Edgar Filing: MANHATTAN PHARMACEUTICALS INC

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

AMENDMENT NO. 1 TO
FORM 10-KSB/A

[x] Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 2003

[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ___to___

Commission File Number 0-27282
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MANHATTAN PHARMACEUTICALS, INC.
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(Exact name of issuer as specified in its charter)

Delaware 36-3898269
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)

787 Seventh Avenue, 48th Floor, New York, New York 10019
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(Address of Principal Executive Offices) (Zip Code)

(212) 554-4525
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(Issuer's telephone number)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE EXCHANGE ACT:

None

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE EXCHANGE ACT:

Units, each unit consisting of one share of Common Stock and one Redeemable
Warrant Common Stock, par value $.001 per share Redeemable Warrants

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the issuer 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 there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained herein, and no disclosure will be contained, to
the best of 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. [ ]

The issuer's revenues for the fiscal year ended December 31, 2003 were $0.

As of March 26, 2004 there were 26,731,033 outstanding shares of common stock,
par value $.001 per share.

The aggregate market value of the voting common stock of the issuer held by
non-affiliates of the issuer on March 26, 2003 based on the closing price of the
common stock as quoted by the NASD Over-the-Counter Bulletin Board on such date
was $23,704,868.

Transitional Small Business Disclosure Format: Yes_____ No __X__

TABLE OF CONTENTS

PAGE
PART I

Item 1 Description of Business..............................................1
Item 2 Legal Proceedings....................................................17
Item 3 Description of Property..............................................17
Item 4 Submission of Matters to a Vote of Security Holders..................17
PART II
Item 5 Market for Common Equity and Related Stockholder Matters.............17
Item 6 Management's Discussion and Analysis of Financial Condition
and Results of Operations or Plan of Operations......................19
Item 7 Consolidated Financial Statements....................................25
Item 8 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.............................................27
Item 8A Controls and Procedures..............................................28
PART III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act....................28
..............................................
Item 10 Executive Compensation...............................................30
Item 11 Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matter ...........................33
Item 12 Certain Relationships and Related Transactions.......................36
Item 13 Exhibit List and Reports on Form 8-K.................................37
Item 14 Principal Accountant Fees and Services...............................41
Signaure.............................................................42
Index to Consolidated Financial Statements..........................F-1

References to the "Company," the "Registrant," "we," "us," or "our" or in this
Annual Report on Form 10-KSB refer to Manhattan Pharmaceuticals, Inc., a
Delaware corporation, and our consolidated subsidiaries, together taken as a
whole, unless the context indicates otherwise.

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-KSB contains statements that are not
historical but are forward-looking in nature, including statements regarding the
expectations, beliefs, intentions or strategies regarding the future. In
particular, the "Risk Factors" section following Item 1 and the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
section in Item 6 of this annual report include forward-looking statements that
reflect our current views with respect to future events and financial
performance. We use words such as we "expect," "anticipate," "believe," and
"intend" and similar expressions to identify forward-looking statements.
Investors should be aware that actual results may differ materially from our
expressed expectations because of risks and uncertainties inherent in future
events, particularly those risks identified in the subsection entitled "Risk
Factors" following Item 1 in this Annual Report, and should not unduly rely on
these forward looking statements.

PART I

ITEM 1. DESCRIPTION OF BUSINESS

OVERVIEW

We are engaged in the business of developing and commercializing
biomedical and pharmaceutical technologies. We aim to acquire proprietary rights
to these technologies, by license or acquiring an ownership interest, fund their
research and development and eventually bring the technologies to market. We do
not have any drugs or other products available for sale, but we are currently
researching and developing two biomedical technologies:

o Oleoyl-estrone, an orally administered hormone attached to a
fatty-acid that has been shown to cause significant weight loss in
preclinical animal studies regardless of dietary modifications; and

o Lingual spray propofol, a proprietary lingual spray technology to
deliver propofol for pre-procedural sedation prior to diagnostic,
therapeutic or endoscopic procedures.

To date, we have not commenced clinical testing of either of our product
candidates and neither product candidate has received marketing approval of the
Federal Drug Administration ("FDA"). Further, we have not received any
commercial revenues to date. Although we are primarily focused on developing
these technologies, we continue to seek to acquire proprietary rights to other
biomedical and pharmaceutical technologies, by licensing or acquiring an
ownership interest, funding their research and development and bringing the
technologies to market.

Our company resulted from the February 21, 2003 reverse merger between
Atlantic Technology Ventures, Inc., which was incorporated on May 18, 1993, and
privately-held Manhattan Research Development, Inc., incorporated on August 6,
2001. We are incorporated in the State of Delaware. In connection with the
merger, the former stockholders of Manhattan Research received a number of
shares of Atlantic's common stock so that following the merger they collectively
owned 80 percent of the outstanding shares. Upon completion of the merger,
Atlantic changed its name to Manhattan Pharmaceuticals, Inc. and thereafter
adopted the business of Manhattan Research Development.

We were incorporated originally under the name "Atlantic Pharmaceuticals,
Inc." and in March 2000, we changed our name to "Atlantic Technology Ventures,
Inc." On February 21, 2003, we completed a "reverse" acquisition of
privately-held Manhattan Research Development, Inc. (formerly known as Manhattan
Pharmaceuticals, Inc.), a Delaware corporation. To effect this transaction,
Manhattan Pharmaceuticals Acquisition Corp., a wholly-owned subsidiary of
Atlantic Technology Ventures, merged with and into Manhattan Research
Development, with Manhattan Research Development surviving as a wholly owned
subsidiary of Atlantic Technology Ventures. In accordance with the terms of the
merger, the outstanding shares of common stock of Manhattan Research Development
automatically converted into an aggregate of approximately 80 percent of the
outstanding common stock of Atlantic Technology Ventures (after giving effect to
the transaction). While in connection with the merger, Atlantic Technology
Ventures changed its name to "Manhattan Pharmaceuticals, Inc.", for accounting
purposes, Manhattan Research Development was treated as the acquiring company.
Accordingly, when we refer to our business or financial information for periods
prior to the merger, we are referring to the business and financial information
of Manhattan Research Development, unless the context indicates otherwise.

OLEOYL-ESTRONE

Oleoyl-estrone, a hormone modified by an attachment to a fatty acid, is an
orally administered small molecule that has been shown to cause significant
weight loss in preclinical animal studies regardless of dietary modifications.
We believe that oleoyl-estrone causes weight loss in two ways. First, we believe
oleoyl-estrone has an effect on the hypothalamus. It is believed that one's body
weight is regulated by the hypothalamus in a manner similar to the way in which
a thermostat regulates a room's temperature. Preclinical studies suggest that
oleoyl-estrone resets the brain, telling the body that a lower weight is normal.
We believe that this signal then decreases appetite, which leads to weight loss
that may be maintained even after oleoyl-estrone treatment is discontinued.
Second, fat cells that have been treated with oleoyl-estrone appear to shrink in
size, indicating that oleoyl-estrone has a local effect acting directly on
cells. The apparent dual effect of oleoyl-estrone leads us to believe that the
drug has the potential to cause weight loss in a variety of obese and overweight
patients.

Oleoyl-estrone was initially developed by researchers at the University of
Barcelona ("UB") in Spain. Through a decade of research, scientists of the
Nitrogen-Obesity Research Group at UB noted that hormones that effect metabolism
play a significant role in body weight regulation. At the same time, the obesity
research community suggested that weight is regulated by the ponderostat, a
central mechanism in the hypothalamus of the brain believed to set the point of
ideal weight. Researchers at UB believe that a hormone controls the ponderostat,
raising or lowering body weight by changing the central set point for the entire
body.

After examining the available work related to estrogens, changes in body
weight and body fat percentage (such as during pregnancy), researchers at UB
noted that estrone, an estrogen-like hormone, was elevated in the blood of both
obese men and women. Initially thought to be a simple estrogen, UB researchers
noticed that although estrone levels were elevated, very few obese men manifest
the effects of elevated estrogen levels. Further testing revealed that
oleoyl-estrone was the main form of estrone that existed in obese patients. The
researchers suggested that when cells become filled with fat they produce
oleoyl-estrone, signaling the brain to lose weight. They further suggested that
fat cells in obese people do not produce sufficiently high levels of
oleoyl-estrone to signal the ponderostat to suppress appetite and cause weight
loss. Based on this concept, investigators at UB believed that they could induce
weight loss by increasing levels of oleoyl-estrone in obese individuals. When
oleoyl-estrone was given to rats, the rats lost weight in a dose-dependent
manner, supporting the idea that oleoyl-estrone is a primary weight loss signal
produced by fat cells. At the doses employed, no side effects were observed in
the rats and, in female rats, uterine size remained unchanged, indicating that
oleoyl-estrone did not act as an estrogen.

Based on FDA's review of the Company's Pre IND information package for
oleoyl-estrone, we have completed designing the balance of the preclinical
program and begun to assemble the Investigational New Drug application.

In the second half of the year we expect to file an IND for our
oleoyl-estrone product candidate. Such prediction assumes that no unusual
findings are made during the balance of the toxicology/pharmacology studies that
will precede the IND filings. Following IND allowance, we intend to initiate a
Phase I program in the United States.

The Phase I studies for oleoyl-estrone will necessarily recruit subjects
who are clinically obese in accordance with FDA guidelines. Such Phase I studies
for oleoyl-estrone are expected to occur during calendar year 2005.

LINGUAL SPRAY PROPOFOL

Pursuant to an April 2003 license agreement with NovaDel Pharma Inc.
("NovaDel"), we are developing NovaDel's proprietary lingual spray technology to
deliver propofol for preprocedural sedation prior to diagnostic, therapeutic or
endoscopic procedures. Propofol is currently delivered in an oily emulsion for
intravenous infusion for induction and maintenance of general anesthesia or
"monitored anesthesia care" in operating rooms, or deep sedation in intensive
care units. Sales of Midazolam, a currently prescribed sedative, were reported
to be in excess of $536 million annually in 1999. Propofol has previously not
been available for dosing via a convenient route of administration for
office-based and other ambulatory uses. Accordingly, we have filed a patent
disclosure for the oral transmucosal method of use. We are preparing other
patent applications related to Manhattan's novel formulation.

We believe that delivering propofol via this proprietary delivery system
provides many advantages over currently formulated sedatives. In addition to the
convenience and ease of administration, we believe the lingual spray route will
eliminate delayed onset and poor coordination of timing associated with
administering oral sedatives, and allow for rapid clinical responses typical of
intravenous delivery (i.e., less than 5 minutes). Lingual spray propofol is
intended to allow patients to tolerate unpleasant procedures, by relieving
anxiety and producing a pleasant, short-term amnesia. Particularly in children
and adults unable to cooperate, mild sedation expedites the conduct of numerous
ambulatory procedures that are not particularly painful, but which require the
patient to remain still for the best technical result.

Novadel's delivery systems (both patented and patent-pending) are lingual
sprays, enabling drug absorption through the oral mucosa and more rapid
absorption into the bloodstream than presently available oral delivery systems.
NovaDel refers to its delivery system as Immediate-Immediate Release (I2RTM)
because its delivery system is designed to provide therapeutic benefits within
minutes of administration. We are working with NovaDel to develop, manufacture
and commercialize the licensed product. For propofol lingual spray, the FDA has
expressed support for our objective to pursue a bioequivalent strategy for
development. We are planning Phase I studies to occur during the first half of
2005 following IND issuance. Pivotal Phase III trials will follow should
bioequivalence be demonstrated.

Although we have the sole right and obligation to develop and
commercialize lingual spray propofol on a worldwide basis, NovaDel has
undertaken to perform certain development activities on our behalf. NovaDel's
responsibilities include formulation of development, formulation stability
testing, formulation analytic method development and testing and manufacture of
clinical trial material for the pre-clinical and early clinical development. We
will oversee pre-clinical testing, as necessary, and have responsibility for
overall product development and product management. In addition, we will design
and oversee clinical trials and be responsible for regulatory filings and
meetings. The license agreement provides that these development activities are
to be performed under the supervision of a development committee, which is
comprised of an equal number of appointees of us and NovaDel. Within 30 days of
the end of each calendar quarter in which any agreed-upon development activities
are to be performed, each of us and NovaDel are to provide a written progress
report to the development committee, which should describe the activities that
have been performed and evaluate the work performed in relation to the goals of
the development plan and budget. Currently, a proprietary formulation has been
prepared and is undergoing one, two, three and six month stability tests, as
well as specification analysis. The license agreement also provides that NovaDel
will manufacture and supply us with lingual spray propofol for use in clinical
development and for commercial purposes pursuant to a manufacturing agreement to
be entered into between us and NovaDel.

Based on FDA's review of our Pre IND information package for propofol
lingual spray, we have completed designing the abbreviated preclinical program,
and accelerated clinical program, in accord with a "bioequivance" development
pathway (505(b)2), and begun to assemble the Investigational New Drug
application for propofol lingual spray. We expect to file an IND for propofol
lingual spray in the second half of 2004, assuming that no unusual findings are
made during the balance of the toxicology/pharmacology studies that will precede
the filing of the IND. Following IND allowance, we intend to initiate a Phase I
program in the United States. We expect the Phase I study will commence in 2005.

MARKET AND COMPETITION

According to estimates, the market for prescription anti-obesity drugs is
approximately $10 billion, or equal to that of diabetes. It is estimated that 61
percent of Americans are overweight and that 26 percent are obese. According to
the National Institute of Health's estimate, direct costs for the treatment of
obesity in 1988 were in excess of $45 billion and accounted for nearly 8 percent
of the total national cost of health care in the United States. By 1999, direct
costs for the treatment of obesity had reached $102.2 billion dollars.
Meridia(R) and Xenical(R), two currently approved anti-obesity medications,
together accounted for approximately $800 million in sales in 2001. We believe
that the disease currently lacks a treatment that is safe and effective for most
patient groups, and that oleoyl-estrone has the potential to meet the needs of
this market.

To date, Midazolam (now a generic), which is delivered both intravenously
and orally, has dominated the preprocedural sedation market, posting sales of
$536 million in 1999. However, serious adverse events are reported in
midazolam's package insert, including respiratory depression, airway
obstruction, oxygen desaturation, apnea and even respiratory arrest. In
contrast, at the doses being developed by us, we believe that Propofol Lingual
Spray may offer a safer, noninvasively administered alternative to midazolam.
Propofol's rapid onset profile will allow clinicians to more accurately time its
peak effects during procedures, as well as to determine the precise
concentration needed for desired levels of sedation.

Competition in the pharmaceutical industry, and the anti-obesity drug
market in particular, is intensely competitive. In addition to Abbott
Laboratories, Inc. and Roche Holdings AG, the makers of Meridia(R) and

Xenical,(R) respectively, some of the largest drug companies in the world have
anti-obesity drugs currently in development, including GlaxoSmithKline PLC,
Johnson & Johnson, Inc., Bristol-Myers Squibb Company, Regeneron Pharmaceutical,
Inc., Phytopharm, PLC, Amgen, Inc. These companies are all substantially larger
and more established than we are and have significantly greater financial and
other resources than we do.

INTELLECTUAL PROPERTY AND LICENSE AGREEMENTS

Our goal is to obtain, maintain and enforce patent protection for our
products, formulations, processes, methods and other proprietary technologies,
preserve our trade secrets, and operate without infringing on the proprietary
rights of other parties, both in the United States and in other countries. Our
policy is to actively seek to obtain, where appropriate, the broadest
intellectual property protection possible for our product candidates,
proprietary information and proprietary technology through a combination of
contractual arrangements and patents, both in the U.S. and elsewhere in the
world.

We also depend upon the skills, knowledge and experience of our scientific
and technical personnel, as well as that of our advisors, consultants and other
contractors, none of which is patentable. To help protect our proprietary
know-how which is not patentable, and for inventions for which patents may be
difficult to enforce, we rely on trade secret protection and confidentiality
agreements to protect our interests. To this end, we require all employees,
consultants, advisors and other contractors to enter into confidentiality
agreements which prohibit the disclosure of confidential information and, where
applicable, require disclosure and assignment to us of the ideas, developments,
discoveries and inventions important to our business.

Oleoyl-estrone License Agreement

Through Manhattan Research Development, our wholly-owned subsidiary, we
currently have worldwide, exclusive license rights to the U.S. and foreign
patents and patent applications set forth below pursuant to license agreements
with Oleoyl-estrone Developments, SL, a Spanish corporation, regarding the use
of oleoyl-estrone for the treatment of human disease:

1. US Patent No. 5,798,348 entitled "Fatty-acid monesters of estrogens
for the treatment of obesity and/or overweight." M. Alemany,
Inventor. Application filed, October 30, 1996. Patent issued August
25, 1998.

2. European Patent No. 771.817 entitled "Fatty-acid monoesters of
estrogens for the treatment of obesity and/or overweight." M.
Alemany, Inventor. Application filed, October 28, 1996. Patent
issued May 7, 1997.

3. Patent Cooperation Treaty and Spanish Patent Application No. ES
200100785 entitled "Fatty-acid monoesters of estrogens acting as
anti-diabetic and hypolipidemia agents." M. Alemany Lamana,
Francisco Javier Remesar Betiloch, and Jose Antonio Fernandez Lopez,
Inventors. Application filed March 28, 2001.

The U.S. and European patents have numerous, detailed, and specific claims
for both the composition of oleoyl-estrone, and its method of use for weight
loss. Our rights to these patents are subject to the terms of a February 2002
license agreement between us and Oleoyl-estrone Developments. The license
agreement provides us with an exclusive, worldwide right to the intellectual
property covered by the license agreement, including the right to grant
sublicenses.

In consideration for the license, we paid an initial license fee of
$175,000 and the license agreement provide for aggregate further cash payments
of $9,250,000, payable as follows: $250,000 payable upon treatment of the first
patient in a Phase I clinical trial under an IND sponsored by us; $250,000 upon
treatment of the first patient in a Phase II clinical trial; $750,000 upon the
first successful completion of a Phase II clinical trial; $2,000,000 upon the
first successful completion of a Phase III clinical trial; and $6,000,000 upon
the first final approval of a New Drug Application ("NDA") for oleoyl-estrone by
the FDA. The license agreement does not require us to make any royalty payments.

Propofol

Pursuant to the NovaDel license agreement, we have an exclusive, worldwide
license to NovaDel's proprietary lingual spray technology to deliver propofol
for preprocedural sedation prior to diagnostic, therapeutic or endoscopic
procedures. Our rights under the NovaDel License include license rights to the
following patents held by NovaDel:

1. U.S. Patent No. 5,955,098, entitled "Buccal Non Polar Spray or
Capsule." H.A. Dugger, III, Inventor. Application filed April 12,
1996. Patent issued September 21, 1999.

2. U.S. Patent No. 6,110,486, entitled "Buccal Polar Spray or Capsule."
H.A. Dugger, III, Inventor. Application filed November 25, 1998.
Patent issued August 29, 2000.

3. European Patent No. 0904055 entitled "Buccal, Non-Polar Spray or
Capsule." H.A. Dugger, III, Inventor. Application filed, February
21, 1997. Patent issued April 16, 2003.

In consideration for our rights under the NovaDel license agreement, we
paid NovaDel an initial license fee of $500,000 upon the completion of our $10
million private placement of Series A Convertible Preferred Stock in November
2003. In addition, the license agreement requires us to make certain milestone
payments as follows: $1,000,000 payable following the date that the first IND
for lingual spray propofol is accepted for review by the FDA; $1,000,000
following the date that the first European Marketing Application is accepted for
review by any European Union country; $2,000,000 following the date when the
first filed NDA for lingual spray propofol is approved by the FDA; $2,000,000
following the date when the first filed European Marketing Application for
lingual spray propofol is approved by a European Union country; $1,000,000
following the date on which an application for commercial approval of lingual
spray propofol is approved by the appropriate regulatory authority in each of
Australia, Canada, Japan and South Africa; and $50,000 following the date on
which an application for commercial approval for lingual spray propofol is
approved in any other country (other than the U.S. or a member of the European
Union).

In addition, we are obligated to pay NovaDel an annual royalty based on a
fixed rate of net sales of licensed products, or if greater, the annual royalty
is based on our net profits from the sale of licensed products of a rate that is
twice the net sales rate.

MANUFACTURING

We do not have any manufacturing capabilities. We have been in contact
with several contract "Good Manufacturing Process" (GMP) manufacturers for the
supply of both oleoyl-estrone and lingual spray propofol that will be necessary
to conduct Phase I human clinical trials. A method has been identified for
synthesizing oleoyl-estrone, and can be done through simple reactions that
produce the substance at above 99 percent purity. We believe that the production
of oleoyl-estrone will involve one contract manufacturer for clinical trials.
Bids are being received from multiple providers, so that provider redundancy can
be maintained during product launch.

GOVERNMENT REGULATION

Regulation by government authorities in the United States and foreign
countries is a significant factor in the research, development, manufacture, and
marketing of oleoyl-estrone and lingual spray propofol. Oleoyl-estrone and any
future product candidate will require regulatory approval before they can be
commercialized. In particular, human therapeutic products are subject to
rigorous preclinical and clinical trials and other premarket approval
requirements by the FDA and foreign authorities. Many aspects of the structure
and substance of the FDA and foreign pharmaceutical regulatory practices have
been reformed during recent years, and continued reform is under consideration
in a number of forums. The ultimate outcome and impact of such reforms and
potential reforms cannot be reasonably predicted.

Clinical trials are conducted in accordance with certain standards under
protocols that detail the objectives of the study, the parameters to be used to
monitor safety, and the efficacy criteria to be evaluated. Each protocol must be
submitted to the FDA. The phases of clinical studies may overlap. The
designation of a clinical trial as being of a particular phase is not
necessarily indicative that such a trial will be sufficient to satisfy the
parameters of a particular phase, and a clinical trial may contain elements of
more than one phase notwithstanding the designation of the trial as being of a
particular phase. We cannot assure you that the results of preclinical studies
or early stage clinical trials will predict long-term safety or efficacy of our
compounds when they are tested or used more broadly in humans. Various federal
and state statutes and regulations also govern or influence the research,
manufacture, safety, labeling, storage, record keeping, marketing, transport, or
other aspects of such products. The lengthy process of seeking these approvals
and the compliance with applicable statutes and regulations require the
expenditure of substantial resources. Any failure by us or our any future
collaborators or licensees to obtain, or any delay in obtaining, regulatory
approvals could adversely affect the marketing of our product candidates and any
other products and our ability to receive product or royalty revenue.

EMPLOYEES

We currently have 4 employees: a president & chief executive officer, a
chief financial officer & chief operating officer, a manager of clinical
development and an administrative assistant.

RISK FACTORS

An investment in our securities is speculative in nature, involves a high degree
of risk, and should not be made by an investor who cannot bear the economic risk
of its investment for an indefinite period of time and who cannot afford the
loss of its entire investment. You should carefully consider the following risk
factors and the other information contained elsewhere in this Annual Report
before making an investment in our securities.

RISKS RELATED TO OUR BUSINESS

WE CURRENTLY HAVE NO PRODUCT REVENUES AND WILL NEED TO RAISE ADDITIONAL CAPITAL
TO OPERATE OUR BUSINESS.

Until, and if, we receive approval from the U.S. Federal Drug
Administration or FDA, and other regulatory authorities for OE and future
product candidates, we cannot sell our drugs and will not have product revenues.
Therefore, for the foreseeable future, we will have to fund all of our
operations and capital expenditures from our cash on hand, licensing fees and
grants. We will therefore need additional sources of financing, which may not be
available on favorable terms, if at all. If we do not succeed in raising
additional funds on acceptable terms, we may be unable to complete planned
pre-clinical and clinical trials or obtain approval of our product candidates

from the FDA and other regulatory authorities. In addition, we could be forced
to discontinue product development, reduce or forego sales and marketing efforts
and forego attractive business opportunities. Any additional sources of
financing will likely involve the issuance of our equity securities, which will
have a dilutive effect on our stockholders.

WE ARE NOT CURRENTLY PROFITABLE AND MAY NEVER BECOME PROFITABLE.

We have a history of losses and expect to incur substantial losses and
negative operating cash flow for the foreseeable future, and we may never
achieve or maintain profitability. Even if we succeed in developing and
commercializing one or more of our product candidates, we expect to incur
substantial losses for the foreseeable future and may never become profitable.
We also expect to continue to incur significant operating and capital
expenditures and anticipate that our expenses will increase substantially in the
foreseeable future as we:

o continue to undertake pre-clinical development and clinical trials for our
product candidates; o seek regulatory approvals for our product candidates; o
implement additional internal systems and infrastructure; o lease additional or
alternative office facilities; and o hire additional personnel.

We also expect to experience negative cash flow for the foreseeable
future as we fund our operating losses and capital expenditures. As a result, we
will need to generate significant revenues in order to achieve and maintain
profitability. We may not be able to generate these revenues or achieve
profitability in the future. Our failure to achieve or maintain profitability
could negatively impact the value of our common stock.

WE HAVE A LIMITED OPERATING HISTORY UPON WHICH TO BASE AN INVESTMENT DECISION.

Manhattan Pharmaceuticals, Inc. is a development-stage company and has
not yet demonstrated any ability to perform the functions necessary for the
successful commercialization of OE or any other product candidates. The
successful commercialization of our product candidates will require us to
perform a variety of functions, including:

o continuing to undertake pre-clinical development and clinical
trials;
o participating in regulatory approval processes;
o formulating and manufacturing products; and
o conducting sales and marketing activities.

Since its inception, Manhattan Pharmaceuticals' operations have been
limited to organizing and staffing, and acquiring, developing and securing our
proprietary technology and undertaking pre-clinical trials of principal product
candidates. These operations provide a limited basis for you to assess our
ability to commercialize our product candidates and the advisability of
investing in our securities.

WE MAY NOT OBTAIN THE NECESSARY U.S. OR WORLDWIDE REGULATORY APPROVALS TO
COMMERCIALIZE OUR PRODUCT CANDIDATES.

We will need FDA approval to commercialize our product candidates in the
U.S. and approvals from the FDA equivalent regulatory authorities in foreign
jurisdictions to commercialize our product candidates in those jurisdictions. In
order to obtain FDA approval of any of our product candidates, we must submit to
the FDA a New Drug Application, or NDA, demonstrating that the product candidate
is safe for humans and effective for its intended use. This demonstration
requires significant research and animal tests, which are referred to as
pre-clinical studies, as well as human tests, which are referred to as clinical
trials. Satisfaction of the FDA's regulatory requirements typically takes many
years, depends upon the type, complexity and novelty of the product candidate
and requires substantial resources for research, development and testing. We
cannot predict whether our research and clinical approaches will result in drugs
that the FDA considers safe for humans and effective for indicated uses. The FDA

has substantial discretion in the drug approval process and may require us to
conduct additional pre-clinical and clinical testing or to perform
post-marketing studies. The approval process may also be delayed by changes in
government regulation, future legislation or administrative action or changes in
FDA policy that occur prior to or during our regulatory review. Delays in
obtaining regulatory approvals may:

o delay commercialization of, and our ability to derive product
revenues from, our product candidates;
o impose costly procedures on us; and
o diminish any competitive advantages that we may otherwise enjoy.

Even if we comply with all FDA requests, the FDA may ultimately reject one
or more of our NDAs. We cannot be sure that we will ever obtain regulatory
clearance for our product candidate. Failure to obtain FDA approval of any of
our product candidate will severely undermine our business by reducing our
number of salable products and, therefore, corresponding product revenues.

In foreign jurisdictions, we must receive approval from the appropriate
regulatory authorities before we can commercialize our drugs. Foreign regulatory
approval processes generally include all of the risks associated with the FDA
approval procedures described above. There can be no assurance that we will
receive the approvals necessary to commercialize our product candidate for sale
outside the United States.

CLINICAL TRIALS ARE VERY EXPENSIVE, TIME-CONSUMING AND DIFFICULT TO DESIGN AND
IMPLEMENT.

Human clinical trials are very expensive and difficult to design and
implement, in part because they are subject to rigorous regulatory requirements.
The clinical trial process is also time consuming. We estimate that clinical
trials of our product candidates will take at least several years to complete.
Furthermore, failure can occur at any stage of the trials, and we could
encounter problems that cause us to abandon or repeat clinical trials. The
commencement and completion of clinical trials may be delayed by several
factors, including:

o unforeseen safety issues;
o determination of dosing issues;
o lack of effectiveness during clinical trials;
o slower than expected rates of patient recruitment;
o inability to monitor patients adequately during or after treatment;
and
o inability or unwillingness of medical investigators to follow our
clinical protocols.

In addition, we or the FDA may suspend our clinical trials at any time if it
appears that we are exposing participants to unacceptable health risks or if the
FDA finds deficiencies in our IND submissions or the conduct of these trials.

THE RESULTS OF OUR CLINICAL TRIALS MAY NOT SUPPORT OUR PRODUCT CANDIDATE CLAIMS.

Even if our clinical trials are completed as planned, we cannot be certain
that their results will support our product candidate claims. Success in
pre-clinical testing and early clinical trials does not ensure that later
clinical trials will be successful, and we cannot be sure that the results of
later clinical trials will replicate the results of prior clinical trials and
pre-clinical testing. The clinical trial process may fail to demonstrate that
our product candidates are safe for humans and effective for indicated uses.
This failure would cause us to abandon a product candidate and may delay
development of other product candidates. Any delay in, or termination of, our
clinical trials will delay the filing of our NDAs with the FDA and, ultimately,
our ability to commercialize our product candidates and generate product
revenues. In addition, our clinical trials involve a small patient population.
Because of the small sample size, the results of these clinical trials may not
be indicative of future results.

PHYSICIANS AND PATIENTS MAY NOT ACCEPT AND USE OUR DRUGS.

Even if the FDA approves our product candidates, physicians and patients
may not accept and use them. Acceptance and use of our product will depend upon
a number of factors including:

o perceptions by members of the health care community, including
physicians, about the safety and effectiveness of our drugs;
o cost-effectiveness of our product relative to competing products;
o availability of reimbursement for our products from government or
other healthcare payers; and
o effectiveness of marketing and distribution efforts by us and our
licensees and distributors, if any.

Because we expect sales of our current product candidates, if approved, to
generate substantially all of our product revenues for the foreseeable future,
the failure of any of these drugs to find market acceptance would harm our
business and could require us to seek additional financing.

OUR DRUG-DEVELOPMENT PROGRAM DEPENDS UPON THIRD-PARTY RESEARCHERS WHO ARE
OUTSIDE OUR CONTROL.

We depend upon independent investigators and collaborators, such as
universities and medical institutions, to conduct our pre-clinical and clinical
trials under agreements with us. These collaborators are not our employees and
we cannot control the amount or timing of resources that they devote to our
programs. These investigators may not assign as great a priority to our programs
or pursue them as diligently as we would if we were undertaking such programs
ourselves. If outside collaborators fail to devote sufficient time and resources
to our drug-development programs, or if their performance is substandard, the
approval of our FDA applications, if any, and our introduction of new drugs, if
any, will be delayed. These collaborators may also have relationships with other
commercial entities, some of whom may compete with us. If our collaborators
assist our competitors at our expense, our competitive position would be harmed.

WE RELY EXCLUSIVELY ON THIRD PARTIES TO FORMULATE AND MANUFACTURE OUR PRODUCT
CANDIDATES.

We have no experience in drug formulation or manufacturing and do not
intend to establish our own manufacturing facilities. We lack the resources and
expertise to formulate or manufacture our own product candidates. We currently
have no contract for the manufacture of our product candidate. We intend to
contract with one or more manufacturers to manufacture, supply, store and

distribute drug supplies for our clinical trials. If any of our product
candidates receive FDA approval, we will rely on one or more third-party
contractors to manufacture our drugs. Our anticipated future reliance on a
limited number of third-party manufacturers, exposes us to the following risks:

o We may be unable to identify manufacturers on acceptable terms or at
all because the number of potential manufacturers is limited and the
FDA must approve any replacement contractor. This approval would
require new testing and compliance inspections. In addition, a new
manufacturer would have to be educated in, or develop substantially
equivalent processes for, production of our products after receipt
of FDA approval, if any.
o Our third-party manufacturers might be unable to formulate and
manufacture our drugs in the volume and of the quality required to
meet our clinical needs and commercial needs, if any.
o Our future contract manufacturers may not perform as agreed or may
not remain in the contract manufacturing business for the time
required to supply our clinical trials or to successfully produce,
store and distribute our products.
o Drug manufacturers are subject to ongoing periodic unannounced
inspection by the FDA, the DEA, and corresponding state agencies to
ensure strict compliance with good manufacturing practice and other
government regulations and corresponding foreign standards. We do
not have control over third-party manufacturers' compliance with
these regulations and standards.
o If any third-party manufacturer makes improvements in the
manufacturing process for our products, we may not own, or may have
to share, the intellectual property rights to the innovation.

Each of these risks could delay our clinical trials, the approval, if any
of our product candidates by the FDA or the commercialization of our product
candidates or result in higher costs or deprive us of potential product
revenues.

WE HAVE NO EXPERIENCE SELLING, MARKETING OR DISTRIBUTING PRODUCTS AND NO
INTERNAL CAPABILITY TO DO SO.

We currently have no sales, marketing or distribution capabilities. We do
not anticipate having the resources in the foreseeable future to allocate to the
sales and marketing of its proposed products. Our future success depends, in
part, on our ability to enter into and maintain such collaborative
relationships, the collaborator's strategic interest in the products under
development and such collaborator's ability to successfully market and sell any
such products. We intend to pursue collaborative arrangements regarding the
sales and marketing of our products, however, there can be no assurance that we
will be able to establish or maintain such collaborative arrangements, or if
able to do so, that they will have effective sales forces. To the extent that we
decide not to, or are unable to, enter into collaborative arrangements with
respect to the sales and marketing of its proposed products, significant capital
expenditures, management resources and time will be required to establish and
develop an in-house marketing and sales force with technical expertise. There
can also be no assurance that we will be able to establish or maintain
relationships with third party collaborators or develop in-house sales and
distribution capabilities. To the extent that we depend on third parties for
marketing and distribution, any revenues we receive will depend upon the efforts
of such third parties, and there can be no assurance that such efforts will be
successful. In addition, there can also be no assurance that we will be able to
market and sell our product in the United States or overseas.

IF WE CANNOT COMPETE SUCCESSFULLY FOR MARKET SHARE AGAINST OTHER DRUG COMPANIES,
WE MAY NOT ACHIEVE SUFFICIENT PRODUCT REVENUES AND OUR BUSINESS WILL SUFFER.

The market for our product candidates is characterized by intense
competition and rapid technological advances. If our product candidates receive
FDA approval, they will compete with a number of existing and future drugs and
therapies developed, manufactured and marketed by others. Existing or future

competing products may provide greater therapeutic convenience or clinical or
other benefits for a specific indication than our products, or may offer
comparable performance at a lower cost. If our products fail to capture and
maintain market share, we may not achieve sufficient product revenues and our
business will suffer.

We will compete against fully integrated pharmaceutical companies and
smaller companies that are collaborating with larger pharmaceutical companies,
academic institutions, government agencies and other public and private research
organizations. Many of these competitors have product candidates that will
compete with ours already approved or in development. In addition, many of these
competitors, either alone or together with their collaborative partners, operate
larger research and development programs and have substantially greater
financial resources than we do, as well as significantly greater experience in:

o developing drugs;
o undertaking pre-clinical testing and human clinical trials; o obtaining
FDA and other regulatory approvals of drugs; o formulating and
manufacturing drugs; and o launching, marketing and selling drugs.

DEVELOPMENTS BY COMPETITORS MAY RENDER OUR PRODUCTS OR TECHNOLOGIES OBSOLETE OR
NON-COMPETITIVE.

Companies that currently sell both generic and proprietary anti-obesity
compounds formulations include among others Abbot Laboratories, Inc., Amgen,
Inc., and Regeneron Pharmaceuticals, Inc. Alternative technologies are being
developed to treat obesity and overweight disease, several of which are in
advanced clinical trials. In addition, companies pursuing different but related
fields represent substantial competition. Many of these organizations competing
with us have substantially greater capital resources, larger research and
development staffs and facilities, longer drug development history in obtaining
regulatory approvals and greater manufacturing and marketing capabilities than
we do. These organizations also compete with us to attract qualified personnel,
parties for acquisitions, joint ventures or other collaborations.

IF WE FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS OR
SECURE RIGHTS TO PATENTS OF OTHERS, THE VALUE OF OUR INTELLECTUAL PROPERTY
RIGHTS WOULD DIMINISH.

Our success, competitive position and future revenues will depend in part
on our ability and the abilities of our licensors to obtain and maintain patent
protection for our products, methods, processes and other technologies, to
preserve our trade secrets, to prevent third parties from infringing on our
proprietary rights and to operate without infringing the proprietary rights of
third parties.

To date, we hold the exclusive licenses to certain patent rights,
including rights under U.S. patents and U.S. patent applications, as well as
rights under foreign patents and patent applications. We anticipate filing
additional patent applications both in the U.S. and in other countries, as
appropriate. However, we cannot predict:

o the degree and range of protection any patents will afford us
against competitors including whether third parties will find ways
to invalidate or otherwise circumvent our patents;
o if and when patents will issue;
o whether or not others will obtain patents claiming aspects similar
to those covered by our patents and patent applications; or

o whether we will need to initiate litigation or administrative
proceedings which may be costly whether we win or lose.

Our success also depends upon the skills, knowledge and experience of our
scientific and technical personnel, our consultants and advisors as well as our
licensors and contractors. To help protect our proprietary know-how and our
inventions for which patents may be unobtainable or difficult to obtain, we rely
on trade secret protection and confidentiality agreements. To this end, we
require all of our employees, consultants, advisors and contractors to enter
into agreements which prohibit the disclosure of confidential information and,
where applicable, require disclosure and assignment to us of the ideas,
developments, discoveries and inventions important to our business. These
agreements may not provide adequate protection for our trade secrets, know-how
or other proprietary information in the event of any unauthorized use or
disclosure or the lawful development by others of such information. If any of
our trade secrets, know-how or other proprietary information is disclosed, the
value of our trade secrets, know-how and other proprietary rights would be
significantly impaired and our business and competitive position would suffer.

IF WE INFRINGE THE RIGHTS OF THIRD PARTIES WE COULD BE PREVENTED FROM SELLING
PRODUCTS, FORCED TO PAY DAMAGES, AND DEFEND AGAINST LITIGATION.

If our products, methods, processes and other technologies infringe the
proprietary rights of other parties, we could incur substantial costs and we may
have to:

o obtain licenses, which may not be available on commercially
reasonable terms, if at all;
o redesign our products or processes to avoid infringement;
o stop using the subject matter claimed in the patents held by others;
o pay damages; or
o defend litigation or administrative proceedings which may be costly
whether we win or lose, and which could result in a substantial
diversion of our valuable management resources.

OUR ABILITY TO GENERATE PRODUCT REVENUES WILL BE DIMINISHED IF OUR DRUGS SELL
FOR INADEQUATE PRICES OR PATIENTS ARE UNABLE TO OBTAIN ADEQUATE LEVELS OF
REIMBURSEMENT.

Our ability to commercialize our drugs, alone or with collaborators, will
depend in part on the extent to which reimbursement will be available from:

o government and health administration authorities;
o private health maintenance organizations and health insurers; and
o other healthcare payers.

Significant uncertainty exists as to the reimbursement status of newly
approved healthcare products. Healthcare payers, including Medicare, are
challenging the prices charged for medical products and services. Government and
other healthcare payers increasingly attempt to contain healthcare costs by
limiting both coverage and the level of reimbursement for drugs. Even if our
product candidates are approved by the FDA, insurance coverage may not be
available, and reimbursement levels may be inadequate, to cover our drugs. If
government and other healthcare payers do not provide adequate coverage and
reimbursement levels for any of our products, once approved, market acceptance
of our products could be reduced.

WE MAY NOT SUCCESSFULLY MANAGE OUR GROWTH.

Our success will depend upon the expansion of our operations and the
effective management of our growth, which will place a significant strain on our
management and on our administrative, operational and financial resources. To
manage this growth, we must expand our facilities, augment our operational,
financial and management systems and hire and train additional qualified
personnel. If we are unable to manage our growth effectively, our business would
be harmed.

WE MAY BE EXPOSED TO LIABILITY CLAIMS ASSOCIATED WITH THE USE OF HAZARDOUS
MATERIALS AND CHEMICALS.

Our research and development activities may involve the controlled use of
hazardous materials and chemicals. Although we believe that our safety
procedures for using, storing, handling and disposing of these materials comply
with federal, state and local laws and regulations, we cannot completely
eliminate the risk of accidental injury or contamination from these materials.
In the event of such an accident, we could be held liable for any resulting
damages and any liability could materially adversely effect our business,
financial condition and results of operations. In addition, the federal, state
and local laws and regulations governing the use, manufacture, storage, handling
and disposal of hazardous or radioactive materials and waste products may
require us to incur substantial compliance costs that could materially adversely
effect our business, financial condition and results of operations.

WE RELY ON KEY EXECUTIVE OFFICERS AND SCIENTIFIC AND MEDICAL ADVISORS, AND THEIR
KNOWLEDGE OF OUR BUSINESS AND TECHNICAL EXPERTISE WOULD BE DIFFICULT TO REPLACE.

We are highly dependent on our principal scientific, regulatory and
medical advisors. We do not have "key person" life insurance policies for any of
our officers. The loss of the technical knowledge and management and industry
expertise of any of our key personnel could result in delays in product
development, loss of customers and sales and diversion of management resources,
which could adversely affect our operating results.

IF WE ARE UNABLE TO HIRE ADDITIONAL QUALIFIED PERSONNEL, OUR ABILITY TO GROW OUR
BUSINESS MAY BE HARMED.

We will need to hire additional qualified personnel with expertise in
pre-clinical testing, clinical research and testing, government regulation,
formulation and manufacturing and sales and marketing. We compete for qualified
individuals with numerous biopharmaceutical companies, universities and other
research institutions. Competition for such individuals, particularly in the New
York City area, is intense, and we cannot be certain that our search for such
personnel will be successful. Attracting and retaining qualified personnel will
be critical to our success.

WE MAY INCUR SUBSTANTIAL LIABILITIES AND MAY BE REQUIRED TO LIMIT
COMMERCIALIZATION OF OUR PRODUCTS IN RESPONSE TO PRODUCT LIABILITY LAWSUITS.

The testing and marketing of medical products entail an inherent risk of
product liability. If we cannot successfully defend ourselves against product
liability claims, we may incur substantial liabilities or be required to limit
commercialization of our products. Our inability to obtain sufficient product
liability insurance at an acceptable cost to protect against potential product
liability claims could prevent or inhibit the commercialization of
pharmaceutical products we develop, alone or with corporate collaborators. We
currently do not carry clinical trial insurance or product liability insurance.
Although we intend to obtain clinical trial insurance prior to the commencement

of any clinical trials, we, or any corporate collaborators, may not be able to
obtain insurance at a reasonable cost, if at all. Even if our agreements with
any future corporate collaborators entitle us to indemnification against losses,
such indemnification may not be available or adequate should any claim arise.

WE ARE CONTROLLED BY CURRENT OFFICERS, DIRECTORS AND PRINCIPAL STOCKHOLDERS.

Our directors, executive officers and principal stockholders beneficially
own approximately 53 percent of our outstanding common stock. Accordingly, these
persons and their respective affiliates will have the ability to exert
substantial influence over the election of our Board of Directors and the
outcome of issues submitted to our stockholders.

RISKS RELATED TO OUR SECURITIES

THE ILLIQUIDITY OF THE MARKET FOR OUR COMMON STOCK COULD ADVERSELY AFFECT OUR
ABILITY TO RAISE FUNDS.

Since being delisted from the Nasdaq SmallCap Market in August 2001,
trading in our securities has been conducted on the National Association of
Securities Dealers' Over-the-Counter Bulletin Board, or "OTC Bulletin Board."
This has adversely effected the liquidity of our securities, not only in terms
of the number of securities that can be bought and sold at a given price, but
also through delays in the timing of transactions and reduction in security
analysts' and the media's coverage of us. This may result in lower prices for
our securities than might otherwise be obtained and could also result in a
larger spread between the bid and asked prices for our securities. In addition,
our delisting could adversely affect our ability to raise funds.

In addition, our common stock is a "penny stock." Broker-dealers who sell
penny stocks must provide purchasers of these stocks with a standardized
risk-disclosure document prepared by the SEC. This document provides information
about penny stocks and the nature and level of risks involved in investing in
the penny-stock market. A broker must also give a purchaser, orally or in
writing, bid and offer quotations and information regarding broker and
salesperson compensation, make a written determination that the penny stock is a
suitable investment for the purchaser, and obtain the purchaser's written
agreement to the purchase. The penny stock rules may make it difficult for you
to sell your shares of our stock. Because of the rules, there is less trading in
penny stocks. Also, many brokers choose not to participate in penny-stock
transactions.

OUR STOCK PRICE IS, AND WE EXPECT IT TO REMAIN, VOLATILE, WHICH COULD LIMIT
INVESTORS' ABILITY TO SELL STOCK AT A PROFIT.

During the last two fiscal years, our stock price has traded at a low of
$0.05 (in the fourth quarter of 202) to a high of $2.50 (in the third quarter of
2003). The volatile price of our stock makes it difficult for investors to
predict the value of their investment, to sell shares at a profit at any given
time, or to plan purchases and sales in advance. A variety of factors may affect
the market price of our common stock. These include, but are not limited to:

o publicity regarding actual or potential clinical results relating to
products under development by our competitors or us;
o delay or failure in initiating, completing or analyzing pre-clinical
or clinical trials or the unsatisfactory design or results of these
trials;
o achievement or rejection of regulatory approvals by our competitors
or us;
o announcements of technological innovations or new commercial
products by our competitors or us;
o developments concerning proprietary rights, including patents;
o developments concerning our collaborations;
o regulatory developments in the United States and foreign countries;
o economic or other crises and other external factors;

o period-to-period fluctuations in our revenues and other results of
operations;
o changes in financial estimates by securities analysts; and
o sales of our common stock.

We will not be able to control many of these factors, and we believe that
period-to-period comparisons of our financial results will not necessarily be
indicative of our future performance.

In addition, the stock market in general, and the market for biotechnology
companies in particular, has experienced extreme price and volume fluctuations
that may have been unrelated or disproportionate to the operating performance of
individual companies. These broad market and industry factors may seriously harm
the market price of our common stock, regardless of our operating performance.

TRADING IN OUR STOCK OVER THE LAST 12 MONTHS HAS BEEN LIMITED, SO INVESTORS MAY
NOT BE ABLE TO SELL AS MUCH STOCK AS THEY WANT AT PREVAILING PRICES.

The daily trading volume of our common stock is very small. If limited
trading in our stock continues, it may be difficult for investors to sell their
shares in the public market at any given time at prevailing prices. Also, the
sale of a large block of our securities could depress the price of our
securities to a greater degree than a company that typically has higher volume
of trading of securities.

WE HAVE NEVER PAID DIVIDENDS.

We have never paid dividends on our capital stock and do not anticipate
paying any dividends for the foreseeable future. Accordingly, the only time you
will realize a return, if any, on an investment in our common stock is when you
sell your shares at a higher price than the price at which you purchased the
shares.

ITEM 2. LEGAL PROCEEDINGS

We are not a party to any material legal proceedings.

ITEM 3. DESCRIPTION OF PROPERTY

Our executive offices are located at 787 Seventh Avenue, 48th Floor, New
York, New York 10119. We currently occupy this space pursuant to an oral
understanding under which we pay rent of approximately $6,400 per month. We are
currently negotiating a longer-term written lease with our landlord and we
anticipate our monthly rental payments to remain at the current amount.

We believe that our existing facilities are adequate to meet our current
requirements. We do not own any real property.

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

During the fourth quarter of our fiscal year ended December 31, 2003,
there were no matters submitted to a vote of our stockholders.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET FOR COMMON STOCK

Our common stock is quoted on the Over-the-Counter Bulletin Board, or "OTC
Bulletin Board" under the symbol "MHTT.OB." The following table lists the high
and low price for our common stock as quoted, in U.S. dollars, on the OTC
Bulletin Board during each quarter within the last two fiscal years:

PRICE RANGE
-----------------------------------------
2003 2002
------------------- -------------------
QUARTER ENDED HIGH LOW HIGH LOW
-------------------------- -------- -------- -------- --------
March 31 $ 0.850 $ 0.250 $ 0.300 $ 0.160
June 30 1.650 0.600 0.340 0.120
September 30 2.500 1.100 0.190 0.100
December 31 2.000 1.200 0.170 0.050

The quotations from the OTC Bulletin Board reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.

RECORD HOLDERS

The number of holders of record of our common stock as of March 26, 2004
was 494.

DIVIDENDS

We have not paid or declared any dividends on our common stock and we do
not anticipate paying dividends on our common stock in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES

In November 2003, we sold 1,000,000 shares of our newly-designated Series
A Convertible Preferred Stock at a total offering price of $10,000,000. Each
share of Series A Convertible Preferred Stock is convertible into approximately
9.1 shares of common stock. We engaged Maxim Group LLC and, indirectly,
Paramount BioCapital, Inc. as placement agents and paid aggregate commissions of
$700,000, plus non-accountable expenses of $150,000. We also issued to the
placement agents warrants to purchase an aggregate of 909,090 shares of common
stock at a price of $1.10 per share. The offer and sale of the Series A
Convertible Preferred Stock and the placement agent warrants did not involve a
public offering and was made solely to "accredited investors," and was,
therefore, exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) and Rule 506 promulgated thereunder.

On January 13, 2004, we completed a private placement of 3,368,637 shares
of our common stock at a per share price of $1.10. After deducting commissions
and other expenses relating to the private placement, we received net proceeds
of approximately $3,444,000. We also issued to the placement agent engaged in
connection with the private placement a 5-year warrant to purchase 336,864
shares of common stock at a price of $1.10 per share. The financing was
completed by Paramount BioCapital, Inc. of New York.

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

OVERVIEW

We are a development stage biopharmaceutical company that holds an
exclusive world-wide, royalty-free license to certain intellectual property
related to oleoyl-estrone, which is owned by Oleoyl-Estrone Developments, SL
("OED") of Barcelona, Spain. Oleoyl-estrone is an orally administered small
molecule that has been shown to cause significant weight loss in pre-clinical
animal studies regardless of dietary modifications. We also hold the worldwide,
exclusive rights to proprietary lingual spray technology to deliver the drug
propofol for proprocedural sedation prior to diagnostic, therapeutic or
endoscopic procedures.

You should read the following discussion of our results of operations and
financial condition in conjunction with the consolidated financial statements
and notes thereto appearing elsewhere in this Form 10-KSB. This discussion
includes "forward-looking" statements that reflect our current views with
respect to future events and financial performance. We use words such as we
"expect," "anticipate," "believe," and "intend" and similar expressions to
identify forward-looking statements. Investors should be aware that actual
results may differ materially from our expressed expectations because of risks
and uncertainties inherent in future events, particularly those risks identified
under the heading "Risk Factors" following Item 1 in this Annual Report, and
should not unduly rely on these forward looking statements. All share and per
share information in this discussion has been adjusted for the 1-for-5
combination of our common stock effected on September 25, 2003.

RESULTS OF OPERATIONS

2003 VERSUS 2002

During each of the years ended December 31, 2003 and 2002, we had no
revenue.

For the year ended December 31, 2003, research and development expense was
$1,724,043 as compared to $700,798 for the year ended December 31, 2002. The
increase of $1,023,245 is due in part to an acceleration of pre-clinical and
clinical development for product candidates, oleoyl-estrone and propofol lingual
spray of approximately $256,000. Related research and development consulting
increased by approximately $267,000. In addition, in connection with our license
agreement with NovaDel Pharma Inc., we made license payments of $500,000 in 2003
which we did not have in 2002.

For the year ended December 31, 2003, general and administrative expense
was $1,786,080 as compared to $317,384 for the year ended December 31, 2002. The
increase of $1,468,696 is due primarily to expenses associated with hiring full
time employees and consultants of approximately $572,000 and $261,000,
respectively. In addition, we had increases in legal and accounting fees of
approximately $220,000 associated with becoming subject to the reporting
obligations under the Exchange Act following completion of the Atlantic

Technology Ventures, Inc. - Manhattan Research Development, Inc. merger in
February 2003. Insurance, recruiters fees, travel, transfer agent fees and other
expenses increased by approximately $144,000, $46,000, $32,000, $28,000 and
$21,000, respectively. Finally, in 2003, we had amortization of intangible
assets of approximately $145,000.

Net loss for the year ended December 31, 2003, was $5,960,907 as compared
to $1,037,320 for the year ended December 31, 2002. This increase in net loss is
attributable to the factors described above and to a loss on the disposition of
intangible assets as a result of our sale of our remaining rights to CT-3 to
Indevus Pharmaceuticals, Inc. of $1,213,878 as well as an impairment of
intangible assets of $1,248,230 as a result of a decision by Bausch & Lomb not
to pursue the Avantix cataract removal technology.

2002 VERSUS 2001

We had no revenue during the year ended December 31, 2002 and from August
6, 2001 (date of inception) through December 31, 2001.

For the year ended December 31, 2002, research and development expense was
$700,798 as compared to $24,599 during 2001. The increase of $676,199 is due to
the fact that substantially all of the pre-clinical work was done in 2002. In
addition, we paid license fees of $175,000 in connection with our licensing
exclusive world wide rights to our product candidate oleoyl-estrone to
Oleoyl-estrone Developments, Inc in 2002.

For the year ended December 31, 2002, general and administrative expense
was $317,384 as compared to $32,197 for 2001. This increase of $285,187 was
primarily due to various activities that occurred in 2002 including the
following: recruiting fees in connection with recruiting management, office
service fees, accounting fees for the audits, patent review and other due
diligence expenses.

Interest expense was $19,138 for the year ended December 30, 2002 compared
to zero in 2001. This increase was caused by bank loans entered into in 2002.
The proceeds of the bank loans were used for general corporate purposes. The
loans were repaid in full in December, 2003.

Net loss for the year ended December 31, 2002 was $1,037,320 as compared
to $56,796 for the interim period of 2001. This increase in net loss is
primarily due to an increase in research and development expenses of $645,562.
In addition, we had an increase in general and administrative expenses of
$315,824 and an increase in interest expense of $19,138.

LIQUIDITY AND CAPITAL RESOURCES

From inception to December 31, 2003, we incurred an accumulated deficit of
$7,473,205, and we expect to continue to incur additional losses through the
year ending December 31, 2004 and for the foreseeable future. These losses have
been incurred through a combination of research and development activities
related to the various technologies under our control and expenses supporting
those activities.

During 2002, our subsidiary, Manhattan Research Development, Inc.
("Manhattan Research") sold 239,450 shares of common stock in a private
placement at $8 ($0.63 post merger) per share and received proceeds of
$1,704,318, net of expenses of $211,181. These shares converted into 3,043,332
shares of our common stock when we completed a reverse acquisition of Atlantic
Technology Ventures as described below. In addition, each investor received
warrants equal to 10% of the number of shares of common stock purchased and,

accordingly, Manhattan Research issued warrants to purchase 23,945 shares of
common stock in 2002 in connection with the private placement. Upon the merger,
the warrants converted into the right to purchase 304,333 shares of our common
stock at a price of $0.63 per share. These warrants expire in 2007.

During January and February 2003, Manhattan Research sold an additional
104,000 shares of common stock at $8 ($0.63, post merger) per share and warrants
to purchase 10,400 shares of common stock exercisable at $8 ($0.63 post merger)
through the private placement and received net proceeds of $743,691. These
shares converted into 1,321,806 shares of our common stock when we completed our
reverse acquisition of Manhattan Research. The warrants to purchase 10,400
shares of common stock converted into warrants to purchase 132,181 common shares
of the combined Company.

In addition, in connection with the private placement, Manhattan Research
issued to Joseph Stevens & Co., Inc., the placement agent, warrants to purchase
130,511 shares of its common stock that are exercisable at $8 ($0.63 post
merger) per share and expire in 2008. Upon the merger, these warrants converted
into warrants to purchase 1,658,753 shares of common stock of the combined
Company.

We have financed our operations since inception primarily through equity
and debt financing and our licensing and sale of residual royalty rights of CT-3
to Indevus. During the year ended December 31, 2003, we had a net increase in
cash and cash equivalents of $5,692,680. This increase primarily resulted from
net cash provided by financing activities of $8,983,566 offset by net cash used
in operating activities of $3,451,525 for the year ended December 31, 2003.
Total cash resources as of December 31, 2003 were $7,413,803 compared to
$1,721,123 at December 31, 2002.

On February 21, 2003, we completed a reverse acquisition of privately held
Manhattan Research Development, Inc., (formerly Manhattan Pharmaceuticals, Inc.)
(Manhattan Research) a Delaware corporation. The merger was effected pursuant to
an Agreement and Plan of Merger dated December 17, 2002 (the "Merger Agreement")
by and among the Company, Manhattan Research and Manhattan Pharmaceuticals
Acquisition Corp, the Company's wholly owned subsidiary ("MPAC"). In accordance
with the terms of the Merger Agreement, MPAC merged with and into Manhattan
Research, with Manhattan Research remaining as the surviving corporation and our
wholly owned subsidiary. Pursuant to the Merger Agreement, upon the effective
time of the merger, the outstanding shares of common stock of Manhattan Research
automatically converted into an aggregate of 18,689,917 shares of our common
stock, which represented 80 percent of our outstanding voting stock after giving
effect to the merger. In addition, immediately prior to the merger Manhattan
Research had outstanding options and warrants to purchase an aggregate of
172,856 shares of its common stock, which, in accordance with the terms of the
merger, automatically converted into options and warrants to purchase an
aggregate of 2,196,944 shares of our common stock. Since the stockholders of
Manhattan Research received the majority of our voting shares, the merger was
being accounted for as a reverse acquisition whereby Manhattan Research was the
accounting acquirer (legal acquiree) and we were the accounting acquiree (legal
acquirer). Based on the five-day average price of our common stock of $0.50 per
share, the purchase price approximated $2,336,000 ($3,167,178 including net
liabilities assumed), which represents 20 percent of the market value of our
post-merger total outstanding shares of 23,362,396. In connection with the
merger, we changed our name from "Atlantic Technology Ventures, Inc." to
"Manhattan Pharmaceuticals, Inc." At the time of the merger, Manhattan Research
recognized patents and licenses for substantially all of the purchase price. As
a result of acquiring Manhattan Research, the Company received new technologies.
A formal purchase price allocation was completed in the third quarter of 2003.

On November 7, 2003, we completed a private placement of 1,000,000 shares
of our newly-designated Series A Convertible Preferred Stock at a price of $10
per share, resulting in gross proceeds to us of $10,000,000. Each share of
Series A Convertible Preferred Stock is convertible at the holder's election
into shares of our common stock at a conversion price of $1.10 per share. The
conversion price of the Series A Convertible Preferred Stock was less than the

market value of our common stock on November 7, 2003. Accordingly, we recorded a
charge for the beneficial conversion feature associated with the convertible
preferred stock of $418,182.

Under an equity-line-of-credit arrangement, Fusion Capital has committed
to purchasing $6,000,000 of our common stock. Our stock price is currently below
the $3.40 minimum required in order for us to be able to sell shares of our
common stock to Fusion, but if in the future our stock price exceeds this
minimum, we may elect to sell shares of our common stock to Fusion under the
equity-line-of-credit arrangement. In addition, in November 2001, Fusion Capital
waived the $3.40 minimum and purchased from us under the equity-line-of-credit
arrangement 83,333 shares of our common stock at a price per share of $1.20,
representing an aggregate purchase price of $100,000. Fusion Capital again
waived the $3.40 minimum in May 2002 and purchased 2,000 shares of common stock
for an aggregate purchase price of $1,667.

The purchase price for the common stock to be issued to Fusion Capital
under our equity-line-of credit arrangement with Fusion Capital will fluctuate
based on the closing price of our common stock. Fusion Capital may at any time
sell none, some or all of the shares of common stock purchased from us.
Depending upon market liquidity at the time, sale by Fusion of shares we issue
to them could cause the trading price of our common stock to decline. Sale of a
substantial number of shares of our common stock by Fusion, or anticipation of
such sales, could make it more difficult for us to sell equity or equity related
securities in the future at a time and at a price that it might otherwise wish
to effect sales. We currently have no plans to seek financing under this
arrangement.

In April 2003, we entered into a license and development agreement with
NovaDel Pharma, Inc. ("NovaDel"), under which we received certain worldwide,
exclusive rights to develop and commercialize products related to NovaDel's
proprietary lingual spray technology for delivering propofol for pre-procedural
sedation. Under the terms of this agreement, we agreed to use our commercially
reasonable efforts to develop and commercialize the licensed products, to obtain
necessary regulatory approvals and to thereafter exploit the licensed products.
The agreement also provides that NovaDel will undertake to perform, at our
expense, a substantial portion of the development activities, including without
limitation, preparation and filing of various applications with applicable
regulatory authorities.

In consideration of the license, we are required to make certain license
and milestone payments. Specifically, we were required to pay a $500,000 license
fee at such time as we had completed a financing transaction resulting in
aggregate gross proceeds of at lease $10,000,000. Accordingly, upon completion
of our sale of $10,000,000 of our Series A Convertible Preferred Stock in
November 2003, we paid and expensed the $375,000 balance of the license fee.

We are also required to make various milestone payments to NovaDel under
the license agreement as follows: $1,000,000 payable following the date that the
first IND for lingual spray propofol is accepted for review by the FDA;
$1,000,000 following the date that the first European Marketing Application is
accepted for review by any European Union country; $2,000,000 following the date
when the first filed NDA for lingual spray propofol is approved by the FDA;
$2,000,000 following the date when the first filed European Marketing
Application for lingual spray propofol is approved by a European Union country;
$1,000,000 following the date on which an application for commercial approval of
lingual spray propofol is approved by the appropriate regulatory authority in
each of Australia, Canada, Japan and South Africa; and $50,000 following the
date on which an application for commercial approval for lingual spray propofol
is approved in any other country (other than the U.S. or a member of the
European Union).

In addition, we are obligated to pay to NovaDel an annual royalty based on
a fixed rate of net sales of licensed products, or if greater, the annual
royalty is based on our net profits from the sale of licensed products at a rate
that is twice the net sales rate. In the event we sublicense the licensed
product to a third party, we are obligated to pay royalties based on a fixed

rate of fees or royalties received from the sublicensee until such time as we
recover our out-of-pocket costs, and thereafter the royalty rate doubles.
Because of the continuing development efforts required of NovaDel under the
agreement, the royalty rates are substantially higher than customary for the
industry.

NovaDel may terminate the agreement (i) upon 10 days' notice if we fail to
make any required milestone or royalty payments, or (ii) if we become bankrupt
or if a petition in bankruptcy or insolvency is filed and not dismissed within
60 days or if we become subject to a receiver or trustee for the benefit of
creditors. Each party may terminate the agreement upon 30 days' written notice
and an opportunity to cure in the event the other party committed a material
breach or default. We may also terminate the agreement for any reason upon 90
days' notice to NovaDel.

Our available working capital and capital requirements will depend upon
numerous factors, including progress of our research and development programs,
our progress in and the cost of ongoing and planned pre-clinical and clinical
testing, the timing and cost of obtaining regulatory approvals, the cost of
filing, prosecuting, defending, and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
changes in our existing collaborative and licensing relationships, the resources
that we devote to developing manufacturing and commercializing capabilities,
technological advances, the status of our competitors, our ability to establish
collaborative arrangements with other organizations and our need to purchase
additional capital equipment.

Our continued operations will depend on whether we are able to raise
additional funds through various potential sources, such as equity and debt
financing, other collaborative agreements, strategic alliances, and our ability
to realize the full potential of our technology in development. Such additional
funds may not become available on acceptable terms and there can be no assurance
that any additional funding that the we do obtain will be sufficient to meet our
needs in the long term. Through December 31, 2003, a significant portion of our
financing has been through private placements of common stock and warrants and
debt financing. Unless our operations generate significant revenues, we will
continue to fund operations from cash on hand and through the similar sources of
capital previously described. We can give no assurances that any additional
capital that we are able to obtain will be sufficient to meet our needs.
Management believes that we will continue to incur net losses for the foreseable
future. Based on the resources available to us at December 31, 2003, management
believes that we will need additional equity or debt financing or will need to
generate revenues during 2005 through licensing our products or entering into
strategic alliances to be able to sustain our operations through 2005 until we
can achieve profitability, if ever.

RESEARCH AND DEVELOPMENT PROJECTS

OLEOYL-ESTRONE

In December 2003, we submitted to the FDA a pre Investigational New Drug
("IND") information package about our oleoyl-estrone development program.
Utilizing the FDA's review of the pre-IND application, we have completed the
design of the balance of the preclinical program for oleoyl-estrone, and are
currently assembling the IND application while we complete the remaining
toxicology and pharmacology studies. We expect to file the IND application by
the end of 2004, assuming no unexpected findings are made during the balance of
the preclinical studies. Following the FDA's allowance of our IND application,
we intend to immediately begin the Phase I human program in the United States in
2005. Under our license agreement with Oleoyl-Estrone Developments, we will be
required to make a $250,000 milestone payment upon the treatment of the first
patient in a Phase I trial. Given the uncertainties inherent in early human
clinical trials, it is difficult to predict with accuracy when the Phase I
program will be completed and, consequently, the timing of subsequent clinical
trial programs and any eventual approval by the FDA,.

To date, we have incurred $1,481,451 of project costs related to our
development of oleoyl-estrone, of which $756,054 was incurred in fiscal 2003.
Currently, we anticipate that we will need to expend approximately an additional
$1,500,000 to $2,500,000 in development costs in fiscal 2004. Since
oleoyl-estrone is regarded by the FDA as a new entity, we are not currently able
to predict the size and the design of the Phase I study at this time and,
accordingly, we cannot currently estimate the total costs of completing
development of oleoyl-estrone.

Although we currently have sufficient capital to fund our anticipated 2004
R&D expenditures relating to oleoyl-estrone, we will need additional raise
capital from debt financings or by selling shares of our capital stock in order
to complete the anticipated five or six year development program for the
product. If we are unable to raise such additional capital, we may have to
sublicense our rights to oleoyl-estrone to a third party as a means of
continuing development, or, although less likely, we may be required to abandon
further development efforts altogether, either of which would have a material
adverse effect on the prospects of our business.

In addition to raising additional capital, whether we are successful in
developing oleoyl-estrone is dependent on numerous other factors, including
unforeseen safety issues, lack of effectiveness, significant unforeseen delays
in the clinical trial and regulatory approval process, both of which could be
extremely costly, and inability to monitor patients adequately before and after
treatments. See also "Item 1. Description of Business - Risk Factors" in this
Form 10-KSB. The existence of any of these factors could increase our
development costs or make successful completion of development impractical,
which would have a material adverse affect on the prospects of our business.

LINGUAL SPRAY PROPOFOL

We are currently working with NovaDel to develop, manufacture and
commercialize a propofol lingual spray. We expect to file an IND toward the end
of 2004, assuming no unanticipated findings are made during the balance of the
formulation and toxicology studies that will precede the filing of the IND. To
date, the FDA has expressed support for our objective to pursue a bioequivalence
strategy for development. We are planning Phase I/II studies to occur during the
first half of 2005 following IND issuance. We expect that pivotal Phase III
trials will follow should bioequivalence be demonstrated, depending on the
duration and outcome of the Phase I/II trials. Based upon our current estimates
of the schedule for development of propofol lingual spray, and submission and
approval of a marketing application, we anticipate that we may begin receiving
revenues from propofol lingual spray in 2006. Such an estimate is subject to
numerous risks, however, including unforeseen delays in clinical development or
in the regulatory approval process, unforeseen safety issues, and lack of
effectiveness during the clinical trials. See also "Item 1. Description of
Business - Risk Factors" in this Form 10-KSB.

To date, we have incurred $967,989 of project costs related to our
development of propofol lingual spray, all of which was incurred in fiscal 2003.
Currently, we anticipate that we will need to expend an additional $1,500,000 to
$2,500,000 in development costs in fiscal 2004 and at least an aggregate of
approximately $3,000,000 to $5,000,000 until we receive FDA approval for
propofol, should we opt to continue development until then, including
anticipated 2004 costs. As with our development of oleoyl-estrone, we believe we
currently have sufficient capital to fund our development activities of propofol
lingual spray during 2004 and 2005. Since our business does not generate any
cash flow, however, we will need to raise additional capital to continue
development of the product beyond 2005. We expect to raise such additional
capital through debt financings or by selling shares of our capital stock. To
the extent additional capital is not available when we need it, we may be forced
to sublicense our rights to propofol lingual spray or abandon our development
efforts altogether, either of which would have a material adverse effect on the
prospects of our business.

CRITICAL ACCOUNTING POLICIES

In December 2001, the SEC requested that all registrants discuss their
most "critical accounting policies" in management's discussion and analysis of
financial condition and results of operations. The SEC indicated that a
"critical accounting policy" is one which is both important to the portrayal of
the company's financial condition and results and requires management's most
difficult, subjective or complex judgments, often as a result of the need to
make estimates about the effect of matters that are inherently uncertain.

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 certain reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of

expenses during the reporting period. Actual results could differ from those
estimates.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses are expensed as incurred.

STOCK-BASED COMPENSATION

Options, warrants and stock awards issued to non-employees and consultants
are recorded at their fair value as determined in accordance with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," and EITF No. 96-18, "Accounting for Equity Instruments That are
Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services" and recognized as expense over the related vesting period.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities." SFAS No.146 addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force ("EITF") issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit and Activity." SFAS No. 146 requires that liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred. This statement also established that fair value is the objective for
initial measurement of the liability. The provisions of SFAS No. 146 are
effective for exit or disposal activities that initiated after December 31,
2002. The adoption of SFAS No. 146 did not have a material impact on our
consolidated financial statements.

In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123." SFAS No. 148 amends SFAS No. 123, "Accounting for Stock
Based Compensation" and provides alternative methods for accounting for a change
by registrants to the fair value method of accounting for stock-based
compensation. Additionally, SFAS No. 148 amends the disclosure requirements of
SFAS No. 123 to require disclosure in the significant accounting policy footnote
of both annual and interim financial statements of the method of accounting for
stock-based compensation and the related pro-forma disclosures when the
intrinsic value method continues to be used. SFAS No. 123 is effective for the
first fiscal quarter beginning after December 15, 2002.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
No. 150 changes the accounting for certain financial instruments with
characteristics of both liabilities and equity that, under pervious
pronouncements, issuers could account for as equity. The new accounting guidance
contained in SFAS No. 150 requires that those instruments be classified as
liabilities in the balance sheet.

SFAS No. 150 affects the issuer's accounting for three types of
freestanding financial instruments. One type is mandatory redeemable shares,
which the issuing company is obligated to buy back in exchange for cash or other
assets. A second type included put options and forward purchase contracts, which
involves instruments that do or may require the issuer to buy back some of its
shares in exchange for cash or other assets. The third type of instruments that
are liabilities under SFAS No. 150 are obligations that can be settled with

shares, the monetary value of which is fixed, tied solely or predominantly to a
variable such as market index, or varies inversely with the value of the
issuers' shares. SFAS No. 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety.

Most of the provisions of SFAS No. 150 are consistent with the existing
definition of liabilities in FASB Concepts Statement No. 6, "Elements of
Financial Statements." The remaining provisions of SFAS No. 150 are consistent
with the FASB's proposal to revise that definition to encompass certain
obligations that a reporting entity can or must settle by issuing its own
shares. SFAS No. 150 shall be effective for financial instruments entered into
or modified after May 31, 2003 and otherwise shall be effective at the beginning
of the first interim period beginning after June 15, 2003.

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS

For a list of the consolidated financial statements filed as part of this
report, see the Index to Consolidated Financial Statements beginning at Page F-1
of this annual report.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

ATLANTIC TECHNOLOGY VENTURES, INC.

The audit reports of KPMG on the consolidated financial statements of
Atlantic Technology Ventures, Inc. and its subsidiaries (a development state
company) as of and for the years ended December 31, 2001 and 2000, and for the
period from July 13, 1993 (inception) to December 31, 2001, did not contain any
adverse opinion or disclaimer of opinion, nor were they qualified or modified as
to uncertainty, audit scope, or accounting principles, except as follows:

KPMG's report on the consolidated financial statements as of and for the
year ended December 31, 2001, contained a separate paragraph stating that "the
Company has suffered recurring losses from operations and has limited liquid
resources 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 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty."

During the years ended December 31, 2001 and 2000 and the subsequent
interim periods through December 5, 2002, there were no disagreements between
Atlantic and KPMG on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which disagreements, if not
resolved to the satisfaction of KPMG, would have caused KPMG to make reference
to the subject matter of the disagreement with its report.

On December 5, 2002, Atlantic requested that KPMG provide a letter
addressed to the Securities and Exchange Commission stating whether KPMG agrees
with the above statements, and, if not, stating the respects in which KPMG does
not agree. A copy of the letter provided by KPMG in response to that request,
which is dated as of December 12, 2002, was filed as an exhibit to Atlantic's
current report on Form 8-K filed with the SEC on December 12, 2002.

On December 9, 2002, Atlantic engaged J.H. Cohn LLP as its independent
public accountants for the fiscal year ending December 31, 2002 and to audit its
financial statements. During its two most recent fiscal years and the subsequent
interim period preceding the engagement of J.H. Cohn LLP, Atlantic did not
consult J.H. Cohn LLP on any matter requiring disclosure under Item 304(a)(2) of
Regulation S-B promulgated by the SEC. The selection of J.H. Cohn LLP was based
on the recommendation of Atlantic's audit committee.

MANHATTAN RESEARCH DEVELOPMENT, INC.

The audit report of Weinberg & Company, P.A. on the financial statements
of Manhattan (a development state company) as of and for the year ended December
31, 2001 and for the period from August 6, 2001 (inception) to December 31,
2001, did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope, or accounting
principles, except as follows:

Weinberg & Company's report on the consolidated financial statements as of
and for the year ended December 31, 2001, contained a separate paragraph stating
that: "The financial statements referred to above have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 1 and 2
to the financial statements, the Company, which has suffered recurring losses
from operations, completed a merger on February 21, 2003 with Manhattan

Pharmaceuticals, Inc., which has also suffered recurring losses from operations.
The combined Company will have limited resources. Such matters raise substantial
doubt about the ability of the Company to continue as a going concern.
Management's plan in regard to these matters are also described in Note 1. The
financial statements referred to above do not include any adjustments that might
result from the outcome of this uncertainty."

During the period from August 6, 2001 (date of inception) through December
31, 2001, there were no disagreements between Manhattan and Weinberg & Company,
P.A. on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which disagreements, if not resolved
to the satisfaction of Weinberg & Company, P.A., would have caused Weinberg &
Company, P.A. to make reference to the subject matter of the disagreement with
its report.

Since at the time of Manhattan's dismissal of Weinberg & Company, P.A.
Manhattan was a privately-held company and not subject to the reporting
requirements of the Exchange Act of 1934, Manhattan did not request and Weinberg
& Company, P.A. did not provide, a letter addressed to the Securities and
Exchange Commission stating whether Weinberg & Company, P.A. agreed with the
above statements.

On January 23, 2003, Manhattan engaged J.H. Cohn LLP as its independent
public accountants for the fiscal year ending December 31, 2002 and to audit its
financial statements. During the period from August 6, 2001 (date of inception)
through December 31, 2002 and the subsequent interim period preceding the
engagement of J.H. Cohn LLP, Manhattan did not consult J.H. Cohn LLP on any
matter requiring disclosure under Item 304(a)(2) of Regulation S-B promulgated
by the SEC. The selection of J.H. Cohn LLP was approved by Manhattan's board of
directors.

ITEM 8A. CONTROLS AND PROCEDURES

As of December 31, 2003, we carried out an evaluation, under the
supervision and with the participation of our chief executive and chief
financial officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, as amended). Based upon that evaluation,
our chief executive officer and chief financial officer concluded that our
disclosure controls and procedures are effective in alerting them on a timely
basis to material information required to be disclosed in our periodic reports
to the Securities and Exchange Commission. During the fourth quarter of 2003,
there were no changes in our internal control over financial reporting that have
materially affected, or reasonably likely to materially affect, our internal
control over financial reporting. There have been no significant changes in our
internal controls or in other factors which could significantly affect internal
controls subsequent to such evaluation.

PART III

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

INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS

NAME AGE POSITION
---- --- --------

Leonard Firestone, M.D........... 52 President and Chief Executive Officer and
Director
Nicholas J. Rossettos, C.P.A..... 38 Chief Financial Officer, Chief Operating
Officer and Secretary
Joshua Kazam..................... 27 Director
Michael Weiser, M.D., Ph.D....... 40 Director
Joan Pons........................ 54 Director
David M. Tanen................... 32 Director

LEONARD FIRESTONE, M.D., has been President, Chief Executive Officer and a
director of our company since completion of the merger transaction with
Manhattan Research Development in February 2003. Prior to the merger, Dr.
Firestone served as president and chief executive officer of Manhattan Research
Development since January 2003. From 2001 until he joined Manhattan Research
Development, Dr. Firestone served as chief executive officer, director, and
chief medical officer of Innovative Drug Delivery Systems, Inc., a
privately-held, specialty pharmaceutical development company focused on pain
relievers. Dr. Firestone previously was chief executive officer and chairman of
University Anesthesiology and Critical Care Medicine Foundation, Inc., one of
America's largest clinical practice management companies, from 1996 to 2001, as
well as Chair of that Foundation's Pension Trustees from 1996 to 2001. He was
awarded the endowed, University Professorship in his specialty at the University
of Pittsburgh, and also held faculty appointments at Harvard Medical School
(Massachusetts General Hospital), and Yale School of Medicine. Dr. Firestone
received an M.D. from Yale University, where he also was a resident and clinical
Fellow, and remains certified by his specialty Board. Dr. Firestone is a trained
pharmacologist as well as clinician, having served as a National Institutes of
Health (NIH) Postdoctoral Fellow at Harvard University, and has held prestigious
NIH Principal Investigatorships consecutively from 1985 - 2001 and been a member
of numerous NIH review committees and panels.

NICHOLAS J. ROSSETTOS has been our Chief Financial Officer and Treasurer
since April 2000 and our Chief Operating Officer since February 2003. From
February 1999 until joining our company, Mr. Rossettos was Manager of Finance
for Centerwatch, a pharmaceutical trade publisher headquartered in Boston,
Massachusetts, that is a wholly owned subsidiary of Thomson Corporation of
Toronto, Canada. Prior to that, from 1994, he was Director of Finance and
Administration for EnviroBusiness, Inc., an environmental and technical
management-consulting firm headquartered in Cambridge, Massachusetts. Mr.
Rossettos is a certified public accountant and holds an M.S. in Accounting and
M.B.A. from Northeastern University.

JOSHUA KAZAM has been a director of our company since the completion of
our merger transaction with Manhattan Research Development, Inc. in February
2003. He served as a director of Manhattan Research Development since December
2001. Since 2001, Mr. Kazam has been the Director of Investment for the Orion
Biomedical Fund, a New York based private equity fund focused on biotechnology
investments. Mr. Kazam holds a Bachelors degree from the Wharton School of the
University of Pennsylvania.

JOAN PONS has been a director of our company since February 21, 2003, the
date of our merger with Manhattan Research Development. Prior to the merger, he
served as a director of Manhattan Research Development from 2002. Since 2002,
Mr. Pons has served chief executive officer of Oleoyl-Estrone Development S.L.,
a spin-off of the University of Barcelona. Pursuant to a January 2002 license
agreement, we hold an exclusive worldwide license to several patents and patent
applications relating to oleoyl-estrone, which are owned by Oleoyl-Estrone
Development. From 1999 until joining Oleoyl-Estrone Development, Mr. Pons has
served as Director of Franchising of Pans & Company, a fast-food company. From
1972 until 1999, Mr. Pons was employed in various finance and sales capacities
by Gallina Blanca Purina S.A., a joint venture between St. Louis, Missouri based
Ralston Purina Co. and Spanish based Agrolimen S.A., most recently serving as
its National Sales & Marketing Director.

DAVID M. TANEN has been a director of our company since January 2002.
Since 1996, Mr. Tanen has served as an associate director of Paramount Capital,
where he has been involved in the founding of a number of biotechnology start-up
companies. Since February 2003, Mr. Tanen has also served as a director of
Chiral Quest, Inc. (OTC: CQST) and he also serves as an officer or director of
several other privately held development-stage biotechnology companies. Mr.
Tanen holds a law degree from Fordham University School of Law.

MICHAEL WEISER, M.D., PH.D., has been a director of our company since the
completion of our merger transaction with Manhattan Research Development, Inc.
in February 2003. He served as a director of Manhattan Research Development
since December 2001 and as its Chief Medical Officer from its inception until
August 2001. Dr. Weiser is currently also the Director of Research of Paramount
Capital Asset Management. Dr. Weiser is also a member of Orion Biomedical GP,
LLC, and serves on the board of directors of several privately held companies.
Dr. Weiser received an M.D. from New York University School of Medicine and a
Ph.D. in Molecular Neurobiology from Cornell University Medical College. Dr.
Weiser completed a Postdoctoral Fellowship in the Department of Physiology and
Neuroscience at New York University School of Medicine and performed his
post-graduate medical training in the Department of Obstetrics and Gynecology
and Primary Care at New York University Medical Center. Dr. Weiser dedicates
only a portion of his time to our business.

There are no family relationships among our executive officers or
directors.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our officers, directors and persons who are the beneficial owners of more than
10% of our common stock to file with the SEC initial reports of ownership and
reports of changes in ownership of our common stock. Officers, directors and
beneficial owners of more than 10% of our common stock are required by SEC
regulations to furnish us with copies of all Section 16(a) forms they file.
Based solely on a review of the copies of the Forms 3, 4 and 5 and amendments
that we received with respect to transactions during 2003, we believe that all
such forms were filed on a timely basis, except for the following: J. Jay Lobell
filed a Form 4 on November 17, 2003, reporting a purchase of an aggregate of
34,012 shares of our Series A Convertible Preferred Stock (convertible into
309,200 shares of common stock) on November 7, 2003.

Code of Ethics

We currently do not have a Code of Ethics that applies to our
President, Chief Executive Officer & Chief Financial Officer and our Controller.
Our management is currently in the process of developing such a policy and
expects to present it to our board of directors for its review and approval
during the second quarter of 2004. Once adopted, we will provide a copy of the
Code of Ethics without charge upon written request directed to the Company,
Attn: Secretary, 787 Seventh Avenue, 48th Floor, New York, New York 10019.

Audit Committee Financial Expert

We have an audit committee comprised of David Tanen, Joshua Kazam and
Michael Weiser. None of the members of the audit committee meet the definition
of an "audit committee financial expert," as that term is defined by SEC
regulations. Further, none of our audit committee members or any of our other
current directors are independent, as defined by applicable regulation. We are
currently in the process of searching for and recruiting potential director
candidates who are independent and who will qualify as an audit committee
financial expert.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth, for the last three fiscal years, the
compensation earned for services rendered in all capacities by our chief
executive officer and the other highest-paid executive officers serving as such
at the end of 2003 whose compensation for that fiscal year was in excess of
$100,000. The individuals named in the table will be hereinafter referred to as
the "Named Officers." No other executive officer of Manhattan received
compensation in excess of $100,000 during fiscal year 2003.

Summary Compensation Table

-----------------------------------------------------------------------------------------------------------------------------
LONG-TERM
COMPENSATION ALL OTHER
ANNUAL COMPENSATION AWARDS COMPENSATION ($)
-----------------------------------------------------------------------------------------------------------------------------
SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION ($) OPTIONS/SARs(#)
-----------------------------------------------------------------------------------------------------------------------------

Leonard Firestone (1) 2003 250,000 200,000 0 584,060 0
Chief Executive Officer and 2002 -- -- -- -- --
President 2001 -- -- -- -- --
-----------------------------------------------------------------------------------------------------------------------------
Nicholas J. Rossettos 2003 142,788 25,000 22,397(2) 292,030
Chief Operating Officer, 2002 107,645 25,000 10,000(3) 55,000 0
Chief Financial Officer, 2001 125,000 25,000 10,000(3) 10,000 0
Treasurer & Secretary
-----------------------------------------------------------------------------------------------------------------------------

(1) Dr. Firestone became chief executive officer of Manhattan Research
Development, Inc. in January 2003 and, following the merger with Atlantic
Technology Ventures, Inc. on February 21, 2003, he was appointed chief
executive officer of the Registrant. The above table reflects Dr.
Firestone's combined compensation received from Manhattan Research
Development and our company during fiscal 2003.

(2) Represents salary deferred from the prior fiscal year and prior to
February 24, 2003.

(3) Represents matching contributions by us pursuant to our company's SAR-SEP
retirement plan.

OPTIONS AND STOCK APPRECIATION RIGHTS

The following table contains information concerning the grant of stock
options under our stock option plans and otherwise to the executive officers
identified below during the 2003 fiscal year. No stock appreciation rights were
granted during the 2003 fiscal year.

Option Grants in Last Fiscal Year (Individual Grants)

PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARs EMPLOYEES IN BASE PRICE
NAME GRANTED (#) FISCAL YEAR ($/SHARE)(1) EXPIRATION DATE
-------------------------- ------------------ ----------------- ---------------- ----------------

Dr. Firestone.............. 584,600 67 0.40 2/24/2013

Mr. Rossettos.............. 292,030(2) 33 0.40 2/24/2013

------------
(1) Exercise price is based on the closing sale price of our common stock on
the last trading day preceding the grant date.

(2) Option vests 50 percent on February 24, 2004 and 50 percent on February
24, 2005.

OPTION EXERCISE AND HOLDINGS

The following table provides information with respect to the executive
officers named below concerning the exercisability of options during the 2003
fiscal year and unexercisable options held as of the end of the 2003 fiscal
year. No stock appreciation rights were exercised during the 2003 fiscal year,
and no stock appreciation rights were outstanding at the end of that fiscal
year.

Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values

-----------------------------------------------------------------------------------------------------------------------------------
VALUE OF UNEXERCISED IN-THE-MONEY
SHARES NO. OF SECURITIES UNDERLYING OPTIONS/SARs AT FY-END (MARKET
ACQUIRED VALUE UNEXERCISED OPTIONS/SARs AT PRICE OF SHARES AT FY-END LESS
ON EXERCISE REALIZED (1) FY-END (#) EXERCISE PRICE) ($)(2)
-------------- ---------------- -------------------------------- ------------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-----------------------------------------------------------------------------------------------------------------------------------

Dr. Firestone (3) 0 -- 0 584,600 689,828 0
-----------------------------------------------------------------------------------------------------------------------------------
Mr. Rossettos 0 -- 208,515 158,515 192,573 176,423
-----------------------------------------------------------------------------------------------------------------------------------

(1) Equal to the fair market value of the purchased shares at the time of the
option exercise over the exercise price paid for those shares.

(2) Based on the fair market value of our common stock on December 31, 2003 of
$1.58 per share, the closing sale price per share on that date on the OTC
Bulletin Board.

(3) Although the presentation in the above table reflects options exercisable
as of the end of fiscal 2003, 584,600 shares subject to an option held by
Dr. Firestone became exercisable on January 2, 2004.

LONG TERM INCENTIVE PLAN AWARDS

No long term incentive plan awards were made to any of our executive
officers during the last fiscal year.

COMPENSATION OF DIRECTORS

Non-employee directors are eligible to participate in an automatic stock
option grant program pursuant to the 2003 stock option plan. Non-employee
directors are granted an option for 50,000 shares of common stock upon their
initial election or appointment to the board and an option for 25,000 shares of
common stock annually thereafter. During 2003 our board members did not receive
any cash compensation for their services as directors, although directors are
reimbursed for reasonable expenses incurred in connection with attending
meetings of the board and of committees of the board.

EMPLOYMENT AGREEMENTS

LEONARD FIRESTONE, M.D.

Dr. Firestone's employment with us is governed by a one (1) year
employment agreement dated January 2, 2004. Under the terms of his employment
agreement, Dr. Firestone is entitled to a base salary of $325,000 per year and a
guaranteed bonus of $75,000 payable within 30 days of the anniversary of the
employment agreement so long as Dr. Firestone remains employed by us, and up to
an additional $200,000 upon the achievement of certain performance related
milestones. In addition, Dr. Firestone is eligible to receive a discretionary
bonus in an amount up to his base salary, as determined by the board of
directors in its discretion. We also agreed to grant to Dr. Firestone options to
purchase an additional 600,000 shares of our common stock under our 2003 Stock
Option Plan, which option will vest in its entirety on the first anniversary of
his employment agreement.

In the event Dr. Firestone's employment is terminated by us upon the
occurrence of a "change of control," we or our successors must continue to pay
Dr. Firestone his base salary for a period of one year following termination, as
well as any accrued but unpaid bonuses through the date of termination. However,
our obligation to pay such amounts following the termination of Dr. Firestone's
employment shall be reduced by any amounts otherwise actually earned by Dr.
Firestone during the one-year period following such termination. All stock
options granted to Dr. Firestone that have not vested shall vest upon
termination of his employment upon a change of control.

NICHOLAS J. ROSSETTOS

Mr. Rossettos' employment with us is pursuant to a February 2003
employment agreement. This agreement has a two-year term ending on February 21,
2005, which may be extended for additional one (1) year periods thereafter.
Under the agreement, Mr. Rossettos is entitled to an annual salary of $150,000
in addition to health, disability insurance and other benefits. Pursuant to his
employment agreement, on February 24, 2003, Mr. Rossettos was granted an option
to purchase an aggregate of 292,030 shares of common stock at a price of $0.40
per share. The option vests in two equal installments on each of February 24,
2004 and February 24, 2005. Mr. Rossettos and his dependents are eligible to
receive paid medical and long term disability insurance and such other health
benefits as we make available to other senior officers and directors. Mr.
Rossettos reports to the Chief Executive Officer and President.

JOSHUA KAZAM

Mr. Kazam provides services to our company pursuant to a consulting
agreement dated March 1, 2003. The consulting agreement provides that Mr. Kazam
will render services to us in connection with corporate financing activities and
preparation of grant applications that we may from time to time need. We are
required to pay to Mr. Kazam $4,167 per month during the term of the consulting
agreement. The consulting agreement provided for an initial one year term and is
now operating on a month to month basis. Either we or Mr. Kazam may terminate
the agreement upon 30 days' notice.

MICHAEL WEISER, M.D., PH.D.

Dr. Weiser provides services to our company pursuant to a consulting
agreement dated March 1, 2003. The consulting agreement provides that Dr. Weiser
will provide scientific advisory services to us in the areas of obesity and drug
delivery. We are required to pay to Dr. Weiser $6,250 per month during the term
of the consulting agreement. The consulting agreement provided for an initial
one year term and is now operating on a month to month basis. Either we or Dr.
Weiser may terminate the agreement upon 30 days' notice.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTER

The following table sets forth certain information regarding beneficial
ownership of the our common stock as of March 26, 2004, by (i) each person known
by us to be the beneficial owner of more than 5 percent of the outstanding
common stock, (ii) each director, (iii) each executive officer, and (iv) all
executive officers and directors as a group. The number of shares beneficially
owned is determined under rules promulgated by the SEC, and the information is
not necessarily indicative of beneficial ownership for any other purpose. Under
those rules, beneficial ownership includes any shares as to which the individual
has sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within 60 days of the date hereof,
through the exercise or conversion of any stock option, convertible security,
warrant or other right. Including those shares in the tables does not, however,
constitute an admission that the named stockholder is a direct or indirect
beneficial owner of those shares. Unless otherwise indicated, each person or
entity named in the table has sole voting power and investment power (or shares
that power with that person's spouse) with respect to all shares of capital
stock listed as owned by that person or entity. Unless otherwise indicated, the
address of each of the following persons is 787 Seventh Avenue, 48th Floor, New
York, New York 10019.

SHARES
NAME BENEFICIALLY OWNED PERCENT OF CLASS
---- ------------------ ----------------

Leonard Firestone(1).......................................... 584,060 2.1
Nicholas J. Rossettos(2)...................................... 258,650 *
Joshua Kazam(3)............................................... 329,198 1.2
Michael Weiser(3).............................................1,485,216 5.5
Joan Pons Gimbert(4)..........................................3,982,037 14.9
David M. Tanen(5)............................................. 405,980 1.5
All directors and officers as a group(6)......................7,045,141 25.3
Lindsay A. Rosenwald(7).......................................2,957,261 10.8

Oleoylestrone Developments, SL(8).............................3,957,037 14.8
Josep Samitier 1-5, Barcelona Science Park
08028 Barcelona Spain
Jay Lobell(9).................................................4,078,890 15.1
365 West End Avenue
New York, New York 10024
Atlas Fund, LLC (10)..........................................1,818,182 6.8
181 West Madison, Suite 3600
Chicago, IL 60602

--------------------
* Less than 1.0%

(1) Includes 584,060 shares issuable upon the exercise (at a price of
$0.40 per share) of a vested option. (2) Includes shares issuable
upon the exercise of options that are currently exercisable or
will be exercisable within 60 days: (i) 10,000 shares issuable at
an exercise price of $20.94 per share; (ii) 10,000 shares issuable
at an exercise price of $4.375 per share; (iii) 17,500 shares
issuable at an exercise price of $1.25 per share; (iv) 25,000
shares issuable at an exercise price of $1.00 per share; (v)
146,150 shares issuable at an exercise price of $0.40 per share;
and (vi) 50,000 shares issuable at an exercise price of $1.65 per
share.
(3) Includes 25,000 shares issuable upon the exercise (at a price of
$1.65 per share) of an option. (4) Includes 3,957,037 shares held
by Oleoylestrone Developments, SL, of which Mr. Pons is chief
executive officer, and 25,000 shares issuable upon the exercise
(at a price of $1.65 per share) of an option.

(5) Includes shares issuable upon the exercise of options that are
currently exercisable, or will be exercisable within 60 days: (i)
12,000 shares issuable at an exercise price of $1.25 per share;
(ii) 400 shares issuable at an exercise price of $0.40 per share;
and (iii) 25,000 shares issuable at an exercise price of $1.65 per
share.

(6) Includes 955,110 shares issuance upon exercise of options.

(7) Includes 220,855 shares of common stock issuable upon conversion
of 24,294 shares of Series A Convertible Preferred Stock held
by Dr. Rosenwald, and 516,885 shares issuable upon the exercise of
warrants. Dr. Rosenwald is also the Chairman of Paramount
BioCapital, Inc. Dr. Weiser and Messrs. Kazam and Tanen are
employed by Paramount BioCapital, Inc. or one of its affiliates.

(8) Mr. Pons is the chief executive officer of Oleoylestrone
Developments, SL.

(9) Includes 88,345 shares of common stock issuable upon conversion of
9,718 shares of Series A Convertible Preferred Stock held by Mr.
Lobell. Also includes 3,788,441 shares of common stock held by
eight separate trusts with respect to which Mr. Lobell is either
trustee or manager and in either case has investment and voting
power, including 220,855 shares of common stock issuable upon
conversion of 24,294 shares of Series A Convertible Preferred
Stock.

(10) Based on a Schedule 13G filed January 20, 2004.

EQUITY COMPENSATION PLAN INFORMATION

The following table summarizes outstanding options under our 1995 Stock
Option Plan and our 2003 Stock Option Plan, as well as outstanding options that
we have issued to certain officers, directors and employees of our company
outside of any plan.

NUMBER OF SECURITIES WEIGHTED AVERAGE NUMBER OF SECURITIES
TO BE ISSUED UPON EXERCISE PRICE OF REMAINING AVAILABLE
EXERCISE OF OUTSTANDING FOR FUTURE ISSUANCE
OUTSTANDING OPTIONS, OPTIONS, WARRANTS (EXCLUDING SECURITIES
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS REFLECTED IN COLUMN (A))
(A) (B) (C)
-------------------------------------------- ---------------------- -------------------- ------------------------

Equity compensation plans approved by
stockholders (1)....................... 156,600 $9.24 142,167
Equity compensation plans not approved by
stockholders (2)....................... 1,236,090 $0.72 5,400,000

------------
(1) Represents shares of common stock authorized for issuance under the 1995
Stock Option Plan, as amended.
(2) Represent shares of common stock issuable upon outstanding options issued
to employees and directors under our 2003 Stock option Plan and outside of
any stock option plan. With respect to the 2003 Stock Option Plan,
5,400,000 shares remain available for issuance.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

OLEOYLESTRONE DEVELOPMENTS, SL

Pursuant to the terms of a license agreement dated February 15, 2002 by
and between Manhattan Research Development, Inc., our wholly owned subsidiary,
and Oleoylestrone Developments, SL ("OED"), we have an exclusive, worldwide
license to U.S. and foreign patents and patent applications relating to certain
technologies. Although we are not obligated to pay royalties to OED, the license
agreement requires us to make certain performance-based milestone payments. See
"Item 1 - Intellectual Property." OED currently owns approximately 16 percent of
our outstanding common stock. Additionally, Mr. Pons, a member of our board of
directors, is chief executive officer of OED.

NOVADEL PHARMA INC.

As discussed above, pursuant to the terms of a license agreement dated
April 4, 2003 by and between us and NovaDel Pharma Inc., we have the rights to
develop NovaDel's proprietary lingual spray technology to deliver propofol for
preprocedural sedation. The license agreement with NovaDel requires us to make
certain license and milestone payments, as well as pay royalties. See "Item 1.
Business - Lingual Spray Propofol." During 2003, we paid aggregate license fees
of $500,000 to NovaDel under the license agreement. Lindsay A. Rosenwald, who
beneficially owns more than 10 percent of our common stock, also beneficially
owns in excess of 20 percent of the common stock of NovaDel and may therefore be
deemed to be an affiliate of that company.

PARAMOUNT BIOCAPITAL, INC.

Three members of our board of directors, Joshua Kazam, David Tanen and
Michael Weiser, are also employees of Paramount BioCapital, Inc. or one of its
affiliates. The sole shareholder of Paramount BioCapital, Inc. is Lindsay A.
Rosenwald, M.D. Dr. Rosenwald beneficially owns approximately 11 percent of our
common stock. In November 2003, we paid to Paramount BioCapital approximately
$460,000 as commissions earned in consideration for placement agent services
rendered in connection with the private placement of our Series A Convertible
Preferred Stock, which amount represented 7 percent of the shares sold by
Paramount BioCapital in the offering. In connection with the November 2003
private placement, we did not engage Paramount directly, last neither Paramount
was engaged as a Sub-agent of the Maxim Group, the broker-dealer we engaged for
the offering. In addition, in January 2004, we paid approximately $260,000 as
commissions earned in consideration for placement agent services rendered by
Paramount BioCapital in connection with a private placement of our common stock,
which amount represented 7 percent of the shares sold by Paramount BioCapital in
the private placement. The engagement of Paramount in connection with the
January 2004 private placement was approved by all of disinterested directors.
In connection with both private placements and as a result of their employment
with Paramount BioCapital, Mr. Kazam and Dr. Weiser were allocated 5-year
placement agent warrants to purchase 60,174 and 103,655 shares of our common
stock, respectively, at a price of $1.10 per share.

We believe that all the transactions described above were made on terms no
less favorable to us than could have been obtained from unaffiliated third
parties.

ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K

EXHIBITS

The following documents are included or referenced in this report.

Exhibit No. Description
----------- -----------

2.1 Agreement and Plan of Merger among the Company, Manhattan
Pharmaceuticals Acquisition Corp. and Manhattan Research
Development, Inc. (formerly Manhattan Pharmaceuticals, Inc.)
dated December 17, 2002 (incorporated by reference to Exhibit
2.1 from Form 8-K filed March 5, 2003).

3.1 Certificate of incorporation, as amended through September 25,
2003 (incorporated by reference to Exhibit 3.1 to the
Registrant's Form 10-QSB for the quarter ended September 30,
2003).

3.2 Bylaws, as amended to date (incorporated by reference from
Registrant's registration statement on Form SB-2, as amended
(File No. 33-98478)).

3.3 Certificate of Designations of Series A Convertible Preferred
Stock (incorporated by reference to Exhibit 3.3 to the
Registrant's Registration Statement on Form SB-2 filed January
13, 2004 (File No. 333-111897).

4.1 Form of unit certificate (incorporated by reference from
Registrant's registration statement on Form SB-2, as amended
(File No. 33-98478)).

4.2 Specimen common stock certificate (incorporated by reference
from Registrant's registration statement on Form SB-2, as
amended (File No. 33-98478)).

4.3 Form of redeemable warrant certificate (incorporated by
reference from Registrant's registration statement on Form
SB-2, as amended (File No. 33-98478)).

4.4 Form of redeemable warrant agreement between the Registrant
and Continental Stock Transfer & Trust Company (incorporated
by reference from Registrant's registration statement on Form
SB-2, as amended (File No. 33-98478)).

4.5 Form of underwriter's warrant certificate (incorporated by
reference from Registrant's registration statement on Form
SB-2, as amended (File No. 33-98478)).

4.6 Form of underwriter's warrant agreement between the Registrant
and Joseph Stevens & Company, L.P. (incorporated by reference
from Registrant's registration statement on Form SB-2, as
amended (File No. 33-98478)).

4.7 Form of bridge warrant (incorporated by reference from
Registrant's registration statement on Form SB-2, as amended
(File No. 33-98478)).

4.8 Warrant issued to John Prendergast to purchase 37,500 shares
of Registrant's common stock (incorporated by reference from
Exhibit 10.24 to the Registrant's Form 10-QSB for the quarter
ended March 31, 1997).

4.9 Warrant No. 1 issued to Joseph Stevens & Company, Inc. to
purchase 150,000 shares of Registrant's Common Stock
exercisable January 4, 2000 (incorporated by reference to
Exhibit 10.28 to the Registrant's Form 10-KSB for the year
ended December 31, 1999).

4.10 Warrant No. 2 issued to Joseph Stevens & Company, Inc. to
purchase 150,000 shares of Registrant's Common Stock
exercisable January 4, 2001 (incorporated by reference to
Exhibit 10.29 to the Registrant's Form 10-KSB for the year
ended December 31, 1999).

4.11 Warrant No. 3 issued to Joseph Stevens & Company, Inc. to
purchase 150,000 shares of Registrant's Common Stock
exercisable January 4, 2002 (incorporated by reference to
Exhibit 10.30 to the Registrant's Form 10-KSB for the year
ended December 31, 1999).

4.12 Form of stock purchase warrants issued on September 28, 2000
to BH Capital Investments, L.P., exercisable for shares of
common stock of the Registrant (incorporated by reference to
Exhibit 10.6 to the Registrant's Form 10-QSB for the quarter
ended September 30, 2000).

4.13 Form of stock purchase warrants issued on September 28, 2000
to Excalibur Limited Partnership, exercisable for shares of
common stock of the Registrant (incorporated by reference to
Exhibit 10.7 to the Registrant's Form 10-QSB for the quarter
ended September 30, 2000).

4.14 Warrant certificate issued March 8, 2001 by the Registrant to
Dian Griesel (incorporated by reference to Exhibit 10.56 to
the Registrant's Form 10-QSB for the quarter ended March 31,
2001).

4.15 Form of warrant issued by Manhattan Research Development,
Inc., which automatically converted into warrants to purchase
shares of the Registrant's common stock upon the merger
transaction with such company (incorporated by reference to
Exhibit 4.1 to the Registrant's Form 10-QSB for the quarter
ended March 31, 2003).

4.16 Form of warrant issued to placement agents in connection with
the Registrant's November 2003 private placement of Series A
Convertible Preferred Stock and the Registrant's January 2004
private placement (incorporated by reference to Exhibit 4.18
to the Registrant's Registration Statement on Form SB-2 filed
January 13, 2004 (File No. 333-111897)).

10.1 1995 Stock Option Plan, as amended (incorporated by reference
to Exhibit 10.18 to the Registrant's Form 10-QSB for the
quarter ended September 30, 1996).

10.2 Common stock purchase agreement dated March 16, 2001, between
Registrant and Fusion Capital Fund II, LLC (incorporated by
reference from Exhibit 10.55 of the Registrant's Form 10-QSB
for the quarter ended March 31, 2001).

10.3 Common stock purchase agreement dated as of May 7, 2001,
between Registrant and Fusion Capital Fund II, LLC
(incorporated by reference to Exhibit 10.57 of Amendment No. 1
to the Registrant's registration statement on Form SB-2/A
filed June 29, 2001 (File 333-61974)).

10.4 Form of registration rights agreement between Registrant and
Fusion Capital Fund II, LLC (incorporated by reference to
Exhibit 10.58 of Amendment No. 1 to the Registrant's
registration statement on Form SB-2/A filed June 29, 2001
(File 333-61974)).

10.5 Third Amendment to Employment Agreement dated February 21,
2003 between the Registrant and Nicholas J. Rossettos
(incorporated by reference to Exhibit 10.3 to the Registrant's
Form 10-QSB for the quarter ended March 31, 2003).

10.6 Employment Agreement dated January 2, 2003, between Manhattan
Research Development, Inc. and Leonard Firestone, as assigned
to the Registrant effective as of February 21, 2003
(incorporated by reference to Exhibit 10.4 to the Registrant's
Form 10-QSB for the quarter ended March 31, 2003).

10.7 Employment Agreement dated February 28, 2003, between the
Registrant and Nicholas J. Rossettos (incorporated by
reference to Exhibit 10.5 to the Registrant's Form 10-QSB for
the quarter ended March 31, 2003).

10.8 License Agreement dated on or about February 28, 2002 between
Manhattan Research Development, Inc. (f/k/a Manhattan
Pharmaceuticals, Inc.) and Oleoyl-Estrone Developments SL
(incorporated by reference to Exhibit 10.6 to the Registrant's
Amendment No. 2 to Form 10-QSB/A for the quarter ended March
31, 2003 filed on March 12, 2004).

10.9 License Agreement dated April 4, 2003 between the Registrant
and NovaDel Pharma, Inc. (incorporated by reference to Exhibit
10.1 to the Registrant's Amendment No. 1 to Form 10-QSB/A for
the quarter ended June 30, 2003 filed on March 12, 2004).++

10.10 Employment Agreement dated January 2, 2004 between the
Registrant and Leonard Firestone (incorporated by reference to
Exhibit 10.10 to the Registrant's Registration Statement on
Form SB-2 filed January 13, 2004 (No. 333-111897)).

10.11 2003 Stock Option Plan (incorporated by reference to Exhibit
4.1 to Registrant's Registration Statement on Form S-8 filed
February 17, 2004).

16.1 Letter of KPMG LLP (incorporated by reference to Exhibit 99
filed with the Registrant's Form 8-K filed on December 12,
2002).

23.1 Consent of J.H. Cohn LLP(previously filed).

23.2 Consent of Weinberg & Company, P.A.(previously filed).

31.1 Certification of Chief Executive Officer.

31.2 Certification of Chief Financial Officer.

32.1 Certifications of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

--------------
++ Confidential treatment has been requested as to certain portions of
this exhibit pursuant to Rule 24b-2 of the Securities Exchange Act of
1934, as amended.

REPORTS ON FORM 8-K

On November 14, 2003, we filed a Current Report on Form 8-K dated
November 7, 2003 disclosing under Item 5 thereof the completion of the private
placement of 1,000,000 shares of our Series A Convertible Preferred Stock.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

FEES BILLED TO THE COMPANY BY ITS INDEPENDENT AUDITORS

The following is a summary of the fees billed to us by J.H. Cohn LLP for
professional services rendered for fiscal year ended December 31, 2003 and by
Weinberg & Company, P.A., formerly independent auditors of Manhattan Research
Development, Inc., for professional services rendered during the fiscal years
ended December 31, 2002 and December 31, 2003:

WEINBERG & COMPANY, P.A.
J.H. COHN LLP
------------------------------------------
FEE CATEGORY FISCAL 2003 FEES FISCAL 2003 FEES FISCAL 2002 FEES
------------------------------- ------------------ -------------------- --------------------

Audit Fees..................... $ 88,400 $ -- $ --
Audit-Related Fees (1)......... 8,800 4,100 1,425
Tax Fees (2)................... 5,400 -- --
All Other Fees (3)............. -- -- --
-------- -------- ----------
Total Fees.............. $102,600 4,100 1,425
======== ======== ==========

--------------
(1) Audit-Related Fees consist principally of assurance and related services
that are reasonably related to the performance of the audit or review of
the Company's financial statements but not reported under the caption
"Audit Fees." These fees include review of registration statements and
participation at board of director and audit committee meetings.

(2) Tax Fees consist of fees for tax compliance, tax advice and tax planning.

(3) All Other Fees in consist of aggregate fees billed for products and
services provided by the independent auditor, other than those disclosed
above. These fees include services related to certain accounting research
and assistance with a regulatory matter.

POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS

At present, our audit committee approves each engagement for audit
or non-audit services before we engage our independent auditor to provide those
services. Our audit committee has not established any pre-approval policies or
procedures that would allow our management to engage our independent auditor to
provide any specified services with only an obligation to notify the audit
committee of the engagement for those services. None of the services provided by
our independent auditors for fiscal 2003 was obtained in reliance on the waiver
of the pre-approval requirement afforded in SEC regulations.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act,
Manhattan Pharmaceuticals, Inc. has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on April 2, 2004.

Manhattan Pharmaceuticals, Inc.

By: /s/Leonard Firestone
-------------------------------------
Leonard Firestone
President and Chief Executive Officer

In accordance with the Securities Exchange Act, this report has been
signed below by the following persons on behalf of Manhattan Pharmaceuticals,
Inc. and in the capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Leonard Firestone President, Chief Executive Officer and April 2, 2004
------------------------- Director (principal executive officer)
Leonard Firestone

/s/ Nicholas J. Rossettos Treasurer, Secretary and Chief Financial April 2, 2004
------------------------- Officer (principal accounting and
Nicholas J. Rossettos financial officer)

/s/ Joshua Kazam Director April 2, 2004
-------------------------
Joshua Kazam

/s/ Joan Pons Director April 2, 2004
-------------------------
Joan Pons

/s/ David M. Tanen Director April 2, 2004
-------------------------
David M. Tanen

/s/ Michael Weiser Director April 2, 2004
-------------------------
Michael Weiser

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Page
----
Report of J.H. Cohn LLP................................................... F-2
Report of Weinberg & Company, P.A......................................... F-3
Consolidated Balance Sheets as of December 31, 2003 and 2002.............. F-4
Consolidated Statements of Operations for the Years Ended December 31,
2003 and 2002 and the cumulative period from August 6, 2001
(inception) to December 31, 2003..................................... F-5
Consolidated Statements of Stockholders' Equity (Deficiency) for the Years
Ended December 31, 2003 and 2002 and the cumulative period from
August 6, 2001 (inception) to December 31, 2003...................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
2003 and 2002 and the cumulative period from August 6, 2001
(inception) to December 31, 2003..................................... F-8
Notes to Consolidated Financial Statements................................ F-9

F-1

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of Manhattan
Pharmaceuticals, Inc. and Subsidiaries (a development stage company) as of
December 31, 2003 and 2002, and the related consolidated statements of
operations, stockholders' equity and cash flows for the years then ended and for
the period from August 6, 2001 (date of inception) to December 31, 2003. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits. The consolidated financial statements
of Manhattan Pharmaceuticals, Inc. for the period from August 6, 2001 to
December 31, 2001 were audited by other auditors whose report dated November 1,
2002, expressed an unqualified opinion on those statements with an explanatory
paragraph relating to the Company's ability to continue as a going concern.

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, for the period from August 6, 2001 to
December 31, 2001, on the report of the other auditor, the consolidated
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Manhattan Pharmaceuticals, Inc. and
Subsidiaries as of December 31, 2003 and 2002, and their consolidated results of
operations and cash flows for the years then ended and for the period from
August 6, 2001 (date of inception) to December 31, 2003, in conformity with
accounting principles generally accepted in the United States of America.

/s/ J.H. Cohn LLP
-------------------------
Roseland, New Jersey
February 14, 2004

F-2

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
of Manhattan Pharmaceuticals, Inc.:

We have audited the balance sheet of Manhattan Pharmaceuticals, Inc. (a
development stage company) (the "Company") as of December 31, 2001 and the
related statements of operations, changes in stockholders' deficiency and cash
flows for the period from August 6, 2001 (date of inception) to 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 audit.

We conducted our audit 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 audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly in all
material respects, the financial position of Manhattan Pharmaceuticals, Inc. as
of December 31, 2001, and the results of its operations and its cash flows for
the period from August 6, 2001 (date of inception) to 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. The Company has a net loss from
operations of $56,796 since inception, a negative cash flow from operations of
$27,500 since inception, and a working capital and stockholders' deficiency of
$56,796 as of December 31, 2001. These matters raise substantial doubt about its
ability to continue as a going concern. Management's plan in regards to these
matters is described in the Notes. These financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/WEINBERG & COMPANY, P.A.
------------------------------

Boca Raton, Florida
November 1, 2002

F-3

MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Company)

Consolidated Balance Sheets

AS OF DECEMBER 31,
----------------------------
ASSETS 2003 2002
------------ ------------

Current assets:
Cash and cash equivalents $ 7,413,803 $ 1,721,123
Marketable equity securities, available for sale, at market 352,147
Prepaid expenses 24,981 --
------------ ------------
Total current assets 7,790,931 1,721,123

Property and equipment, net 8,021 --
------------ ------------
Total assets $ 7,798,952 $ 1,721,123
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable $ 548,595 $ 164,899
Accrued expenses 417,425 15,973
Note payable to bank -- 600,000
Notes payable to stockholder -- 206,000
Due affiliate -- 96,328
------------ ------------
Total liabilities 966,020 1,083,200
------------ ------------
Commitments and Contingencies

Stockholders' equity:
Series A convertible preferred stock, $.001 par value Authorized 10,000,000
shares; 1,000,000 and 0 shares issued and outstanding at December 31,
2003 and December 31, 2002, respectively (liquidation preference
aggregating $10,000,000 and $0 at
December 31, 2003 and December 31, 2002, respectively) 1,000 --
Common stock, $.001 par value. Authorized 150,000,000
shares; 23,362,396 and 15,753,008 shares issued and outstanding
at December 31, 2003 and December 31, 2002, respectively 23,362 15,753
Additional paid-in capital 14,289,535 1,754,154
Deficit accumulated during development stage (7,473,205) (1,094,116)
Accumulated other comprehensive loss (7,760) --
Unearned consulting costs -- (37,868)
------------ ------------
Total stockholders' equity 6,832,932 637,923
------------ ------------
Total liabilities and stockholders' equity $ 7,798,952 $ 1,721,123
============ ============

See accompanying notes to consolidated financial statements.

F-4

MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Company)

Consolidated Statements of Operations

CUMULATIVE
PERIOD FROM
AUGUST 6, 2001
YEARS ENDED DECEMBER 31, (INCEPTION) TO
---------------------------- DECEMBER 31,
2003 2002 2003
------------ ------------ ------------

Revenue $ -- $ -- $ --
------------ ------------ ------------
Costs and expenses:
Research and development 1,724,043 700,798 2,449,440
General and administrative 1,786,080 317,384 2,135,661
Impairment of intangible assets 1,248,230 -- 1,248,230
------------ ------------ ------------
Total operating expenses 4,758,353 1,018,182 5,833,331
------------ ------------ ------------
Operating loss (4,758,353) (1,018,182) (5,833,331)
------------ ------------ ------------
Other (income) expense:
Interest and other income (16,079) -- (16,079)
Interest expense 4,755 19,138 23,893
Loss on disposition of intangible assets 1,213,878 -- 1,213,878

------------ ------------ ------------
Total other (income) expense 1,202,554 19,138 1,221,692
------------ ------------ ------------
Net loss (5,960,907) (1,037,320) (7,055,023)

Imputed preferred stock dividend (418,182) -- (418,182)
------------ ------------ ------------
Net loss applicable to common shares $ (6,379,089) $ (1,037,320) $ (7,473,205)

============ ============ ============
Net loss per common share:
Basic and diluted $ (0.28) $ (0.08)
============ ============

Weighted average number of shares of common stock outstanding:
Basic and diluted 22,389,755 12,514,391
============ ============

See accompanying notes to consolidated financial statements.

F-5

MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Company)

Consolidated Statement of Stockholders' Equity (Deficiency)
(As Adjusted for a 1-for-5 Stock Combination)

SERIES A
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
---------------------- ---------------------- PAID-IN SUBSCRIPTION
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE
---------- ---------- ---------- ---------- ------------ --------------

Stock issued at $0.0004 per share for
subscription receivable -- $ -- 10,167,741 $ 10,168 $ (6,168) $ (4,000)
Net loss -- -- -- -- -- --
----------- ---------- ---------- ---------- ------------ --------------
Balance at December 31, 2001 -- -- 10,167,741 10,168 (6,168) (4,000)

Proceeds from subscription receivable -- -- -- -- -- 4,000
Stock issued at $0.0004 per share for
license rights -- -- 2,541,935 2,542 (1,542) --
Stock options issued for consulting services -- -- -- -- 60,589 --
Amortization of unearned consulting services -- -- -- -- -- --
Sales of common stock at $0.63 per share
through private placement, net of
expenses -- -- 3,043,332 3,043 1,701,275 --
Net loss -- -- -- -- -- --
----------- ---------- ---------- ---------- ------------ --------------
Balance at December 31, 2002 -- -- 15,753,008 15,753 1,754,154 --

Common stock issued at $0.63 per share
net of expenses -- -- 1,321,806 1,322 742,369 --
Effect of reverse acquisition -- -- 6,287,582 6,287 2,329,954 --
Amortization of unearned consulting costs -- -- -- -- -- --
Unrealized loss on marketable equity
securities -- -- -- -- -- --
Payment for fractional shares for stock
combination -- -- -- -- (300) --
Preferred stock issued at $10 per share
net of expenses 1,000,000 1,000 -- -- 9,045,176 --
Imputed preferred stock dividend -- -- -- -- 418,182 --
Net loss -- -- -- -- -- --
----------- ---------- ---------- ---------- ------------ --------------
Balance at December 31, 2003 1,000,000 $ 1,000 23,362,396 $ 23,362 $ 14,289,535 --
=========== ========== ========== ========== ============ ==============

DEFICIT TOTAL
ACCUMULATED ACCUMULATED STOCK-
DURING THE OTHER UNEARNED HOLDERS'
DEVELOPMENT COMPREHENSIVE CONSULTING EQUITY
STAGE LOSS COSTS (DEFICIENCY)
------------- --------------- ------------ --------------

Stock issued at $0.0004 per share for
subscription receivable $ -- $ -- $ -- $ --
Net loss (56,796) -- -- (56,796)
------------- --------------- ------------ --------------
Balance at December 31, 2001 (56,796) -- -- (56,796)

Proceeds from subscription receivable -- -- -- 4,000
Stock issued at $0.0004 per share for
license rights -- -- -- 1,000
Stock options issued for consulting services -- -- (60,589) --
Amortization of unearned consulting services -- -- 22,721 22,721
Sales of common stock at $0.63 per share
through private placement, net of
expenses -- -- -- 1,704,318
Net loss (1,037,320) -- -- (1,037,320)
------------- --------------- ------------ --------------
Balance at December 31, 2002 (1,094,116) -- (37,868) 637,923

Common stock issued at $0.63 per share
net of expenses -- -- -- 743,691
Effect of reverse acquisition -- -- -- 2,336,241
Amortization of unearned consulting costs -- -- 37,868 37,868
Unrealized loss on marketable equity
securities -- (7,760) -- (7,760)
Payment for fractional shares for stock
combination -- -- -- (300)
Preferred stock issued at $10 per share
net of expenses -- -- -- 9,046,176
Imputed preferred stock dividend (418,182) -- --
Net loss (5,960,907) -- -- (5,960,907)
------------- --------------- ------------ --------------
Balance at December 31, 2003 $ (7,473,205) $ (7,760) $ -- $ 6,832,932
============= =============== ============ ==============

See accompanying notes to consolidated financial statements.

F-6

MANHATTAN PHARMACEUTICALS, INC. AND SUBSIDIARIES
(A Development Stage Company)

Consolidated Statements of Cash Flows

CUMULATIVE
PERIOD FROM
AUGUST 1, 2001
YEARS DECEMBER 31, (INCEPTION) TO
-------------------------- DECEMBER 31,
2003 2002 2003
----------- ----------- ------------

Cash flows from operating activities:
Net loss $(5,960,907) $(1,037,320) $ (7,055,023)
Adjustments to reconcile net loss to
net cash used in operating activities:
Common stock issued for license rights -- 1,000 1,000
Amortization of unearned consulting costs 37,868 22,721 60,589
Amortization of intangible assets 145,162 -- 145,162
Depreciation 6,216 -- 6,216
Loss on impairment of intangible assets 1,248,230 -- 1,248,230
Loss on disposition of intangible assets 1,213,878 -- 1,213,878
Changes in operating assets and liabilities, net of acquisition:
Decrease in prepaid expenses and deposits 33,264 -- 33,264
Increase in accounts payable 59,961 164,899 224,860
Decrease in accrued expenses (138,869) (13,323) (122,896)
(Decrease) increase in due affiliate (96,328) 96,328 --
----------- ----------- ------------
Net cash used in operating activities (3,451,525) (765,695) (4,244,720)
----------- ----------- ------------
Cash flows from investing activities:
Purchase of property and equipment (6,554) -- (6,554)
Cash paid in connection with acquisition (32,808) -- (32,808)
Proceeds from sale of license 200,000 -- 200,000
----------- ----------- ------------
Net cash provided by investing activities 160,638 -- 160,638
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from issuances of notes payable to stockholders -- 206,000 233,500
Repayments of notes payable to stockholders (206,000) (27,500) (233,500)
Proceeds from issuance of note payable to bank -- 600,000 600,000
Repayment of note payable to bank (600,000) -- (600,000)
Proceeds from subscriptions receivable -- 4,000 4,000
Payment for fractional shares for stock combination (300) -- (300)
Proceeds from sale of common stock, net 743,691 1,704,318 2,448,009
Proceeds from sale of preferred stock, net 9,046,176 -- 9,046,176
----------- ----------- ------------
Net cash provided by financing activities 8,983,567 2,486,818 11,497,885
----------- ----------- ------------

Net increase in cash and cash equivalents 5,692,680 1,721,123 7,413,803

Cash and cash equivalents at beginning of period 1,721,123 -- --
----------- ----------- ------------
Cash and cash equivalents at end of period $ 7,413,803 $ 1,721,123 $ 7,413,803
=========== =========== ============
Supplemental disclosure of cash flow information:
Interest paid $ 502 $ 15,665 $ 26,934
=========== =========== ============

Supplemental disclosure of noncash investing and financing activities:
Stock options issued for consulting services
Issuance of common stock for acquisition $ -- $ 60,589 $ 60,589
Marketable equity securities received in connection with 2,336,241 -- 2,336,241
sale of license 359,907 -- 359,907
=========== =========== ============

See accompanying notes to consolidated financial statements.

F-7

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

(1) MERGER AND NATURE OF OPERATIONS

On February 21, 2003, the Company (formerly known as "Atlantic Technology
Ventures, Inc.") completed a reverse acquisition of privately held Manhattan
Research Development, Inc. (formerly Manhattan Pharmaceuticals, Inc.), a
Delaware corporation. The merger was effected pursuant to an Agreement and Plan
of Merger dated December 17, 2002 (the "Merger Agreement") by and among the
Company, Manhattan Research and Manhattan Pharmaceuticals Acquisition Corp, the
Company's wholly owned subsidiary ("MPAC"). In accordance with the terms of the
Merger Agreement, MPAC merged with and into Manhattan Research, with Manhattan
Research remaining as the surviving corporation and a wholly owned subsidiary of
the Company. Pursuant to the Merger Agreement, upon the effective time of the
merger, the outstanding shares of common stock of Manhattan Research
automatically converted into an aggregate of 18,689,917 shares of the Company's
common stock, which represented 80 percent of the Company's outstanding voting
stock after giving effect to the merger. In addition, immediately prior to the
merger Manhattan Research had outstanding options and warrants to purchase an
aggregate of 172,856 shares of its common stock, which, in accordance with the
terms of the merger, automatically converted into options and warrants to
purchase an aggregate of 2,196,944 shares of the Company's common stock. Since
the stockholders of Manhattan Research received the majority of the voting
shares of the Company, the merger was accounted for as a reverse acquisition
whereby Manhattan Research was the accounting acquirer (legal acquiree) and the
Company was the accounting acquiree (legal acquirer). Based on the five-day
average price of the Company's common stock of $0.50 per share, the purchase
price approximated $2,336,000 ($3,167,178 including net liabilities assumed)
which represents 20 percent of the market value of the combined Company's
post-merger total outstanding shares of 23,362,396. In connection with the
merger, the Company changed its name from "Atlantic Technology Ventures, Inc."
to "Manhattan Pharmaceuticals, Inc." At the time of the merger, Manhattan
Research recognized patents and licenses for substantially all of the purchase
price. A purchase price allocation was completed in the third quarter of 2003
and did not result in changes to the initial estimate. As a result of acquiring
Manhattan Research, the Company received new technologies.

A summary of the purchase price allocation is as follows:

F-8

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

Common stock issued $ 2,336,241
Acquisition costs paid 32,808
-----------
Total purchase price 2,369,049

Net liabilities assumed in acquisition 798,129
-----------
Excess purchase price (allocated to
intangible assets) $ 3,167,178
===========
Assets purchased:
Prepaid expenses $ 38,307
Property and equipment 7,683
Deposits 19,938
-----------
65,928
-----------
Liabilities assumed:
Accounts payable 323,735
Accrued expenses 540,322
-----------
864,057
-----------
Net liabilities assumed $ (798,129)
===========

The following unaudited pro forma financial information presents the combined
results of operations of Manhattan Pharmaceuticals and Manhattan Research as if
the acquisition had occurred as of January 1, 2003 and 2002, after giving effect
to certain adjustments, including the issuance of Manhattan Pharmaceuticals
common stock as part of the purchase price. For the purpose of this pro forma
presentation, both Manhattan Pharmaceuticals' and Manhattan Research's financial
information is presented for the years ended December 31, 2003 and 2002,
respectively. The unaudited pro forma condensed consolidated financial
information does not necessarily reflect the results of operations that would
have occurred had Manhattan Pharmaceuticals and Manhattan Research been a single
entity during such periods.

F-9

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

Year ended Year ended
December 31, December 31,
2003 2002
------------- ---------------
Revenues $ -- $ --
Net loss $ (6,160,455) $ (2,966,731)

Weighted-average shares of common
stock outstanding: Basic and diluted 23,362,396 20,123,779

Basic and diluted net loss per
common share $ (0.26) $ (0.15)

On August 22, 2003, the Company sold all if its remaining rights to its CT-3
technology to Indevus Pharmaceuticals, Inc. ("Indevus"), the Company's licensee,
for aggregate consideration of approximately $559,000. The purchase price was
paid through a combination of cash and shares of Indevus' common stock. On the
same date, the Company settled its arbitration with Dr. Sumner Burstein, the
inventor of the CT-3 technology, which includes a complete mutual release from
all claims that either party had against the other. As a result of the sale of
the Company's rights to the CT-3 technology to Indevus, the Company recorded a
one-time charge of $1,213,878 in 2003.

In addition, on August 8, 2003, Bausch & Lomb informed the Company that it had
elected not to pursue its development of the Avantix technology, effective
August 11, 2003. According to the terms of the Company's agreement with Bausch &
Lomb, the Company may re-acquire the technology from Bausch & Lomb and sell or
re-license the technology to a third party. The price to re-acquire the
technology from Bausch & Lomb is 50% of the proceeds from a third party sale to
a maximum of $3,000,000. The Company has no further obligation under the
agreement. As a result of Bausch & Lomb's decision not to develop the Avantix
technology, the Company recorded a one-time charge of $1,248,230 in 2003 for the
impairment of the related intangible asset.

As a result of the events discussed in the two preceding paragraphs, as of
December 31, 2003, all intangible assets were eliminated from the Company's
consolidated financial statements and amortization of such intangible assets
ceased.

As described above, the Company resulted from the February 21, 2003 reverse
merger between Atlantic Technology Ventures, Inc., which was incorporated on May
18, 1993, and privately-held Manhattan Research Development, Inc., incorporated
on August 6, 2001. The Company was incorporated in the State of Delaware. In
connection with the merger, the former stockholders of Manhattan Research
received a number of shares of Atlantic's common stock so that following the
merger they collectively owned 80 percent of the outstanding shares. Upon
completion of the merger, Atlantic changed its name to Manhattan
Pharmaceuticals, Inc. and thereafter adopted the business of Manhattan Research
Development.

The Company is a development stage biopharmaceutical company that holds an
exclusive world-wide, royalty-free license to certain intellectual property
related to oleoyl-estrone, which is owned by Oleoyl-Estrone Developments, SL
("OED") of Barcelona, Spain. Oleoyl-estrone is an orally administered small
molecule that has been shown to cause significant weight loss in pre-clinical
animal studies regardless of dietary modifications. The Company also holds the

F-10

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

worldwide, exclusive rights to proprietary lingual spray technology to deliver
the drug propofol for proprocedural sedation prior to diagnostic, therapeutic or
endoscopic procedures.

(2) LIQUIDITY AND BASIS OF PRESENTATION

LIQUIDITY

The Company has reported a net loss of $1,037,320 for the year ended December
31, 2002 and a net loss of $5,960,907 for the year ended December 31, 2003. The
net loss from date of inception, August 6, 2001, to December 31, 2003 amounts to
$7,055,023.

As discussed above, on February 21, 2003 the Company completed a reverse
acquisition of privately held Manhattan Research Development, Inc. Management
believes that the Company will continue to incur net losses through at least
December 31, 2004. Based on the resources of the Company available at December
31, 2003, management believes that the Company will need additional equity or
debt financing or will need to generate revenues during 2005 through licensing
its products or entering into strategic alliances to be able to sustain its
operations through 2005 until it can achieve profitability, if ever.

The Company's continued operations will depend on its ability to raise
additional funds through various potential sources such as equity and debt
financing, collaborative agreements, strategic alliances and its ability to
realize the full potential of its technology in development. Additional funds
may not become available on acceptable terms, and there can be no assurance that
any additional funding that the Company does obtain will be sufficient to meet
the Company's needs in the long term. Through December 31, 2003, a significant
portion of the Company's financing has been through private placements of common
and preferred stock and debt financing. Until and unless the Company's
operations generate significant revenues, the Company will attempt to continue
to fund operations from cash on hand and through the sources of capital
previously described.

As described in Note 5, on November 7, 2003, the Company completed a private
placement of 1,000,000 shares of its newly-designated Series A Convertible
Preferred Stock at a price of $10 per share, resulting in gross proceeds to the
Company of $10,000,000 (net proceeds $9,046,176). Each share of Series A
Convertible Preferred Stock is convertible at the holder's election into shares
of the Company's common stock at a conversion price of $1.10 per share. The
conversion price of the Series A Convertible Preferred Stock was less than the
market value of the Company's common stock on November 7, 2003. Accordingly, the
Company recorded a charge for the beneficial conversion feature associated with
the convertible preferred stock of $418,182.

Under an equity-line-of-credit arrangement, Fusion Capital has committed to
purchasing $6,000,000 of the Company's common stock. The Company's stock price
is currently below the $3.40 minimum required in order for it to be able to sell
shares of its common stock to Fusion, but if in the future its stock price
exceeds this minimum, the Company may elect to sell shares of its common stock
to Fusion under the equity-line-of-credit arrangement. In addition, in November
2001, Fusion Capital waived the $3.40 minimum and purchased from the Company
under the equity-line-of-credit arrangement 83,333 shares of its common stock at
a price per share of $1.20, representing an aggregate purchase price of

F-11

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

$100,000. Fusion Capital again waived the $3.40 minimum in May 2002 and
purchased 2,000 shares of common stock for an aggregate purchase price of
$1,667.

The purchase price for the common stock to be issued to Fusion Capital under the
Company's equity-line-of-credit arrangement with Fusion Capital will fluctuate
based on the closing price of the Company's common stock. Fusion Capital may at
any time sell none, some or all of the shares of common stock purchased from the
Company. Depending upon market liquidity at the time, sale by Fusion of shares
the Company issues to them could cause the trading price of the Company's common
stock to decline. Sale of a substantial number of shares of the Company's common
stock by Fusion, or anticipation of such sales, could make it more difficult for
the Company to sell equity or equity related securities in the future at a time
and at a price that it might otherwise wish to effect sales. The Company
currently has no plans to seek financing under this arrangement.

On July 25, 2003, the Board of Directors adopted a resolution authorizing an
amendment to the certificate of incorporation providing for a 1-for-5
combination. A resolution approving the 1-for-5 combination was thereafter
consented to in writing by holders of a majority of the Company's outstanding
common stock. The proposed 1-for-5 combination became effective on September 25,
2003. Accordingly, all share and per share information in these consolidated
financial statements has been restated to retroactively reflect the 1-for-5
combination.

BASIS OF PRESENTATION

The consolidated financial statements have been prepared in accordance with the
provisions of Statement of Financial Accounting Standards (SFAS) No. 7,
"Accounting and Reporting by Development Stage Enterprises."

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 certain reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of expenses during the
reporting period. Actual results could differ from those estimates.

RESEARCH AND DEVELOPMENT

All research and development costs are expensed as incurred and include costs of
consultants who conduct research and development on behalf of the Company and
its subsidiaries. Costs related to the acquisition of technology rights and
patents for which development work is still in process are expensed as incurred
and considered a component of research and development costs.

F-12

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

INCOME TAXES

Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between financial statement carrying
amounts of existing assets and liabilities, and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.

COMPUTATION OF NET LOSS PER COMMON SHARE

Basic net loss per common share is calculated by dividing net loss applicable to
common shares by the weighted-average number of common shares outstanding for
the period. Diluted net loss per common share is the same as basic net loss per
common share, since potentially dilutive securities from stock options, stock
warrants and convertible preferred stock would have an antidilutive effect
because the Company incurred a net loss during each period presented. The
amounts of potentially dilutive securities excluded from the calculation were
15,420,033 and 3,541,197 in 2003 and 2002 respectively.

STOCK-BASED COMPENSATION

Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("SFAS 123"), provides for the use of a fair value based method of
accounting for employee stock compensation. However, SFAS 123 also allows an
entity to continue to measure compensation cost for stock options granted to
employees using the intrinsic value method of accounting prescribed by
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB 25"), which only requires charges to compensation expense for
the excess, if any, of the fair value of the underlying stock at the date a
stock option is granted (or at an appropriate subsequent measurement date) over
the amount the employee must pay to acquire the stock, if such amounts differ
materially from historical amounts. The Company has elected to continue to
account for employee stock options using the intrinsic value method under APB
25. By making that election, it is required by SFAS 123 and SFAS 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure" to provide
pro forma disclosures of net income (loss) and earnings (loss) per share as if a
fair value based method of accounting had been applied.

Had compensation costs been determined in accordance with the fair value method
prescribed by SFAS No. 123 for all options issued to employees and amortized
over the vesting period, the Company's net loss applicable to common shares and
net loss per common share (basic and diluted) for plan options would have been
increased to the pro forma amounts indicated below.

F-13

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

2003 2002
----------- -----------
Net loss per common share, as reported $(5,960,907) $(1,037,320)
Deduct: Total stock-based employee
compensation expense determined
under fair value method (302,974) (603,259)
----------- -----------
Net loss per common share, pro forma $(6,263,881) $(1,640,579)
=========== ===========
Net loss per common share - basic
As reported $ (0.28) $ (0.08)
Pro forma (0.28) (0.13)

The fair value of each option granted is estimated on the date of the grant
using the Black-Scholes option pricing model with the following assumptions used
for the grants in 2003 and 2002: dividend yield of 0%; expected volatility of
82% for 2003 and 147% for 2002; risk-free interest rate of 3.2% for 2003 and
4.0% for 2002; and expected lives of eight years for each year presented.

FINANCIAL INSTRUMENTS

At December 31, 2003 and 2002, the fair values of cash and cash equivalents,
prepaid expenses, accounts payable and accrued expenses approximate carrying
values due to the short-term nature of these instruments.

MARKETABLE SECURITIES

Marketable equity securities are carried at market value since they are
considered available-for-sale. The following is a summary of the Company's
marketable equity securities:

Unrealized
Cost Holding loss Fair value
-------------- -------------- --------------

Indevus Pharmaceuticals, Inc.
common stock $ 359,907 $ (7,760) $ 352,147
============== ============== ==============

Unrealized loss (and gain, if any) is excluded from operations and
included in accumulated other comprehensive income (loss). The Company's
comprehensive loss for 2003 was $5,968,667.

(4) PROPERTY AND EQUIPMENT

Property and equipment consists of the following at December 31:

F-14

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

2003 2002
------------- -------------
Property and equipment $ 27,054 --
Less accumulated depreciation (19,033) --
------------- -------------
Net property and equipment $ 8,021 --
============= =============

(5) STOCKHOLDERS' EQUITY

COMMON STOCK

The Company issued 10,167,740 shares of common stock to investors during
December 2001 for subscriptions receivable of $4,000 or $0.0004 per share.
During 2002, the Company received the $4,000.

In August 2002, the Company entered into one-year agreements with four
consultants and issued options to these consultants to purchase 101,678 shares
of the Company's common stock at an exercise price of $.0039 per share expiring
in August 2007. The Company valued these options at $60,589, using the minimum
value method, and is amortizing the expense through August 2003. Therefore, the
Company expensed $22,721 in 2002 and $37,868 in 2003. During 2002 and 2003 no
options were exercised.

During 2002, the Company commenced a private placement and sold 239,450 shares
of common stock at $8 ($0.63 post merger) per share and received proceeds of
$1,704,318, net of expenses of $211,281. These shares converted into 3,043,332
shares of the Company's common stock when the Company completed the reverse
acquisition of Manhattan Research as described below. In addition, each investor
received warrants equal to 10% of the number of shares of common stock purchased
and, accordingly, Manhattan Research issued warrants to purchase 23,945 shares
of common stock in 2002 in connection with the private placement. Upon the
merger, these converted into warrants to purchase approximately 304,000 shares
of the Company's common stock. Each warrant had an exercise price of $8 per
share, which post merger converted to approximately $0.63. These warrants expire
in 2007.

During January and February 2003, the Company sold an additional 104,000 shares
of common stock at $8 ($0.63, post merger) per share and warrants to purchase
10,400 shares of common stock exercisable at $8 ($0.63 post merger) through the
private placement and received net proceeds of $743,691. These shares converted
into 1,321,806 shares of the Company's common stock when the Company completed
its reverse acquisition of Manhattan Research. The warrants to purchase 10,400
shares of common stock converted into warrants to purchase 132,181 common shares
of the Company.

In addition, in connection with the private placement, the Company issued to
Joseph Stevens & Co., Inc., a NASD-member broker-dealer, warrants to purchase
130,511 shares of its common stock that are exercisable at $8 ($0.63 post
merger) per share and expire in 2008. Upon the merger, these warrants converted
into warrants to purchase 1,658,753 shares of common stock of the Company.

F-15

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

SERIES A PREFERRED STOCK

On November 7, 2003, the Company completed a private placement of 1,000,000
shares of its newly-designated Series A Convertible Preferred Stock at a price
of $10 per share, resulting in gross proceeds to the Company of $10,000,000 (net
proceeds $9,046,176). Each share of Series A Convertible Preferred Stock is
convertible at the holder's election into shares of the company's common stock
at a conversion price of $1.10 per share. The conversion price of the Series A
Convertible Preferred Stock was less than the market value of the Company's
common stock on November 7, 2003. Accordingly, the Company recorded a charge for
the beneficial conversion feature associated with the convertible preferred
stock of $418,182. The Series A Convertible Preferred Stock has a
payment-in-kind dividend of 5 percent.

On all matters submitted for stockholder approval, each share of Series A stock
is entitled to such number of votes as is equal to the number of common shares
into which such preferred shares are then convertible. In addition, so long as
at least 50 percent of the number of Series A shares originally issued are
outstanding, the affirmative vote of at least two-thirds of all outstanding
Series A shares voting separately as a class shall be necessary to permit,
effect any one or more of the following:

o the amendment, alteration or repeal of any provision of our certificate
of incorporation or bylaws so as to adversely affect the relative
rights and preferences of the Series A stock;

o the declaration or payment of any dividend or distribution on any
securities of the Company other than the Series A stock;

o the authorization, issuance or increase of any security ranking prior
to or on parity with the Series A stock in connection with a
dissolution, sale of all or substantially all of our assets or other
"Liquidation Event," or with respect to the payment of any dividends or
distributions;

o the approval of any Liquidation Event; and

o the effect any amendment of our certificate of incorporation or bylaws
that would materially adversely affect the rights of the Series A
stock.

The proceeds from the private placement will be used to fund clinical and
non-clinical research and development, working capital and general corporate
purposes. Maxim Group, LLC of New York, together with Paramount Capital, Inc., a
related party, acted as the placement agents in connection with the private
placement.

(6) STOCK OPTIONS

2003 STOCK OPTION PLAN

In December 2003 the Company established the 2003 Stock Option Plan (the 2003
Plan), which provides for the granting of up to 5,400,000 options to officers,
directors, employees and consultants for the purchase of stock. No grants were
made under this plan in 2003.

1995 STOCK OPTION PLAN

In July 1995, the Company established the 1995 Stock Option Plan (the 1995
Plan), which provided for the granting of up to 130,000 options to officers,
directors, employees and consultants for the purchase of stock. In July 1996,
the 1995 Plan was amended to increase the total number of shares authorized for
issuance by 60,000 shares to a total of 190,000 shares and beginning with the
1997 calendar year, by an amount equal to one percent (1%) of the shares of
common stock outstanding on December 31 of the immediately preceding calendar
year. At December 31, 2003 and 2002, 298,767 and 264,770 shares were authorized
for issuance. The options have a maximum term of 10 years and vest over a period
determined by the Company's Board of Directors (generally 4 years).

During 2002, the Company granted employees and directors an aggregate of 32,000
Plan options . All stock options granted during 2002 and 2001 were granted at
the quoted market price on the date of grant.

Also, during 2002, the Company granted to employees an aggregate of 400,000
options outside of the 1995 Plan. Of these options, 95,000 options represent the
annual issuance of stock options to employees on terms similar to those of prior
year. They vest 25% upon issuance and the remaining options vest in 25%
increments on an annual basis. In addition, 190,000 of these options were issued
as incentive options and will vest upon the earlier of the achievement of
certain milestones by the Company or five years. The remaining 115,000 options
were issued and fully vested in March 2002 as part of voluntary revisions to
compensation arrangements with certain employees, which principally resulted in
the employees deferring a significant portion of their salary. Initially, this
deferred salary was payable on the earlier of the Company's discretion, the
employee's termination, and, in certain cases, at the conclusion of the
employee's contracts and as such the Company continued to accrue for those

F-16

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

salary costs. The 400,000 options were granted at the stock price on the date of
issuance, and are exercisable for a period of ten years regardless of whether
the grantee continues to be employed by the Company.

A summary of the status of the Company's stock options as of December 31, 2003
and 2002 and changes during the years then ended is presented below:

2003 2002
------------------------- -------------------------
Weighted Weighted
average average
exercise exercise
Shares price Shares price
---------- ----------- ----------- -----------
Outstanding at
beginning of year 689,840 $ 5.00 262,640 $ 12.00
Granted 876,490 0.40 432,000 1.20
Cancelled (173,640) 8.43 (4,800) 47.50
----------- -----------
Outstanding at end
of year 1,392,690 $ 1.68 689,840 $ 5.00
========== =========== =========== ===========
Options exercisable
at year-end 398,617 426,673
=========== ===========
Weighted-average
fair value of
options granted
during the year $ 0.06 $ 0.05
=========== ===========

F-17

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

The following table summarizes the information about stock options outstanding
at December 31, 2003:

Remaining Number of
Exercise Number contractual options
price outstanding life (years) exercisable
----------- ---------------- --------------- ---------------
$ 0.400 876,090 9.16 --
0.425 400 9.15 --
1.000 115,000 8.25 115,000
1.250 235,000 8.14 142,500
1.250 32,000 8.08 15,667
3.050 800 7.61 800
4.375 55,000 7.15 46,250
6.565 10,000 5.61 10,000
6.875 2,000 5.41 2,000
7.500 10,000 5.81 10,000
8.750 800 5.73 800
11.565 400 4.66 400
15.938 10,800 6.75 10,800
16.250 2,000 4.61 2,000
20.938 39,600 6.28 39,600
30.470 2,000 6.22 2,000
35.000 400 3.46 400
37.500 400 2.56 400
---------------- ---------------
1,392,690 398,617
================ ===============

(7) STOCK WARRANTS RELATING TO ATLANTIC TECHNOLOGY VENTURES, INC.

As of December 31, 2003, the Company had a total of 348,901 warrants outstanding
relating to Atlantic Technology Ventures, Inc. The prices of these warrants
range from $2.95 to approximately $27. These warrants exprire between 2005 and
2007.

(8) RELATED-PARTY TRANSACTIONS

In 2003 and 2002 the Company entered into consulting agreements with certain
members of its Board of Directors. These agreements require aggregate payments
of $10,417 per month. Consulting expense under these agreements was
approximately $125,000 and $37,500 for the years ended December 31, 2003 and
2002, respectively.

NOVADEL PHARMA INC.

As discussed in Note 10, pursuant to the terms of a license agreement
dated April 4, 2003 by and between the Company and NovaDel Pharma Inc., the
Company has the rights to develop NovaDel's proprietary lingual spray technology
to deliver propofol for preprocedural sedation. The license agreement with
NovaDel requires the Company to make certain license and milestone payments, as
well as pay royalties. During 2003, the Company paid aggregate license fees of
$500,000 to NovaDel under the license agreement. Lindsay A. Rosenwald, who
beneficially owns more than 10 percent of the Company's common stock, also
beneficially owns in excess of 20 percent of the common stock of NovaDel and may
therefore be deemed to be an affiliate of that company.

PARAMOUNT BIOCAPITAL, INC.

Three members of the Company's board of directors, Joshua Kazam, David
Tanen and Michael Weiser, are also employees of Paramount BioCapital, Inc. or
one of its affiliates. The sole shareholder of Paramount BioCapital, Inc. is
Lindsay A. Rosenwald, M.D. Dr. Rosenwald beneficially owns approximately 11
percent of the Company's common stock. In November 2003, the Company paid to
Paramount BioCapital approximately $460,000 as commissions earned in
consideration for placement agent services rendered in connection with the
private placement of the Company's Series A Convertible Preferred Stock, which
amount represented 7 percent of the shares sold by Paramount BioCapital in the
offering. In addition, in January 2004, the Company paid approximately $260,000
as commissions earned in consideration for placement agent services rendered by
Paramount BioCapital in connection with a private placement of the Company's
common stock, which amount represented 7 percent of the shares sold by Paramount
BioCapital in the private placement. In connection with both private placements
and as a result of their employment with Paramount BioCapital, Mr. Kazam and Dr.
Weiser were allocated 5-year placement agent warrants to purchase 60,174 and
103,655 shares of the Company's common stock, respectively, at a price of $1.10
per share.

F-18

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

(9) INCOME TAXES

There was no current or deferred tax expense for the years ended December 31,
2003 and 2002 because of the Company's operating losses.

The components of deferred tax assets and deferred tax liabilities as of
December 31, 2003 and 2002 are as follows:

2003 2002
----------- -----------
Deferred tax assets:
Tax loss carryforwards $ 1,889,000 $ 348,000
Research and development credit 51,000 21,000
License costs 84,000 87,000

----------- -----------
Gross deferred tax assets 2,024,000 456,000
Less valuation allowance (2,024,000) (456,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========

F-19

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

The reasons for the difference between actual income tax benefit for the years
ended December 31, 2003 and 2002 and the amount computed by applying the
statutory federal income tax rate to losses before income tax benefit are as
follows:

2003 2002
--------------------- ---------------------
% of % of
pretax pretax
Amount loss Amount loss
----------- ------ ----------- -----
Income tax benefit
at statutory rate $(2,027,000) (34.0)% $ (353,000) (34.0)%
State income taxes,
net of Federal
tax (354,000) (5.9)% (60,000) (5.8)%
Change in valuation
allowance 1,568,000 26.3% 434,000 41.8%
Credits generated
in current year (30,000) (0.5)% (21,000) (2.0)%
Impairment of
intangible assets 424,000 7.1% -- --%
Loss on sale of
intangible assets 412,000 6.9% -- --%

Other, net 7,000 0.1% -- --%
----------- ---- ----------- -----
Income tax benefit $ -- --% $ -- --%
=========== ==== =========== =====

A valuation allowance is provided when it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The net change
in the total valuation allowance for the years ended December 31, 2003 and 2002
was an increase of $1,568,000 and $434,000, respectively. The tax benefit
assumed using the federal statutory tax rate of 34% has been reduced to an
actual benefit of zero due principally to the aforementioned valuation
allowance.

At December 31, 2003, the Company had potentially utilizable federal and state
net operating loss tax carryforwards of approximately $4,723,000. The net
operating loss carryforwards expire in various amounts through 2023 for federal
and state tax purposes. The Tax Reform Act of 1986 contains provisions, which
limit the ability to utilize net operating loss carryforwards in the case of
certain events including significant changes in ownership interests. As a result
of the merger with Manhattan Research Development, Inc. in February 2003, the
Company incurred a significant change in its ownership, limiting its ability to
utilize net operating loss carryforwards to approximately $100,000 annually. If
the Company has taxable income in the future which exceeds this permissible
annual net operating loss carryforward, the Company would incur a federal income
tax liability even though net operating loss carryforwards would be available in
future years. At December 31, 2003, the Company also had research and
development credit carryforwards of approximately $51,000 for federal tax
purposes which expire in various amounts through 2023.

F-20

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

(10) LICENSE AND CONSULTING AGREEMENTS

On February 15, 2002, the Company entered into a License Agreement (the "License
Agreement") with OED. Under the terms of the License Agreement, OED granted to
the Company a world-wide license to make, use, lease and sell the products
incorporating the licensed technology (see Note 1). OED also granted to the
Company the right to sublicense to third parties the licensed technology or
aspects of the licensed technology with the prior written consent of OED. OED
retains an irrevocable, nonexclusive, royalty-free right to use the licensed
technology solely for its internal, noncommercial use. The License Agreement
shall terminate automatically upon the date of the last to expire patent
contained in the licensed technology or upon the Company's bankruptcy. OED may
terminate the License Agreement in the event of a material breach by the Company
that is not cured within the notice period. The Company may terminate the
License Agreement for any reason upon 60 days notice.

Under the License Agreement, the Company agreed to pay to OED certain licensing
fees which are being expensed as they are incurred. Through December 31, 2003,
the Company paid $175,000 in licensing fees which is included in 2002 research
and development expense. In addition, pursuant to the License Agreement, the
Company issued 1,000,000 shares of its common stock to OED. The Company valued
these shares at their then estimated fair value of $1,000.

In connection with the License Agreement, the Company has agreed to future
milestone payments to OED as follows:

(i) $250,000 upon the treatment of the first patient in a Phase I clinical trial
under a Company-sponsored investigational new drug application ("IND"); (ii)
$250,000 upon the treatment of the first patient in a Phase II clinical trial
under a Company-sponsored IND; (iii) $750,000 upon the first successful
completion of a Company-sponsored Phase II clinical trial under a
Company-sponsored IND; (iv) $2,000,000 upon the first successful completion of a
Company-sponsored Phase III clinical trial under a Company sponsored IND; and
(v) $6,000,000 upon the first final approval of the first new drug application
for the first licensed product by the United States Food and Drug
Administration.

In addition to the License Agreement, the Company entered into a consulting
agreement with OED. The agreement became effective in February 2002, at a fee of
$6,250 per month, and will terminate when the License Agreement terminates. The
fees associated with the consulting agreement are expensed as incurred. OED
agreed to serve as a member of the Company's Scientific Advisory Board and to
render consultative and advisory services to the Company. Such services include
research, development and clinical testing of the Company's technology as well
as the reporting of the findings of such tests, assistance in the filing of
patent applications and oversight and direction of efforts in regards to
personnel for clinical development.

In April 2003, the Company entered into a license and development agreement with
NovaDel Pharma, Inc. ("NovaDel"), a company with significant common stockholders
with the Company, under which the Company received certain worldwide, exclusive
rights to develop and commercialize products related to NovaDel's proprietary
lingual spray technology for delivering propofol for pre-procedural sedation.

F-21

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

Under the terms of this agreement, the Company agreed to use its commercially
reasonable efforts to develop and commercialize the licensed products, to obtain
necessary regulatory approvals and to thereafter exploit the licensed products.
The agreement also provides that NovaDel will undertake to perform, at the
Company's expense, a substantial portion of the development activities,
including, without limitation, preparation and filing of various applications
with applicable regulatory authorities. Holders of a significant portion of the
Company's common stock own a significant portion of the common stock of NovaDel.

In consideration for our rights under the NovaDel license agreement, we paid
NovaDel an initial license fee of $500,000 upon the completion of our $10
million private placement of Series A Convertible Preferred Stock in November
2003. In addition, the license agreement requires us to make certain milestone
payments as follows: $1,000,000 payable following the date that the first IND
for lingual spray propofol is accepted for review by the FDA; $1,000,000
following the date that the first European Marketing Application is accepted for
review by any European Union country; $2,000,000 following the date when the
first filed NDA for lingual spray propofol is approved by the FDA; $2,000,000
following the date when the first filed European Marketing Application for
lingual spray propofol is approved by any European Union country; $1,000,000
following the date on which an application for commercial approval of lingual
spray propofol is approved by the appropriate regulatory authority in each of
Australia, Canada, Japan and South Africa; and $50,000 following the date on
which an application for commercial approval for lingual spray propofol is
approved in any other country (other than the U.S. or a member of the European
Union).

In addition, the Company is obligated to pay to NovaDel an annual royalty based
on a fixed rate of net sales of licensed products, or if greater, the annual
royalty is based on the Company's net profits from the sale of licensed products
at a rate that is twice the net sales rate. In the event the Company sublicenses
the licensed product to a third party, the Company is obligated to pay royalties
based on a fixed rate of fees or royalties received from the sublicensee until
such time as the Company recovers its out-of-pocket costs, and thereafter the
royalty rate doubles. Because of the continuing development efforts required of
NovaDel under the agreement, the royalty rates are substantially higher than
customary for the industry. The Company is also required to pay an up-front fee
in installments contingent on whether the Company receives certain amounts
through financings, revenues or otherwise. Through December 31, 2003, the
Company has paid and expensed $500,000 of such up-front fee.

NovaDel may terminate the agreement (i) upon 10 days' notice if the Company
fails to make any required milestone or royalty payments, or (ii) if the Company
becomes bankrupt or if a petition in bankruptcy or insolvency is filed and not
dismissed within 60 days or if the Company becomes subject to a receiver or
trustee for the benefit of creditors. Each party may terminate the agreement
upon 30 days' written notice and an opportunity to cure in the event the other
party committed a material breach or default. The Company may also terminate the
agreement for any reason upon 90 days' notice to NovaDel.

On August 22, 2003, the Company sold all of its remaining rights to its CT-3
technology to Indevus Pharmaceuticals, Inc. ("Indevus"), the Company's licensee,
for aggregate consideration of approximately $559,000. The purchase price was
paid through a combination of cash and shares of Indevus' common stock. On the
same date, the Company settled its arbitration with Dr. Sumner Burstein, the
inventor of the CT-3 technology, which includes a complete mutual release from
all claims that either party had against the other. As a result of the sale of
the Company's rights to the CT-3 technology to Indevus, the Company recorded a
one-time charge of $1,213,878 in 2003.

On August 8, 2003, Bausch & Lomb informed the Company that it had elected not to
pursue its development of the Avantix technology effective August 11, 2003.
According to the terms of Company's agreement with Bausch & Lomb, the Company

F-22

MANHATTAN PHARMACEUTICALS, INC.
(A Development Stage Company)

Notes to Consolidated Financial Statements

December 31, 2003 and 2002

may re-acquire the technology from Bausch & Lomb and sell or re-license the
technology to a third party. The price to re-acquire the technology from Bausch
& Lomb is 50 percent of the proceeds from a third party sale to a maximum of $3
million. The Company has no further obligation under the agreement. As a result
of Bausch & Lomb's decision not to develop the Avantix technology, the Company
recorded a one-time charge of $1,248,230 in 2003 for the impairment of the
related intangible asset.

(11) COMMITMENTS AND CONTINGENCIES

LEGAL PROCEEDINGS

The Company is currently not party to any claims or lawsuits.

EMPLOYMENT AGREEMENTS

The Company entered into employment agreements with two executives during 2003.
These agreements as amended provide for the payment of base salaries totaling
$475,000 as well as performance-based bonuses. The agreements range in term from
one to two years.

CONSULTING AGREEMENTS

The Company has month to month agreements with certain employees requiring
aggregate monthly payments of $20,834.

(12) SUBSEQUENT EVENTS

On January 13, 2004, the Company completed a private placement of 3,368,637
shares of its common stock at a per share price of $1.10. After deducting
commissions and other expenses relating to the private placement, the Company
received aggregate net proceeds of approximately $3,444,000. The Company also
issued to the placement agent engaged in connection with the private placement a
5-year warrant to purchase 336,864 shares of common stock at a price of $1.10
per share.

The proceeds from the private placement will be used to fund clinical and
non-clinical research and development, working capital and general corporate
purposes. Paramount Capital, Inc., acted as the placement agent in connection
with the private placement. Three of the Company's Directors are also employees
of Paramount Capital, Inc., a related party.

F-23