9. NOTES PAYABLE

The following is a summary of Notes Payable:

	At September 30, 2011						At December 31, 2010
	Current portion, net		Non-current portion, net		Total		Current portion, net		Non-current portion, net		Total
Secured 12% Note Payable, Net	$	-	$	-	$	-	$	1,722,346	$	-	$	1,722,346
Non-interest Bearing Note Payable, Net		246,900		-		246,900		231,900		-		231,900
Convertible 5% Notes Payable		-		16,225,433		16,225,433		-		15,452,793		15,452,793
ICON Convertible Note		514,414		163,364		677,778		100,000		677,778		777,778
Total	$	761,314	$	16,388,797	$	17,150,111	$	2,054,246	$	16,130,571	$	18,184,817

a. Secured 12% Notes Payable

In 2008 and 2009 the Company sold $1,725,000 of 12% senior secured notes (the “Secured 12% Notes”) that mature two years after issuance and issued warrants to the investors to purchase 1.15 million shares of the Company’s common stock at $4.50 per share. The warrants expire on December 31, 2013. Net proceeds of $1.4 million were realized and $78,000 of issuance costs were paid outside of the closings.

On February 9, 2011, the Company entered into a waiver and forbearance agreement (the “Extension Agreement”) with the requisite holders of the Secured 12% Notes whereby the holders of the notes (the “Noteholders”) agreed to forbear the exercise of their rights under the Notes and waive the default thereof until December 31, 2011. As part of the Extension Agreement, the Company has agreed to take and has taken prompt steps to seek to reduce its outstanding indebtedness by permitting the Noteholders to convert the Secured 12% Notes into shares of the Company's common stock at a conversion price of $0.50 per share and to amend the terms of the warrants issued with the Secured 12 % Notes to include a full-ratchet anti-dilution feature and an exercise price of $0.50 per share. The Company obtained stockholder approval to, among other things, increase the number of its authorized common stock. The Company has increased its authorized shares of common stock through the Reverse Split. As a result of the Reverse Split the Secured 12% Notes became convertible into common stock at a conversion price of $0.50, this triggered the antidilution rights of the warrants issued with Secured 12% Notes, the warrants issued with the Convertible 12% Note and the warrants issued in the 2010 Equity Pipe. The Secured 12% Notes and interest thereon, amounting to $676,072 at the time of conversion, converted into the right to receive 4,802,199 shares of the Company’s common stock on September 15, 2011 (the “Secured Debt Conversion”).

National Securities Corporation (“National”) was the placement agent for the Secured 12% Notes Transaction. The Company issued to National, as a component of their placement agent fee, Warrants to purchase 0.2 million shares of the Company’s common stock at $4.50 per share. The Warrants expire on December 31, 2013.

Interest on the Secured 12% Notes is compounded quarterly and was payable at maturity. At December 31, 2010, accrued and unpaid interest on the Secured 12% Notes amounted to approximately $481,000, and is reflected in the accompanying balance sheet December 31, 2010 as part of interest payable. The Secured 12% Notes are secured by a pledge of all of the Company’s assets except for its investment in the Hedrin JV. In addition, to provide additional security for the Company’s obligations under the notes, the Company entered into a default agreement, which provides that upon an event of default under the notes, the Company shall, at the request of the holders of the notes, use reasonable commercial efforts to either (i) sell a part or all of the Company’s interests in the Hedrin joint venture or (ii) transfer all or part of the Company’s interest in the Hedrin JV to the holders of the notes, as necessary, in order to fulfill the Company’s obligations under the notes, to the extent required and to the extent permitted by the applicable Hedrin joint venture agreements.

The Company incurred a total of approximately $424,000 of costs in the issuance of the $1,725,000 of Secured 12% Notes sold in 2008 and 2009. These costs were capitalized and were amortized over the life of the Secured 12% Notes into interest expense. During the nine months ended September 30, 2011 and the year ended December 31, 2010, the amount amortized into interest expense was approximately $4,000 and $197,000, respectively. At June 30, 2011 the costs of issuance were fully amortized. At December 31, 2010 the remaining unamortized balance of approximately $4,000 is reflected in the accompanying balance sheet as of December 31, 2010 as debt issue costs.

The Company recognized an original issue discount (the “OID”) of approximately $194,000 on the issuance of the Secured 12% Notes sold for the value of the warrants issued to the investors. The OID was being amortized over the life of the Secured 12% Notes into interest expense. During the nine months ended September 30, 2011 and year ended December 31, 2010 the amount amortized into interest expense was approximately $3,000 and $91,000, respectively. At June 30, 2011 the OID was fully amortized. At December 31, 2010 the remaining unamortized balance of approximately $3,000 has been netted against the face amount of Notes Payable in the accompanying balance sheet as of December 31, 2010.

The closing market price of the Company’s common stock on February 9, 2011 was greater than the conversion price, therefore the Company recognized a beneficial conversion feature of $1,725,000 on the Secured 12% Notes and $502,949 on interest payable on the Secured 12% Notes. The closing market price of the Company’s common stock on March 31, 2011 was greater than the conversion price, therefore the Company recognized an additional beneficial conversion feature of $17,647 on interest payable on the Secured 12% Notes. The closing market price of the Company’s common stock on June 30, 2011 was less than the conversion price, therefore there was no beneficial conversion charges for the interest during the quarter ended June 30, 2011. The beneficial conversion feature has been recorded as a discount on the Secured 12% Notes and on the interest payable on the Secured 12% Notes. The Secured 12% Notes became convertible upon the execution of the Reverse Split on June 20, 2011. The beneficial conversion feature was amortized on a straight-line basis over the remaining term of the Secured 12% Notes (June 20, 2011 through December 31, 2011). The Company amortized $1,019,684 of the beneficial conversion feature for the nine months ended September 30, 2011, which is reflected in the accompanying Statement of Operations as a component of interest expense. At the date of the Secured Debt Conversion the unamortized portion of the beneficial conversion feature amounted to $1,225,912 and was charged to income as loss on early extinguishment of debt.

b. 8% Note Payable

On December 21, 2009, the Company entered into a Future Advance Promissory Note (the “8% Note”) with Ariston under which the Company may withdraw up to $67,000 bearing interest at a rate of 8%. As of December 31, 2009, the Company had withdrawn $27,000 from Ariston subject to the terms of the 8% Note. On January 13, 2010, the Company withdrew an additional $20,000 subject to the 8% Note and on January 28, 2010, the Company withdrew an additional $20,000 subject to the 8% Note. On March 4, 2010, the Company repaid Ariston the $67,000 withdrawn subject to the 8% Note and accrued interest of $816.

c. Non-interest Bearing Note Payable

On October 27, 2009, the Company entered into a Settlement Agreement and Mutual Release with Swiss Pharma Contract LTD (“Swiss Pharma”) pursuant to which the Company agreed to pay Swiss Pharma $200,000 and issue to Swiss Pharma an interest free promissory note due on October 27, 2011 in the principal amount of $250,000 in full satisfaction of the September 5, 2008 arbitration award.

In connection with the non-interest bearing note, the Company recognized an original issue discount of $40,000 of imputed interest on the note, which is being amortized into interest expense on a straight-line basis over the two-year term of the note. For the nine months ended September 30, 2011 and the year ended December 31, 2010, the Company amortized $15,000 and $20,000 of the OID into interest expense, respectively. The remaining unamortized balances of $3,100 and $18,100 have been netted against the face amount of Notes payable, current portion, net in the accompanying balance sheets as of September 30, 2011 and December 31, 2010, respectively.

d. Convertible 12% Note Payable

In October 2009, the Company sold a 12% Original Issue Discount Senior Subordinated Convertible Debenture with a stated value of $400,000 (the “Convertible 12% Note”) and a warrant to purchase 44,444 shares of the Company’s common stock for a purchase price of $200,000. National was the placement agent for the Convertible 12% Note transaction. The Company issued to National, as a component of their placement agent fee, warrants to purchase 4,444 shares of the Company’s common stock. The warrants issued to the investors and National expire in October 2014 and were exercisable at an original price of $5.50 per share, subject to adjustment. As a result of the 2010 Equity Financing the exercise price and number of shares represented by these warrants adjusted to 69,841 shares at $3.50 per share for the investors and 6,984 shares at $3.50 per share for National.

The Convertible 12% Note was convertible into shares of the Company’s common stock in the event the Company issues new securities in connection with a financing. The Convertible 12% Note may be converted into such new securities at a conversion price equal to the purchase price paid by the purchasers of such new securities. On April 8, 2010, the holder of the Convertible12% Note exercised its option to convert its note, including all accrued interest thereon, into 16.88 Units of the 2010 Equity Financing.

e. Convertible 5% Notes Payable

Upon the Merger, Ariston issued $15,452,793 of five-year 5% notes payable (the “5% Notes”) in satisfaction of several note payable issuances. The cumulative liability including accrued and unpaid interest of these several issuances of notes was $15,452,793 as of the Merger date. The 5% Notes and accrued and unpaid interest thereon are convertible at the option of the holder into the Manhattan’s common stock at the conversion price of $20 per share. Ariston agreed to make quarterly payments on the 5% Notes equal to 50% of the net product cash flow received from the exploitation or commercialization of Ariston’s product candidates, AST-726 and AST-915. The 5% Notes are solely the obligation of Ariston and have no recourse to Manhattan other than the conversion feature discussed above. Interest accrues monthly, is added to principal on an annual basis, every March 8, and is payable at maturity. For the nine months ended September 30, 2011, the Company recorded approximately $601,000 of interest expense on the 5% Notes. On March 8, 2011 the accrued and unpaid interest on the 5% Notes was $772,640 and was added to the principal amount of the 5% Notes Payable. At September 30, 2011 the principal amount of the 5% Notes was $16,225,433 and interest payable on the 5% Notes Payable was $455,214 and were reflected as components of notes payable, noncurrent portion, net and interest payable, noncurrent portion, respectively, in the accompanying balance sheet as of September 30, 2011. At December 31, 2010 the principal amount of the 5% Notes was $15,452,793 and interest payable on the 5% Notes Payable was $626,697 and were reflected as components of notes payable, noncurrent portion, net and interest payable, noncurrent portion, respectively, in the accompanying balance sheet as of December 31, 2010.

f. ICON Convertible Note Payable

Upon the Merger, Ariston satisfied an account payable of $1,275,188 to ICON Clinical Research Limited (“ICON”) through the payment of $275,188 in cash and the issuance of a three-year 5% note payable (the “ICON Note”). The principal was to be repaid in 36 monthly installments of $27,778 commencing in April 2010. Interest was payable monthly in arrears. On March 1, 2011 Ariston entered into an amended and restated convertible promissory note (the “Amended ICON Note”) with ICON. The principal terms of the Amended ICON Note are that monthly payments of principal and interest will be waived for the thirteen month period ended December 31, 2011 (the “Waiver Period”) in exchange for a single payment of $100,000 on March 31, 2011, an increase in the interest on the Amended ICON Note from 5% to 8% per annum during the Waiver Period and a balloon payment on January 31, 2012. The Amended Note decreased the debt service requirements of the Company and Ariston by approximately $300,000 during the thirteen-month period ended December 31, 2011. The Amended ICON Note is convertible at the option of the holder into the Company’s common stock at the conversion price of $10 per share. During the nine months ended September 30, 2011, the Company has recorded approximately $44,000 of interest expense on the Amended ICON Note. At September 30, 2011 the principal amount of the Amended ICON Note was $667,778, of which $514,414 was current, and interest payable on the Amended ICON Note was $47,223 and were reflected as components of notes payable, current portion, net, notes payable, noncurrent portion, net, and interest payable, current portion, net respectively, in the accompanying balance sheet as of September 30, 2011. At December 31, 2010 the principal amount of the Amended ICON Note was $777,778, of which $100,000 was current, and interest payable on the Amended ICON Note was $3,303 and were reflected as components of notes payable, current portion, net, notes payable, noncurrent portion, net and interest payable, current portion, respectively, in the accompanying balance sheet as of December 31, 2010.