<PAGE> 1
1
United States Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 1 to
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the quarterly period ended February 28, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from ______to ______
Commission file number: 001-12867
NEVADA MANHATTAN MINING INCORPORATED
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 88-0219765
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification No.)
5038 N. PARKWAY CALABASAS, SUITE #100, CALABASAS, CA 91302
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices
(818) 591-4400
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
3 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 16,099,562 of Common Stock and
207,608 of Series A Preferred Stock.
Traditional Small Business Disclosure Format (check one): Yes [X] No [ ]
<PAGE> 2
2
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1 Financial Statements for Nevada Manhattan Mining, Inc.
Consolidated Statements of Operations -
Three and Nine Months Ended February 28, 1998 and 1997 3
Consolidated Balance Sheets -
February 28, 1998 and May 31, 1997 5
Consolidated Statements of Cash Flow -
Nine Months Ended February 28, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operation 11
PART II OTHER INFORMATION
Item 1 Legal Proceedings 13
Item 2 Changes in Securities 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
Signature 16
</TABLE>
<PAGE> 3
3
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
(Unaudited)
<S> <C> <C>
1998 1997
---- ----
Revenues $ 174,175 $ --
Cost of Sales 147,278 --
----------- ---------
Gross profit 26,897 --
Expenses:
General and administrative (1,424,240) (662,270)
----------- ---------
Net loss (1,397,343) (662,270)
Cumulative preferred dividends (0) (97,223)
----------- ---------
Net loss attributable to common
shareholders $(1,397,343) $(759,493)
=========== =========
Net loss per common share $ (0.08) $ (0.08)
=========== =========
Weighted average shares outstanding 15,557,214 10,405,727
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 4
4
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
(Unaudited)
1998 1997
----- ----
<S> <C> <C>
Revenues $ 525,981 $ --
Cost of Sales 413,151 --
------------ ------------
Gross profit 112,830 --
Expenses:
General and administrative (4,363,954) (1,319,759)
------------ ------------
Net loss (4,251,124) (1,319,759)
Cumulative preferred dividends (58,356) (136,063)
------------ ------------
Net loss attributable to common
shareholders $ (4.309,480) $ (1,455,822)
============ ============
Net loss per common share $ (0.32) $ (0.13)
============ ============
Weighted average shares outstanding 13,436,463 10,405,727
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 5
5
NEVADA MANHATTAN MINING INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
MAY 31, 1997
Current assets: FEB. 28, 1998 (Restated)
-------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 9,354 $ 559,510
Accounts receivable 64,481 58,161
Inventory 45,000 --
Prepaid expenses 948,222 622,710
------------ ------------
Total current assets 1,067,057 1,240,381
------------ ------------
Property and equipment
Mineral Properties
Domestic 2,936,000 2,936,000
Indonesia 2,600,000 2,600,000
Brazilian timber concession 1,460,000 700,000
Furniture, fixtures, equipment 781,346 431,840
Less accumulated depreciation (140,185) (82,998)
------------ ------------
7,637,161 6,584,842
------------ ------------
8,704,218 7,825,223
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 415,464 544,738
Accrued liabilities 925,676 441,535
Notes payable to stockholders 2,058,497 712,321
Current portion of long-term debt 60,000 303,818
------------ ------------
Total current liabilities 3,459,637 2,002,412
------------ ------------
Convertible debentures 2,264,167 1,333,333
Long term debt 24,540 72,695
------------ ------------
Total liabilities 5,748,344 3,408,440
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock to be issued 760,000 108
Preferred stock, $1 par, 250,000 shares
Authorized, 207,608 and 228,319 207,608 228,319
outstanding At February 28, 1998
Common stock, $0.01 par, 49,750,000
Shares authorized, 16,099,562 and
12,273,565 shares issued 160,995 122,736
Additional paid-in capital 26,106,812 23,699,575
Accumulated deficit (24,279,541) (19,633,955)
------------ ------------
Total stockholders' equity 2,955,874 4,416,783
------------ ------------
$ 8,704,218 $ 7,825,223
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 6
6
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
(Unaudited)
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities: $(4,251,124) $(1,319,759)
Net loss
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 63,878 240,000
Depreciation and amortization 328,021 7,500
Minority interest expense -- 49,500
Accounts receivable (6,320) --
Inventory (45,000) --
Prepaid expenses 378,426 (164,500)
Accounts payable and accrued liabilities 819,511 (12,515)
----------- -----------
Net cash used in operating activities (2,712,608) (1,199,774)
----------- -----------
Cash flows from investing activities:
Purchase of inventory, property and equipment (529,381) (1,521,460)
----------- -----------
Cash flows from financing activities:
Additions to convertible debentures 1,500,000 14,556
Payments on debt (293,376) (6,251)
Proceeds from notes payable to stockholders 1,346,176 254,945
Proceeds from issuance of stock and stock
to be issued 139,033 2,359,537
----------- -----------
Net cash provided by financing activities 2,691,833 2,622,787
----------- -----------
Net increase (decrease) in cash and cash equivalents (550,156) (98,447)
Cash and cash equivalents at beginning of period 559,510 233,981
----------- -----------
Cash and cash equivalents at end of period $ 9,354 $ 135,534
=========== ===========
Supplemental cash flow information:
Cash paid during the year for interest $ 0 $ 0
----------- -----------
</TABLE>
Non-Cash Transactions:
During the nine months ended February 28, 1998, the Company issued:
o 100,000 shares of Common Stock valued at $441,000 for a consulting
contract.
o 224,109 shares of Common Stock valued at $262,938 for liquidated damages to
a debenture holder.
o 65,000 shares of Common Stock valued at $325,000 for mine contract services
to Harrison Western.
o 5,000 shares of Common Stock valued at $12,700 was issued to Vanderbilt for
option to acquire property.
o 1,000,000 shares of Common Stock valued at $760,000 to be issued to
Ignatius Theodorou over a three-year period for Company's acquisition of
certain interests in Brazil.
o 65,000 shares of Common Stock valued at $63,876 issued for services.
During the nine months ended February 28, 1998, $340,000 of debenture notes were
converted to 212,911 shares of Common Stock. During the nine months ended
February 28, 1998, shareholders converted 165,144 Preferred Shares to 1,651,440
Common Shares.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 7
7
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. STATEMENT OF INFORMATION FURNISHED
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-QSB instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of February
28, 1998, the results of operations for the three months and nine months
ending February 28, 1998 and 1997, and the cash flows for the nine months
ended February 28, 1998 and 1997. These results have been determined on the
basis of generally accepted accounting principles and practices applied
consistently with those used in the preparation of the Company's audited
financial statements for its fiscal year ended May 31, 1997.
2. BUSINESS
The Company's business is the harvesting of timber and the production of
rough sawn lumber and other finished wood products in Brazil and the
exploration and mining of precious metals and coal in Nevada and Indonesia.
The Company holds various rights in and to the following properties: (i)
various timber properties aggregating up to approximately 750,000 hectares
(1,875,000 acres) and sawmill facilities located near the town of Sao
Miguel do Guama, Brazil all of which are located in the state of Para,
Brazil (the "Brazilian Timber Properties"); (ii) twenty-eight (28) patented
and sixty-five (65) unpatented claims aggregating approximately 1,800 acres
(the "Nevada Property") which are located near the town of Manhattan,
Nevada (approximately 45 miles northeast of Tonopah, Nevada); (iii) seven
(7) gold concessions aggregating 39,400 hectares (98,500 acres) which are
located in both the gold belt area of Kalimantan, Indonesia, and on the
island of Sumatra (see "Indonesian Gold Concessions"); and (iv) three (3)
coal properties located in Kalimantan, Indonesia, comprising 290,000
hectares (725,000 acres) (the "Indonesian Coal Concessions").
The Company is currently not operating the sawmill in Sao Miguel do Guama,
Brazil. On February 27, 1998, the Company announced that based on
recommendations from outside consultants related to timber production and
environmental management, the Company began transporting an initial 1,000
cubic meters of the Company's inventory of raw materials to Tome-Acu, in
the Amazon Basin within the same region as Sao Miguel operations. In
addition, the Company began experiencing problems in its relationship with
the former owner of the Sao Miguel sawmill. Timber production in Tome-Acu
commenced in March, 1998. These new timber milling operations commenced in
anticipation of acquiring a leasehold interest in an operating sawmill
located in the Tome-Acu area or another facility in the region, where
hardwood is readily available for harvesting in a sustainable method. The
Company expects to be able to substantially reduce its transportation
expenses and overhead expenses associated with the production of timber
products, thereby creating additional efficiencies.
<PAGE> 8
8
On December 19, 1997 the Company increased its equity ownership of its
Brazilian subsidiary, Equatorial Resources Ltda., from 80% to 100%. The
Company renegotiated its agreement with Ignatius Theodorou, formerly the
20% minority shareholder in Equatorial. The Company agreed to pay Mr.
Theodorou one million shares of its restricted common stock over a three
year period in consideration of acquiring certain interests in Brazil.
Under the new agreement, the Company will no longer be required to pay Mr.
Theodorou a total of $3,000,000.
On November 25, 1997 the Company entered into a non-binding letter of
intent with Royal Gold (the "Letter of Intent") relating to exploration and
development efforts on its Manhattan Property located in Nye County,
Nevada. Under the terms of the Letter of Intent, Royal Gold was granted an
exclusive option to explore, develop and purchase all of the interests
which are or may be controlled by the Company on the Manhattan Property.
The term of the agreement to be entered into (if at all), consistent with
the terms of the Letter of Intent, will be three years, renewable for
successive terms of three years, provided that Royal Gold continues to
perform exploration work. The Company will retain a 4% net smelter returns
royalty and also reserves the right to continue with the development of its
underground mining opportunity at the historic White Caps location. Royal
Gold has the option to acquire all of the Company's interest in the
property, at any time during the term of the agreement, upon the payment to
the Company of $5 million. The agreement would continue indefinitely to the
extent that Royal Gold is achieving production in commercial quantities or
is engaged in reclamation. Closing of the transaction will be subject to
title and environmental due diligence, and documentation in a form
satisfactory to both parties. The option was granted in part because Royal
Gold is the largest U.S.-based, publicly held gold royalty company. It
engages in the acquisition, exploration and development of gold properties
and the acquisition and management of royalty interests.
3. CONVERTIBLE DEBENTURES
On April 14, 1997 and July 7, 1997, the Company entered into Subscription
Agreements related to two negotiated private placements. These transactions
were made in reliance upon the exemption from registration afforded by
Section 4(2) of the Securities Act of 1933. As a result, the Company issued
an aggregate of $3,500,000 of 8% Senior Secured Convertible Debentures (the
"Debentures") due March 31, 2000 (with respect to $2,000,000 of the
Debentures) and July 1, 2000 (with respect to $1,500,000 of the Debentures)
and granted to the purchasers warrants to purchase 62,500 shares and 75,250
shares of the Company's Common Stock (the "Warrants"), respectively.
The Debentures may be converted into shares of Common Stock at any time at
a price equal to the lesser of: seventy-five percent (75%) of the closing
bid price of the Common Stock on the closing date (i.e. 75% X $8.00, or
$6.00 per share); seventy-five percent (75%) of the closing bid price of
the Common Stock on the day prior to the funding of any subsequent funding
("tranche"); or seventy-five percent (75%) of the average closing bid price
for the five trading days immediately preceding the actual date of
conversion of the Debentures. With respect to the April 1997 funding, if
conversion is made after August 16, 1997 (as the case may be with respect
to $1,800,000 of the April 1997 Debentures), the discount will be
seventy-two and one-half percent (72.5%) of the above-referenced valuation
standards. The Company has recorded financing charges for the differences
between the conversion price and the fair market value of the stock at the
date of each funding ($500,000 for the nine month period ended February 28,
1998). The discount will be amortized over the life of the Debentures.
<PAGE> 9
9
The Company was required to use its "best efforts" to cause a registration
statement on Form SB-2 (the "Registration Statement") with the Securities
and Exchange Commission (the "Commission") to become effective. If the
Registration Statement did not become effective within 120 days of each
respective funding, the Company was required to pay liquidated damages
equal to two percent (2%) of the Debentures for the first thirty days and
three percent (3%) per month thereafter until the Registration Statement
becomes effective. The Company withdrew its Registration Statement pending
further discussion with the Commission. The Company has entered into
discussions with its Debenture holders in an effort to secure from the
Debenture holders "lockup" agreements allowing the Company to retire the
Debentures without market conversion to common stock pursuant to a
registration statement.
With regard to the April 1997 funding, until at least seventy-five percent
(75%) of the Debentures are converted, a deed of trust on the Nevada
Property and a pledge of 1,000,000 shares of Common Stock will secure the
Debentures. No such security is given on the Debentures issued in July
1997.
The Company has issued warrants to the subscribers of the April 14 and July
7 Debentures. The subscribers of the April 14 Debentures have been granted
warrants to purchase 62,500 shares of Common Stock at an exercise price of
$8 per share until April 16, 2002. The subscribers of the July 17, 1997
Debentures have been granted warrants to purchase 75,250 shares of Common
Stock at an exercise price of $6.75 per share until July 16, 2002. The
exercise price is subject to adjustment to account for payments of
dividends, stock splits, reverse stock splits, and similar events.
4. RESTATEMENT
As explained in the Company's Form 10-QSB for the period ending November
30, 1997, the Company has discussed with the Securities and Exchange
Commission possible adjustments to the carrying value of its Nevada and
Indonesia mineral proprties in accordance with the SEC Industry Guide 7 and
Statement of Financial Accounting Standards No. 121. As of February 28,
1998, the Company has provided an impairment against those properties as
follows:
Exploration costs related to the Nevada properties $3,036,000
Exploration costs related to the Indonesian properties 227,000
------------
Total adjustment $3,263,000
The remaining capitalized costs in Nevada at February 28, 1998 ($2,936,000)
represent acquisition costs of $2,525,000 and capitalized development costs
of $411,000. The capitalized development costs are limited to the
proven/probable reserves contained in the Nevada properties. The remaining
capitalized costs related to the Indonesia properties are the acquisition
costs of $2,600,000. The Company has restated its May 31, 1997 financial
statements as a result of this impairment, reducing the Domestic property
and equipment value from $5,830,091 to $2,744,327 and Indonesia property
and equipment value from $2,826,782 to $2,600,000.
<PAGE> 10
10
5. SUBSEQUENT EVENTS:
(a) On March 3, 1998, the Company executed an agreement (the " Metsa
Agreement") with Oy Metsa Timber Ltd. of Helsinki, Finland for timber
distribution and management services. The Metsa Agreement grants Metsa
distribution and sales rights for the output of timber and timber-
related products of its subsidiary, Equatorial Resources. Metsa
Timber's extensive marketing areas include the United Kingdom, France,
Italy, Germany, Denmark, The Netherlands, Japan, Greece, Northern
Africa and Arab countries. The Metsa Agreement also provides the
Company with management and development assistance which will be
provided through one of Metsa's sister subsidiaries, FWI Wood
International.
Metsa Timber group is one of Europe's leading sawmilling groups with a
1997 production of 2 million cubic meters of sawn timber in its 13
European units. Metsa Timber group reported net sales of $525 million
USD in 1997. The Metsa Timber Group is a division of the Metsaliitto
Group which is one of Europe's largest forest industry enterprises
focusing on wood trading and forest products manufacturing. The
Metsaliitto Group reported net sales of $4.86 billion USD in 1997. It
has manufacturing operations in Europe and its products are marketed
worldwide.
The Metsa Agreement also expresses compliance with international
guidelines for sustainable forestry. In order to achieve this goal,
the Company has commenced a development project for an Eco-Efficiency
Model through Eco-Rating International, Zurich, Switzerland
("Eco-Rating"), to help insure that its timber harvesting and milling
operations in Brazil adhere to ecologically sound practices.
Eco-Rating is one of the private sector's environmental rating
agencies specializing in evaluating the environmental performance of a
project, firm or product through an in-depth analysis yielding a
numerical score. Eco-Rating has completed more than 50 evaluations in
a variety of industries, ranging from forestry to waste management.
(b) On March 27, 1998, the Company executed an agreement securing $14
million in equity financing, primarily to fund its timber operations
in South America. The financing, through Bristol Asset Management
Company II LLC, enables Nevada Manhattan to draw up to $14 million
over a three-year period. The initial use of funds will be used to
complete the relocation of the Company's Brazilian timber-sawmill
operations as announced on February 27, 1998 (see "Business").
(c) From July 1997 through April 10, 1998, Jeffrey S. Kramer, Chief
Operating Officer, provided loans to the Company, aggregating
$603,017.
(d) From the period November 11, 1997 to March 30, 1998, 2,746,709 shares
of common stock were reserved to collateralize loans of the Company.
The Board of Directors has authorized an aggregate 3,000,000 shares of
common stock to either collateralize or retire outstanding loans.
<PAGE> 11
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
Comparison of Results of Operations - Nine months Ended February 28,
1998 and February 28, 1997.
------------------------------
Revenues for nine months ended February 28, 1998 were $525,981 as
compared to no revenues for the same period in 1997. However, net loss
for the nine month period ended February 28, 1998 was approximately
$4,309,480 as compared to a net loss of $1,456,000 for the same period
in 1997. The net loss for the nine month period ended February 28,
1998 was attributable to Brazilian operations (approximately
$1,642,000); consulting expenses (approximately $251,211);
debt-related expense (approximately $353,000); interest expense
(approximately $268,000); legal fees (approximately $240,000);
printing (approximately $85,000); shareholder expense (approximately
$64,000), travel and lodging mostly related to Brazilian operations
(approximately $150,000 and $120,000 respectively); salaries for
Nevada and Calabasas operations (approximately $594,000); telephone
(approximately $72,000); office expense (approximately $95,000);
accounting and auditing (approximately $47,000); Depreciation
(approximately $56,000); and accrued Preferred dividends expense
(approximately $58,356).
Quarter Ended February 28, 1998 to Quarter Ended February 28, 1997
------------------------------------------------------------------
Revenues for the quarter ended February 28, 1998 were approximately
$174,175 as compared to no revenues for the same period in 1997.
However, net loss for the quarter ended February 28, 1998 was
approximately $1,397,343 as compared to net loss of approximately
$856,700 for the same period in 1997. The net loss for the quarter
ended February 28, 1998 was attributable to Brazilian operations
(approximately $504,000); consulting expense (approximately $64,000);
legal fees (approximately $70,000); interest (approximately $113,000);
debt related expense (approximately $127,000); shareholder expense
(approximately $45,000); salaries for administration staff
(approximately $200,000); and travel and lodging ($55,000 and $28,000
respectively).
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position as of February 28, 1998 was a
deficit of approximately $2,392,590. Almost since inception, the
Company has experienced pressure on its working capital position due to
operating losses and the need to continually invest in exploration
activities on the Nevada Property and, more recently, the Brazilian
Properties, the Silobat Property and the remainder of the Indonesian
Concessions.
<PAGE> 12
12
To raise funds in the past, the Company has relied upon private
placements of its equity securities. Over the past three years, the
Company has raised approximately $5,525,000 (including $525,700 in
quarter ending February 28, 1998) pursuant to such private placements
and notes payable to stockholders. The Company in 1997 concluded
privately-negotiated placements of approximately Three Million Five
Hundred Thousand Dollars ($3,500,000) of 8% Senior Convertible
Debentures with certain investors. The Company has entered into
discussions with its Debenture holders in an effort to secure from the
Debenture holders "lockup" agreements allowing the Company to retire
the Debentures without market conversion to common stock pursuant to a
registration statement.
On March 27, 1998, the Company executed an agreement securing $14
million in equity financing, primarily to fund its timber operations in
South America. The financing, through Bristol Asset Management Company
II LLC, enables Nevada Manhattan to draw up to $14 million over a
three-year period. The initial use of funds will be used to complete
the relocation of the Company's Brazilian timber-sawmill operations as
announced on February 27, 1998 (see "Business").
The Brazilian operations represent an opportunity for the Company to
generate significant cash flows for the first time, particularly due to
the Company's agreement with Metsa Timber (see "Subsequent Events") and
the Bristol Asset Management financing agreement. The Company believes
that with the anticipated increase in daily production at its Brazilian
operations to 125 cubic meters per day, much of its continued
operations in Brazil, Indonesia, the Nevada Property, and its operating
expenses and overhead at its corporate offices will be funded by the
cash flow generated from its operations in Brazil.
The Company anticipates that it will require additional capital and
intends to secure it through its agreement with Bristol Assets
Management Company II LLC, by utilizing a publicly registered offering
of its securities, a "Private Placement" and/or funds generated from
its Brazilian operations.
<PAGE> 13
13
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
PART II - OTHER INFORMATION
1. LEGAL PROCEEDINGS
On November 4, 1996, the Company filed a complaint (the "Action") in Nye County,
Nevada against Marlowe Harvey, Maran Holdings Inc., Calais Resources Inc., and
Argus Resources, Inc. (the "Harvey Entities"). The complaint in the Action
alleges, amongst other things, that the Harvey Entities breached their
obligations under various agreements. The Action, as amended is seeking a
judicial declaration that Marlowe Harvey does not have any joint venture or real
property interest in the mining claims included within the Nevada property. The
Action also seeks compensatory damages and other financial relief based on the
Harvey Entities' breach of contract and other causes of action.
During April 1997, the Company through its counsel filed a first amendment to
its Complaint in the Action. Counsel for the Harvey Entities filed an answer and
a counterclaims in the action during July 1997. In their answer, the Harvey
Entities have generally denied the allegations of the first amended complaint
and have raised various affirmative defenses. In their counterclaims, the Harvey
Entities are seeking an injunction preventing the Company from conducting
activities related to the Manhattan Project pending resolution of the issues in
the action and compensatory and punitive damages and other financial relief
based on breach of contract and other causes of action.
In July 1997, the Harvey Entities moved for a preliminary injunction against the
Company preventing it from conducting further activities at the Manhattan
Project without their consent, from issuing press releases describing certain
real property as being wholly owned by the Company, and from using the same as
security for loans. After a two-hour hearing on September 4, 1997, the court
refused to issue an injunction against the Company. Instead, the Harvey Entities
were ordered not to interfere with the Company's operations on the Nevada
Property. Additionally, the Company agreed not to further encumber the Nevada
Property pending trial. A trial date for some issues has been set for April 30,
1998.
2. CHANGES IN SECURITIES
The Series A Preferred Stock, convertible into ten shares of common stock on or
before December 31, 1997, has been retired as of December 31, 1997. All accrued
dividends have been paid (in Common Stock of the Company) and all Preferred
shares converted into Common Stock (upon presentation of stock certificate to
transfer agent).
3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
<PAGE> 14
14
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
5. OTHER INFORMATION
Dividend
- --------
The Board of Directors declared a dividend to all shareholders of record as of
December 31, 1997 consisting of one share of a new series of Convertible
Preferred Stock (the "1998 Preferred Stock"), $1 par value, for every 100 shares
of Common Stock owned. As authorized in the Company's Amended Certificate of
Determination of Preferences of Series A Preferred Stock filed with the Nevada
Secretary of State on January 14, 1998, the 1998 Preferred Stock is convertible
to one share of Common Stock for a period of one year and carries a dividend
equal to eight percent (8%) of par value payable in cash or stock at the
Company's election. Such dividends are cumulative so that if full dividends in
respect of any previous dividend period are not paid, holders of the 1998
Preferred Stock are entitled to receive any deficiency before any dividend or
other distribution may be made or declared by the Company with respect to any
other class of stock including other series of preferred shares should the
Company elect to issue such additional series. Each share of 1998 Preferred
Stock will have attached a warrant to purchase two additional shares of Common
Stock at $3.00 per share for a period of two years (the "Dividend Warrants").
The Dividend Warrants are callable by the Company, at its option, at $3.50 per
share.
6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The Company hereby incorporates by reference the exhibits filed in connection
with its Registration Statement filed on Form SB-2 under the Securities Act of
1933, as amended (Registration Nos. 333-17423 and 333-27923) and its
Registration Statement filed on Form 10, as amended (Registration No.
001-12867).
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
3.(ix) Amended Certificate of Determination of Preferences of Series A
Preferred Stock of Nevada Manhattan Mining Incoporated Filed
January 14, 1998.
<PAGE> 15
15
Reports On Form 8-K
8-K Report dated February 27, 1998 to report (i) the press release issued on
February 27, 1998 announcing that the Company commenced timber operations in
Tome-Acu, in the Amazon Basin, based on recommendations from outside consultants
related to timber production and environmental management; and (ii) the press
release issued on March 11, 1998 announcing the Company executed an agreement
with Metsa Timber Ltd., granting Metsa distribution and sales rights for the
timber and timber-related products produced in the Company's Brazilian timber
operations.
8-K Report dated December 9, 1997 to report (i) the press release issued on
December 9, 1997 announcing second quarter revenues and a Preferred Stock
Dividend to shareholders; (ii) the press release issued on December 17, 1997
announcing the signing of a Letter of Intent with Royal Gold Corporation for an
exploration and development effort in Nye County, Nevada; (iii) the press
release issued on January 12, 1998 announcing the Company increased its equity
ownership of Equatorial Resources from 80% to 100%.
<PAGE> 16
16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Nevada Manhattan Mining, Incorporated
Amendment No. 1 /s/ Jeffrey S. Kramer
Nov. 24, 1998 ------------------------------------------
Jeffrey S. Kramer, Chief Financial Officer
<PAGE>
[Marked Copy of this filing follows]
<PAGE> 1
1
United States Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 1 to
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the quarterly period ended February 28, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from ______to ______
Commission file number: 001-12867
NEVADA MANHATTAN MINING INCORPORATED
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 88-0219765
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification No.)
5038 N. PARKWAY CALABASAS, SUITE #100, CALABASAS, CA 91302
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices
(818) 591-4400
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
3 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 16,099,562 of Common Stock and
207,608 of Series A Preferred Stock.
Traditional Small Business Disclosure Format (check one): Yes [X] No [ ]
<PAGE> 2
2
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
<S> <C> <C>
Item 1 Financial Statements for Nevada Manhattan Mining, Inc.
Consolidated Statements of Operations -
Three and Nine Months Ended February 28, 1998 and 1997 3
Consolidated Balance Sheets -
February 28, 1998 and May 31, 1997 5
Consolidated Statements of Cash Flow -
Nine Months Ended February 28, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operation 11
PART II OTHER INFORMATION
Item 1 Legal Proceedings 13
Item 2 Changes in Securities 13
Item 3 Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
Signature 16
</TABLE>
<PAGE> 3
3
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
(Unaudited)
<S> <C> <C>
1998 1997
---- ----
Revenues $ 174,175 $ --
Cost of Sales 147,278 --
----------- ---------
Gross profit 26,897 --
Expenses:
General and administrative (1,424,240) (662,270)
----------- ---------
Net loss (1,397,343) (662,270)
Cumulative preferred dividends (0) (97,223)
----------- ---------
Net loss attributable to common
shareholders $(1,397,343) $(759,493)
=========== =========
Net loss per common share $ (0.08) $ (0.08)
=========== =========
Weighted average shares outstanding 15,557,214 10,405,727
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 4
4
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
(Unaudited)
1998 1997
----- ----
<S> <C> <C>
Revenues $ 525,981 $ --
Cost of Sales 413,151 --
------------ ------------
Gross profit 112,830 --
Expenses:
General and administrative (4,363,954) (1,319,759)
------------ ------------
Net loss (4,251,124) (1,319,759)
Cumulative preferred dividends (58,356) (136,063)
------------ ------------
Net loss attributable to common
shareholders $ (4.309,480) $ (1,455,822)
============ ============
Net loss per common share $ (0.32) $ (0.13)
============ ============
Weighted average shares outstanding 13,436,463 10,405,727
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 5
5
NEVADA MANHATTAN MINING INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
MAY 31, 1997
Current assets: FEB. 28, 1998 (Restated)
-------------- ------------
<S> <C> <C>
Cash and cash equivalents $ 9,354 $ 559,510
Accounts receivable 64,481 58,161
Inventory 45,000 --
Prepaid expenses 948,222 622,710
------------ ------------
Total current assets 1,067,057 1,240,381
------------ ------------
Property and equipment
Mineral Properties
Domestic 2,936,000 2,936,000
---------
Indonesia 2,600,000 2,600,000
Brazilian timber concession 1,460,000 700,000
---------
Furniture, fixtures, equipment 781,346 431,840
Less accumulated depreciation (140,185) (82,998)
------------ ------------
7,637,161 6,584,842
---------
------------ ------------
8,704,218 7,825,223
---------
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 415,464 544,738
Accrued liabilities 925,676 441,535
Notes payable to stockholders 2,058,497 712,321
Current portion of long-term debt 60,000 303,818
------------ ------------
Total current liabilities 3,459,637 2,002,412
------------ ------------
Convertible debentures 2,264,167 1,333,333
Long term debt 24,540 72,695
---------
------------ ------------
Total liabilities 5,748,344 3,408,440
---------
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock to be issued 760,000 108
Preferred stock, $1 par, 250,000 shares
Authorized, 207,608 and 228,319 207,608 228,319
outstanding At February 28, 1998
Common stock, $0.01 par, 49,750,000
Shares authorized, 16,099,562 and
12,273,565 shares issued 160,995 122,736
Additional paid-in capital 26,106,812 23,699,575
----------
Accumulated deficit (24,279,541) (19,633,955)
------------
------------ ------------
Total stockholders' equity 2,955,874 4,416,783
---------
------------ ------------
$ 8,704,218 $ 7,825,223
---------
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 6
6
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended February 28, 1998 and 1997
<TABLE>
<CAPTION>
(Unaudited)
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities: $(4,251,124) $(1,319,759)
Net loss
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 63,878 240,000
Depreciation and amortization 328,021 7,500
Minority interest expense -- 49,500
Accounts receivable (6,320) --
Inventory (45,000) --
Prepaid expenses 378,426 (164,500)
Accounts payable and accrued liabilities 819,511 (12,515)
----------- -----------
Net cash used in operating activities (2,712,608) (1,199,774)
----------- -----------
Cash flows from investing activities:
Purchase of inventory, property and equipment (529,381) (1,521,460)
----------- -----------
Cash flows from financing activities:
Additions to convertible debentures 1,500,000 14,556
Payments on debt (293,376) (6,251)
Proceeds from notes payable to stockholders 1,346,176 254,945
Proceeds from issuance of stock and stock
to be issued 139,033 2,359,537
----------- -----------
Net cash provided by financing activities 2,691,833 2,622,787
----------- -----------
Net increase (decrease) in cash and cash equivalents (550,156) (98,447)
Cash and cash equivalents at beginning of period 559,510 233,981
----------- -----------
Cash and cash equivalents at end of period $ 9,354 $ 135,534
=========== ===========
Supplemental cash flow information:
Cash paid during the year for interest $ 0 $ 0
----------- -----------
</TABLE>
Non-Cash Transactions:
During the nine months ended February 28, 1998, the Company issued:
o 100,000 shares of Common Stock valued at $441,000 for a consulting
contract.
o 224,109 shares of Common Stock valued at $262,938 for liquidated damages to
a debenture holder.
o 65,000 shares of Common Stock valued at $325,000 for mine contract services
to Harrison Western.
o 5,000 shares of Common Stock valued at $12,700 was issued to Vanderbilt for
option to acquire property.
o 1,000,000 shares of Common Stock valued at $760,000 to be issued to
Ignatius Theodorou over a three-year period for Company's acquisition of
certain interests in Brazil.
o 65,000 shares of Common Stock valued at $63,876 issued for services.
During the nine months ended February 28, 1998, $340,000 of debenture notes were
converted to 212,911 shares of Common Stock. During the nine months ended
February 28, 1998, shareholders converted 165,144 Preferred Shares to 1,651,440
Common Shares.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 7
7
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. STATEMENT OF INFORMATION FURNISHED
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-QSB instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of February
28, 1998, the results of operations for the three months and nine months
ending February 28, 1998 and 1997, and the cash flows for the nine months
ended February 28, 1998 and 1997. These results have been determined on the
basis of generally accepted accounting principles and practices applied
consistently with those used in the preparation of the Company's audited
financial statements for its fiscal year ended May 31, 1997.
2. BUSINESS
The Company's business is the harvesting of timber and the production of
rough sawn lumber and other finished wood products in Brazil and the
exploration and mining of precious metals and coal in Nevada and Indonesia.
The Company holds various rights in and to the following properties: (i)
various timber properties aggregating up to approximately 750,000 hectares
(1,875,000 acres) and sawmill facilities located near the town of Sao
Miguel do Guama, Brazil all of which are located in the state of Para,
Brazil (the "Brazilian Timber Properties"); (ii) twenty-eight (28) patented
and sixty-five (65) unpatented claims aggregating approximately 1,800 acres
(the "Nevada Property") which are located near the town of Manhattan,
Nevada (approximately 45 miles northeast of Tonopah, Nevada); (iii) seven
(7) gold concessions aggregating 39,400 hectares (98,500 acres) which are
located in both the gold belt area of Kalimantan, Indonesia, and on the
island of Sumatra (see "Indonesian Gold Concessions"); and (iv) three (3)
coal properties located in Kalimantan, Indonesia, comprising 290,000
hectares (725,000 acres) (the "Indonesian Coal Concessions").
The Company is currently not operating the sawmill in Sao Miguel do Guama,
Brazil. On February 27, 1998, the Company announced that based on
recommendations from outside consultants related to timber production and
environmental management, the Company began transporting an initial 1,000
cubic meters of the Company's inventory of raw materials to Tome-Acu, in
the Amazon Basin within the same region as Sao Miguel operations. In
addition, the Company began experiencing problems in its relationship with
the former owner of the Sao Miguel sawmill. Timber production in Tome-Acu
commenced in March, 1998. These new timber milling operations commenced in
anticipation of acquiring a leasehold interest in an operating sawmill
located in the Tome-Acu area or another facility in the region, where
hardwood is readily available for harvesting in a sustainable method. The
Company expects to be able to substantially reduce its transportation
expenses and overhead expenses associated with the production of timber
products, thereby creating additional efficiencies.
<PAGE> 8
8
On December 19, 1997 the Company increased its equity ownership of its
Brazilian subsidiary, Equatorial Resources Ltda., from 80% to 100%. The
Company renegotiated its agreement with Ignatius Theodorou, formerly the
20% minority shareholder in Equatorial. The Company agreed to pay Mr.
Theodorou one million shares of its restricted common stock over a three
year period in consideration of acquiring certain interests in Brazil.
Under the new agreement, the Company will no longer be required to pay Mr.
Theodorou a total of $3,000,000.
On November 25, 1997 the Company entered into a non-binding letter of
intent with Royal Gold (the "Letter of Intent") relating to exploration and
development efforts on its Manhattan Property located in Nye County,
Nevada. Under the terms of the Letter of Intent, Royal Gold was granted an
exclusive option to explore, develop and purchase all of the interests
which are or may be controlled by the Company on the Manhattan Property.
The term of the agreement to be entered into (if at all), consistent with
the terms of the Letter of Intent, will be three years, renewable for
successive terms of three years, provided that Royal Gold continues to
perform exploration work. The Company will retain a 4% net smelter returns
royalty and also reserves the right to continue with the development of its
underground mining opportunity at the historic White Caps location. Royal
Gold has the option to acquire all of the Company's interest in the
property, at any time during the term of the agreement, upon the payment to
the Company of $5 million. The agreement would continue indefinitely to the
extent that Royal Gold is achieving production in commercial quantities or
is engaged in reclamation. Closing of the transaction will be subject to
title and environmental due diligence, and documentation in a form
satisfactory to both parties. The option was granted in part because Royal
Gold is the largest U.S.-based, publicly held gold royalty company. It
engages in the acquisition, exploration and development of gold properties
and the acquisition and management of royalty interests.
3. CONVERTIBLE DEBENTURES
On April 14, 1997 and July 7, 1997, the Company entered into Subscription
Agreements related to two negotiated private placements. These transactions
were made in reliance upon the exemption from registration afforded by
Section 4(2) of the Securities Act of 1933. As a result, the Company issued
an aggregate of $3,500,000 of 8% Senior Secured Convertible Debentures (the
"Debentures") due March 31, 2000 (with respect to $2,000,000 of the
Debentures) and July 1, 2000 (with respect to $1,500,000 of the Debentures)
and granted to the purchasers warrants to purchase 62,500 shares and 75,250
shares of the Company's Common Stock (the "Warrants"), respectively.
The Debentures may be converted into shares of Common Stock at any time at
a price equal to the lesser of: seventy-five percent (75%) of the closing
bid price of the Common Stock on the closing date (i.e. 75% X $8.00, or
$6.00 per share); seventy-five percent (75%) of the closing bid price of
the Common Stock on the day prior to the funding of any subsequent funding
("tranche"); or seventy-five percent (75%) of the average closing bid price
for the five trading days immediately preceding the actual date of
conversion of the Debentures. With respect to the April 1997 funding, if
conversion is made after August 16, 1997 (as the case may be with respect
to $1,800,000 of the April 1997 Debentures), the discount will be
seventy-two and one-half percent (72.5%) of the above-referenced valuation
standards. The Company has recorded financing charges for the differences
between the conversion price and the fair market value of the stock at the
date of each funding ($500,000 for the nine month period ended February 28,
1998). The discount will be amortized over the life of the Debentures.
<PAGE> 9
9
The Company was required to use its "best efforts" to cause a registration
statement on Form SB-2 (the "Registration Statement") with the Securities
and Exchange Commission (the "Commission") to become effective. If the
Registration Statement did not become effective within 120 days of each
respective funding, the Company was required to pay liquidated damages
equal to two percent (2%) of the Debentures for the first thirty days and
three percent (3%) per month thereafter until the Registration Statement
becomes effective. The Company withdrew its Registration Statement pending
further discussion with the Commission. The Company has entered into
discussions with its Debenture holders in an effort to secure from the
Debenture holders "lockup" agreements allowing the Company to retire the
Debentures without market conversion to common stock pursuant to a
registration statement.
With regard to the April 1997 funding, until at least seventy-five percent
(75%) of the Debentures are converted, a deed of trust on the Nevada
Property and a pledge of 1,000,000 shares of Common Stock will secure the
Debentures. No such security is given on the Debentures issued in July
1997.
The Company has issued warrants to the subscribers of the April 14 and July
7 Debentures. The subscribers of the April 14 Debentures have been granted
warrants to purchase 62,500 shares of Common Stock at an exercise price of
$8 per share until April 16, 2002. The subscribers of the July 17, 1997
Debentures have been granted warrants to purchase 75,250 shares of Common
Stock at an exercise price of $6.75 per share until July 16, 2002. The
exercise price is subject to adjustment to account for payments of
dividends, stock splits, reverse stock splits, and similar events.
4. RESTATEMENT
As explained in the Company's Form 10-QSB for the period ending November
30, 1997, the Company has discussed with the Securities and Exchange
Commission possible adjustments to the carrying value of its Nevada and
Indonesia mineral proprties in accordance with the SEC Industry Guide 7 and
Statement of Financial Accounting Standards No. 121. As of February 28,
1998, the Company has provided an impairment against those properties as
follows:
Exploration costs related to the Nevada properties $3,036,000
Exploration costs related to the Indonesian properties 227,000
------------
Total adjustment $3,263,000
The remaining capitalized costs in Nevada at February 28, 1998 ($2,936,000)
represent acquisition costs of $2,525,000 and capitalized development costs
of $411,000. The capitalized development costs are limited to the
proven/probable reserves contained in the Nevada properties. The remaining
capitalized costs related to the Indonesia properties are the acquisition
costs of $2,600,000. The Company has restated its May 31, 1997 financial
statements as a result of this impairment, reducing the Domestic property
and equipment value from $5,830,091 to $2,744,327 and Indonesia property
and equipment value from $2,826,782 to $2,600,000.
<PAGE> 10
10
5. SUBSEQUENT EVENTS:
(a) On March 3, 1998, the Company executed an agreement (the " Metsa
Agreement") with Oy Metsa Timber Ltd. of Helsinki, Finland for timber
distribution and management services. The Metsa Agreement grants Metsa
distribution and sales rights for the output of timber and timber-
related products of its subsidiary, Equatorial Resources. Metsa
Timber's extensive marketing areas include the United Kingdom, France,
Italy, Germany, Denmark, The Netherlands, Japan, Greece, Northern
Africa and Arab countries. The Metsa Agreement also provides the
Company with management and development assistance which will be
provided through one of Metsa's sister subsidiaries, FWI Wood
International.
Metsa Timber group is one of Europe's leading sawmilling groups with a
1997 production of 2 million cubic meters of sawn timber in its 13
European units. Metsa Timber group reported net sales of $525 million
USD in 1997. The Metsa Timber Group is a division of the Metsaliitto
Group which is one of Europe's largest forest industry enterprises
focusing on wood trading and forest products manufacturing. The
Metsaliitto Group reported net sales of $4.86 billion USD in 1997. It
has manufacturing operations in Europe and its products are marketed
worldwide.
The Metsa Agreement also expresses compliance with international
guidelines for sustainable forestry. In order to achieve this goal,
the Company has commenced a development project for an Eco-Efficiency
Model through Eco-Rating International, Zurich, Switzerland
("Eco-Rating"), to help insure that its timber harvesting and milling
operations in Brazil adhere to ecologically sound practices.
Eco-Rating is one of the private sector's environmental rating
agencies specializing in evaluating the environmental performance of a
project, firm or product through an in-depth analysis yielding a
numerical score. Eco-Rating has completed more than 50 evaluations in
a variety of industries, ranging from forestry to waste management.
(b) On March 27, 1998, the Company executed an agreement securing $14
million in equity financing, primarily to fund its timber operations
in South America. The financing, through Bristol Asset Management
Company II LLC, enables Nevada Manhattan to draw up to $14 million
over a three-year period. The initial use of funds will be used to
complete the relocation of the Company's Brazilian timber-sawmill
operations as announced on February 27, 1998 (see "Business").
(c) From July 1997 through April 10, 1998, Jeffrey S. Kramer, Chief
Operating Officer, provided loans to the Company, aggregating
$603,017.
(d) From the period November 11, 1997 to March 30, 1998, 2,746,709 shares
of common stock were reserved to collateralize loans of the Company.
The Board of Directors has authorized an aggregate 3,000,000 shares of
common stock to either collateralize or retire outstanding loans.
<PAGE> 11
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
Comparison of Results of Operations - Nine months Ended February 28,
1998 and February 28, 1997.
------------------------------
Revenues for nine months ended February 28, 1998 were $525,981 as
compared to no revenues for the same period in 1997. However, net loss
for the nine month period ended February 28, 1998 was approximately
$4,309,480 as compared to a net loss of $1,456,000 for the same period
in 1997. The net loss for the nine month period ended February 28,
1998 was attributable to Brazilian operations (approximately
$1,642,000); consulting expenses (approximately $251,211);
debt-related expense (approximately $353,000); interest expense
(approximately $268,000); legal fees (approximately $240,000);
printing (approximately $85,000); shareholder expense (approximately
$64,000), travel and lodging mostly related to Brazilian operations
(approximately $150,000 and $120,000 respectively); salaries for
Nevada and Calabasas operations (approximately $594,000); telephone
(approximately $72,000); office expense (approximately $95,000);
accounting and auditing (approximately $47,000); Depreciation
(approximately $56,000); and accrued Preferred dividends expense
(approximately $58,356).
Quarter Ended February 28, 1998 to Quarter Ended February 28, 1997
------------------------------------------------------------------
Revenues for the quarter ended February 28, 1998 were approximately
$174,175 as compared to no revenues for the same period in 1997.
However, net loss for the quarter ended February 28, 1998 was
approximately $1,397,343 as compared to net loss of approximately
$856,700 for the same period in 1997. The net loss for the quarter
ended February 28, 1998 was attributable to Brazilian operations
(approximately $504,000); consulting expense (approximately $64,000);
legal fees (approximately $70,000); interest (approximately $113,000);
debt related expense (approximately $127,000); shareholder expense
(approximately $45,000); salaries for administration staff
(approximately $200,000); and travel and lodging ($55,000 and $28,000
respectively).
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position as of February 28, 1998 was a
deficit of approximately $2,392,590. Almost since inception, the
Company has experienced pressure on its working capital position due to
operating losses and the need to continually invest in exploration
activities on the Nevada Property and, more recently, the Brazilian
Properties, the Silobat Property and the remainder of the Indonesian
Concessions.
<PAGE> 12
12
To raise funds in the past, the Company has relied upon private
placements of its equity securities. Over the past three years, the
Company has raised approximately $5,525,000 (including $525,700 in
quarter ending February 28, 1998) pursuant to such private placements
and notes payable to stockholders. The Company in 1997 concluded
privately-negotiated placements of approximately Three Million Five
Hundred Thousand Dollars ($3,500,000) of 8% Senior Convertible
Debentures with certain investors. The Company has entered into
discussions with its Debenture holders in an effort to secure from the
Debenture holders "lockup" agreements allowing the Company to retire
the Debentures without market conversion to common stock pursuant to a
registration statement.
On March 27, 1998, the Company executed an agreement securing $14
million in equity financing, primarily to fund its timber operations in
South America. The financing, through Bristol Asset Management Company
II LLC, enables Nevada Manhattan to draw up to $14 million over a
three-year period. The initial use of funds will be used to complete
the relocation of the Company's Brazilian timber-sawmill operations as
announced on February 27, 1998 (see "Business").
The Brazilian operations represent an opportunity for the Company to
generate significant cash flows for the first time, particularly due to
the Company's agreement with Metsa Timber (see "Subsequent Events") and
the Bristol Asset Management financing agreement. The Company believes
that with the anticipated increase in daily production at its Brazilian
operations to 125 cubic meters per day, much of its continued
operations in Brazil, Indonesia, the Nevada Property, and its operating
expenses and overhead at its corporate offices will be funded by the
cash flow generated from its operations in Brazil.
The Company anticipates that it will require additional capital and
intends to secure it through its agreement with Bristol Assets
Management Company II LLC, by utilizing a publicly registered offering
of its securities, a "Private Placement" and/or funds generated from
its Brazilian operations.
<PAGE> 13
13
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
PART II - OTHER INFORMATION
1. LEGAL PROCEEDINGS
On November 4, 1996, the Company filed a complaint (the "Action") in Nye County,
Nevada against Marlowe Harvey, Maran Holdings Inc., Calais Resources Inc., and
Argus Resources, Inc. (the "Harvey Entities"). The complaint in the Action
alleges, amongst other things, that the Harvey Entities breached their
obligations under various agreements. The Action, as amended is seeking a
judicial declaration that Marlowe Harvey does not have any joint venture or real
property interest in the mining claims included within the Nevada property. The
Action also seeks compensatory damages and other financial relief based on the
Harvey Entities' breach of contract and other causes of action.
During April 1997, the Company through its counsel filed a first amendment to
its Complaint in the Action. Counsel for the Harvey Entities filed an answer and
a counterclaims in the action during July 1997. In their answer, the Harvey
Entities have generally denied the allegations of the first amended complaint
and have raised various affirmative defenses. In their counterclaims, the Harvey
Entities are seeking an injunction preventing the Company from conducting
activities related to the Manhattan Project pending resolution of the issues in
the action and compensatory and punitive damages and other financial relief
based on breach of contract and other causes of action.
In July 1997, the Harvey Entities moved for a preliminary injunction against the
Company preventing it from conducting further activities at the Manhattan
Project without their consent, from issuing press releases describing certain
real property as being wholly owned by the Company, and from using the same as
security for loans. After a two-hour hearing on September 4, 1997, the court
refused to issue an injunction against the Company. Instead, the Harvey Entities
were ordered not to interfere with the Company's operations on the Nevada
Property. Additionally, the Company agreed not to further encumber the Nevada
Property pending trial. A trial date for some issues has been set for April 30,
1998.
2. CHANGES IN SECURITIES
The Series A Preferred Stock, convertible into ten shares of common stock on or
before December 31, 1997, has been retired as of December 31, 1997. All accrued
dividends have been paid (in Common Stock of the Company) and all Preferred
shares converted into Common Stock (upon presentation of stock certificate to
transfer agent).
3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
<PAGE> 14
14
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
5. OTHER INFORMATION
Dividend
- --------
The Board of Directors declared a dividend to all shareholders of record as of
December 31, 1997 consisting of one share of a new series of Convertible
Preferred Stock (the "1998 Preferred Stock"), $1 par value, for every 100 shares
of Common Stock owned. As authorized in the Company's Amended Certificate of
Determination of Preferences of Series A Preferred Stock filed with the Nevada
Secretary of State on January 14, 1998, the 1998 Preferred Stock is convertible
to one share of Common Stock for a period of one year and carries a dividend
equal to eight percent (8%) of par value payable in cash or stock at the
Company's election. Such dividends are cumulative so that if full dividends in
respect of any previous dividend period are not paid, holders of the 1998
Preferred Stock are entitled to receive any deficiency before any dividend or
other distribution may be made or declared by the Company with respect to any
other class of stock including other series of preferred shares should the
Company elect to issue such additional series. Each share of 1998 Preferred
Stock will have attached a warrant to purchase two additional shares of Common
Stock at $3.00 per share for a period of two years (the "Dividend Warrants").
The Dividend Warrants are callable by the Company, at its option, at $3.50 per
share.
6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
The Company hereby incorporates by reference the exhibits filed in connection
with its Registration Statement filed on Form SB-2 under the Securities Act of
1933, as amended (Registration Nos. 333-17423 and 333-27923) and its
Registration Statement filed on Form 10, as amended (Registration No.
001-12867).
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
3.(ix) Amended Certificate of Determination of Preferences of Series A
Preferred Stock of Nevada Manhattan Mining Incoporated Filed
January 14, 1998.
<PAGE> 15
15
Reports On Form 8-K
8-K Report dated February 27, 1998 to report (i) the press release issued on
February 27, 1998 announcing that the Company commenced timber operations in
Tome-Acu, in the Amazon Basin, based on recommendations from outside consultants
related to timber production and environmental management; and (ii) the press
release issued on March 11, 1998 announcing the Company executed an agreement
with Metsa Timber Ltd., granting Metsa distribution and sales rights for the
timber and timber-related products produced in the Company's Brazilian timber
operations.
8-K Report dated December 9, 1997 to report (i) the press release issued on
December 9, 1997 announcing second quarter revenues and a Preferred Stock
Dividend to shareholders; (ii) the press release issued on December 17, 1997
announcing the signing of a Letter of Intent with Royal Gold Corporation for an
exploration and development effort in Nye County, Nevada; (iii) the press
release issued on January 12, 1998 announcing the Company increased its equity
ownership of Equatorial Resources from 80% to 100%.
<PAGE> 16
16
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Nevada Manhattan Mining, Incorporated
Amendment No. 1 /s/ Jeffrey S. Kramer
Nov. 24, 1998 ------------------------------------------
--------------
Jeffrey S. Kramer, Chief Financial Officer