<PAGE> 1
1
United States Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 2
to
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the quarterly period ended August 31, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from ______to ______
Commission file number: 001-12867
TERRA NATURAL RESOURCES CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 88-0219765
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification No.)
5038 N. PARKWAY CALABASAS, SUITE #100, CALABASAS, CA 91302
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices
(818) 591-4400
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
NEVADA MANHATTAN MINING INCORPORATED
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
3 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 35,885,168 of Common Stock and
176,414 of Series A Preferred Stock.
Traditional Small Business Disclosure Format (check one): Yes [X] No [ ]
<PAGE> 2
2
TERRA NATURAL RESOURCES CORPORATION AND SUBSIDIARIES
(dba NEVADA MANHATTAN)
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE NO.
Item 1 Financial Statements for Terra Natural Resources Corp.
Consolidated Balance Sheets -
August 31, 1998 and May 31, 1998 3
Consolidated Statements of Operations -
Three Months Ended August 31, 1998 and 1997 4
Consolidated Statements of Cash Flow -
Three Months Ended August 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operation 8
PART II OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 11
Signature 12
<PAGE> 3
3
TERRA NATURAL RESOURCES CORPORATION AND SUBSIDIARIES
(dba NEVADA MANHATTAN)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
August 31, 1998 May 31, 1998
--------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 221,273 $ 81,529
Accounts receivable, net of allowance
for doubtful accounts of $150,000 285,316 255,027
Inventories 96,001 108,844
Stock Subscription Receivable 250,000
Prepaid expenses 372,789 283,354
--------- -------
Total current assets 1,225,379 728,754
Properties and equipment
Mineral Properties:
Domestic 2,936,000 2,936,000
Indonesia 1,400,000 1,400,000
Timber concession 700,000 700,000
Machinery and equipment, net 352,300 355,392
Other Assets 234,445 265,700
---------- ----------
TOTAL ASSETS $6,848,124 $6,385,846
========== ==========
LIABILITIES AND STOCKHOLDERS'EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and Accrued Expenses $1,524,254 $1,445,106
Convertible Notes payable to stockholders
- Secured by Common Stock 1,264,520 1,366,075
Notes Payable to Stockholders 522,950 522,950
Note Payable to Officer 713,955 718,000
Current portion of long-term debt 32,214 32,214
---------- ----------
Total current liabilities 4,057,893 4,084,345
Long term debt 35,327 44,327
Convertible debentures 2,407,771 2,313,459
---------- ---------
Total liabilities 6,500,991 6,442,131
---------- ---------
Commitments and contingencies --- ---
Stockholders' Equity (Deficiency):
Preferred stock, $1 par, 250,000 shares
Authorized, 176,414 outstanding
At August 31, 1998 and May 31, 1998 176,414 176,414
Common stock, $0.01 par, 49,750,000
Shares authorized, 40,157,243 and
26,492,543 shares issued and outstanding 401,572 264,926
Additional paid-in capital 30,540,415 28,715,550
Accumulated Foreign Currency Translation 29,610 24,940
Accumulated deficit (30,800,878) (29,238,115)
---------- -----------
Total stockholders' equity (deficiency) 347,133 ( 56,285)
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) $6,848,124 $ 6,385,846
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 4
4
TERRA NATURAL RESOURCES CORPORATION AND SUBSIDIARIES
(dba NEVADA MANHATTAN)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended August 31, 1998 and 1997
<TABLE>
<CAPTION>
(Unaudited)
1998 1997
---- ----
<S> <C> <C>
Revenues $ 248,649 $ 156,776
Cost of Sales 191,004 80,595
------- ------
Gross profit 57,645 76,181
Exploration Costs 78,008 ---
General and administrative Expenses 1,308,308 1,354,981
--------- ---------
Net loss from Operations (1,328,671) (1,278,800)
Other Expenses 234,092 ---
--------- ---------
Net Loss (1,562,763) (1,278,800)
---------- ---------
Cumulative preferred dividends --- 29,337
----------- ---------
Net loss attributable to common
shareholders $(1,562,763) $(1,308,137)
=========== ===========
Basic Loss Per Share $ (0.06) $ (0.10)
=========== ===========
Diluted Loss Per Share $ (0.06) $ (0.10)
=========== ===========
Weighted average shares outstanding 28,895,266 12,467,496
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 5
5
TERRA NATURAL RESOURCES CORPORATION AND SUBSIDIARIES
(dba NEVADA MANHATTAN)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended August 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------ ------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,562,763) $(1,278,800)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 196,092 ---
Common Stock Issued for Financing Expense ---
Amortization of Debenture Discount 94,312
Depreciation and amortization 15,771 99,909
(Increase) Decrease
Accounts receivable (30,289) (13,391)
Inventories 12,843
Prepaid expenses 87,614 (320,849)
Other Assets 31,255
Increase (Decrease)
Accounts payable and accrued Expenses 282,317 481,109
------- -------
Net cash used in operating activities (872,848) (1,032,022)
--------- -----------
Cash flows from investing activities:
Purchase of property and equipment (12,678) (419,189)
--------- ---------
Cash flows from financing activities:
Proceeds from Issuance of convertible
debentures --- 1,500,000
Payments on long-term debt (9,000) (489,928)
Proceeds from issuance of notes to
stockholders 25,000
Payments for Notes Payable to Officer (4,045)
Proceeds from issuance of stock 1,033,645 0
--------- -------
Net cash provided by financing activities 1,020,600 1,035,072
--------- ---------
Foreign Currency Translation Adjustment 4,670 ---
Net increase (decrease) in cash and cash
equivalents 139,744 (416,139)
Cash and cash equivalents at beginning of
period 81,529 559,510
----------- ----------
Cash and cash equivalents at end of period $ 221,273 $ 143,371
=========== ==========
</TABLE>
Supplemental disclosure of cash flow information:
During the three months ended August 31, 1998 and 1997, the Company paid no
income taxes and no interest.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended August 31, 1998, the Company issued: 722,754
shares of its common stock for services rendered by employees and third parties
for $196,092; and 138,834 shares of its common stock for $187,846 of liquidating
damages associated with the Convertible Debentures.
See accompanying notes to consolidated financial statements
<PAGE> 6
6
TERRA NATURAL RESOURCES CORPORATION 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 August
31, 1998, the results of operations for the three months ending August 31,
1998 and 1997, and the cash flows for the three months ended August 31,
1998 and 1997. These results have been determined on the basis of generally
accepted accounting principles and practices applied consistently with
those used in the preparation of the Company's audited financial statements
for its fiscal year ended May 31, 1998.
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, the
exploration and mining of precious metals in Nevada and the exploration of
precious metals and coal in Indonesia. The Company holds various rights to
develop and/or harvest timber properties on up to approximately 950,000
hectares located in the states of Para and Amazonas, Brazil; the right to
conduct sawmill operations at a 3.6 hectare sawmill facility located near
the port city of Belem, Para, Brazil; and the right to conduct exploration
activities on seven (7) gold properties and four (4) coal properties in
Indonesia. In August 1998, the Company entered into an agreement to harvest
timber from an additional 1,380 hectares in Para, Brazil, for a period of
thirty years.
3. Other
A. On August 31, 1998, the Company announced that it received an initial
capital infusion of $500,000 from a group led by Tetsuo Kitagawa. Mr.
Kitagawa had a 25-year history with the Marubeni Group and until
recently was the financial managing director of Marubeni's subsidiary
in Holland. Mr. Kitagawa is currently assigned by the Office of the
President of the Russian Federation to form investment funds in and
outside of Russia under the management of the Office of the President
of the Russian Federation for the improvement of its economy. Mr.
Kitagawa, with his group, will provide full-time management and
financial services for the Company. The Company has been reviewing
acquisition candidates submitted through the Kitigawa Group, many of
which are located in the countries of the former Soviet Union. On
October 14, 1998, Mr. Kitagawa was elected a director of the Company
by the Board of Directors.
B. From July 1997 through October 16, 1998, Jeffrey S. Kramer, Chief
Operating Officer, provided loans to the Company, aggregating
approximately $714,000. Mr. Kramer and the Company are currently
contemplating a partial settlement of these outstanding loans through
the issuance of restricted common shares by the Company.
<PAGE> 7
7
4. Subsequent Events
A. On September 24, 1998, the Company announced that it executed a letter
of understanding to acquire the controlling interest of "Chrustalnaia"
of Russia. Chrustalnaia owns and operates five mines with significant
reserves as well as 100 percent of "Stanum" which is involved in
harvesting, cutting and fabricating timber, also with substantial
reserves. Chrustalnaia/Stanum has gross revnues of approximately $16.2
million for fiscal 1997 as presented in their Russian-audited balance
sheet. A recognized major accounting firm will be retained to perform
an audit of the Russian balance sheet and assets, and the final
closing will be subject to such confirmation and the preparation of a
more definitive agreement prepared in accordance with the laws of the
United States and the other appropriate countries which will contain
other closing conditions. Chrustalnaia's mining activities include
mining, processing ore of colored metals and obtaining concentrates in
the fields of gold, silver and tin, and functions under the direction
of Dr. Alexander Gonchar. Dr. Gonchar is a well-known academician and
a respected member of the Academy of Science in Russia as well as
other highly respected scientific communities.
B. On September 10, 1998, the Company announced that Dr. Thomas Ward,
consultant to the U.S. Department of Energy and the Pentagon, has
agreed to become a member of the Company's Advisory Committee in the
capacity of Executive Consulting Director for Scientific Development
Mr. Ward, an internationally respected scientist, was for a period of
six years, a representative of the United States in Russia in charge
of the nuclear demilitarization program. Mr. Ward owns his own
consulting company which contracts a number of scientists providing
project expertise to the U.S. government and private companies. Ward
will head the Company's Research and Development Department in a
number of areas including monocrystallite silicon and isotope
development. In addition, he will implement the technology to process
Russian timber for export to the U.S. in order to preserve the United
States' forests and parks in accordance with the Gore-Russian
Agreement which starts in the year 2000 and is in the range of 20
million cubic meters of timber.
On October 13, 1998, the Company formed Science & Technology
Resources, Inc., which is currently structured as a wholly owned
subsidiary, for the purpose of developing its technological division
to be headed by Mr. Ward.
C. The Company is in the final stages of negotiation with Cyprus Amax
Coal Company for the exploration and development of one of the
Company's coal properties in East Kalimantan, Indonesia.
<PAGE> 8
8
D. On October 5, 1998, the Company announced that it had signed an
agreement for the acquisition of a substantial interest in oil and
revenue-producing gas leases located on the Plainview natural gas
field on 25,000 acres of gas prospects. The agreement on the leases
located in Macoupin County in southwest Illinois is with S.M.T.V. and
Western Pipeline Group. In its initial due diligence on a small part
of the holdings prior to entering into the agreement, the Company has
been able to confirm approximately an initial 4.76 BCF of natural gas.
Additional due diligence and confirmation is planned to commence
immediately.
E. On October 13, 1998 the Board of Directors elected Tetsuo Kitagawa and
Neil H. Lewis as directors, expanding the Board to seven members. Mr.
Kitagawa has been President of SYMIC, a management consulting firm,
since October 1997, prior to which he was employed by Marubeni Finance
(Holland). For the last six of those years he was a Managing Director
of Marubeni Finance, which is a wholly-owned subsidiary of Marubeni,
one of Japan's leading general trading companies. Mr. Lewis is an
attorney in private practice and a consultant to the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
Comparison of Results of Operations - Three months Ended August 31, 1998 and
August 31, 1997.
- --------------------------------------------------------------------------------
Revenues for three months ended August 31, 1998 were approximately $249,000 as
compared to approximately $157,000 for the same period in 1997. The sales in
both periods relate to the Brazilian operations. The $92,000 increase in Sales
is due to increased efficiencies. The gross margin for the three months ended
August 31, 1998 was approximately 23% as compared to approximately 49% for the
same period in 1997. The decrease in the gross margin is attributable to
increased labor costs. The General and Administrative Expenses and exploration
costs in the aggregate for the three month period ending August 31, 1998
increased slightly compared to the same period in 1997. Although the Company's
operating activities increased for the three months ending August 31, 1998 over
the same period in 1997, General and Administrative Expenses and exploration
costs in the aggregate rose only slightly due to the Company's ability to
control corporate expenses.
<PAGE> 9
9
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position as of August 31, 1998 was a deficit of
approximately $2,833,000. 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 activities on the Nevada Property and, more
recently, the Brazilian Properties, the Silobat Property and the remainder of
the Indonesian Concessions.
To raise funds in the past, the Company has relied upon private placements of
its equity securities. In the quarter ending August 31, 1998, the Company raised
approximately $1,242,000 pursuant to such private placements.
On March 27, 1998, the Company executed an agreement securing $14 million in
equity financing, primarily to fund its timber operations in South America. The
financing, through Bristol Asset Management Company II LLC, requires an
effective registration statement and enables the Company to draw up to $14
million over a three-year period. As of the filing date of this Quarterly
Report, the Company has not effected a registration statement covering the
common stock to be issued pursuant to the $14 million equity financing
agreement.
As of August 28, 1998, TiNV1, Inc., ("TiNV1"), entered into a Subscription
Agreement and a letter agreement with the Company pursuant to which TiNV1
purchased 5,500,000 shares of the Company's common stock for $500,000.
The Brazilian operations represent an opportunity for the Company to generate
significant cash flows for the first time. 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 pending acquisition of Chrustalnaia and the formation of Science &
Technology Resources, Inc. are also being developed for the purpose of increased
revenues.
The Company anticipates that it will require additional capital and intends to
secure it through its agreement with Bristol Assets Management Company II LLC,
by utilizing a publicly registered offering of its securities, the capital
provided by the TiNV1 transaction, "Private Placements" and/or funds generated
from its Brazilian operations.
YEAR 2000 DISCLOSURE
The Company has eight computers connected on a peer-to-peer network. The Company
has no proprietary software. If the Company had to replace all of its computers,
the costs would be $16,000. All Company files and records have been backed up on
zip drives and are continuously backed up on a weekly schedule.
<PAGE> 10
10
TERRA NATURAL RESOURCES CORPORATION AND SUBSIDIARIES
(dba NEVADA MANHATTAN)
PART II - OTHER INFORMATION
1. LEGAL PROCEEDINGS
As reported in the Company's Annual Report on Form 10-KSB, on July 14, 1998 the
following lawsuit was filed in United States District Court for the Central
District of California (Case No. 98-5624 JSL CTx) (the "Securities Action") on
behalf of the Company and Francis Parkes, Dr. Joe C. Rude, Christopher D.
Michaels, who are individual Company shareholders: Francis Parkes, Dr. Joe C.
Rude III, Christopher D. Michaels and Nevada Manhattan Mining, Inc. v. Sheldon
Salcman, Arie Rabinowitz, Mayer Rooz, Thomson Kernaghan & Co. Limited, Soreq,
Inc., Silenus Limited, Mary Park Properties, L.H. Financial Services, Austost
Anstalt Schaan, Tusk Investments, Inc., Mendel Group, Inc., Top Holding
International, Ltd., Praha Investments S.A., UFH Endowment, Ltd., Atead
Consulting S.A., and Ausinvest Anstalt Balzers, In the Securities Action,
plaintiffs contend that defendants violated Section 10(b) and 13(g) of the
Securities Exchange Act, Section 1962(b) of the Racketeer Influenced and Corrupt
Organizations Act, and committed fraud by engaging in a fraudulent scheme to
manipulate and artificially depress the market in and for the Company's common
stock by use of massive short sales. Plaintiffs seek an unspecified amount of
damages, including punitive damages, a judicial declaration that the terms,
conditions and covenants of certain debentures and subscription agreements were
violated and certain injunctive relief.
During this quarterly period, various defendants filed motions to dismiss and/or
transfer venue.
2. CHANGES IN SECURITIES
Not applicable.
3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
5. OTHER INFORMATION
Not applicable.
<PAGE> 11
11
6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
- --------
Exhibit Description Reference No.
- ------------------- -------------
Amended By-Laws of Terra Natural Resources Corporation 3.(xi)
Financial Data Schedule 27
REPORTS ON FORM 8-K
- -------------------
8-K Report dated July 15, 1998 to report the press release issued on July 15,
1998 announcing that the company and certain company stockholders filed a
lawsuit in the U.S. Federal District Court in Los Angeles seeking damages, among
other things, for an alleged fraudulent scheme to depress the market price of
the Company's common stock.
8-K Report dated July 7, 1998 to report Changes in Certifying Accountants.
<PAGE> 12
12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Terra Natural Resources Corporation
Amendment No. 2 /s/ Jeffrey S. Kramer
November 24, 1998 __________________________________________
Jeffrey S. Kramer, Chief Financial Officer
<PAGE> 13
13
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
3.(xi) Amended By-Laws of Terra Natural Resources Corporation
27 Financial Data Schedule
<PAGE>
[Marked Copy of this filing follows]
<PAGE> 1
1
United States Securities and Exchange Commission
Washington, D.C. 20549
Amendment No. 2
---------------
to
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the quarterly period ended August 31, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from ______to ______
Commission file number: 001-12867
TERRA NATURAL RESOURCES CORPORATION
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 88-0219765
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification No.)
5038 N. PARKWAY CALABASAS, SUITE #100, CALABASAS, CA 91302
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices
(818) 591-4400
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
NEVADA MANHATTAN MINING INCORPORATED
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
3 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 35,885,168 of Common Stock and
176,414 of Series A Preferred Stock.
Traditional Small Business Disclosure Format (check one): Yes [X] No [ ]
<PAGE> 2
2
TERRA NATURAL RESOURCES CORPORATION AND SUBSIDIARIES
(dba NEVADA MANHATTAN)
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE NO.
Item 1 Financial Statements for Terra Natural Resources Corp.
Consolidated Balance Sheets -
August 31, 1998 and May 31, 1998 3
Consolidated Statements of Operations -
Three Months Ended August 31, 1998 and 1997 4
Consolidated Statements of Cash Flow -
Three Months Ended August 31, 1998 and 1997 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operation 8
PART II OTHER INFORMATION
Item 1 Legal Proceedings 10
Item 2 Changes in Securities 10
Item 3 Defaults Upon Senior Securities 10
Item 4 Submission of Matters to a Vote of Security Holders 10
Item 5 Other Information 10
Item 6 Exhibits and Reports on Form 8-K 11
Signature 12
<PAGE> 3
3
TERRA NATURAL RESOURCES CORPORATION AND SUBSIDIARIES
(dba NEVADA MANHATTAN)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
August 31, 1998 May 31, 1998
--------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 221,273 $ 81,529
Accounts receivable, net of allowance
for doubtful accounts of $150,000 285,316 255,027
Inventories 96,001 108,844
Stock Subscription Receivable 250,000
Prepaid expenses 372,789 283,354
--------- -------
Total current assets 1,225,379 728,754
Properties and equipment
Mineral Properties:
Domestic 2,936,000 2,936,000
Indonesia 1,400,000 1,400,000
Timber concession 700,000 700,000
Machinery and equipment, net 352,300 355,392
Other Assets 234,445 265,700
---------- ----------
TOTAL ASSETS $6,848,124 $6,385,846
========== ==========
LIABILITIES AND STOCKHOLDERS'EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and Accrued Expenses $1,524,254 $1,445,106
Convertible Notes payable to stockholders
- Secured by Common Stock 1,264,520 1,366,075
Notes Payable to Stockholders 522,950 522,950
Note Payable to Officer 713,955 718,000
Current portion of long-term debt 32,214 32,214
---------- ----------
Total current liabilities 4,057,893 4,084,345
Long term debt 35,327 44,327
Convertible debentures 2,407,771 2,313,459
---------- ---------
Total liabilities 6,500,991 6,442,131
---------- ---------
Commitments and contingencies --- ---
Stockholders' Equity (Deficiency):
Preferred stock, $1 par, 250,000 shares
Authorized, 176,414 outstanding
At August 31, 1998 and May 31, 1998 176,414 176,414
Common stock, $0.01 par, 49,750,000
Shares authorized, 40,157,243 and
26,492,543 shares issued and outstanding 401,572 264,926
Additional paid-in capital 30,540,415 28,715,550
Accumulated Foreign Currency Translation 29,610 24,940
Accumulated deficit (30,800,878) (29,238,115)
---------- -----------
Total stockholders' equity (deficiency) 347,133 ( 56,285)
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY) $6,848,124 $ 6,385,846
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 4
4
TERRA NATURAL RESOURCES CORPORATION AND SUBSIDIARIES
(dba NEVADA MANHATTAN)
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended August 31, 1998 and 1997
<TABLE>
<CAPTION>
(Unaudited)
1998 1997
---- ----
<S> <C> <C>
Revenues $ 248,649 $ 156,776
Cost of Sales 191,004 80,595
------- ------
Gross profit 57,645 76,181
Exploration Costs 78,008 ---
General and administrative Expenses 1,308,308 1,354,981
--------- ---------
Net loss from Operations (1,328,671) (1,278,800)
Other Expenses 234,092 ---
--------- ---------
Net Loss (1,562,763) (1,278,800)
---------- ---------
Cumulative preferred dividends --- 29,337
----------- ---------
Net loss attributable to common
shareholders $(1,562,763) $(1,308,137)
=========== ===========
Basic Loss Per Share $ (0.06) $ (0.10)
=========== ===========
Diluted Loss Per Share $ (0.06) $ (0.10)
=========== ===========
Weighted average shares outstanding 28,895,266 12,467,496
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 5
5
TERRA NATURAL RESOURCES CORPORATION AND SUBSIDIARIES
(dba NEVADA MANHATTAN)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended August 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------ ------
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,562,763) $(1,278,800)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for services 196,092 ---
Common Stock Issued for Financing Expense ---
Amortization of Debenture Discount 94,312
Depreciation and amortization 15,771 99,909
(Increase) Decrease
Accounts receivable (30,289) (13,391)
Inventories 12,843
Prepaid expenses 87,614 (320,849)
Other Assets 31,255
Increase (Decrease)
Accounts payable and accrued Expenses 282,317 481,109
------- -------
Net cash used in operating activities (872,848) (1,032,022)
--------- -----------
Cash flows from investing activities:
Purchase of property and equipment (12,678) (419,189)
--------- ---------
Cash flows from financing activities:
Proceeds from Issuance of convertible
debentures --- 1,500,000
Payments on long-term debt (9,000) (489,928)
Proceeds from issuance of notes to
stockholders 25,000
Payments for Notes Payable to Officer (4,045)
Proceeds from issuance of stock 1,033,645 0
--------- -------
Net cash provided by financing activities 1,020,600 1,035,072
--------- ---------
Foreign Currency Translation Adjustment 4,670 ---
Net increase (decrease) in cash and cash
equivalents 139,744 (416,139)
Cash and cash equivalents at beginning of
period 81,529 559,510
----------- ----------
Cash and cash equivalents at end of period $ 221,273 $ 143,371
=========== ==========
</TABLE>
Supplemental disclosure of cash flow information:
During the three months ended August 31, 1998 and 1997, the Company paid no
income taxes and no interest.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the three months ended August 31, 1998, the Company issued: 722,754
shares of its common stock for services rendered by employees and third parties
for $196,092; and 138,834 shares of its common stock for $187,846 of liquidating
damages associated with the Convertible Debentures.
See accompanying notes to consolidated financial statements
<PAGE> 6
6
TERRA NATURAL RESOURCES CORPORATION 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 August
31, 1998, the results of operations for the three months ending August 31,
1998 and 1997, and the cash flows for the three months ended August 31,
1998 and 1997. These results have been determined on the basis of generally
accepted accounting principles and practices applied consistently with
those used in the preparation of the Company's audited financial statements
for its fiscal year ended May 31, 1998.
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, the
exploration and mining of precious metals in Nevada and the exploration of
precious metals and coal in Indonesia. The Company holds various rights to
develop and/or harvest timber properties on up to approximately 950,000
hectares located in the states of Para and Amazonas, Brazil; the right to
conduct sawmill operations at a 3.6 hectare sawmill facility located near
the port city of Belem, Para, Brazil; and the right to conduct exploration
activities on seven (7) gold properties and four (4) coal properties in
Indonesia. In August 1998, the Company entered into an agreement to harvest
timber from an additional 1,380 hectares in Para, Brazil, for a period of
thirty years.
3. Other
A. On August 31, 1998, the Company announced that it received an initial
capital infusion of $500,000 from a group led by Tetsuo Kitagawa. Mr.
Kitagawa had a 25-year history with the Marubeni Group and until
recently was the financial managing director of Marubeni's subsidiary
in Holland. Mr. Kitagawa is currently assigned by the Office of the
President of the Russian Federation to form investment funds in and
outside of Russia under the management of the Office of the President
of the Russian Federation for the improvement of its economy. Mr.
Kitagawa, with his group, will provide full-time management and
financial services for the Company. The Company has been reviewing
acquisition candidates submitted through the Kitigawa Group, many of
which are located in the countries of the former Soviet Union. On
October 14, 1998, Mr. Kitagawa was elected a director of the Company
by the Board of Directors.
B. From July 1997 through October 16, 1998, Jeffrey S. Kramer, Chief
Operating Officer, provided loans to the Company, aggregating
approximately $714,000. Mr. Kramer and the Company are currently
contemplating a partial settlement of these outstanding loans through
the issuance of restricted common shares by the Company.
<PAGE> 7
7
4. Subsequent Events
A. On September 24, 1998, the Company announced that it executed a letter
of understanding to acquire the controlling interest of "Chrustalnaia"
of Russia. Chrustalnaia owns and operates five mines with significant
reserves as well as 100 percent of "Stanum" which is involved in
harvesting, cutting and fabricating timber, also with substantial
reserves. Chrustalnaia/Stanum has gross revnues of approximately $16.2
million for fiscal 1997 as presented in their Russian-audited balance
sheet. A recognized major accounting firm will be retained to perform
an audit of the Russian balance sheet and assets, and the final
closing will be subject to such confirmation and the preparation of a
more definitive agreement prepared in accordance with the laws of the
United States and the other appropriate countries which will contain
other closing conditions. Chrustalnaia's mining activities include
mining, processing ore of colored metals and obtaining concentrates in
the fields of gold, silver and tin, and functions under the direction
of Dr. Alexander Gonchar. Dr. Gonchar is a well-known academician and
a respected member of the Academy of Science in Russia as well as
other highly respected scientific communities.
B. On September 10, 1998, the Company announced that Dr. Thomas Ward,
consultant to the U.S. Department of Energy and the Pentagon, has
agreed to become a member of the Company's Advisory Committee in the
capacity of Executive Consulting Director for Scientific Development
Mr. Ward, an internationally respected scientist, was for a period of
six years, a representative of the United States in Russia in charge
of the nuclear demilitarization program. Mr. Ward owns his own
consulting company which contracts a number of scientists providing
project expertise to the U.S. government and private companies. Ward
will head the Company's Research and Development Department in a
number of areas including monocrystallite silicon and isotope
development. In addition, he will implement the technology to process
Russian timber for export to the U.S. in order to preserve the United
States' forests and parks in accordance with the Gore-Russian
Agreement which starts in the year 2000 and is in the range of 20
million cubic meters of timber.
On October 13, 1998, the Company formed Science & Technology
Resources, Inc., which is currently structured as a wholly owned
subsidiary, for the purpose of developing its technological division
to be headed by Mr. Ward.
C. The Company is in the final stages of negotiation with Cyprus Amax
Coal Company for the exploration and development of one of the
Company's coal properties in East Kalimantan, Indonesia.
<PAGE> 8
8
D. On October 5, 1998, the Company announced that it had signed an
agreement for the acquisition of a substantial interest in oil and
revenue-producing gas leases located on the Plainview natural gas
field on 25,000 acres of gas prospects. The agreement on the leases
located in Macoupin County in southwest Illinois is with S.M.T.V. and
Western Pipeline Group. In its initial due diligence on a small part
of the holdings prior to entering into the agreement, the Company has
been able to confirm approximately an initial 4.76 BCF of natural gas.
Additional due diligence and confirmation is planned to commence
immediately.
E. On October 13, 1998 the Board of Directors elected Tetsuo Kitagawa and
Neil H. Lewis as directors, expanding the Board to seven members. Mr.
Kitagawa has been President of SYMIC, a management consulting firm,
since October 1997, prior to which he was employed by Marubeni Finance
(Holland). For the last six of those years he was a Managing Director
of Marubeni Finance, which is a wholly-owned subsidiary of Marubeni,
one of Japan's leading general trading companies. Mr. Lewis is an
attorney in private practice and a consultant to the Company.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
RESULTS OF OPERATION
Comparison of Results of Operations - Three months Ended August 31, 1998 and
August 31, 1997.
- --------------------------------------------------------------------------------
Revenues for three months ended August 31, 1998 were approximately $249,000 as
compared to approximately $157,000 for the same period in 1997. The sales in
both periods relate to the Brazilian operations. The $92,000 increase in Sales
is due to increased efficiencies. The gross margin for the three months ended
August 31, 1998 was approximately 23% as compared to approximately 49% for the
same period in 1997. The decrease in the gross margin is attributable to
increased labor costs. The General and Administrative Expenses and exploration
costs in the aggregate for the three month period ending August 31, 1998
increased slightly compared to the same period in 1997. Although the Company's
operating activities increased for the three months ending August 31, 1998 over
the same period in 1997, General and Administrative Expenses and exploration
costs in the aggregate rose only slightly due to the Company's ability to
control corporate expenses.
<PAGE> 9
9
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position as of August 31, 1998 was a deficit of
approximately $2,833,000. 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 activities on the Nevada Property and, more
recently, the Brazilian Properties, the Silobat Property and the remainder of
the Indonesian Concessions.
To raise funds in the past, the Company has relied upon private placements of
its equity securities. In the quarter ending August 31, 1998, the Company raised
approximately $1,242,000 pursuant to such private placements.
On March 27, 1998, the Company executed an agreement securing $14 million in
equity financing, primarily to fund its timber operations in South America. The
financing, through Bristol Asset Management Company II LLC, requires an
effective registration statement and enables the Company to draw up to $14
million over a three-year period. As of the filing date of this Quarterly
Report, the Company has not effected a registration statement covering the
common stock to be issued pursuant to the $14 million equity financing
agreement.
As of August 28, 1998, TiNV1, Inc., ("TiNV1"), entered into a Subscription
Agreement and a letter agreement with the Company pursuant to which TiNV1
purchased 5,500,000 shares of the Company's common stock for $500,000.
The Brazilian operations represent an opportunity for the Company to generate
significant cash flows for the first time. 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 pending acquisition of Chrustalnaia and the formation of Science &
Technology Resources, Inc. are also being developed for the purpose of increased
revenues.
The Company anticipates that it will require additional capital and intends to
secure it through its agreement with Bristol Assets Management Company II LLC,
by utilizing a publicly registered offering of its securities, the capital
provided by the TiNV1 transaction, "Private Placements" and/or funds generated
from its Brazilian operations.
YEAR 2000 DISCLOSURE
- --------------------
The Company has eight computers connected on a peer-to-peer network. The Company
- --------------------------------------------------------------------------------
has no proprietary software. If the Company had to replace all of its computers,
- --------------------------------------------------------------------------------
the costs would be $16,000. All Company files and records have been backed up on
- --------------------------------------------------------------------------------
zip drives and are continuously backed up on a weekly schedule.
- ---------------------------------------------------------------
<PAGE> 10
10
TERRA NATURAL RESOURCES CORPORATION AND SUBSIDIARIES
(dba NEVADA MANHATTAN)
PART II - OTHER INFORMATION
1. LEGAL PROCEEDINGS
As reported in the Company's Annual Report on Form 10-KSB, on July 14, 1998 the
following lawsuit was filed in United States District Court for the Central
District of California (Case No. 98-5624 JSL CTx) (the "Securities Action") on
behalf of the Company and Francis Parkes, Dr. Joe C. Rude, Christopher D.
Michaels, who are individual Company shareholders: Francis Parkes, Dr. Joe C.
Rude III, Christopher D. Michaels and Nevada Manhattan Mining, Inc. v. Sheldon
Salcman, Arie Rabinowitz, Mayer Rooz, Thomson Kernaghan & Co. Limited, Soreq,
Inc., Silenus Limited, Mary Park Properties, L.H. Financial Services, Austost
Anstalt Schaan, Tusk Investments, Inc., Mendel Group, Inc., Top Holding
International, Ltd., Praha Investments S.A., UFH Endowment, Ltd., Atead
Consulting S.A., and Ausinvest Anstalt Balzers, In the Securities Action,
plaintiffs contend that defendants violated Section 10(b) and 13(g) of the
Securities Exchange Act, Section 1962(b) of the Racketeer Influenced and Corrupt
Organizations Act, and committed fraud by engaging in a fraudulent scheme to
manipulate and artificially depress the market in and for the Company's common
stock by use of massive short sales. Plaintiffs seek an unspecified amount of
damages, including punitive damages, a judicial declaration that the terms,
conditions and covenants of certain debentures and subscription agreements were
violated and certain injunctive relief.
During this quarterly period, various defendants filed motions to dismiss and/or
transfer venue.
2. CHANGES IN SECURITIES
Not applicable.
3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
5. OTHER INFORMATION
Not applicable.
<PAGE> 11
11
6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
- --------
Exhibit Description Reference No.
- ------------------- -------------
Amended By-Laws of Terra Natural Resources Corporation 3.(xi)
Financial Data Schedule 27
REPORTS ON FORM 8-K
- -------------------
8-K Report dated July 15, 1998 to report the press release issued on July 15,
1998 announcing that the company and certain company stockholders filed a
lawsuit in the U.S. Federal District Court in Los Angeles seeking damages, among
other things, for an alleged fraudulent scheme to depress the market price of
the Company's common stock.
8-K Report dated July 7, 1998 to report Changes in Certifying Accountants.
<PAGE> 12
12
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Terra Natural Resources Corporation
Amendment No. 2 /s/ Jeffrey S. Kramer
November 24, 1998 __________________________________________
----------------- Jeffrey S. Kramer, Chief Financial Officer
<PAGE> 13
13
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
3.(xi) Amended By-Laws of Terra Natural Resources Corporation
27 Financial Data Schedule
