ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

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

OVERVIEW

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

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

As of June 30, 2004, we had an accumulated loss since inception, 1992, of $44,271,000. Included in this accumulated loss are charges amounting to approximately $19,031,000 relating to the issuance of equity instruments for services and approximately $6,700,000 from Tamarack prior to our acquisition of Tamarack. We expect operating losses to continue for the foreseeable future because we will be continuing to fund research and development efforts as well as general and administrative expenses, although the commercialization process has begun on three of the Company's four technology investments.

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

COMPARISON OF THREE MONTHS ENDED JUNE 30, 2004 TO THREE MONTHS ENDED JUNE 30,
2003.

NET LOSS. We reported a net loss of $20,000, or $.00 per common share, basic and diluted, for the three months ended June 30, 2004, versus a net loss of $904,000, or $.01 per common share, basic and diluted, for the three months ended June 30, 2003. The decrease of $884,000, or 98%, resulted from our decreased issuance of common stock and stock options for services and a gain on issuance of investee common stock.

REVENUES. We had no revenues for the three months ended June 30, 2004 and $300,000 of revenues for the three months ended June 30, 2003. The $300,000 in revenue for the quarter ended June 30, 2003 related to the licensing of the company's mid-range fuel cell technology.

OPERATING COSTS AND EXPENSES. Operating costs and expenses for the three months ended June 30, 2004 totaled $660,000, a decrease of $679,000, or 51%, versus costs and expenses of $1,339,000 for the three months ended June 30, 2003. These costs and expenses are detailed below.

GENERAL AND ADMINISTRATIVE. General and administrative expenses were $566,000 for the three months ended June 30, 2004, which consisted of consultants, contractors, accounting, legal, travel, rent, telephone and other day to day operating expenses, versus general and administrative expenses of $1,320,000 for the three months ended June 30, 2003. This decrease of $754,000, or 57%, is primarily a result of the fact that, in 2003, we recorded charges for the issuance of stock and stock options for services, whereas in the fiscal 2004 period, we issued significantly less stock for services. We anticipate no significant change in general and administrative expenses in the near future.

RESEARCH AND DEVELOPMENT. Research and development expenses were $94,000 for the three months ended June 30, 2004, which consisted of amortization of patents and contract research services. Research and development expenses amounted to $19,000 for the three months ended June 30, 2003. This increase of $75,000, or 394% resulted from our contract with the United States Department of Defense in the amount of $90,000. In addition we had contract revenue related to this contract in the amount of $90,000. We expect research and development costs to increase as we develop our existing technologies and acquire or license new ones.

COMPARISON OF SIX MONTHS ENDED JUNE 30, 2004 TO SIX MONTHS ENDED JUNE 30, 2003.

NET LOSS. We reported a net loss of $212,000, or $.00 per common share, basic and diluted, for the six months ended June 30, 2004, versus a net loss of $1,464,000, or $.01 per common share, basic and diluted, for the six months ended June 30, 2003. The decrease of $1,252,000, or 86%, resulted from our decreased issuance of common stock for services. In addition, we had a gain of $509,000 from the sale of our shares in Novint Technologies, Inc., whereas in fiscal 2003 we received $273,000 from the sale of our common stock in NMXS.com. Novint also issued common stock in a private placement, which resulted in a gain on issuance of $531,000.

REVENUES. We had revenues of $150,000 for the six months ended June 30, 2004 and $300,000 of revenues for the six months ended June 30, 2003. These revenues were a result of the Company licensing its midrange fuel cell technology.

OPERATING COSTS AND EXPENSES. Operating costs and expenses for the six months ended June 30, 2004 totaled $1,419,000, a decrease of $532,000, or 27%, versus costs and expenses of $1,951,000 for the six months ended June 30, 2003. These costs and expenses are detailed below.

GENERAL AND ADMINISTRATIVE. General and administrative expenses were $1,313,000 for the six months ended June 30, 2004, which consisted of consultants, contractors, accounting, legal, travel, rent, telephone and other day to day operating expenses, versus general and administrative expenses of $1,912,000 for the six months ended June 30, 2003. This decrease of $599,000, or 31%, is primarily a result of the fact that, in 2003, we recorded charges for the issuance of stock and stock options for services, whereas in the fiscal 2004 period, we issued significantly less for services. We anticipate no significant change in general and administrative expenses in the near future.

RESEARCH AND DEVELOPMENT. Research and development expenses were $106,000 for the six months ended June 30, 2004, which consisted of payments on research and development agreements with various contractors and amortization of patents. Research and development expenses amounted to $39,000 for the six months ended June 30, 2003. This increase of $67,000, or 172% resulted from our contract with the United States Department of Defense in the amount of $90,000. In addition, we had contract revenue related to this contract in the amount of $90,000. We expect research and development costs to increase as we develop our existing technologies and acquire or license new ones.

LIQUIDITY AND PLAN OF OPERATIONS

We are a development stage company and are in the technology acquisition and development phase of our operations. Accordingly, we have relied primarily upon private placements and subscription sales of stock to fund our continuing activities and acquisitions. To a limited extent, and as described below, we have also relied upon borrowing from the Company's two senior officers, CEO Maslow and COO Harrod, and through a bank guarantee made by Mr. Maslow of a traditional loan which we recently retired. Until we generate revenue from sales and licensing of technology, or receive a large infusion of cash from a potential strategic partner or through the efforts of an investment banker, we intend to continue to rely upon this methods and the limited sales of our shares or other assets, which has become increasingly difficult with our low share price, to fund operations during the next year.

Our significant assets include our portfolio of intellectual property relating to the various technologies, our contracts with third parties pertaining to technology development, acquisition, and licensing, and 3,254,912 shares of common stock of Novint Technologies, Inc.; our cash on hand; and our strategic alliances with various scientific laboratories, educational institutions, scientists and leaders in industry and government.

Stockholders' equity totaled a deficit of $929,000 on June 30, 2004 and the working capital was a deficit of $2,388,000 on such date.

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

Based upon current projections, our principal cash requirements for the next 12 months consists of (1) fixed expenses, including rent, payroll, investor relations services, public relations services, bookkeeping services, graphic design services, consultant services, and reimbursed expenses; and (2) variable expenses, including technology research and development, milestone payments, intellectual property protection, utilities and telephone, office supplies, additional consultants, legal and accounting. As of June 30, 2004, we had $87,000 in cash. As of June 30, 2003, we had $150,000 in cash. We intend to satisfy our capital requirements for the next 12 months by continuing to pursue private placements to raise capital, using our common stock as payment for services in lieu of cash where appropriate, borrowing as appropriate, and our cash on hand. However, we do not know if those resources will be adequate to cover our capital requirements.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The Company's adoption of SFAS No. 146 on January 1, 2003 did not have any material effect on the financial statements of the Company.

In January 2003, the FASB issued interpretation No. 46R ("FIN 46R"), "Consolidation of Variable Interest Entities." Until this interpretation, a company generally included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN 46R requires a variable interest entity, as defined, to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or is entitled to receive a majority of the entity's residual returns. Certain provisions of FIN 46R were deferred until the period ending after March 15, 2004. The adoption of FIN 46R for provisions effective during 2003 did not have a material impact on the Company's financial position, cash flows or results of operations.

In April 2003, the FASB issued Statement No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." (SFAS No. 149), which amends SFAS 133 for certain decisions made by the FASB Derivatives Implementation Group. In particular, SFAS 149: (1) clarifies under what circumstances a contract with an initial net investment meets the characteristic of a derivative, (2) clarifies when a derivative contains a financing component,
(3) amends the definition of an underlying financial component to conform it to language used in FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," and (4) amends certain other existing pronouncements. This statement is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. In addition, most provisions of SFAS 149 are to be applied prospectively. The adoption of this standard did not have a material impact on the Company's financial position, cash flows or results of operations.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." ("SFAS No. 150") This statement affects the issuer's accounting for three types of freestanding financial statements: mandatorily redeemable shares, put and forward purchase contracts that require the issuer to buy back some of its shares in exchange for cash or other assets, and certain obligations that can be settled in shares. This statement is effective for all financial instruments entered into or modified after May 31, 2003, and otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The impact of adopting SFAS No. 150 was not material to the Company's financial position and results of operations.

In December 2003, the Securities and Exchange Commission ("SEC"), published Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition." This SAB updates portions of the SEC staff's interpretive guidance provided in SAB 101 and included in Topic 13 of the Codification of Staff Accounting Bulletins. SAB 104 deletes interpretative material no longer necessary, and conforms the interpretive material retained, because of pronouncements issued by the FASB's Emerging Issues Task Force ("EITF") on various revenue recognition topics, including EITF 00-21, "Revenue Arrangements with Multiple Deliverables." SAB No. 104 also incorporates into the SAB Codification certain sections of the SEC staff's "Revenue Recognition in Financial Statements - Frequently Asked Questions and Answers." SAB No. 104 does not have a material impact on the Company's financial position and results of operations since the Company's revenue recognition practices previously conformed to the interpretations codified by SAB No. 104.