreement for Marvin Maslow (6)

21.1     List of Subsidiaries (3)
---------------------------
         (1) Incorporated by reference to the registrant's Form 10-SB filed with
the Securities and Exchange Commission on December 8, 1999.

         (2) Incorporated by reference as Amendment No. 2 to the registrant's
Form 10-SB filed with the Securities and Exchange Commission on February 9,
2000.

         (3) Incorporated by reference to Amendment No. 3 to the registrant's
Form 10-SB filed with the Securities and Exchange Commission on March 29, 2000.

         (4) Incorporated by reference to the registrant's Form 10-QSB filed
with the Securities and Exchange Commission for the period ended June 30, 2000.

         (5) Previously filed on Form S-8 on September 14, 2001.

         (6) Filed herewith.

(b) REPORTS ON FORM 8-K

         We did not file any reports on Form 8-K during the fourth quarter of
2001.

                                       27

<PAGE>

                                   SIGNATURES

In accordance with the Exchange Act, the registrant caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.

                                             MANHATTAN SCIENTIFICS, INC.

Dated:     April 15, 2002                    By:   /s/ Marvin Maslow
           --------------                    -----------------------

                                             Marvin Maslow
                                             President, Chief Executive Officer,
                                             Chairman of the Board

In accordance with the Exchange Act, 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 of Capacities                Date
    ---------                   -------------------                ----

/s/ Marvin Maslow           President, Chief Executive           April 15, 2002
-----------------           Officer, Chairman of the Board

    Marvin Maslow

/s/ Scott L. Bach           Director, Secretary                  April 15, 2002
-----------------

    Scott L. Bach

/s/ David A. Teich          Director, Treasurer                  April 15, 2002
------------------

    David A. Teich

                                       28