<PAGE>
1
NEVADA MANHATTAN MINING INCORPORATED
5038 N. Parkway Calabasas, Suite 100
Calabasas, California 91302
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, APRIL 17, 1998
TO: THE SHAREHOLDERS OF NEVADA MANHATTAN MINING:
NOTICE IS HEREBY GIVEN that, pursuant to the call of its Board of
Directors, the Annual Meeting of Shareholder (the "Meeting") of Nevada Manhattan
Mining Incorporated ("Nevada" or the "Company") will be held at Sheraton Gateway
Hotel Los Angeles Airport, 6101 West Century Boulevard, Los Angeles, California
on Friday, April 17, 1998 at 1:00 p.m. for the purpose of considering and voting
upon the following matters:
1. ELECTION OF DIRECTORS. Electing five (5) persons to the Board of Directors
to serve until the next Annual Meeting of Shareholders and until their
successors are elected and have qualified.
2. AMENDING THE COMPANY'S ARTICLES OF INCORPORATION. To amend the Company's
Articles of Incorporation to change the Company's name.
3. RATIFICATION OF INDEPENDENT ACCOUNTANTS. Ratifying the Board's selection of
Jackson & Rhodes, P.C. to serve as the Company's independent auditors for
the fiscal year ending May 31, 1998.
4. Transacting such other matters as may properly come before the Meeting or
any adjournment or adjournments thereof.
The Bylaws of the Company provide for the election of directors in the
following manner:
"Each stockholder entitled to vote in accordance with the terms and
provisions of the Articles of Incorporation and these By-laws shall be entitled
to one vote, in person or by proxy, for each share of stock entitled to vote
held by such stockholder, but no proxy shall be voted after three years from its
date unless such proxy provides for a longer period. Upon the demand of any
stockholder, the vote for directors and upon any proposal before the meeting
shall be by ballot. All elections for Directors shall be decided by plurality
vote; all other proposals shall be decided by majority vote except as otherwise
provided by the Articles of Incorporation or the laws of the State of Nevada."
Only those shareholders of record at the close of business on February 20,
1998, shall be entitled to notice of and to vote at the Meeting.
DATED: March 9, 1998
By Order of the Board of Directors
Jeffrey S. Kramer
Secretary
<PAGE>
2
PLEASE SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE
REGARDLESS OF WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. IF YOU DO
ATTEND THE MEETING, YOU MAY THEN WITHDRAW YOUR PROXY. THE PROXY MAY BE REVOKED
AT ANY TIME PRIOR TO ITS EXERCISE.
IN ORDER TO FACILITATE THE PROVIDING OF ADEQUATE MEETING ACCOMMODATIONS,
PLEASE INDICATE ON THE PROXY WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
UPON WRITTEN REQUEST ADDRESSED TO JEFFREY S. KRAMER, SECRETARY, NEVADA
MANHATTAN MINING, INC., 5038 N. PARKWAY CALABASAS, CALABASAS, CALIFORNIA 91302,
THE COMPANY WILL PROVIDE A COPY OF ITS FORM 10 FILED APRIL 3, 1997, AMENDMENT
NO. 2.
<PAGE>
3
NEVADA MANHATTAN MINING INCORPORATED
5038 N. PARKWAY CALABASAS, SUITE 100
CALABASAS, CALIFORNIA 91302
-------------------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD FRIDAY, APRIL 17, 1998
INTRODUCTION
This proxy statement ("Proxy Statement") is furnished in connection with
the solicitation of proxies for use at the Annual Meeting of Shareholders (the
"Meeting") of Nevada Manhattan Mining Incorporated ("Nevada" or "Company") to be
held at Sheraton Gateway Hotel Los Angeles Airport, 6101 West Century Boulevard,
Los Angeles, California, at 1:00 p.m. on Friday, April 17, 1998, and at any and
all adjournments thereof. It is expected that this Proxy Statement, enclosed
Form of Proxy and accompanying Notice of the Meeting (the "Notice") will be
mailed to shareholders on or about March 16, 1998.
The matters to be considered and voted upon at the Meeting will be:
1. ELECTION OF DIRECTORS. To elect five (5) directors to serve until the
next annual meeting and until their successors are elected and
qualified;
2. AMEND THE COMPANY'S ARTICLES OF INCORPORATION. To amend the
Company's Articles of Incorporation to change the Company's name;
3. RATIFICATION OF INDEPENDENT ACCOUNTANTS. To ratify the Board's
appointment of Jackson & Rhodes, P.C., as independent auditors for the
fiscal year ending May 31, 1998;
4. To consider and act upon such other matters that may properly come
before the Meeting or any adjournment or adjournments thereof.
A proxy for use at the Meeting is enclosed. Any shareholder who executes
and delivers such proxy has the right to revoke it any time before it is
exercised by filing with U.S. Stock Transfer Corporation, 1745 Gardena Avenue,
Glendale, California 91204-2991, an instrument revoking it or a duly executed
proxy bearing a later date. It may also be revoked by attendance at the Meeting
and election to vote thereat. Subject to such revocation, all shares represented
by a properly executed proxy received in time for the Meeting will
be voted by the Proxy Holders in accordance with the instructions on the proxy.
Execution of the proxy without instructions or "FOR" election of directors
will grant discretionary authority to the Proxy Holders to vote in accordance
with their best judgment with respect to the nominees listed. If no instruction
is specified with respect to a matter to be acted upon, the shares represented
by the proxy will be voted in favor of each item of business set forth herein.
It is not anticipated that any matters will be presented at the Meeting other
than as set forth in the accompanying Notice. If, however, any other business
properly is presented at the Meeting, the proxy will be voted in accordance with
the best judgment and in the discretion of the Proxy Holders.
The expense of preparing, assembling, printing, mailing, and filing this
Proxy Statement with the Securities and Exchange Commission and the materials
used in this solicitation of proxies will be borne by the Company. It is
contemplated that proxies will be solicited primarily through the mails.
Officers, directors, and regular employees of the Company may also solicit
proxies personally or by telephone, but will receive no compensation therefor in
addition to their regular compensation. The Company may reimburse banks,
brokerage houses and other custodians, nominees and fiduciaries for their
reasonable expenses in forwarding these proxy materials to their principals. In
addition, the Company may pay for and utilize the services of individuals or
companies not regularly employed by the Company in connection with the
solicitation of proxies if the Management of the Company determines that this is
advisable.
<PAGE>
4
VOTING SECURITIES
As of the close of business on February 20, 1998, the record date for the
purpose of determining the shareholders entitled to notice of, and to vote at,
the "Meeting," there were issued and outstanding 16,867,325 shares of the
Company's $.01 par value Common Stock (hereinafter called "Common
Stock")(includes the conversion to Common Stock of all Series A Preferred Stock
issued prior to December 31, 1997) and 126,490 shares of $1.00 par value Series
A Preferred Stock (hereinafter called "1998 Preferred Stock").
The Company's Board of Directors is authorized to issue up to an aggregate
of 49,750,000 shares of common stock, $.01 par value, under its amended Articles
of Incorporation. Each holder of Common Stock will be entitled to one vote, in
person or by proxy, for each share of Common Stock in his or her name on the
books of the transfer agent, U.S. Stock Transfer Corporation, as of the record
date for the Meeting on any matter submitted for a vote of the shareholders.
The Company's Board of Directors is authorized to issue up to an aggregate
of 250,000 shares of Series A Preferred Stock, $1.00 par value, under its
amended Articles of Incorporation. Except as otherwise expressly provided for by
law or as provided for under the terms of the Certificate of Determination, the
holders of the 1998 Preferred Stock will be entitled to one vote, in person or
by proxy, for each one share of Preferred Stock in his or her name on the books
of the transfer agent, U.S. Stock Transfer Corporation, as of the record date
for the Meeting on any matter submitted for a vote of the shareholders of the
Company.
The presence at the meeting, in person or by proxy, of the holders of
voteable Nevada Manhattan Mining Stock in the aggregate of a majority of the
voting power of the Company's stock entitled to vote shall constitute a quorum
for the transaction of business. A plurality of the votes properly cast for the
election of directors by the shareholders attending the meeting, in person or by
proxy, will elect directors to office. A majority of votes properly cast upon
any proposal other than the election of directors shall decide the proposal.
Abstentions and broker non-votes will count for purposes of establishing a
quorum, but will not count as votes cast for the election of directors or any
other proposal and accordingly will have no legal effect.
Only shareholders of record at the close of business on February 20, 1998
are entitled to vote at the Annual Meeting or at any adjournment thereof.
<PAGE>
5
ELECTION OF DIRECTORS
The By-laws of the Company provide that "the number of directors shall be
[not less than 3 and] not more than seven (7)." The Directors shall be elected
at the annual meeting of stockholders and each Director shall be elected to
serve until his successor shall be elected and shall qualify." The by-laws
further provide that the number of directors may be increased by the affirmative
vote of the Board of directors or a majority in interest of the shareholders at
an annual or special meeting. The number of directors is currently fixed at five
(5).
A Board of five directors is to be elected at the meeting. The persons
named below, four (4) of whom are current members of the Board of Directors of
the Company, and one (1) new candidate to join the Board of Directors, will be
nominated to serve until the next Annual Meeting of Shareholders and until their
successors shall be elected and have qualified. Votes will be cast pursuant to
the enclosed proxy in such a way as to effect the election of said five (5)
nominees. In the event that any of the nominees should be unable to serve as a
director, it is intended that the proxy will be voted for the election of such
substitute nominee, if any, as shall be designated by the Board of Directors.
The Board of Directors has no reason to believe that any nominee will be unable
or unwilling to serve if elected to serve as a director.
ELECTION OF DIRECTORS
(Proposal 1)
The following five (5) persons will be nominated by the Board of Directors:
Christopher D. Michaels Joe C. Rude III
Jeffrey S. Kramer William E. Wilson
Stanley J. Mohr
The following table sets forth certain information as of the Record Date
with respect to each current director:
Year First Elected
Name and Position Principal Occupation or Appointed
Held in Company During Past Five Years a Director Age
--------------- ---------------------- ---------- ---
1. Christopher D. Michaels Nevada Manhattan Mining 1986 54
Director, President and President and Chief
Chief Executive Officer Executive Officer
2. Jeffrey S. Kramer Nevada Manhattan Mining 1989 43
Director, Chief Operating COO / CFO, Corp.
Officer, Chief Financial Secretary
Officer, Corp. Secy
3. Stanley J. Mohr Nevada Manhattan Mining 1992 62
Vice President Shareholder VP Shareholder Relations
Relations, Director
4. Joe C. Rude III Ambulatory Care Center 1995 54
Director Co-owner, Radiologist
5. William E. Wilson Underwood-Anderson & Assoc. 82
Nominee for Director Insurance Assoc. Agent
Retired, June, 1996
<PAGE>
6
1. CHRISTOPHER D. MICHAELS, Age 54, co-founded the Company in June 1986. He
has served as President, Chief Executive Officer and Chairman of the Board
since 1986 and is entitled to retain his positions with the company until
the next annual meeting of the Company's shareholders. Mr. Michaels is also
a director, President and Chairman of the Board of Equatorial Resources,
Ltd. and the Chairman and a director of Kalimantan Resources, Ltd.,
subsidiaries of the Company. Mr. Michaels received a bachelor of arts
degree from Alfred University located in New York and after graduation,
took a post with the United States government overseas. Since 1980, Mr.
Michaels has acted in a sales and management capacity in corporations
primarily engaged in mining and minerals. Mr. Michaels has both a
comprehensive background and experience in international relations and has
spent extensive time, both nationally and internationally, at the various
company timber and mining locations.
2. JEFFREY S. KRAMER, Age 43, Senior Vice President, Chief Financial Officer,
Secretary-Treasurer, current Director, has held these positions since 1989
and is entitled to retain these positions with the Company until the next
annual meeting of the Company's shareholders. Mr. Kramer is also a
director, vice president and the secretary-treasurer of Equatorial
Resources, Ltd. and a director and the secretary-treasurer of Kalimantan
Resources, Ltd. Mr. Kramer attended the City College of New York. He has
held management positions with Continental Cafes. As Chief Financial
Officer, Mr. Kramer's responsibilities include business affairs, contract
administration, public relations and broker and shareholder relations. He
has traveled both nationally and internationally on behalf of the company
to conduct contract negotiations.
3. STANLEY J. MOHR, Age 62, Vice President of Shareholder Relations, has been
with Nevada Manhattan Mining since 1986 and a director of the company since
1992. He is entitled to retain his current positions with the Company until
the next annual meeting of the Company's shareholders. He is also a
director of Kalimantan Resources, Ltd. Mr. Mohr has been employed as a
marketing executive with several mining and exploration companies and has
gained extensive experience in many phases of operations in the mining
industry.
4. JOE C. RUDE III, Age 53, was elected to the Board of Directors on April 3,
1995 and is entitled to retain his position as a director until the next
annual meeting of the Company's shareholders. Dr. Rude has been a
shareholder of record since 1989 and has been an active member of the
Shareholders' Advisory Committee for several years representing
shareholders at Board of Directors meetings. Dr. Rude is a graduate of the
University of Texas at Austin (pre-med.) and later from Southwestern
Medical School in Dallas, Texas in 1970. From 1977 to 1995, he was
associated with Cobb Radiology Associates, Austell, Georgia, which merged
with Quantum Radiology in 1995. Since 1995, Dr. Rude has been a diagnostic
radiologist at Quantum Radiology . Dr. Rude also is a co-owner of the
Ambulatory Care Center.
5. WILLIAM E. WILSON, Age 82, has been a shareholder of record since 1987 and
has recently served on the Shareholders' Advisory Committee representing
shareholders at Board of Directors meetings. Mr. Wilson began his career in
the insurance industry in 1934. Mr. Wilson joined the Army Air Corps in
1941 serving as a pilot and flying instructor. In 1945, he rejoined the
insurance agency as a partner. In 1952, he was recalled to active duty and
served during the Korean conflict until his release in 1954. Mr. Wilson
retired from active reserve as a Lt.Col. in 1964. He purchased his own
insurance agency in 1954. The agency was sold to Underwood-Anderson &
Associates in 1985; however, Mr. Wilson remained an associate agent until
his retirement in 1996. During his insurance career, he was an active
participant in civic affairs. He has held Insurance licenses plus Real
Estate Broker and Securities licenses (Florida).
<PAGE>
7
BOARD MEETINGS AND BOARD OF DIRECTORS COMMITTEES
The Board of Directors of the Company held a total of ten meetings during
the fiscal year ended May 31, 1997. All directors attended at least two-thirds
of the meetings.
The Board of Directors has a Compensation Committee which reviews and
approves the Company's executive compensation and administers the granting of
Stock or Stock Options with respect to the Company's directors, executives and
employees. This Committee, currently consisting of Joe Rude III, William E.
Wilson and Jeffrey S. Kramer held two meetings during the last fiscal year.
SHAREHOLDERS' ADVISORY COMMITTEE
In 1989, the Company formed a Shareholder Advisory Committee (the "Advisory
Committee") comprised of up to 12 outside shareholders. The purpose of the
Advisory Committee is to participate in directors' meetings and compensation
meetings, as well as planning meetings related to all aspects of corporate
development. Members are selected annually from a group of shareholders who
respond to Company inquiries regarding interest in participating on the Advisory
Committee. Membership is rotated annually. One of the primary purposes of this
Committee is to provide independent, shareholder participation in critical
decisions relating to overall corporate strategy.
SIGNIFICANT CONTRACTS WITH CONSULTANTS
The Company has entered into agreements with: Grant Reserve to provide mining
consulting services with respect to the Nevada Property; Behre Dolbear &
Company, Inc. and its affiliates, to provide oversight and third-party
validation services relative to the exploration and development activities on
the Company's Indonesian Concessions; Eco-Rating International, Inc., to provide
an economic and environmental evaluation of the Company's Brazilian Timber
Properties; and with British Far East Holdings Ltd. to provide certain financial
and management consulting services.
<PAGE>
8
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 31, 1997,
regarding the record and beneficial ownership of the Common Stock and Preferred
Stock with respect to: (i) any individual or group of affiliated individuals or
persons owning, of record or beneficially, five percent (5%) or more of the
outstanding shares of the Common Stock or the Preferred Stock; (ii) the amount
of shares of Common Stock or Preferred Stock owned by each executive officer and
director nominee of the Company; and (iii) the number of shares of Common Stock
and/or Preferred Stock owned, of record or beneficially, by the executive
officers and director nominees of the Company as a group. Except as otherwise
indicated, the Company believes that the beneficial owners listed below, based
upon information provided by such owners, have sole voting and investment power
with respect to such shares.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS(1)
----- ------------------- --------- -----------
<S> <C> <C> <C>
(i)
Common David Weissberg, M.D. 1,409,900(2) 8.59%
100 Goose Hill Road
Cold Spring Harbor, NY 11724
(i) (ii)
Common Christopher D. Michaels 1,285,917(3) 7.83%
5038 N. Pkwy Calabasas, Ste 100
Calabasas, CA 91302
Common Jeffrey S. Kramer 1,130,000(4) 6.89%
5038 N. Pkwy Calabasas, Ste 100
Calabasas, CA 91302
Common Joseph C. Rude III, M.D. 1,380,838(5) 8.41%
3065 River N. Pkwy.
Atlanta, Georgia 30328
(ii)
Common Stanley J. Mohr 172,000(6) 1.05%
5038 N. Pkwy Calabasas, Ste 100
Calabasas, CA 91302
Common William E. Wilson 96,500(6) 0.59%
1819 E. Brainard Street
Pensacola, FL 32503
(iii)
Common All Officers and 4,065,255(7) 24.77%
Directors as a Group
(6 persons)
</TABLE>
<PAGE>
9
- ----------
(1) The percentages noted in this column include the conversion of 228,319
shares of Preferred Stock into 2,283,190 shares of Common Stock as of
December 31, 1997, and the issuance of 390,000 shares of Common Stock
pursuant to various options primarily to existing management which may be
exercised in whole or in part within 60 days of the date of this Proxy
Statement.
(2) Includes 125,000 shares of common stock issuable upon exercise of 125,000
warrants which may be exercised in whole or in part within 60 days of the
date of this Proxy Statement.
(3) Includes options to purchase up to 110,000 shares of Common Stock which may
be exercised in whole or in part within 60 days of the date of this Proxy
Statement.
(4) Includes options to purchase up to 80,000 shares of Common Stock which may
be exercised in whole or in part within 60 days of the date of this Proxy
Statement.
(5) Includes shares owned by Carolyn Rude and Quantum Radiology (an affiliate of
Dr. Rude) as well as options to purchase up to 20,000 shares of Common Stock
which may be exercised in whole or in part within 60 days of the date of
this Proxy Statement.
(6) Includes shares held by The Lomar Trust, an affiliate of Mr. Mohr, as well
as options to purchase up to 50,000 shares of Common Stock which may be
exercised in whole or in part within 60 days of the date of this Proxy
Statement.
(7) Includes shares held in the name of William E. and Lillian B. Wilson Joint
Tenants.
(8) Includes options to purchase up to 260,000 shares of Common Stock by all
Directors or Officers as a group which may be exercised in whole or in part
within 60 days of the date of this Proxy Statement.
<PAGE>
10
EXECUTIVE COMPENSATION
The table set forth below identifies the compensation paid to the Company's
executive officers for the last three completed fiscal years (i.e. fiscal years
ending May 31, 1995; May 31, 1996; and May 31, 1997):
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------
NAME AND OTHER
PRINCIPAL ANNUAL
POSITION YEAR SALARY($) BONUS($) COMPENSATION($)(1)
- ---------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Christopher Michaels,
President and 1997 $251,299 -- $6,264
Chairman of the 1996 $100,449 -- $6,316
Board 1995 $148,727 -- $5,712
Jeffrey Kramer,
Senior Vice Pres 1997 $224,397 -- $8,080
and Director 1996 $117,791 -- $7,658
1995 $137,212 -- $6,564
</TABLE>
<TABLE>
SUMMARY COMPENSATION TABLE (continued)
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------------------------
AWARDS PAYOUTS
-------------------------- ----------------------
RESTRICTED SECURITIES ALL
STOCK UNDERLYING TIP OTHER
AWARD(S) OPTIONAL/ PAYOUTS COMPENSATION
($) SARS(#) ($) ($)
------ --------- ------ -----------
<S> <C> <C> <C> <C>
Christopher Michaels,
President and -- 10,000(2) -- --
Chairman of the $225,000(3) 10,000 -- --
Board -- 10,000 -- --
Jeffrey Kramer,
Senior Vice Pres -- 10,000(2) -- --
and Director $225,000(3) 10,000 -- --
-- 10,000 -- --
</TABLE>
<PAGE>
11
- ------------
(1) The Company incurs the annual cost of health insurance for Messrs. Michaels
and Kramer and their respective dependents.
(2) The Company has granted stock options to all members of its board of
directors in the amount of 10,000 shares per full year of service as an
active member of the board. These options may be exercised at $1.00 per
share of Common Stock. Options may not be exercised after the expiration of
10 years from the date of the grant and are nontransferable other than by
inheritance. As of the date of this Proxy Statement, the Company has granted
options aggregating 110,000 shares to Mr. Michaels and 80,000 shares to Mr.
Kramer.
(3) The Company granted Messrs. Michaels and Kramer the option to purchase
900,000 shares of Common Stock each at an average price of $1.50 per share.
These options were exercised during the year ended May 31, 1996, at which
time the Company's board of directors agreed to issue these shares for
services rendered. The Company has valued these restricted securities to be
worth twenty-five cents ($.25) per share.
OPTIONS AND STOCK APPRECIATION RIGHTS
The table set forth below provides certain information concerning individual
grants of stock options and stock appreciation rights (whether granted in
connection with stock options or as "freestanding" rights made during the last
fiscal year of the Company ending May 31, 1997) to each of the named executive
officers, directors, and/or others noted below:
INDIVIDUAL GRANTS
---------------------------
Number of % Of Total
Securities Options/SARs
Underlying Granted To Exercise
Options/SARs Employees Or Base Expiration
Name Granted(2) In Fiscal Year Price($/sh) Date
- ----------------------- ----------- -------------- ----------- -----------
Christopher D. Michaels(1) 110,000 10% $ 1.00 May 31, '06
Jeffrey S. Kramer(1) 80,000 14% $ 1.00 May 31, '06
Stanley Mohr(1) 50,000 25% $ 1.00 May 31, '06
Edna Pollock(1) 20,000 100% $ 1.00 May 31, '06
Joe Rude III(1) 20,000 100% $ 1.00 May 31, '06
Lloyd S. Pantell, Esq.(2) 100,000 100% $ 4.00 May 31, '06
<PAGE>
12
- ------------
(1) The Company has granted stock options to all members of its board of
directors pursuant to Stock Option Agreements executed at various times.
Under the terms of these agreements, each director has been granted options
to purchase 10,000 shares of Common Stock per full year of service. The
exercise price for such options is $1.00 per share. The years in which stock
options were initially granted to each respective board member are as
follows: Christopher Michaels, 1986; Jeffrey Kramer, 1989; Stanley Mohr,
1993; Edna Pollock, 1996; and Joe Rude III, 1996. In 1996, the Stock Option
Agreements relating to Messrs. Michaels, Kramer and Mohr were extended so
that they may be exercised through May 31, 2006. The remaining may not be
exercised after the expiration of ten (10) years from the date of grant and
are nontransferable other than by inheritance.
(2) Mr. Pantell is an attorney who is a principal in Lloyd S. Pantell, APLC who
has provided substantial legal services to the Company. Under the terms of
the option agreement, Mr. Pantell has been granted options to purchase
100,000 shares of Common Stock. The exercise price of such options is $4.00
per share. The options may be exercised at any time through May 31, 2006 and
are non-transferable other than through inheritance.
<
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<CAPTION>
Number of Value of
Unexercised Unexercised
Shares Securities Underlying In-The-Money
Acquired Options/SARs Option/SARs
On At May 31, 1997 At May 31, 1997
Exercise Value Exercisable/ Exercisable/
Name (#) Realized Unexercisable Unexercisable
- ---------------------- -------- -------- ------------------- --------------
<S> <C> <C> <C> <C>
Christopher D. Michaels 0 0 110,000 $550,000
Jeffrey S. Kramer 0 0 80,000 $400,000
</TABLE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the last fiscal year the company entered into certain transactions
with Jeffrey S. Kramer, an officer and Director of the Company. Specifically, as
of August 2, 1997, Mr. Kramer has lent the Company an aggregate of $258,000
which is evidenced by promissory notes payable in his name (the "Notes"). The
Notes are: unsecured, payable on demand and bear interest at the rate of 6.6%.
As of this time, no payment demand has been made on the Notes.
<PAGE>
13
CHANGE OF COMPANY NAME
(Proposal 2)
The Board of Directors of Nevada Manhattan Mining has, after careful
consideration, made the decision to present to the shareholders a "change of the
company's name." The Company name, "Nevada Manhattan Mining" no longer reflects
the Company's diversity of interests into other natural resources. Therefore,
the Board of Directors recommends a "FOR" vote to change the name of the Company
to "TERRA NATURAL RESOURCES CORPORATION."
RATIFICATION OF INDEPENDENT ACCOUNTANTS
(Proposal 3)
The Board of Directors has selected Jackson and Rhodes, P.C., to serve as
independent accountants for the Company for the year ending May 31, 1998 and the
Company's shareholders will vote to ratify such selection. Jackson and Rhodes,
P.C., audited the Company's financial statements for the year ending May 31,
1997 and have been the Company's independent accountants since 1995. All
professional services rendered by Jackson and Rhodes, P.C., during 1997 were
furnished at customary rates and terms. They will be available to respond to
appropriate questions from shareholders at the Meeting.
The Board of Directors recommends a vote "FOR" this proposal.
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's Common Stock, to file with the Securities and Exchange
Commission reports of ownership and of changes in beneficial ownership of Common
Stock and other equity securities of the Company. However, the Company did not
have any Section 16(a) reporting obligations for the fiscal year ended May 31,
1997 since the Company became a "reporting" company on June 2, 1997.
<PAGE>
A-1
APPENDIX
In lieu of a costly, formal Annual Report, Nevada Manhattan Mining has elected
to use this Appendix to provide the information for the fiscal year ended May
31, 1997, usually contained in an annual report to shareholders.
This information is extracted from the Company's Registration Statement on Form
10, as amended, plus up-to-date "interim" information contained in the Company's
Form 10-QSB for the quarter ending November 30, 1997.
<PAGE>
A-2
APPENDIX INDEX
--------------
Page
----
Management's Discussion and Analysis of Financial
Condition and Results of Operations
As of Nov. 30, 1997............................................. A-3
Fiscal Year End ............................................... A-5
Market for Common Equity and Related
Stockholder Matters................................................... A-8
Legal Proceedings....................................... ............. A-10
Unaudited Interim Financial Statements and
Latest Developments
As of Nov. 30, 1997............................................. A-11
Audited Consolidated Financial Statements
Fiscal Years Ending May 31, 1995,
1996 and 1997................................................ AF-1
<PAGE>
A-3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
- ------------
The Company is a timber and mining company, with corporate offices in
Calabasas, California, owning interest(s) in certain timber or mining properties
located in the (1) state of Para, Brazil (the "Brazilian Timber Properties");
(2) Manhattan Mining District, Nye County, Nevada, (the "Nevada Property"); (3)
Indonesian Gold Belt, Kalimantan, Indonesia (the "Indonesian Gold Concessions");
(4) Kutai District of East Kalimantan, Indonesia (the "Indonesian Coal
Concessions"); and (5) on the island of Sumatra, Indonesia. The terms and
conditions of these acquisitions and the risks and contingencies associated with
such ownership interests are more particularly described in the Company's
Registration Statement on Form 10.
INTERIM REPORT - SIX MONTHS ENDED NOVEMBER 30, 1997
- ---------------------------------------------------
COMPARISON OF RESULTS OF OPERATIONS -
SIX MONTHS ENDED NOVEMBER 30, 1997 AND NOVEMBER 30, 1996.
Revenues for six months ended November 30, 1997 were $351,000 as compared to
no revenues for the same period in 1996. However, net loss for the six month
period ended November 30, 1997 was approximately $3,029,000 as compared to a net
loss of $696,000 for the same period in 1996. The net loss for the six month
period ended November 30, 1997 was attributable to Brazilian operations
(approximately $1,100,000); consulting expenses (approximately $188,000);
debt-related expense (approximately $225,000); interest expense (approximately
$155,000); legal fees (approximately $165,000); printing (approximately
$75,000); travel (approximately $94,000); and lodging related to Brazilian
operations ($75,000). During the six month period ended November 30, 1997, the
Company paid approximately $364,000 to retire debt and approximately $250,000 in
improvements on its sawmill located near the town of Sao Miguel do Gama, Para,
Brazil.
QUARTER ENDED NOVEMBER 30, 1997 TO QUARTER ENDED NOVEMBER 30, 1996
Revenues for the quarter ended November 30, 1997 were approximately $195,000
as compared to no revenues for the same period in 1996. However, net loss for
the quarter ended November 30, 1997 was approximately $1,721,000 as compared to
net loss of approximately $179,000 for the same period in 1996. The net loss for
the quarter ended November 30, 1997 was attributable to Brazilian operations
(approximately $766,000); consulting fees (approximately $97,000); legal fees
(approximately $60,000); interest (approximately $85,000); debt related expense
(approximately $116,000); printing expense (approximately $37,000); salaries for
administration staff (approximately $295,000); travel and lodging ($70,000); and
other administrative expenses related to running a public company.
<PAGE>
A-4
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position as of November 30, 1997 was a deficit
of approximately $1,735,521. 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 Silobat Property, the remainder of the Indonesian Concessions, and
the Brazilian Properties.
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 $5,000,000 pursuant to such private placements and notes payable
to stockholders. The Brazilian operations represent an opportunity for the
Company to generate significant cash flows for the first time, particularly if
it is able to fund between $250,000 and $500,000 in additional capital for such
operations. 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 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 anticipates that it will require additional capital
infusions and is attempting to secure them through private placements, a
publicly registered offering of its securities and/or funds generated from its
Brazilian operations.
<PAGE>
A-5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR ENDED MAY 31, 1997
- -----------------------
COMPARISON OF RESULTS OF OPERATIONS -- YEAR ENDED MAY 31, 1997
COMPARED TO YEAR ENDED MAY 31, 1996
Net loss for the year ended May 31, 1997 was $4,213,009 as compared to
$1,325,094 for the year ended May 31, 1996. The Company experienced its first
sales of Brazilian timber during the year ended May 31, 1997, resulting in
revenues of $287,178 with a gross profit of $26,089. The principal increases in
expenses during the year ended May 31, 1997, were attributed to expenses in
Brazil (approximately $145,000), office salaries (approximately $145,000),
travel (approximately $215,000), stock for services to employees ($240,000),
consulting fees ($115,000), legal fees ($175,000), discount on options
($150,000), warrant expenses ($1,200,000), financing expense of $677,000 related
to conversion of debt to common stock and a general increase in other expenses
attributable to the Company's increased activities from the previous year.
During the year ended May 31, 1997, the Company invested $2,600,000 in Common
Stock toward the purchase of certain contractual rights to the seven (7) gold
mining concessions comprising the Indonesian Gold Concessions, $227,000 toward
certain exploration activities relating to the Silobat Property (one of the
Indonesian Gold Concessions), $1,670,000 ($700,000 in Common Stock) toward the
acquisition of and improvements to the infrastructure relating to the Brazilian
Timber Properties, and $2,350,000 ($250,000 in Common Stock) in development
activities on the Nevada Property.
As of July 1, 1997, Brazil is no longer considered a highly inflationary
economy under SFAS 52. Therefore, translation adjustments will begin to be
accumulated in a separate component of equity. Translation adjustments during
the year ended May 31, 1997 were taken to income and were not material to the
Company's results of operations.
YEAR ENDED MAY 31, 1996 COMPARED TO YEAR ENDED MAY 31, 1995
During the year ended May 31, 1996, the Company reported an operating loss
of $1,325,094 as compared to an operating loss of $698,103 for the year ended
May 31, 1995. The difference between these two periods was principally due to
the issuance of stock to officers for services rendered of $485,000. There was
an increase of $233,981 in cash and cash equivalents for the year ended May 31,
1996 as compared to a decrease in cash and cash equivalents of $78,613 for the
previous fiscal year. The improvements in the availability of cash and cash
equivalents to the Company was the result of the sale of $1,255,325 in stock
offered and sold through private placements. By contrast, the Company sold
$726,013 in stock through private placements for the year ended May 31, 1995.
YEAR ENDED MAY 31, 1995 COMPARED TO YEAR ENDED MAY 31, 1994
The Company incurred a net loss of $698,103 in fiscal 1995 compared to a net
loss of $572,140 during fiscal 1994. The principal reason for the increased loss
was due to an increase in salaries of approximately $150,000. The Company used
$703,043 cash in operating activities in 1995 compared to $749,057 in 1994.
Investment in property and equipment was similar each year: $59,466 in 1995
compared to $116,777 in 1994. Proceeds from issuance of stock amounted to
$726,013 in 1995 compared to $975,469 in 1994.
<PAGE>
A-6
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position as of May 31, 1997, was a deficit of
approximately $762,000. 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 and development activities on the Nevada
Property and, more recently, the Silobat Property, the remainder of the
Indonesian Concessions, and the Brazilian Concessions.
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 $5,755,941 pursuant to three such private placements of the
Company's Equity Securities. The Brazilian operations represent an immediate
opportunity for the Company to generate significant cash flows for the first
time. The Company has also recently concluded a privately-negotiated placement
of approximately Three Million Five Hundred Thousand Dollars ($3,500,000) of 8%
Senior Convertible Debentures within certain investments. This private
placement, together with the cash flow anticipated from the Company's operations
in Brazil, should satisfy the Company's immediate need for the significant
amounts of capital for its overseas acquisitions and operations in both
Indonesia and Brazil. The Company believes that with the anticipated increase in
daily production at its Brazilian operations, much of its continued operations
in Brazil, Indonesia, and on the Nevada Property will be funded by the cash flow
generated on the Terranorte Concessions.
The Company believes that the Debentures will be converted into Common Stock
in accordance with their provisions. However, the Company also projects that the
cash flow from its Brazilian operations will be adequate to satisfy the
Company's need for current liquidity and liquidate the Debentures in the event
that the Debentures are not converted into Common Stock. The Company's
$3,000,000 payable in December 1998 to its officer in Brazil will be paid in
cash, if available, from cash flow, or the Company has an option to "put"
1,000,000 shares of Common Stock to the officer to satisfy the obligation.
EXPENDITURES FOR BRAZILIAN OPERATIONS
The Company has budgeted up to $3,415,200 for its Brazilian operations. This
amount is projected to be expended as follows:
o Improvements to sawmill facility -- $350,000
o Timber harvesting operations -- $1,950,000
o Additional property acquisitions $1,500,000
EXPENDITURES FOR NEVADA FOR FURTHER DEVELOPMENT
A total of $1,500,000 has been budgeted for expenditure on the Nevada Property
as follows:
o Complete access to the White Cap Mine -- $800,000
o Continue exploration/development of open pit mining targets -- $200,000
o Acquire up to a 50% interest in the New Concepts Mining, Inc., mill--
$500,000
<PAGE>
A-7
EXPENDITURE FOR INDONESIA FOR FURTHER DEVELOPMENT
A total of $1,500,000 has been budgeted for expenditure on the Indonesian
Concessions as follows:
o Preliminary drill program for Silobat -- $100,000
o Expanded drill program for Silobat -- $300,000
o Drill program for three coal properties -- $500,000
o Reconnaissance/sampling program for other gold properties -- $600,000
CONTINGENCIES REGARDING NEVADA PROPERTY
Management has anticipated various contingencies regarding the Nevada
Property in addition to following the Nevada Business Plan. Included are plans
to develop open pit mining prospects on the existing property controlled by the
Company. Mining would be conducted by the current mining contractor and the ore
would be milled at the New Concepts Mill. Efforts will continue in order to
acquire an interest in adjoining properties adjacent to the Nevada Property and
an interest in the New Concepts Mining, Inc., mill either through joint venture
arrangements or through purchase. The Company cannot quantify the costs of these
efforts but the efforts are limited to funds available from sources described in
the Company's Registration Statement on Form 10.
<PAGE>
A-8
MARKET FOR COMMON EQUITY, DIVIDENDS
AND RELATED STOCKHOLDER MATTERS
The authorized capital stock of the Company consists of 50,000,000 shares of
which 49,750,000 shares are Common Stock with a par value of one cent ($.01) per
share and 250,000 shares of Series A Preferred Stock with a par value of $1.00
per share and convertible into Common Stock on the terms and conditions
hereinbelow described. As of December 31, 1997, there were 16,020,854 shares of
the Company's Common Stock issued and outstanding assuming the conversion of
228,919 shares of the Preferred Stock into 2,289,190 shares of common stock, but
does not include Common Stock to be issued in payment of accrued dividends on
the Preferred Stock as of December 31, 1997. The average price paid per share
for the Common Stock to date has been approximately $2.00 per share while the
price per share paid for the Preferred Stock which was subject to conversion on
December 31, 1997 has been $10.00 per share, with an effective conversion price
(determined on the basis of one-for-ten conversion rights accorded the Preferred
Stock shareholders) to be $1.00 per share.
PUBLIC MARKET
- -------------
The Company received approval for trading of its Common Stock on the
Electronic Bulletin Board (NASDAQ) in March 1996. From the period from December
1995 until March 1996, the Company published "bid" and "ask" prices on the "pink
sheets." The low and high prices for the Common Stock since commencement of
quotations are as follows:
HIGH DATE LOW DATE
-------- ------------- ------- -------------
$ 14.50 March 3, 1997 $ 0.68 December 1997
Over the past six months the average monthly volume of trading of the
Company's Common Stock has been approximately 975,000 shares. Prospective
Investors should be aware that the volume of trading on the Electronic Bulletin
Board traditionally has been limited and there can be no assurance that the
Electronic Bulletin Board will provide an effective market for a shareholder to
sell his or her Common Stock of the Company.
The Company's Registration Statement on Form 10 pursuant to section 12(b)
of the Securities Exchange Act of 1934 (the "Exchange Act") became effective on
June 2, 1997. The Company is now a "fully-reporting company" within the meaning
of the Exchange Act. For the periods ended May 31, 1996 and May 31, 1997, there
were 834 and 1,140 shareholders respectively. As of August 31, 1997, there were
808 shareholders of record.
The Company has applied for listing with the American Stock Exchange
("AMEX") by requesting a preliminary listing eligibility opinion.
<PAGE>
A-9
The high and low interdealer prices for the calendar quarters since trading
began on the Electronic Bulletin Board (without retail markup, markdown or
commission) are as follows:
QUARTER ENDED HIGH LOW
------------- -------- --------
December 31, 1995............................... $ 1.25 $ 1.25
March 31, 1996.................................. $ 2.44 $ 1.35
June 30, 1996................................... $ 3.75 $ 1.812
September 30, 1996.............................. $ 4.25 $ 2.125
December 31, 1996............................... $ 10.375 $ 2.875
March 31, 1997.................................. $ 14.50 $ 6.00
June 30, 1997................................... $ 9.75 $ 3.0625
September 30, 1997.............................. $ 7.50 $ 3.75
December 31, 1997............................... $ 4.56 $ 0.68
DIVIDENDS
- ---------
The Company has not paid cash dividends on any of its Common Stock and does
not anticipate paying any cash dividends on any of its Common Stock for the
foreseeable future. Holders of the Preferred Stock issued prior to December 31,
1997 were entitled to an annual cash or stock dividend offered at the rate of
eight percent (8%) per year payable out of any funds legally available therefor
and payable on January 1, April 1, July 1, and October 1 of each year. Such
dividends are cumulative so that if full dividends in respect of any previous
dividend period are not paid, holders of the 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.
Management of the Company has scheduled payment of accrued dividends (which
were $228,380 as of December 31, 1997) to holders of this series of Preferred
Stock. Payment will be in Common Stock of the Company, as authorized in the
Company's "Certificate of Determination of Preferences of Series A Preferred
Stock" filed with the Nevada Secretary of State on October 25, 1995 at the time
that the Preferred Stock is converted into Common Stock. On December 31, 1997
this series of Preferred Stock was retired.
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
will be convertible to one share of Common Stock for a period of one year and
carry 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 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. 1998 Preferred Shares are
callable by the Company at $3.50 per share.
<PAGE>
A-10
LEGAL PROCEEDINGS
INTERIM REPORT - SIX MONTHS ENDED NOVEMBER 30, 1997
- ---------------------------------------------------
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.
<PAGE>
A-11
INTERIM FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Statements of Operations -
Three and Six Months Ended November 30, 1997 and 1996....... A-12
Consolidated Balance Sheets -
November 30, 1997 and May 31, 1997......................... A-14
Consolidated Statements of Cash Flows -
Three and Six Months Ended November 30, 1997 and 1996....... A-15
Notes to Consolidated Financial Statements.................... A-16
Other Information............................................. A-19
<PAGE>
A-12
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Revenues ............................. $ 195,030 $ --
Cost of sales ........................ 185,278 --
------------ ------------
Gross profit ...................... 9,752 --
Expenses:
General and administrative ........ (1,701,445) (173,437)
------------ ------------
Net loss ............................. (1,691,693) (173,437)
Cumulative preferred dividends ....... (29,019) (53,000)
------------ ------------
Net loss attributable
to common shareholders .............. ($ 1,720,712) ($ 178,737)
============ ============
Net loss per common share ............ $ (0.14) $ (0.01)
============ ============
Weighted average shares
outstanding ........................ 12,477,251 9,237,465
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
A-13
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED NOVEMBER 30, 1997 AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996
------------- ----------
<S> <C> <C>
Revenues ............................. $ 351,806 $ --
Cost of sales ........................ 265,873 --
------------ ------------
Gross profit ...................... 85,933 --
Expenses:
General and administrative ......... (3,056,426) (657,489)
------------ ------------
Net loss ............................. (2,970,493) (657,489)
Cumulative preferred dividends ....... (58,356) (38,840)
Net loss attributable
to common shareholders ............. ($ 3,028,849) ($ 696,329)
============ ============
Net loss per common share ............ $ (0.24) $ (0.07)
============ ============
Weighted average shares outstanding .. 12,477,251 8,237,465
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
A-14
NEVADA MANHATTAN MINING INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
NOV. 30, 1997 MAY 31, 1997
(UNAUDITED) (AUDITED)
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents ... $ 17,237 $ 559,510
Accounts receivable ......... 20,060 58,161
Prepaid expenses ............ 1,297,300 622,710
------------ ------------
Total current assets 1,334,597 1,240,381
------------ ------------
Property and equipment:
Mining properties:
Domestic ................. 5,971,764 5,830,091
Indonesia ................ 2,826,782 2,826,782
Brazilian timber Concession . 1,460,000 3,296,729
Furniture, fixtures, equipment 818,986 431,840
Less accumulated depreciation (123,385) (82,998)
------------ ------------
11,954,147 12,302,444
------------ ------------
$ 12,288,744 $ 13,542,825
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............ $ 444,025 $ 544,738
Accrued liabilities ......... 1,114,531 441,535
Notes payable to stockholders 1,451,562 712,321
Current portion of long-term debt 60,000 303,818
------------ ------------
Total current liabilities 3,070,118 2,002,412
Convertible debentures ............... 2,306,944 1,333,333
Long-term debt ....................... 29,540 2,669,427
------------ ------------
Total liabilities .. 5,406,602 6,005,172
------------ ------------
Commitments and contingencies
Stockholders' equity:
Common stock to be issued ... 760,000 108
Preferred stock, $1 par, 250,000 shares
Authorized, 219,569 and 228,319 issued
At November 30, 1997 and May 31,1997. 219,569 228,319
Common stock, $0.1 par, 50,000,000
Shares authorized, 12,628,263 and
12,273,565 shares issued.. 126,282 122,736
Additional paid-in capital .. 25,318,224 23,699,574
Accumulated defict .......... (19,541,933) (16,513,084)
Total stockholders' equity 6,882,142 7,537,653
------------ ------------
$ 12,288,744 $ 13,542,825
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
A-15
NEVADA MANHATTAN MINING, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED NOVEMBER 30, 1997 AND 1996 (UNAUDITED) 1996
<TABLE>
<CAPTION>
(Unaudited)
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ...................................... $(2,970,493) $ (657,489)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services .......... -- 240,000
Depreciation and amortization ............. 213,998 1,500
Accounts receivable ....................... 38,101 --
Prepaid expenses .......................... (96,651) (8,820)
Accounts payable and accrued liabilities .. 838,927 (78,737)
----------- -----------
Net cash used in operating activities .. (1,976,114) (503,546)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment ............ (517,019) (910,820)
----------- -----------
Cash flows from financing activities:
Additions to convertible debentures ........... 1,500,000 --
Payments on debt .............................. (288,376) (3,000)
Proceeds from notes payable to stockholders ... 739,241 380,505
Proceeds from issuance of
stock and stock to be issued .................. 0 979,712
----------- -----------
Net cash provided by financing activities ...... 1,950,865 1,357,217
----------- -----------
Net increase (decrease) in cash and cash
equivalents ................................... (542,273) (57,149)
Cash and cash equivalents at beginning of period 559,510 233,981
----------- -----------
Cash and cash equivalents at end of period ..... $ 17,237 $ 176,832
=========== ===========
Supplemental cash flow information:
Cash paid during the year for interest ........ $ 0 $ 0
----------- -----------
</TABLE>
Non-Cash Transactions:
- ----------------------
During the six months ended November 30, 1997, the Company issued:
o 100,000 shares of Common Stock valued at $441,000 for a consulting
contract. 44,109 shares of Common Stock valued at $140,000 for
liquidated damages to a debenture holder.
o 65,000 shares of Common Stock valued at $325,000 for 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 an
officer of the Corporation over a three-year period for Company's
equity interest in Equatorial.
During the six months ended November 30, 1997, $200,000 of debenture notes were
converted to 42,244 shares of Common Stock. During the six months ending
November 30, 1997, a shareholder converted 8,750 Preferred Shares to 87,500
Common Shares.
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<PAGE>
A-16
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 November
30, 1997, the results of operations for the three months and six months
ending November 30, 1997 and 1996, and the cash flows for the six months
ended November 30, 1997 and 1996. 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.
In 1996 the Company has acquired the right to conduct exploration
activities on three (3) coal properties in Indonesia, the right to develop
and/or harvest virgin timber properties on up to approximately 750,000
hectares (1,875,000 acres) located in the state of Para, Brazil, and the
right to complete its acquisition of a sawmill facility located near the
town of Sao Miguel do Guama, Brazil which it currently operates. The
Company holds various rights in and to the following properties: (i)
various timber properties aggregating up to approximately 750,000 hectares
and sawmill facilities 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").
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.
<PAGE>
A-17
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 six month period ended November 30,
1997).
The discount will be amortized over the life of the Debentures.
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 is currently intending
to re-file its Registration Statement with the Commission in February,
1998.
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.
<PAGE>
A-18
4. SUBSEQUENT EVENTS:
------------------
On October 3, 1997 the Company entered into a Letter of Intent with
Vanderbilt Gold Corp. to acquire an 85% interest in Vanderbilt's Morning
Star Gold Mine in San Bernardino, California. Upon completion of due
diligence and closing, the Company will be obligated to pay Vanderbilt
225,000 shares of restricted common stock to exercise its option. The
Company anticipates completion of a thorough due diligence report by
February 1, 1998. The Morning Star Mine is reported to contain 300,000
ounces of gold in the proven and probable category.
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 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.
On December 19, 1997 the Company increased its equity ownership of
Equatorial Resources from 80% to 100%. The Company renegotiated its
agreement with Ignatius Theodorou, formerly the 20% minority shareholder in
Equatorial, who was responsible for the Company's involvement in its
Brazilian timber project. The Company has agreed to pay Mr. Theodorou one
million shares of its restricted common stock over a three year period.
Under the new agreement, the Company will no longer be required to pay Mr.
Theodorou a total of $3,000,000 for its equity interest in Equatorial.
From July 1997 to December 1997, Jeffrey S. Kramer, Chief Operating
Officer, provided loans to the Company, aggregating $400,000.
From the period November 11, 1997 to December 29, 1997, 956,167 shares
of common stock were issued to collateralize or retire loans of the
Company. The Board of Directors has authorized an additional 1,000,000
shares of common stock to either collateralize or retire outstanding loans.
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 its
common stock.
<PAGE>
A-19
OTHER INFORMATION
-----------------
On October 8, 1997, the Company requested that the Securities and
Exchange Commission grant it the right to withdraw its Registration
Statement on Form SB-2. At that time, the Commission had provided, amongst
other things, the following comment:
"NEVADA PROPERTY - We note in your response that `the mineral deposits
associated with the Nevada Property do not yet meet the various
definitions of a commercially mineable ore body including the
Commission's standards under Industry Guide No. 7'. As such, we see no
basis for reasonable cash flow estimates. Accordingly, mining costs
should be written off as incurred until economically recoverable
reserves are identified. Revise accordingly.
INDONESIAN CONCESSIONS - It appears to us that the cost of acquiring
the Indonesian Concessions and exploring the unevaluated mining
Properties should be expensed as incurred. We see no basis for
reasonable cash flow estimates and the Company has stated that `any
cash flow analysis related to the Indonesian Concessions is
premature'. Accordingly, revise to expense the costs associated with
the Indonesian properties. When the properties are determined to have
proven and probable reserves, then further exploration and development
costs can be capitalized."
The Company and its accountants currently disagree with the position
of the staff of the Commission relative to the Nevada Property and the
Indonesian Concessions. The Company has been engaged in discussions with
the Commission's staff and intends to continue these discussions with the
staff. A decision will be made by management of the Company as to whether
the financial statements submitted herewith will require adjustment
consistent with the final position of the staff.
<PAGE>
AF-1
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following pages contain the financial statements of the Company for the
fiscal years ending May 31, 1995, 1996 and 1997.
NEVADA MANHATTAN MINING INCORPORATED AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Independent Auditors' Report.......................................... AF-2
Consolidated Balance Sheets at May 31, 1997 and 1996.................. AF-3
Consolidated Statements of Operations
For the Years Ended May 31, 1997, 1996 and 1995..................... AF-4
Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended May 31, 1997, 1996 and 1995..................... AF-5
Consolidated Statements of Cash Flows
For the Years Ended May 31, 1997, 1996 and 1995..................... AF-7
Notes to Consolidated Financial Statements............................ AF-8
<PAGE>
AF-2
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
Nevada Manhattan Mining Incorporated
We have audited the accompanying consolidated balance sheets of Nevada
Manhattan Mining Incorporated and subsidiaries as of May 31, 1997 and 1996, and
the related consolidated statements of operations, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended May
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Nevada Manhattan Mining Incorporated and subsidiaries as of May 31, 1997 and
1996, and the results of its operations and its cash flows for each of the years
in the three-year period ended May 31, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 11, the Company has discovered, subsequent to May 31,
1996, that its mining properties have been overstated by the capitalization of a
portion of certain indirect salaries from 1992 through May 31, 1996. Subsequent
to May 31, 1997, the Company also discovered that it should have recorded a
financing expense for the excess of fair market value of certain common shares
over the amount of the debt for which the shares were issued. Accordingly, the
accompanying financial statements for the years ended May 31, 1997, 1996 and
1995 have been restated to correct the errors.
JACKSON & RHODES P.C.
July 28, 1997 (except as to Notes 5, 11 and 12, which
are as of September 4, 1997)
Dallas, Texas
<PAGE>
AF-3
NEVADA MANHATTAN MINING INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
(RESTATED) (RESTATED)
<S> <C> <C>
Current assets:
Cash and cash equivalents .................... $ 559,510 $ 233,981
Accounts receivable .......................... 58,161 --
Prepaid expenses ............................. 622,710 --
----------- -----------
Total current assets ...................... 1,240,381 233,981
----------- -----------
Property and equipment (Note 2):
Mining properties:
Domestic .................................. 5,830,091 3,472,428
Indonesia ................................. 2,826,782 --
Brazilian timber concession .................. 3,296,729 --
Furniture and fixtures ....................... 431,840 63,842
Less accumulated depreciation ............. (82,998) (59,067)
----------- -----------
12,302,444 3,477,203
----------- -----------
$13,542,825 $ 3,711,184
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ............................. $ 544,738 $ 88,226
Accrued liabilities .......................... 441,535 181,162
Notes payable to stockholders ................ 712,321 136,751
Current portion of long-term debt (Note 3) ... 303,818 44,388
----------- -----------
Total current liabilities ................. 2,002,412 450,527
Convertible debentures (Note 4) ................ 1,333,333 --
Long-term debt (Note 3) ........................ 2,669,427 115,723
----------- -----------
Total liabilities ......................... 6,005,172 566,250
Commitments and contingencies (Note 5) ......... -- --
Stockholders' equity (Note 6):
Common stock to be issued .................... 108 --
Preferred stock, $1 par, 250,000 shares authorized,
228,319 and 132,510 issued at May 31, 1997
and 1996...................................... 228,319 132,510
Common stock, $.01 par; 49,750,000 shares
authorized; 12,273,565 and 8,353,881 shares
issued at May 31, 1997 and 1996 ............. 122,736 83,539
Additional paid-in capital ................... 23,699,574 15,079,460
Accumulated deficit .......................... (16,513,084) (12,150,575)
----------- -----------
Total stockholders' equity ................ 7,537,653 3,144,934
----------- -----------
$13,542,825 $ 3,711,184
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AF-4
NEVADA MANHATTAN MINING INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C>
Revenues .......................... $ 287,178 $ -- $ --
Cost of sales ...................... 261,089 -- --
----------- ----------- -----------
Gross profit ..................... 26,089 -- --
Expenses:
General and administrative ....... (4,239,098) (1,325,094) (698,103)
----------- ----------- -----------
Net loss ........................... (4,213,009) (1,325,094) (698,103)
Cumulative preferred dividends ..... (149,500) (10,600) --
----------- ----------- -----------
Net loss attributable to common
shareholders ..................... $ (4,362,509) $(1,335,694) $ (698,103)
=========== =========== ===========
Net loss per common share ......... $ (0.41) $ (0.18) $ (0.14)
=========== =========== ===========
Weighted average shares outstanding 10,684,176 7,428,081 5,021,801
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AF-5
NEVADA MANHATTAN MINING INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended May 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Stock
Stock Subscriptions Preferred Stock Common Stock
to be Issued Receivable Shares Amount Shares Amount
------------ ----------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance May 31, 1994 (Restated) ... $ -- $ -- -- $ -- 3,964,701 $ 39,647
Shares to be issued to officers ... 495,000 -- -- -- -- --
Common shares issued for cash in
private placement ($1 per share). -- (19,000) -- -- 647,213 6,472
Preferred shares issued for cash in
private placement ($10 per share). 131,500 (31,500) -- -- -- --
Shares issued in settlement of
claims........................... -- -- -- -- 32,500 325
Shares issued as conversion of debt. 605,827 -- -- -- 14,067 141
Net loss (Restated) ............... -- -- -- -- -- --
--------- ------- ---------- -------- --------- ------
Balance May 31, 1995 .............. 1,232,327 (50,500) -- -- 4,658,481 46,585
Issuance of stock-- previously
purchased ....................... (1,232,327) -- 13,150 13,150 554,400 5,544
Cash received from stock
subscriptions ................... -- 50,500 -- -- -- --
Common shares issued for cash in
private placement ($.25 per share). -- -- -- -- 1,001,000 10,010
Preferred shares issued for cash in
private placement (principally at
$10 per share) .................. -- -- 119,360 119,360 -- --
Shares issued for services ........ -- -- -- -- 1,940,000 19,400
Shares issued in connection with
shareholder loan ................ -- -- -- -- 200,000 2,000
Preferred dividend ................ -- -- -- -- -- --
Net loss (Restated) ............... -- -- -- -- -- --
--------- ------- ------- -------- --------- ------
Balance, May 31, 1996 ............. -- -- 132,510 132,510 8,353,881 83,539
Shares issued for property ........ 108 -- -- -- 689,200 6,892
Shares issued for accounts payable -- -- -- -- 100,000 1,000
Common shares issued for cash in
private placement (principally
at $1 per share)................. -- -- -- -- 1,917,351 19,174
Preferred shares issued for cash in
private placement (principally at
$10 per share) .................. -- -- 96,409 96,409 -- --
Shares issued for services ........ -- -- -- -- 120,000 1,200
Shares issued for conversion of
debt............................... -- -- -- -- 1,087,133 10,871
Conversion of preferred stock ..... -- -- (600) (600) 6,000 60
Discount for conversion of debentures. -- -- -- -- -- --
Warrants issued ................... -- -- -- -- -- --
Preferred dividend ................ -- -- -- -- -- --
Net loss (Restated) ............... -- -- -- -- -- --
----------- ------- ------- -------- --------- --------
Balance, May 31, 1997 ............. $ 108 $ -- 228,319 $ 228,319 12,273,565 $122,736
=========== ======= ======= ========= ========== ========
</TABLE>
<PAGE>
AF-6
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Continued)
<TABLE>
<CAPTION>
Additional
Paid-in Accumulated
Capital Deficit Total
----------- ---------- ----------
<S> <C> <C> <C>
Balance May 31, 1994 (Restated) ... $11,602,364 $(10,116,778) $ 1,525,233
Shares to be issued to officers ... -- -- 495,000
Common shares issued for cash in
private placement ($1 per share). 538,541 -- 626,013
Preferred shares issued for cash in
private placement ($10 per share). 100,000 -- 100,000
Shares issued in settlement of
claims .......................... 32,175 -- 32,500
Shares issued as conversion of debt 32,692 -- 638,660
Net loss (Restated) ............... -- (698,103) (698,103)
----------- ---------- ----------
Balance May 31, 1995 .............. 12,305,772 (10,814,881) 2,719,303
Issuance of stock-- previously
purchased ....................... 1,213,633 -- --
Cash received from stock
subscriptions ................... -- -- 50,500
Common shares issued for cash in
private placement ($.25 per share. 258,990 -- 269,000
Preferred shares issued for cash in
private placement (principally at
$10 per share) .................. 816,465 -- 935,825
Shares issued for services ........ 465,600 -- 485,000
Shares issued in connection with
shareholder loan ................ 19,000 -- 21,000
Preferred dividend ................ -- (10,600) (10,600)
Net loss (Restated) ............... -- (1,325,094) (1,325,094)
----------- ---------- ----------
Balance, May 31, 1996 ............. 15,079,460 (12,150,575) 3,144,934
Shares issued for property ........ 3,293,000 -- 3,300,000
Shares issued for accounts payable 249,000 -- 250,000
Common shares issued for cash in
private placement (principally
at $1 per share.................. 1,129,286 -- 1,148,460
Preferred shares issued for cash in
private placement (principally at
$10 per share) .................. 759,191 -- 855,600
Shares issued for services ........ 238,800 -- 240,000
Shares issued for conversion of debt 1,076,755 -- 1,087,626
Conversion of preferred stock ..... 540 -- --
Discount for conversion of
debentures....................... 666,667 -- 666,667
Warrants issued ................... 1,206,875 -- 1,206,875
Preferred dividend ................ -- (149,500) (149,500)
Net loss (Restated) ............... -- (4,213,009) (4,213,009)
----------- ---------- ----------
Balance, May 31, 1997 ............. $23,699,574 $(16,513,084) $ 7,537,653
=========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AF-7
NEVADA MANHATTAN MINING INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ---------
(RESTATED) (RESTATED) (RESTATED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ..................................... $(4,213,009) $(1,325,094) $ (698,103)
Adjustments to reconcile net loss to
net cash used in operating activities:
Common stock issued for services ............ 240,000 485,000 --
Warrants issued for services ................ 1,206,875 -- --
Common stock issued for financing expense ... 677,000 -- --
Settlement of claim with debt ............... -- -- 32,500
Depreciation ................................ 23,931 6,200 9,150
Accounts receivable ......................... (58,161) 1,846 (1,846)
Prepaid expenses ............................ (622,710) 2,545 --
Accounts payable and accrued liabilities .... 298,074 (149,364) (44,744)
----------- ----------- ---------
Net cash used in operating activities ... (2,448,000) (978,867) (703,043)
----------- ----------- ---------
Cash flows from investing activities:
Purchase of property and equipment ........... (2,102,443) (60,893) (59,466)
----------- ----------- ---------
Cash flows from financing activities:
Additions to convertible debentures .......... 2,000,000 -- --
Payments on long-term debt ................... (114,284) (46,153) (42,117)
Proceeds from notes payable to stockholders .. 986,196 64,569 --
Proceeds from issuance of stock and stock
to be issued ................................ 2,004,060 1,255,325 726,013
----------- ----------- ---------
Net cash provided by financing activities ...... 4,875,972 1,273,741 683,896
----------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents ................................... 325,529 233,981 (78,613)
Cash and cash equivalents at beginning of period 233,981 -- 78,613
----------- ----------- ---------
Cash and cash equivalents at end of period ..... $ 559,510 $ 233,981 $ --
=========== =========== =========
Supplemental cash flow information:
Cash paid during the year for interest ....... $ -- $ 9,647 $ 12,701
=========== =========== =========
</TABLE>
NON-CASH TRANSACTIONS:
During 1995, the Company issued stock for conversion of notes payable and
shares to settle claims (Note 6).
During 1996, the Company issued 200,000 shares of common stock, valued at
$21,000 in connection with a loan from a shareholder. Also, during 1996, the
Company assumed $77,067 in debt in connection with acquiring an additional
interest in the mine (Note 2).
During 1997, the Company issued 589,200 shares of common stock in
connection with the Indonesian mining property acquisitions, 100,000 shares for
domestic mining services and 100,000 shares for a Brazilian timber concession
(Note 2). In addition, the Company issued 120,000 shares to employees for
services and 1,087,133 shares for conversion of $410,626 in debt. The Company
also issued warrants in connection with a debenture and issued other warrants
(see Notes 4 and 6). The Company also assumed $375,000 in debt in connection
with acquiring an additional interest in the mine (Note 2) and assumed a
$3,000,000 liability in Brazil (Note 2). The Company also accrued $149,500 and
$10,600 in preferred dividends during 1997 and 1996, respectively.
See accompanying notes to consolidated financial statements.
<PAGE>
AF-8
NEVADA MANHATTAN MINING INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
==========================================
ORGANIZATION
Nevada Manhattan Mining Incorporated was organized under the Laws of the
State of Nevada on June 10, 1985, to acquire, explore, develop, finance and sell
mining and timber rights and properties. The Company has to date acquired
properties, begun exploration and development and begun sales of timber. During
the year ended May 31, 1997, the Company formed an 80%-owned subsidiary,
Equitorial Resources (Brazil) Ltda. ("Equatorial") (Note 2) and a wholly-owned
subsidiary, Kalimantan Resources (Note 2). Prior to the year ended May 31, 1997,
the Company was considered to be in the development stage.
Preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
BASIS OF PRESENTATION
The Company's financial statements have been presented on the basis that it
is a going concern, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company is
reporting a net loss of $4,362,509, $1,335,694 and $698,103 for the years ended
May 31, 1997, 1996 and 1995 and net cash resources were used in operating
activities for each year.
The following is a summary of managements' plan to raise capital and
generate additional operating funds. Management has reached an agreement to have
gold ore milled adjacent to its Nevada property by a third party, reducing
capital requirements of the Company. The Company has reconstructed and extended
a 1,700 foot decline underground access to enhance exploration and facilitate
the extraction of gold ore. The Company has negotiated an agreement with
Harrison Western Mining and Construction Company to begin production. The
Company has acquired and commenced the exploration and development of its
mineral holdings in Indonesia and has commenced harvesting and milling
operations on its Brazilian timber properties. The Company's Brazilian
operations represent an immediate opportunity for the Company to generate
significant cash flows for the first time and have begun to realize revenues.
The Company believes that with the anticipated increase in daily production at
its Brazilian operations, much of its continued operations in Brazil, Indonesia,
and on the Nevada Property will be funded by the cash flow generated from the
Brazilian concessions. Prior to May 31, 1997, the Company concluded a
privately-negotiated placement of $2,000,000 of 8% Senior Convertible
Debentures. Subsequent to May 31, 1997, management raised an additional $1.5
million under the same conditions.
STATEMENT OF CASH FLOWS
For statement of cash flow purposes, the Company considers short-term
investments with original maturities of three months or less to be cash
equivalents.
<PAGE>
AF-9
PROPERTY AND EQUIPMENT
Mining properties acquisition, exploration and development costs are
capitalized as incurred and will be amortized on the units-of-production method
based on economically recoverable mineral reserves, limited to proven and
probable reserves. Indirect costs are expenses as incurred. Estimated site
restoration and closure costs in which the Company has reclamation
responsibilities are charged against operating earnings on the
units-of-production method over the expected economic life of the mines.
The Company periodically evaluates the carrying value of capitalized mining
costs to determine if these costs are equal to or in excess of their net
realizable value. If such periodic evaluation indicates an impairment has
occurred, the carrying value of the property is written down to the estimated
net realizable value. In March 1995, the Financial Accounting Standards Board
issued a new statement entitled "Accounting for Long-Lived Assets" (SFAS 121).
This new standard is effective for years beginning after December 15, 1995.
There is no impact of SFAS 121 on the Company's financial statements for the
year ended May 31, 1997. The Company has performed an assessment of the
recoverability of the carrying values of its domestic properties. The Company
has estimated future cash flows without interest based on the report of a
minerals industry consultant, which contains estimates of capital and production
costs and estimated mineral deposits. The project is not currently in
production, the achievement of commercial production will take at least one year
and, assuming the commercial production is achieved, continued operation in
accordance with project specifications is subject to substantial risks.
Increases in operating and capital costs from budgeted amounts, low gold prices
and other factors including, but not limited to, short-term operating factors
such as the need for sequential development of ore bodies and the processing of
new or different ore grades, may materially and adversely affect management's
forecasted cash flow. In the event such changes occur, an impairment of the
value of the mineral property may result and a writedown of the carrying value
of the property may be necessary.
The Company has similarly estimated future cash flows from its Brazilian
timber operations, based on projected timber production and current timber sales
prices and estimated costs of its sawmill operations.
The Company's operations in Indonesia are preliminary in nature, including
confirming title and conducting field reconnaissance work. Because of the
preliminary nature of this work, any cash flow analysis related to the
Indonesian concessions is premature. The Company will periodically evaluate the
carrying cost of these properties as the exploration and development process
proceeds. In the event the Company determines that an impairment in value is
evident, a writedown may be necessary.
Other property and equipment are carried at cost. Depreciation of other
property and equipment is provided using the straight-line method over the seven
year estimated useful lives of the related assets. Maintenance and repairs are
charged to operations as incurred and expenditures for major improvements are
capitalized. Gains and losses from retirement or replacement of property and
equipment are included in operations.
INCOME TAXES
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109) which
requires the use of the asset and liability method of computing deferred income
taxes. The objective of the asset and liability method is to establish deferred
tax assets and liabilities for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled.
<PAGE>
AF-10
NET LOSS PER COMMON SHARE
Per share amounts have been computed on the weighted average number of
common shares outstanding for each period. All share and per share amounts have
been restated to retroactively reflect the reverse stock split explained in Note
6. Convertible preferred shares are considered antidilutive since conversion
would decrease loss per share.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
PREPAID EXPENSES
Prepaid expenses at May 31, 1997 represents advances made to log extraction
companies in Brazil to induce timber production. These advances will be expensed
when the timber is delivered.
TRANSLATION OF FOREIGN CURRENCIES
Because Brazil has been considered a highly inflationary economy under SFAS
52, the U.S. dollar is the functional currency for the Company's Brazilian
subsidiary. Therefore, both translation adjustments and gains and losses on
foreign currency transactions are included in income in the accompanying
statement of operations.
2. PROPERTIES AND EQUIPMENT
========================
BRAZIL
The Company has acquired various rights to up to approximately 750,000
hectares (1,900,000 acres) of timber properties located in the state of Para,
Brazil. In addition, the Company has entered into an agreement to acquire and is
currently operating a sawmill facility located near the town of Sao Miguel do
Guama. As of May 31, 1997, $1,400,000 has been provided by the Company for
initial start-up of its operations in Brazil. The Company began harvesting trees
in April 1997 and has commenced sales during the year ended May 31, 1997.
The Jonasa Concessions. On November 11, 1996, the Company, through
Equatorial, entered into a letter agreement with Madeira Intex, S.A, ("Madeira")
whereby Madeira agreed to assign its rights in and to a Joint Venture Agreement
which Madeira had entered into in 1984 with Companhia Agropecuaria do Rio Jabuti
("Jonasa"). The Joint Venture Agreement required Jonasa to assign to Madeira the
exclusive rights to extract and market all lumber licensed by the appropriate
Brazilian authorities for export. All the various agreements were integrated
into an Agreement to Jointly Develop Timber Properties. Under this agreement,
Jonasa has granted to Equatorial the properties comprising the Jonasa
Concessions. In consideration of this grant, Equatorial has agreed to pay to
Jonasa 50% of the net proceeds received on the sale of all timber and related
products produced and sold pursuant to the agreement.
Terranorte Concessions. On May 30, 1997, Equatorial entered into an
Agreement to Harvest Timber and Develop Timber Properties with Terranorte S.A.
("Terranorte"). Terranorte granted to Equatorial the exclusive right to either
harvest the timber or to purchase certain species of logs extracted by
Terranorte located on approximately 490,000 hectares of virgin timber property
located near the town of Moju, Para, Brazil. In June 1997, Equatorial began
harvesting operations employing its own crews and purchasing harvested logs from
Terranorte.
<PAGE>
AF-11
2. PROPERTIES AND EQUIPMENT (continued)
========================
Sao Miguel Sawmill. On May 30, 1997, Equatorial and Jonasa Madeiras
Limitada ("Jonasa Madeiras") entered into an Agreement to Acquire Sawmill. Under
the terms of the agreement, Jonasa Madeiras agreed to convey all right, title,
and interest in and to the sawmill facility, all equipment relating to the
sawmill facility, and 246 hectares of adjacent real property, all of which is
located near the town of Sao Miguel do Guama, Para, Brazil. At present,
Equatorial has expended the sum of approximately $335,000 for the sawmill and
anticipates that an additional $350,000 in improvements will be made over the
next several months.
In addition to the cash capital requirements for the property, the Company
has issued 100,000 shares in February 1997 to the seller and is required to pay
$3,000,000 or issue 1,000,000 shares of Common Stock to the original owner of
the timber harvesting rights in December 1998. The original owner of the timber
harvesting rights is an officer of the Company's Brazilian subsidiary. The
Company has valued the 100,000 shares at $700,000 based upon the $10 market
price of the Company's common shares at the time, discounted 30% for the
restricted nature of and the thin market for the shares. The non-interest
bearing $3,000,000 debt has been discounted at 10% and is included in long-term
debt.
DOMESTIC
The Company previously owned a 24.5% undivided interest in a mining property
in the Manhattan Mining District, Nye County, Nevada. The property consists of
28 patented (fee) and 65 unpatented mine claims which include the Whitecaps
Mine, Union Mine, Consolidated Mine, Earl Mine, Bath Mine and other assorted
mines and claims which cover approximately 1,800 acres. Under contractual
understandings reached during October 1995, the Company effectively increased
its interest to 50% and assumed an additional $77,067 in debt (Note 3) in
connection therewith. Because the related joint venture never really operated,
the Company has not used joint venture accounting for its mining operation in
Nevada. Instead, the Company has simply paid all the costs of the mine and
recorded its proportionate share of the debt to the property owner.
In March 1997, the Company entered into a Sale and Purchase Agreement with
the former owners of the Mine. Under the terms of this latest agreement, the
former owners agreed to sell to the Company 100% of their interests in the
Nevada Note, the Deed of Trust, and the Nevada Property for $375,000, payable as
follows: $100,000 in March 1997 and the balance plus all accrued and unpaid
interest (calculated at the rate of 5.25%) on or before February 6, 1999. The
Company paid the first installment of $100,000 in March 1997 and paid the
balance in June 1997. See Note 5 for a discussion of a contingency regarding the
ownership of the property. The agreement also acknowledges that the Company is
the only person or entity legally entitled to conduct mineral operations on the
Nevada Property. The Company is also required to pay all U.S. Bureau of Land
Management annual maintenance fees associated with the claims comprising the
Nevada Property.
Management of the Company is active in the supervision of work taking place,
plus future planning of all aspects of operations. The operating permits for the
Manhattan Gold Mine were issued to the Company by the State of Nevada during
April 1996. The Company has negotiated an agreement with Harrison Western Mining
and Construction Company for the beginning of production in July 1996. The work
was begun in July 1996 and included placement of mine shops and support
facilities; mining in the existing workings of the mine and extension of the
existing decline from its end location of 1,200 linear feet from the surface to
the White Caps Level. Underground flooding and caving of the existing decline
required an alternate access way and a new decline was driven for approximately
500 feet on the existing decline. The Company is presently reviewing its
business plan to determine future work to be done at the mine.
<PAGE>
AF-12
2. PROPERTIES AND EQUIPMENT (continued)
========================
INDONESIA
The Company has made certain acquisitions in Indonesia during the year ended
May 31, 1997:
On August 19, 1996, the Company entered into an agreement to acquire a 51%
interest in a metals/minerals mining property in Kalimantan, Indonesia (Sopang
Gold Concession). Consideration for the purchase consisted of 400,000 shares of
common stock due upon the signing of the agreement (of which 10,800 are unissued
as of May 31, 1997) and an additional 4,000,000 shares to be released only if an
independent valuation of the property exceeds $12,000,000. The Company expects
the independent valuation to be completed by September 1998. The Company issued
unrestricted shares and has valued the 400,000 shares at $1,200,000 based upon
the $3 market price of the Company"s common shares at the time.
The Sopang Gold Concession ("Sopang") consists of 16,480 hectares and is
held under Indonesian title as a KP, a form of Indonesian citizen ownership with
a joint venture agreement. The concession is located in southeast Kalimantan.
Because of the lack of major infrastructure in the area, initial work will be
limited to surface trenching and geochemical sampling. Field work at Sopang was
initiated in the first quarter of calendar 1997 with more extensive exploration
including airborne geophysical surveys and drilling to be initiated later in
1997.
The Silobat Gold Project ("Silobat") is 75 kilometers south of the Sarawak
region of Malaysia and contains 62 hectares with the intent to expand to at
least 2,000 hectares. The Silobat Project is held under a KPPE title, a form of
Indonesian citizen ownership in joint venture with the Company. Access to the
property is by road and motorized canoe for initial field work and helicopter
support for advanced exploration activities. Infrastructure is limited but the
proximity to the west coast of Kalimantan and low relief terrain indicates no
unusual development problems will be encountered. Following a survey and
additional ground sampling, key core drill targets were identified and drilling
will start during the latter part of calendar 1997. Further property acquisition
is an integral part of the development program at Silobat. Exploration has
commenced in the first quarter of 1997.
The Cepa Coal Project ("Cepa") in East Kalimantan covers an area of
approximately 286,000 hectares and is held in three concessions as Contracts of
Work ("COW's"). Initial work on the property will include reasonable expansion
of ownership to include promising additional property containing similar coal.
Surface sampling, shallow drilling for coal characterization and general market
surveys began in the first quarter of 1997. The Silobat and Cepa projects,
collectively, were acquired in January 997 for 200,000 common shares issued upon
signing of the agreement and an additional 3,800,000 shares to be released only
if an independent valuation of the property exceeds $40,000,000. The Company has
valued the 200,000 shares at $1,400,000 based upon the $10 market price of the
Company's common shares at the time, discounted 30% for the restricted nature of
and the thin market for the shares.
The Company owns the interests it acquired with the 600,000 shares issued as
explained above. The Company has contractually acquired the rights to obtain
controlling interests in five additional gold concessions in Indonesia. The
Company is currently reviewing these properties to determine an applicable
acquisition structure.
The Company has retained the firm of Behre Dolbear & Co. to provide review
and third party validation with respect to its Indonesian operations.
The Company has not identified any reserves at the Indonesia properties
defined as proven or probable.
<PAGE>
AF-13
2. PROPERTIES AND EQUIPMENT (continued)
========================
Shares issued for property of 689,200 in the accompanying statement of
changes in stockholders' equity represents the following:
Sopang Concession...................... 400,000
Cepa and Silobat Concessions........... 200,000
Brazil................................. 100,000
Less shares to be issued............... (10,800)
-------
689,200
The shares to be issued were issued July 15, 1997.
3. LONG-TERM DEBT AND NOTES PAYABLE
================================
Notes payable to stockholders accrue interest at rates from 9 percent to 12
percent, are due on demand and are guaranteed by certain Company officers.
Long-term debt consisted of the following:
MAY 31,
1997 1996
----------- -------
Obligation to a stockholder as a result of a
Lawsuit settlement, interest imputed at 9%,
Payable $1,000 per month until April 2001......... $ 48,110 $ 50,770
Note payable to an individual at $2,000 per month,
including interest at 9%.......................... 53,406 --
$3,000,000 non-interest bearing payable to an
officer of the Company's Brazilian subsidiary,
discounted at 10%, payable in December 1998,
secured by 1,000,000 shares of the Company's
Common Stock...................................... 2,596,729 --
10% note payable to an individual under terms of a
joint venture agreement, paid in June 1977. See
Note 2............................................ 275,000 109,341
----------- ---------
2,973,245 160,111
Current portion..................................... 303,818 44,388
----------- ---------
Long-term debt...................................... $ 2,669,427 $ 115,723
=========== =========
Maturities of long-term debt principal are as follows for the years ending
May 31 (not reduced by $403,271 discount on the $3,000,000 note above):
1998....................................... $ 303,818
1999....................................... 3,030,654
2000....................................... 23,992
2001....................................... 15,533
2002....................................... 4,802
The Company has capitalized $54,332, $26,693, and $34,242 of interest into
the mining properties during the years ended May 31, 1997, 1996 and 1995,
respectively.
The obligation to a stockholder resulted from a lawsuit in 1991. The suit
alleged that the Company failed to deliver free-trading stock, thereby resulting
in alleged liability. The lawsuit was finally settled in 1994 for $89,050,
payable, without interest, at $1,000 per month.
<PAGE>
AF-14
4. 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 due March 31, 2000 and
July 1, 2000 for the April 14 ($2,000,000) and July 7 ($1,500,000) offerings,
respectively (the "Debentures") and granted to the purchasers warrants to
purchase 62,500 shares of the Company's Common Stock (the "Warrants").
The Debentures may be converted into shares of Common Stock at any time
commencing June 2, 1997 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, 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 ($666,667 for the year ended May 31, 1997 and $500,000 for the second
tranche at July 7, 1997). The discount will be amortized over the life of the
debentures.
The Company is required to use its "best efforts" to cause the Registration
Statement with the Securities and Exchange Commission to become effective. If
the Registration Statement does not become effective within 120 days of each
respective funding, the Company is 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.
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 offerings. Regarding the Subscribers of the April 14 offering, the Company has
granted 62,500 warrants with an exercise price of $8 per share and an expiration
date of April 16, 2002. Regarding Subscribers of the July 17, 1997 offering, the
Company has granted 75,250 warrants with an exercise price of $6.75 per share
and an expiration date of July 16, 2002. The exercise price is subject to
adjustment to account for payments of dividends, stock splits, reverse stock
splits, and similar events.
5. COMMITMENTS AND CONTINGENCIES
=============================
LEASE
The Company leases office space under terms of an operating lease expiring
on February 28, 1998. Future minimum lease payments for the years ending May 31,
1998 are $33,525. Rent expense amounted to $27,181, $20,726 and $20,394 for the
years ended May 31, 1997, 1996 and 1995.
<PAGE>
AF-15
5. COMMITMENTS AND CONTINGENCIES (continued)
=============================
SECURITIES AND EXCHANGE COMMISSION
During May 1989, the Company received notice that the Securities and
Exchange Commission ("Commission") had commenced an investigation into the
Company's business activities. In 1993, the Board of Directors of the Company
determined that the entry of a proposed consent judgment and the termination of
the investigation was in the best interest of the Company and received
confirmation that the investigation had been completed.
On March 19, 1994, the Company received the following "Stipulation Regarding
Resolution of Outstanding Issues" from the Commission closing out the
investigation and all related issues:
"Whereas the disposition of funds analysis conducted pursuant to the
Judgment of Permanent Injunction and Other Relief against Defendant Nevada
Manhattan Mining Incorporated entered on August 3, 1993 has revealed no
ill-gotten gains received by any defendant, the undersigned parties hereby
stipulate that all outstanding issues in this action have been resolved,
including disgorgement, and that the judgment entered against the defendants
are final."
While the Company believes that it was in the best interests of the Company
and its stockholders to enter the consent judgment, the entry of the judgment
may impose certain burdens on the Company with respect to its future activities.
The more significant of such burdens are as follows:
(i) The Company may not be able to utilize the exemptions from
registration available under Regulation A and Rule 701 under the 1933
Act.
(ii) The Company may not be able to rely on the private placement
exemptions provided in various state securities laws in connection
with the offer and sale of securities in a transaction which qualifies
as an exempt sale of securities under the 1933 Securities Act.
In such case, the Company would be required to qualify the transaction under
the state securities laws, which may not be available. This qualification would
increase the cost of, and extend the time for completing, such private placement
of securities.
OTHER CONTINGENCIES
In January 1995, a group of stockholders and creditors asserted a claim in
regards to a January 1988 settlement agreement. The Company has not been
formally served or any legal process initiated by the stockholders and creditors
in asserting this claim. Management does not believe the ultimate outcome of
this contingency will have a material effect on financial position or results of
operations.
During May 1997, the Company agreed to pay two shareholders an aggregate of
3% of the "net profits" of the Company's timber-related activities.
<PAGE>
AF-16
5. COMMITMENTS AND CONTINGENCIES (continued)
=============================
During November 1997 the Company filed a lawsuit in Nevada against its
former joint venturer partners in the Nevada mine ("the Harvey Entities"). The
complaint originally alleged, among other things, that the Harvey Entities
breached their obligations under various agreements. The action as amended seeks
damages of approximately $4,000,000 resulting from the actions and inactions of
the defendants. In a counterclaim, the defendants are seeking an injunction
preventing the Company from conducting activities related to the mine and
punitive damages and other financial relief based on breach of contract and
other causes of action. The Company subsequently amended its complaint, seeking
a judicial determination that the Joint Venture Agreement was null and void and
a determination that the Harvey Entities have forfeited all interest in the
Nevada property. After a two-hour hearing on September 4, 1997, the court
refused to issue an injunction against the Company. Pursuant to stipulation, the
parties have agreed not to interfere with one another's operations on the Nevada
Property. Additionally, the Company has agreed not to further encumber the
Nevada property pending trial. A trial date has been set for April 30, 1998. If
the Company is successful in obtaining the declaratory relief requested in the
action, it will effectively continue to own or control an undivided 100%
interest in the Nevada property. The Company believes that it will obtain the
declaratory relief requested in the action.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
Disclosures about Fair Value of Financial Instruments. The estimated fair value
amounts have been determined by the Company, using available market information
and appropriate valuation methodologies.
The fair value of financial instruments classified as current assets or
liabilities including cash and cash equivalents and notes and accounts payable
approximate carrying value due to the short-term maturity of the instruments.
SIGNIFICANT CONCENTRATIONS OF CREDIT RISK
At certain times, the Company's cash deposits are in excess of the federally
insured limit on bank accounts. The Company has not experienced losses related
to its cash.
6. STOCKHOLDERS' EQUITY
====================
REVERSE SPLIT
In February 1995, the Company's stockholders approved a one-for-ten reverse
split of the Company's common stock. The stated par value per share was not
changed. All share and per share amounts herein have been retroactively restated
to reflect the reverse split.
OTHER STOCK TRANSACTIONS
The Company sold 647,213 shares of common stock and 13,150 shares of Series
A Preferred Stock in separate private placements during the year ended May 31,
1995. The preferred stock had not been formally issued as of May 31, 1995, but
was issued during the year ended May 31, 1996. The Company raised $776,513 in
the private placements of which $50,500 was still receivable at May 31, 1995 and
has been reflected as an offsetting amount in stockholders' equity at that date.
<PAGE>
AF-17
6. STOCKHOLDERS' EQUITY (continued)
====================
During the year ended May 31, 1995, the Company agreed to issue 59,400 hares
of common stock in exchange for conversion of $638,660 of notes payable to
certain individuals. This amount was included in stock to be issued at May 31,
1995. These 59,400 common shares were issued in November 1995.
During the year ended May 31, 1995, the Company also agreed to issue 32,500
shares of common stock to certain individuals to settle certain claims made by
the individuals. The $32,500 value of the shares was charged to general and
administrative expense. The shares were valued at $1 per share, the price at
which the Company was issuing its shares in a private placement at the time.
During 1988, two Company officers loaned 495,000 (post-reverse split) common
shares to the Company as treasury stock in return for the Company's promise to
return the shares when common shares became available as a result of a reverse
split or an increase in authorized shares. The shares were reissued to the
officers in November 1995. The Company has accounted for the shares, valued at
the market price of the shares when they were loaned to the Company, as a
long-term obligation in the financial statements until the year ended May 31,
1995, when the reverse split occurred and the shares became available for
issuance. At that time, the obligation was considered as common stock to be
issued and included in stockholders' equity. The shares were valued at $1 per
share, the price at which the Company was issuing its shares in a private
placement at the time.
During the year ended May 31, 1996, the Company issued 140,000 common shares
to certain employees for services rendered. The shares were valued at $.25 per
share ($35,000), the price at which the Company was issuing its shares in a
private placement at the time.
In connection with their employment contracts, the Company also granted two
officers the right to purchase 900,000 common shares each at an average price of
$1.50 per share. The officers exercised these options during the year ended May
31, 1996 and the Company's board of Directors then agreed to give the officers
the shares for services rendered. These shares have been valued at $.25 per
share ($450,000) in the accompanying financial statements, the price at which
the Company was issuing its shares in a private placement at the time.
During the year ended May 31, 1997, the Company issued 120,000 common shares
to certain employees for services rendered. The Company has valued the shares at
$240,000 based upon the $2 market price of the Company's common shares at the
time.
During the year ended May 31, 1997, the Company issued 100,000 common shares
to its mining contractor in Nevada to settle a mining contract payable of
$250,000. The shares were valued at the amount of the payable settled. The fair
value of the shares at the time was approximately $2.50 per share.
During the year ended May 31, 1997, the Company issued 1,087,133 common
shares to certain shareholder creditors for the conversion of $410,626 in debt.
The Company recorded a financing expense of $677,000 (included in general and
administrative expenses) for the excess of the fair market value of the shares
over the amount of the debt. The fair market value was determined as the $1 per
share price at which the Company was issuing its shares in a private placement
at the time.
WARRANTS
As of July 28, 1997, the Company had warrants outstanding for the purchase
of an aggregate of 937,750 shares at a weighted average exercise price of $4.15.
During the year ended May 31, 1997, warrants were issued to third parties for an
aggregate of 412,500 shares. In accordance with SFAS 123, the Company expensed
$1,206,875 in connection with these warrants.
<PAGE>
AF-18
6. STOCKHOLDERS' EQUITY (continued)
====================
PREFERRED STOCK
The preferred stock has a $1 par value, a $10 liquidation preference and an
8 percent cumulative dividend payable in cash or kind. Each share is convertible
to ten common shares for a period of thirty months.
7. INCOME TAXES
============
The Company has recorded no income tax benefit, nor has deferred taxes in
any year due to a net operating loss carryforward amounting to approximately
$14,000,000 at May 31, 1997, which will expire, if not utilized, from 2002 to
2011.
There are no significant temporary differences between the Company's tax and
financial bases.
Following is a reconciliation between income tax provision (credit) and the
amount that would result from applying the U. S. statutory rate to pretax income
(loss):
MAY 31,
1997 1996 1995
----------- ---------- ----------
Income tax credit at statutory rate... $(1,430,000) $ (450,000) $ (237,000)
Lack of taxable income in carry-back
period.............................. 1,430,000 450,000 237,000
----------- ---------- ----------
Income tax provision (credit)......... $ -- $ -- $ --
=========== ========== ==========
Following are the components of the Company's deferred tax asset resulting
from the Company's net operating loss carryforward at each period:
MAY 31,
1997 1996 1995
----------- ----------- ----------
Deferred tax asset .............. $ 4,760,000 $ 3,388,000 $2,937,000
Valuation allowance ............. (4,760,000) (3,388,000) (2,937,000)
----------- ----------- ----------
Net deferred tax asset........... $ -- $ -- $ --
=========== =========== ==========
<PAGE>
AF-19
8. GEOGRAPHIC AND SEGMENT INFORMATION
==================================
GEOGRAPHIC INFORMATION
The Company's operations during the two years ended May 31, 1996 were
entirely gold mining operations in the United States. Beginning in the year
ended May 31, 1997, the Company began operating in Indonesia (mining) and Brazil
(timber). Financial data by segments and geographic area as of and for the year
ended May 31, 1997 were as follows:
OPERATING IDENTIFIABLE
SALES LOSS ASSETS
----------- ----------- ------------
United States....... $ -- $(3,900,388) $ 6,555,563
Indonesia........... -- (91,383) 2,826,782
Brazil.............. 287,178 (221,238) 4,160,480
----------- ----------- ------------
Total............. $ 287,178 $(4,213,009) $ 13,542,825
=========== =========== ============
SEGMENT INFORMATION
TIMBER MINING TOTAL
----------- ----------- ------------
Sales .................... $ 287,178 -- $ 287,178
=========== ============ ============
Operating loss ........... (221,238) (202,604) $ (423,842)
General corporate expenses -- -- (3,789,167)
----------- ------------ ------------
Net loss ................. $ (221,238) $ (202,604) $ (4,213,009)
=========== ============ ============
Identifiable assets ...... $ 4,160,480 $ 8,950,656 $ 13,111,136
Corporate assets ......... -- -- 431,689
----------- ------------ ------------
Total assets ............. $ 4,160,480 $ 8,950,656 $ 13,542,825
=========== ============ ============
Capital expenditures ..... $ 313,055 $ 1,789,388 $ 2,102,443
=========== ============ ============
Depreciation ............. $ 5,500 $ 18,431 $ 23,931
=========== ============ ============
Operating loss represents sales less operating expenses for each segment and
excludes income and expenses of a general corporate nature. Identifiable assets
by segment are those assets that are used in the Company's operations within
that industry but exclude investments in other industry segments. General
corporate assets consist principally of corporate cash. General corporate
expenses consisted of the following:
Salaries and benefits................................ $ 642,410
Warrants expense..................................... 1,200,000
Discount on options.................................. 150,000
----------
Financing expense-- debt conversion.................. 677,000
----------
Travel expenses...................................... 175,077
Legal and accounting................................. 214,671
Consulting fees...................................... 124,018
Other................................................ 605,991
----------
$3,789,167
==========
One customer accounted for approximately 20% of the Company's sales for the
year ended May 31, 1997.
<PAGE>
AF-20
9. STOCK OPTIONS
=============
The Company has granted stock options to all members of the Board of
Directors in the amount of 10,000 shares per full year of service as an active
member of the Board of Directors. The exercise price of options granted is $1.00
per share of common stock. Options may not be exercised after expiration of ten
(10) years from the date of grant and are non-transferable other than by will or
inheritance. These options are the only compensation received for service as
Director.
The following table sets forth information regarding options for the periods
ended:
MAY 31,
1997 1996 1995
------- -------- -------
Outstanding at beginning of period........ 240,000 190,000 160,000
Granted................................... 50,000 50,000 30,000
------- ------ -------
Outstanding at end of period.............. 290,000 240,000 190,000
======= ======= =======
During 1997, the Company also granted its chief legal counsel an option to
acquire 100,000 common shares at $4 per share.
SFAS 123
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS 123, "Accounting for Stock-Based Compensation." SFAS 123 defines a fair
value based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. Under the fair value based
method, compensation cost is measured at the grant date based on the value of
the award. However, SFAS 123 also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the intrinsic value based method, compensation cost is the
excess, if any, of the quoted market price of the stock at grant date or other
measurement date over the amount an employee must pay to acquire the stock.
Entities electing to remain with the accounting in Opinion 25 must make pro
forma disclosures of net income and earnings per share as if the fair value
based method of accounting had been applied. The pro forma disclosure
requirements are effective for financial statements for fiscal years beginning
after December 15, 1995. The Company has elected to measure compensation cost,
including options issued, under Opinion 25. The Company charged $150,000 to
expense for the year ended May 31, 1997 under Opinion 25. No compensation cost
was considered under either Opinion 25 or SFAS 123 for the year ended May 31,
1996, since the option price for the restricted shares approximated the value of
the restricted stock and the options were considered to have a nominal fair
value.
Pro forma disclosures as required by SFAS 123 for the fiscal year ended May
31, 1997 are as follows:
Pro forma net loss.............................. $(4,261,859)
-----------
Pro forma net loss per share.................... $ (0.40)
-----------
Pro forma net loss attributable to common
shareholders.................................. $(4,411,359)
-----------
Pro forma net loss per share.................... $ (0.41)
-----------
<PAGE>
AF-21
9. STOCK OPTIONS (continued)
=============
The fair value of the awards was estimated at the grant date using a
Black-Scholes option pricing model with the following weighted average
assumptions for 1997: risk-free interest rate of 6.63%; volatility factor of
44%; and an expected life of the awards of one year. The weighted average fair
value of stock options for the year ended May 31, 1997 was $2.16.
10. ACCOUNTING DEVELOPMENTS
=======================
SFAS 128
In February 1997, FASB issued SFAS 128, "Earnings per Share." SFAS 128
requires all companies to present "basic" earnings per share ("EPS") and, for
companies with a complex capital structure, "diluted" EPS. Basic EPS is computed
by dividing net income available for common shareholders by the weighted-average
number of common shares outstanding during the period. Diluted EPS is computed
by dividing income (adjusted for preferred stock dividends and any potential
income or loss from convertible securities) by the weighted-average number of
common shares outstanding during the period plus the number of additional common
shares that would have been outstanding if any dilutive potential common stock
had been issued. Certain disclosures regarding the computation are also required
by the statement. SFAS 128 is effective for financial statements issued for
periods ending after December 15, 1997. The statement is not allowed to be
applied early; however, pro forma EPS amounts computed under SFAS 128 prior to
its adoption may be presented in notes to the financial statements. After
adopting SFAS 128, companies must restate all prior-period EPS information
presented. Pro forma basic net loss per share each year is equal to the net loss
per share reported in the accompanying statement of operations. Diluted net loss
per share is not applicable since the Company has losses in each year and
increasing the shares outstanding would decrease loss per share.
11. RESTATEMENTS
============
Subsequent to May 31, 1996, the Company discovered that its mining
properties have been overstated by the capitalization of a portion of certain
indirect salaries since 1992. Accordingly, the accompanying financial statements
have been restated to correct the error. The effect of the correction was to
decrease domestic mining properties and increase accumulated deficit at May 31,
1996, by $488,619 and increase net loss by $126,588 and $87,030 for the years
ended May 31, 1996 and 1995, respectively.
Subsequent to May 31, 1997, the Company discovered that it should have
recorded a financing expense for the excess of fair market value of certain
common shares over the amount of the debt for which the shares were issued.
Accordingly, the accompanying financial statements for the year ended May 31,
1997 have been restated to correct the error. The effect of the correction was
to increase expenses, net loss, additional paid-in capital and accumulated
deficit by $677,000.
<PAGE>
AF-22
12. SUBSEQUENT EVENTS
=================
In June 1997, the Company agreed to issue 65,000 common shares to retire
$325,000 of accounts payable to the Company's mining subcontractor at the
Manhattan Mine.
In June 1997 the Company issued an additional $1,500,000 in convertible
debentures as explained in Note 4.
In June 1997 the Company issued warrants to purchase 350,000 shares at
$4.06 per share (the market price at the time) to a consultant.
Subsequent to May 31, 1997, the Company has realized approximately $40,000
in gold sales from the Nevada Mine.
In June 1997, the Company's convertible debenture holder converted $200,000
of the debentures into 42,444 shares of common stock.
<PAGE>
<TABLE>
COMMON STOCK PROXY
NEVADA MANHATTAN MINING, INCORPORATED
PROXY FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD APRIL 17, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
<S><C>
We the undersigned shareholder(s) of Nevada Manhattan Mining, Incorporated ("NMM") hereby nominate(s), constitute(s), and
appoint(s) Messrs. Christopher D. Michaels and Jeffrey S. Kramer, and each of them, the attorneys, agents, and proxies of the
undersigned, with full power of substitution, to attend and act as proxy or proxies of the undersigned at the Annual Meeting of
Shareholders ("Meeting") of said NMM to be held at the Sheraton Gateway Hotel (Los Angeles Airport), 6101 West Century Blvd., Los
Angeles, CA., on April 17, 1998 at 1:00 p.m., Pacific Daylight Time, or at any and all adjournments thereof, and to vote as
specified herein the number of Common Shares which the undersigned, if personally present, would be entitled to vote.
1.ELECTION OF DIRECTORS.[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY to vote for all nominees listed below.
Nominees: Christopher D. Michaels, Jeffrey S. Kramer, Stanley J. Mohr, Joe C. Rude' III, William E. Wilson
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE OR NOMINEES STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN
THE LIST ABOVE.
2.AMEND ARTICLES OF INCORPORATION TO CHANGE COMPANY NAME: [ ] FOR [ ] AGAINST [ ] ABSTAIN
3.RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS. To ratify the selection of Jackson & Rhodes P.C. to serve as NMM's
independent accountants for the fiscal year ending May 31, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4.To transact such other business as properly may come before the Meeting and any adjournment or adjournments thereof. The
Board of Directors at present knows of no other business to be presented by or on behalf of NMM at the meeting.
(Please sign and date on reverse side)
<PAGE>
(Please sign and date below)
The undersigned hereby ratifies and confirms all that the Proxy Holders, or any of them, or their substitutes, shall lawfully
do or cause to be done by virtue hereof, and hereby revokes any and all proxies heretofore given by the undersigned to vote at the
Meeting. The undersigned acknowledges receipt of the Notice of Annual Meeting of Shareholders and the Proxy Statement accompanying
said Notice.
Dated:
------------------------------------------
(Please Print Name)
-------------------------------------------
(Signature of Shareholder)
-------------------------------------------
(Please Print Name)
-------------------------------------------
(Signature of Shareholder)
(Please date this Proxy and sign above as your
name(s) appear(s)on this card. Joint owners each
should sign personally. Corporat proxies should
be signed by an authorized officer. Executors,
administrators, trustees, etc. should give their
full titles.
I (We) will [ ] ____ will not [ ] attend the meeting
in person.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION OF DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS AND "FOR" PROPOSAL
2 and PROPOSAL 3. THE PROXY WHEN PROPERLY EXECUTED SHALL BE VOTED IN ACCORDANCE AS DIRECTED. IF NO DIRECTION IS MADE FOR A GIVEN
PROPOSAL, THE PROXY WILL BE VOTED "FOR" THE ELECTION OF DIRECTORS NOMINATED BY THE BOARD OF DIRECTORS AND "FOR" PROPOSAL 2 and
PROPOSAL 3.
</TABLE>
