United States Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended February 28, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT
For the transition period from to
Commission file number: 0-25117
NEVADA MANHATTAN GROUP, INCORPORATED
(Exact Name of Small Business Issuer as Specified in Its Charter)
NEVADA 88-0219765
(State or Other Jurisdiction of (I.R.S.Employer Identification No.)
Incorporation or Organization)
(Address of Principal Executive Offices)
(818) 728-9728
(Issuer's Telephone Number, Including Area Code)
15260 VENTURA BOULEVARD, SUITE 1200, SHERMAN OAKS, CA 91403
(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
13 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: 69,379,667 shares of Common
Stock and 143,058 shares of Series A Preferred Stock.
Traditional Small Business Disclosure Format (check one): Yes X No ___
<PAGE> 2
2
NEVADA MANHATTAN GROUP, INC. AND SUBSIDIARIES
INDEX TO FORM 10-QSB
PART I FINANCIAL INFORMATION PAGE NO.
Item 1 Financial Statements for Nevada Manhattan Group, Inc. 2
Consolidated Balance Sheets -
February 28, 1999 and May 31, 1998 3
Consolidated Statements of Operations -
Three and Nine Months Ended February 28, 1999 and 1998 4
Consolidated Statements of Cash Flow -
Nine Months Ended February 28, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operation 11
Year 2000 Disclosure 14
PART II OTHER INFORMATION
Item 1 Legal Proceedings 15
Item 2 Changes in Securities 17
Item 3 Defaults Upon Senior Securities 18
Item 4 Submission of Matters to a Vote of Security Holders 18
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 19
Signature 20
<PAGE> 3
3
NEVADA MANHATTAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Audited)
May 31, 1998
February 28, 1999 Restated
----------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 754,733 $ 81,529
Accounts receivable, net of allowance
for doubtful accounts of $150,000 4,062,577 255,027
Inventories 143,148 108,844
Prepaid expenses 1,685,551 283,354
------------ ----------
Total current assets 6,646,009 728,754
Properties and equipment
Mineral properties - Indonesia 1,400,000 1,400,000
Machinery and equipment, net 960,117 355,392
Investment - Chrustalnaya 4,725,280 --
Other Assets 227,237 265,700
------------ ----------
TOTAL ASSETS $13,958,643 $2,749,846
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and Accrued Expenses $ 3,083,719 $1,445,106
Advance payment for stock sale 800,000 --
Convertible Notes 992,335 1,889,025
Note Payable to Officer 57,769 718,000
Current portion of long-term debt -- 32,214
------------ ----------
Total current liabilities 4,933,823 4,084,345
Long term debt -- 44,327
Convertible debentures 2,624,222 2,313,459
------------ ---------
Total liabilities 7,558,045 6,442,131
------------ ---------
Commitments and contingencies -- --
Stockholders' Equity (Deficiency):
Preferred stock, $1 par, 250,000 shares
Authorized, 143,908 and 176,414 outstanding 143,908 176,414
Common stock, $0.01 par, 250,000,000
Shares authorized, 66,044,666 and
26,492,543 shares issued and outstanding 660,447 264,926
Additional paid-in capital 43,153,561 28,715,550
Accumulated Foreign Currency Translation (696,033) 24,940
Subscriptions receivable (2,528,850) --
Accumulated deficit (34,332,435) (32,874,115)
------------ ------------
Total stockholders' equity (deficiency) 6,400,598 ( 3,692,285)
------------ -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIENCY) $13,958,643 $ 2,749,846
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 4
4
NEVADA MANHATTAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three and Nine Months Ended February 28, 1999 and 1998
<TABLE>
<CAPTION>
(Unaudited)
Three Months Nine Months
------------------------------- --------------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $16,615,779 $174,175 $24,573,243 $ 525,981
Cost of Sales 14,356,821 147,278 20,962,191 413,151
---------- ------- ------------ -------
Gross profit 2,258,958 26,897 3,611,052 112,830
General and administrative
Expenses 1,572,484 1,424,240 4,085,834 4,363,954
--------- --------- ------------ ---------
Net income (loss) from
Operations 686,474 (1,397,343) ( 474,782) (4,251,124)
Other Income (Expenses)
Investment Income 327,909 -- 327,909 --
Interest Expense ( 60,700) -- ( 425,527) --
Write-off of Mineral Properties ( 885,920) -- ( 885,920) --
--------- ----------- ----------- ----------
Total Other Income (Expenses) ( 618,711) -- ( 983,538) --
---------- ----------- ----------- ----------
Net Income (Loss) 67,763 (1,397,343) (1,458,320) (4,251,124)
--------- ---------- ---------- ----------
Cumulative preferred dividends -- -- -- ( 58,356)
--------- --------- ----------- -----------
Net income (loss) attributable
to common shareholders $67,763 ($1,397,343) ($1,458,320) ($4,309,480)
========== =========== =========== ===========
Basic Income (Loss) Per Share $ 0.00 $ (0.08) $ (0.03) $ (0.32)
======== ======== ========== ========
Diluted Income (Loss)
Per Share $ 0.00 $ (0..08) $ (0.03) $ (0.32)
======== ======== ========== ========
Weighted average shares
outstanding 43,960,679 13,436,463 43,960,679 13,436,463
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE> 5
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NEVADA MANHATTAN GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended February 28, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---- ----
(Unaudited) (Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,458,320) $(4,251,124)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 55,158 328,021
Amortization of Debenture Discount 368,640 --
Common stock issued for services 1,287,468 63,878
(Increase) Decrease
Accounts receivable (3,807,550) ( 6,320)
Inventories ( 34,304) (45,000)
Prepaid expenses (725,148) 378,426
Other Assets 38,463 --
Increase (Decrease)
Accounts payable and accrued Expenses 2,100,716 819,511
---------- ---------
Net cash used in operating activities (2,174,877) (2,712,608)
---------- ---------
Cash flows from investing activities:
Purchase of property and equipment ( 659,883) ( 529,381)
Prepaid investment in Meteor Industries ( 500,000) --
---------- ---------
Net cash used in investing activities (1,159,883) ( 529,381)
---------- ----------
Cash flows from financing activities:
Proceeds from advance payment for stock sale 800,000 --
Proceeds from Issuance of convertible
debentures -- 1,500,000
Payments on long-term debt -- (293,376)
Proceeds from issuance of notes to
stockholders 190,308 1,346,176
Proceeds from issuance of stock 3,738,629 139,033
---------- ---------
Net cash provided by financing activities 4,728,937 2,691,833
---------- ---------
Foreign Currency Translation Adjustment ( 720,973) --
---------- ---------
Net increase (decrease) in cash and cash
equivalents 673,204 (550,156)
---------- ---------
Cash and cash equivalents at beginning of
period 81,529 559,510
---------- ---------
Cash and cash equivalents at end of period $ 754,733 $ 9,354
---------- ---------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
During the nine months ended February 28, 1999 and 1998, the Company paid no
income taxes and no interest.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During the nine months ended February 28, 1999, the Company issued: 1,688,469
shares of its common stock for services rendered by employees and third parties
for $1,287,468; and 138,834 shares of its common stock for $196,909 of
liquidated damages associated with Convertible Debentures.
See accompanying notes to consolidated financial statements
<PAGE> 6
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NEVADA MANHATTAN GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. STATEMENT OF INFORMATION FURNISHED
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-QSB instructions and in the opinion of
management contain all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position as of February
28, 1999, the results of operations for the three and nine months ending
February 28, 1999 and 1998, and the cash flows for the nine months ended
February 28, 1999 and 1998. 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
In the six months ending February 28, 1999 the Company initiated expansion,
diversification and restructuring, with additional experienced management,
into the fields of high technology, some of which is related to natural
resources; metals/mining processing and sales; fish products and sales;
timber harvesting/processing and sales; coal mining and exploration; and
distribution of oil and gas products.
In the sector of technology, the Company is acquiring and in the process of
implementing groundbreaking technological inventions by Russian scientist
Professor Alexander Bogomolov, Deputy Director of Kometa, Deputy Director
of the Institute of Chemical Kinetics and Burning Processes, Deputy
Director of Siberian Academy of Science (NOVOSIBIRSK), as follows:
a. Backward Wave Linear Accelerator of Protons, ABC3D, Accelerator based
on concept of three-dimensionality and CVC generators attached to them
with the initial uses of these devices being:
1. to produce isotopes for medical and other uses;
2. for proton, ion and medical therapies;
3. the transmutation (elimination) of radioactive waste;
4. to detect explosives and narcotics and other contraband; and
5. for selection and inspection of objects in space.
b. A mass separator with the ability to divide a mass of 20,000 AME
(1/2000 of a micron). This has many uses including the extraction of
metals for tailings of various mines. In addition, it has other
applications including diamond mining.
Additional areas of the Company's technological business include (1) the
acquisition and development and distribution of irradiated carbon tissues,
(2) telecommunications, (3) software and internet services, and (4) coding
protection systems.
<PAGE> 7
7
No assurance can be given that the Company will be able to successfully and
commercially develop any of these inventions or businesses related to
technology, which are in their preliminary stages.
The Company is acquiring and deriving revenues from (1) fishing operations
in the Far East of Russia and (2) metals/mining in Russia and (3) timber
operations/holdings in the Russian Far East encompassing over two million
hectares.
The Company is deriving revenue from timber harvesting and production in
Brazil and holds various rights to develop and harvest timber properties on
up to 389,000 hectares located in the State of Para, Brazil.
The Company has the right to conduct exploration activities on seven gold
and four coal properties in Indonesia. One of the coal properties is
currently under contract with Cyprus Amax Coal Company, a unit of Cyprus
Amax Minerals Company, to operate and fund one of the Company's coal
holdings in East Kalimantan, Indonesia.
The Company has a gold exploration property in Manhattan, Nevada which
previously (pre-1940) produced in excess of 500,000 ounces of gold.
3. OTHER
A. On February 16, 1999, the Company's Board of Directors unanimously
elected Richard Izumi as Chief Executive Officer and Hironao Mutoh as
President. Mr. Izumi has an extensive 27-year career in finance that
includes the immediately preceeding 11 years as a partner in Price
Waterhouse and Ernst & Young where his experience included
acquisitions, divestitures and ventures, JV negotiations, ABS, Euro
and MTN bond financings and financial statement audits. He has served
numerous Fortune Global 500 companies including Toyota, Japan Energy,
Mitsui & Co., Mitsubishi Corporation, NEC and Yamaha Corporation. Mr.
Mutoh served as president of Crown USA Inc., a $400 million subsidiary
of the Crown Corporation (traded on the No. 1 Tokyo Stock Exchange).
B. On February 10, 1999, the Company and Sibnefteprovod "Siberian Oil
Pipeline" jointly announced the signing of a partnership agreement.
The Company will maintain the role of agent, representative and
partner in preparation and realization of specific projects, programs
and contracts and will handle all international business matters for
the pipeline including international contracts for transportation and
distribution of crude oil and will also provide acquisition,
installation and maintenance of equipment including two oil
refineries. Siberian Oil Pipeline reports that it has a cargo turnover
of 184.8 billion tons per kilometer. It transports 186.7 million tons
(1.12 billion barrels) of oil per year and owns and operates 9,618 km
(5,963.16 miles) of oil transporting pipeline which represents the
transportation of approximately 70% of Russian crude oil.
The Agreement establishes an authorized management committee
consisting of Sibnefteprovod General Director, Mr. G.G. Khopiorskiy;
Mr. Tetsuo Kitagawa, CFO of Nevada Manhattan Group; and individuals
and companies assigned by them. Petrotec International, 51% owned by
Nevada Manhattan Group, will provide services to the Pipeline related
to installation, maintenance and acquisition of equipment. American
Petroleum Technology Corp. ("Petrotec"), a United States company based
in Los Angeles, California, has extensive global experience in the
design, engineering, construction and management of petroleum
refineries, pipelines, storage systems, oil transport and other
critically important energy technologies. Petrotec. has a 49% interest
in Petrotec International.
C. On December 23, 1998, the Company acquired 80% of the metal mining
reserves and timber properties of Chrustalnaya, a Russian joint stock
company headquartered in Kavalerovo for 8,000,000 shares of restricted
common stock. Chrustalnaya has approximate reported annual timber and
mining revenues in excess of $16 million. Chrustalnaya's reported
resources are in excess of 16,690 tons of tin, 9,970 tons of lead,
50,970 tons of zinc, 426 tons of silver, 2,760 tons of copper and 878
kg. of gold. Reported dense timber holdings in the Primorsky Kray
region are over two million hectares or 9,000 square miles.
Chrustalnaya's mining activities include mining, processing ore of
colored metals and obtaining concentrates in the fields of gold, silver
and tin.
The Company intends to continue to mine and harvest the resources of
Chrustalnaya under existing license agreements.
The determination of issuing 8,000,000 shares for consideration is
based on the current and anticipated market value of the Company's
common stock and is based on the current and anticipated value of the
assets that the Company is acquiring.
Nevada Manhattan's activities in Russia and the surrounding
Commonwealth of Independent States (CIS) countries will be supervised
by Dr. Alexander Gonchar, chairman of the General Euro-Asian Committee
of Coal, Metals and Natural Resources, which is comprised of the
presidents of the 11 CIS members. 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.
While management previously considered an acquisition of
Chrustalnaya's stock, it was determined by the parties that the asset
acquisition, rather than the stock purchase, was in the best interests
of all parties concerned due to international complexities and
reporting requirements.
D. At the annual meeting of stockholders on December 9, 1998, the
stockholders approved an increase in the authorized common stock from
49,750,000 shares to 250,000,000 shares, enabling the Company to have
greater flexibility in considering potential future actions involving
the issuance of stock which may be necessary or desirable to
accommodate the Company's growth plan, including capital raising
transactions and acquisitions.
E. In December, 1998 an investor subscribed for 6,000,000 shares of
Common Stock, pursuant to a private placement, at a purchase price of
$1,500,000, through the issuance of a Promissory Note (the "Note") at
the interest rate of average monthly Federal Funds rate as listed
daily in the Wall Street Journal, payable in installments of $400,000
on or around December 20, 1998 and $1,100,000 on March 25, 1999. The
first installment has been received by the Company. The second
installment has not yet been received by the Company.
F. On August 31, 1998, the Company announced that it received an initial
capital infusion of $500,000 from a group led by Tetsuo Kitagawa and
during the period October 19, 1998 to November 24, 1998, an additional
equity investment in excess of $1,100,000 was received from the same
group. 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 Mr. Kitagawa
and certain of his associates, 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 and currently serves as the Company's Chief Financial and
Operating Officer.
G. On November 30, 1998, the Company announced that, as part of the
company's diversification plan, the following three companies were
formed: Science and Technology Resources, Inc. ("STR"), Nevada
Manhattan Tokyo branch and NMG Rexco.
STR, a Nevada corporation wholly owned by Nevada Manhattan, was formed
to acquire, initiate and utilize a variety of patented technologies,
some of which may have important application in the area of natural
resources. STR is headed by Dr. Thomas Ward, a consultant to the U.S.
Department of Energy.
Nevada Manhattan Tokyo was formed to act on behalf of Nevada Manhattan
to transact the sale and marketing of Nevada Manhattan's products as
well as other companies' products produced from diverse areas around
the world.
NMG Rexco, a California corporation, was formed to act on behalf of
Nevada Manhattan for the fishing, processing and distribution of fish
and other seafood, as well as sales and distribution of timber and
other resources, primarily products from the Far East.
H. In consideration of other acquisitions being negotiated but not yet
consummated, the Company entered into an agreement with Asset
Management Academy ("AMA"), a California corporation, and issued AMA
5,000,000 shares of restricted common stock for fees and services in
connection with these acquisitions. On February 26, 1999, the
5,000,000 shares were cancelled on the books and records of the
Company and the transaction was rescinded.
I. From July 1997 through October 16, 1998, Jeffrey S. Kramer, V.P.,
provided loans to the Company, aggregating approximately $714,000 in
principal. Mr. Kramer and the Company have reached an agreement for a
partial settlement of these outstanding loans through the issuance of
restricted common shares by the Company. On October 23, 1998, the
Company issued Mr. Kramer 583,200 shares of restricted common stock in
settlement of $583,200 of principal and interest.
J. On October 20, 1998, Christopher Michaels, Chairman, purchased 929,500
shares of restricted common stock from the Company at a purchase price
of $0.30 per share through the issuance of a promissory note in the
amount of $278,850, due on or before October 20, 2003 at an interest
rate of prime plus 1%. The note is collateralized by the common stock.
K. On October 5, 1998, the Company announced an agreement for the
acquisition of a substantial interest in a revenue-producing oil and
gas project located on the Plainview natural gas field in Macoupin
County in southwest Illinois. The agreement was subject to
verification of the seller's projections. Upon careful consideration
and extensive due diligence, the Company has elected not to proceed
with the acquisition.
L. On December 31, 1998, pursuant to the terms of a Term Sheet executed
by the Company and Capco Acquisub Inc., (the "Term Sheet") the Company
acquired 1,212,000 shares (35%) of Meteor Industries Inc. (NASDAQ:
METR) from Capco Acquisub Inc., ("Capco") at a purchase price of $7.00
per share plus additional consideration in the form of certain options
to buy Nevada Manhattan common stock.. Pursuant to the Term Sheet,
Capco agreed to deliver an additional 518,000 shares of Meteor to the
Company by January 14, 1999 at a purchase price of $7.00 per share.
The entire transaction was rescinded by the Company before February
15, 1999.
M. On October 8, 1998, the Company elected not to proceed with the
acquisition of the Skluth "Timberlands" in the states of Para and
Amazonas, Brazil. The 5,000,000 escrowed shares were immediately
cancelled on the books and records of the Company and the original
property deeds were returned. The Company does not anticipate that the
reduction in timberland holdings will have an impact on current
operations.
4. CONTINGENCIES
On February 8, 1999, the Company issued one million shares of
restricted common stock pursuant to a subscription agreement executed
by Kawrr Holdings & Investments Ltd. To date the Company has failed to
receive the agreed-upon consideration which was $1.1 million pursuant
to the subscription agreement. The Company has requested the immediate
return of the shares and believes this item is a contingency.
5. SUBSEQUENT EVENTS
A. On March 10, 1999, the Company announced a stock buy back plan to
acquire up to $10 million worth of Nevada Manhattan Group shares of
Common Stock in the open market, to be completed within the next six
months.
B. On March 31, 1999 the Company announced a software, internet and
technology joint venture with two top scientific and educational
centers of Russia: The Bauman Moscow State Technical University and the
Novosibirsk State University and International Software Consortium,
Inc. a Delaware-incorporated subsidiary of Nevada Manhattan. The
mission of the joint venture shall be to exploit, for the benefit of
the parties, the vast technological human resources and achievements
available through the universities to continue the development and
implementation of Internet information processing and control systems,
Internet gateway systems software for computers and automation systems.
No revenues have been generated and no assurances can be given that
these ventures will result in revenues and/or earnings.
<PAGE> 11
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C. On April 7, 1999, the Board of Directors accepted the resignation of
Christopher D. Michaels from the Board and appointed Richard H. Izumi
to fill the vacant position. Mr. Izumi was elected Chairman of the
Board. On April 12, 1999 Neil H. Lewis resigned as Director/Secretary.
D. On April 12, 1999 the corporation's offices were moved to 15260 Ventura
Boulevard, Suite 1200, Sherman Oaks, California 91403. The new
telephone number is 818-728-9728 and fax number is 818-728-9717.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
RESULTS OF OPERATIONS
Comparison of Results of Operations - Nine months ended February 28,
1999 and February 28, 1998
----------------------------------------------------------------------
Revenues for the nine months ended February 28, 1999 were $24,573,243,
as compared to $525,981 for the same period in 1998. The increase of
$24,047,262 in revenues is attributed primarily to the Company's new
operations as follows: $21,140,000 attributed to the Company's sales
and marketing activities of products manufactured in the Commonwealth
of Independent States (these transactions are not necessarily
recurring, however, the Company will continue to seek these types of
transactions in the future); and $2,645,360 from Fishing operations
(of this, there were three customers whose sales represented 50%, 31%
and 19%, respectively). These are new revenue generators for the
Company and may be indicative of what the Company will do in the
future. However, no assurances can be given.
Gross profit margin for the nine months ended February 28, 1999 was
15%, compared to gross profit margin of 21% for the same period in
1998. Sales and marketing activities had a gross profit margin of 15%
and the sale of fish had a gross profit margin of 1%. However, gross
profit margins the Company is experiencing now are not necessarily
indicative of what can be anticipated in the future.
General and administrative expenses for the nine months ended February
28, 1999 were $4,085,834 compared to $4,363,954 for the same period in
1998. The decrease of approximately $278,120 is attributed primarily
to reduced expenses and increased efficiencies in the Brazilian
operations and reduction in related travel expense.
<PAGE> 12
12
Investment income for the nine months ended February 28, 1999 was
$327,909 compared to no activity for the same period in 1998. The
increase is attributed to the Company's asset acquisition of 80% of
the metal mining reserves and timber properties of Chrustalnaya, a
Russian Joint Stock Company headquartered in Kavalerovo.
Interest expense for the nine months ended February 28, 1999 was
$425,527 compared to no activity for the same period in 1998. The
increase of $425,527 in the Company's interest expense is attributable
primarily to convertible debentures and notes payable to shareholders.
The write-off of mineral properties for the nine months ended February
28, 1999 was $885,920 compared to no activity for the same period in
1998. The increase is a one-time charge not expected to be recurring
in the future.
Comparison of Results of Operations - Three months Ended February 28,
1999 and February 28, 1998
----------------------------------------------------------------------
Revenues for the quarter ended February 28, 1999 were approximately
$16,615,779 as compared to $174,175 for the same period in 1998. The
increase of $16,441,604 in revenues is attributed primarily to the
Company's new operations as follows: $14,730,000 attributed to the
Company's sales and marketing activities of products manufactured in
the Commonwealth of Independent States (these transactions are not
necessarily recurring, however, the Company will continue to seek
these types of transactions in the future); and $1,318,943 from
Fishing operations of this, there were two customers whose sales
represented 62% and 38%, respectively. These are new revenue
generators for the Company and may be indicative of what the Company
will do in the future. However, no assurances can be given.
Gross profit margin for the three months ended February 28, 1999 was
14% compared to gross profit margin of 15% for the same period in
1998. The sales and marketing activities had a gross profit margin of
14% and the sale of fish had a gross profit margin of (3%). However,
gross profit margins the Company is experiencing now are not
necessarily indicative of what can be anticipated in the future.
General and administrative expenses for the three months ended
February 28, 1999 were $1,572,484 compared to $1,424,240 for the same
period in 1998. The increase of approximately $148,244 is attributed
primarily to commission expenses related to the Company's sales and
marketing activities, offset by reduced expenses and increased
efficiencies in the Brazilian operations and reduction in related
travel expense.
Investment income for the three months ended February 28, 1999 was
$327,909 compared to no activity for the same period in 1998. The
increase is attributed to the Company's asset acquisition of 80% of
the metal mining reserves and timber properties of Chrustalnaya, a
Russian Joint Stock Company headquartered in Kavalerovo.
Interest expense for the three months ended February 28, 1999 was
$60,700 compared to no activity for the same period in 1998. The
increase of $60,700 in the Company's interest expense is attributable
primarily to convertible debentures and notes payable to shareholders.
<PAGE> 13
13
The write-off of mineral properties for the three months ended
February 28, 1999 was $885,920 compared to no activity for the same
period in 1998. The increase is a one-time charge not expected to be
recurring in the future.
Net profit for the quarter ended February 28, 1999 was approximately
$67,763 as compared to a net loss of $1,397,343 for the same period in
1998. The net profit for the quarter ended February 28, 1999 was
attributable to increased revenues from the newly instituted sales and
marketing and fishing activities of the Company. No assurance can be
given that the Company's activities resulting in increased revenues
and its second consecutive reported earnings can be continued.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to experience pressure on its working capital
position due to operating losses and the need to continually invest in
its exploration activities and operational obligations. Management
believes that the Company's expansion and diversification plan, as
more fully described below, along with plans to obtain additional
capital, as more fully described below, will provide sufficient funds
to continue the Company's operations.
For the first time since the Company's inception it has experienced
net income for two consecutive quarters. Revenues increased
substantially due to increased activities in the areas of sales and
marketing of metals/mining, fishing and timber operations. Management
anticipates that this trend may continue, though no assurances can be
given.
The Company had a cash position, at February 28, 1999, of $754,733, of
which $393,000 is being allocated for use in the acquisition of assets
and other costs associated with establishing the Company's fishing
operations in Far East Russia and is not available for general
corporate purposes. The other $361,733 is available for general
corporate purposes.
Pursuant to the Company's expansion and diversification plan,
including the formation of its newly formed subsidiary, NMG Rexco and
the Company's new branch, Nevada Manhattan Tokyo Branch, as well as
increased revenue from the Company's metals/mining, fishing and timber
sales and marketing activities, the Company has continued for the
second consecutive quarter to generate significant revenue. The
Company believes that with the anticipated increase in daily
production from each of these operations, expenses and overhead will
be funded by the cash flow generated from its operations.
The acquisition of the assets of Chrustalnaya, with reported annual
revenue in excess of $16,000,000, for 8,000,000 shares of restricted
common stock of the Company, represents an additional significant
source of potential revenue and earnings.
<PAGE> 14
14
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
restricted common stock for $500,000. In the six months ended February
28, 1999, the Company received in excess of an additional $1,860,000
of equity funding from TiNV1 principals and/or affiliates. On December
9, 1998 the Company's stockholders approved an option for TiNV1 to
purchase an additional 70,000,000 shares of restricted common stock at
an exercise price of $0.335 per share which was the trading price of
the Company's common stock on the date of the transaction.
In December, 1998 an investor subscribed for 6,000,000 shares of
Common Stock, pursuant to a private placement, at a purchase price of
$1,500,000, through the issuance of a Promissory Note (the "Note") at
the interest rate of average monthly Federal Funds rate as listed
daily in the Wall Street Journal, payable in installments of $400,000
on or around December 20, 1998 and $1,100,000 (which is included in
stock subscriptions receivable as of February 28, 1999) on March 25,
1999. The first installment has been received by the Company. The
second installment has not yet been received by the Company.
The Company anticipates that it will require additional capital and
intends to secure it by utilizing a publicly registered offering of
its securities, "Private Placements" and/or funds generated from
operations.
This section of the Quarterly Report contains forward-looking
statements within the meaning of the `"safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Such statements are
based on management's current expectations and are subject to a number
of factors and uncertainties which could cause actual results to
differ materially from those described in the forward-looking
statements.
YEAR 2000 DISCLOSURE
--------------------
The Company has appointed a Y2K Risk Manager to look into all possible
effects of Y2K problems within the business operations of the Company
and implement corrective action to ensure that the Company's operations
will not be adversely affected.
The corporate headquarters in the United States maintains eight
computers connected on a peer-to-peer network and four computers
independent of the network. The Company's office in Japan maintains two
computers independent of any network. The company has no proprietary
software. All hardware and software vendors have been contacted and
most have expressed no immediate Y2K concerns in relation to the
company's hardware and software. The company has plans to replace
and/or upgrade software and hardware that is non-Y2K compliant; however
has not begun to take such corrective action. The Company's Y2K Risk
Manager has determined that the accounting software of the Company is
not as yet Y2K compliant and is taking such necessary steps to replace
and/or upgrade such software. The Company estimates that the
replacement and/or upgrade of the accounting software is less than
$1,000. The Company's Y2K Risk Manager shall periodically seek an
update from hardware and software manufacturers in order to update the
Company's Y2K information and reassess any possible Y2K problems.
<PAGE> 15
15
If the Company had to replace all of its computers, the costs would be
approximately $25,000. All Company files and records have been backed
up on zip drives and are continuously backed up on a weekly schedule.
Furthermore, select Company proprietary, legal and financial
information has been backed up on hard copy in order to preserve
business records and maintain business flow in case of any possible
unforeseen or undisclosed Y2K conflicts by third parties.
The Company maintains no direct customers. The Company maintains
suppliers and/or utilizes professional services including but not
limited to legal, accounting and banking. The Company has been in
contact with its legal, accounting and banking service providers and
has been assured by the providers that they are Y2K compliant and/or
have assigned a "Risk Manager" to assess and resolve any possible
conflicts that may arise.
The Company maintains a number of subsidiaries and/or affiliates in
various countries including the United States, Brazil, Indonesia, and
various republics of the Commonwealth of Independent States. As part of
the Company's risk assessment, the Risk Manager has contacted and
evaluated each affiliate and subsidiary in order to assess any possible
Y2K conflicts.
It has been determined that there is only one major conflict within the
Company's United States operations as noted above, and no major
conflicts within the Indonesia operations/subsidiaries. There are no
major conflicts between suppliers and/or manufacturers within the
United States/Indonesia operations. The primary activities within these
regions are explorative and thus utilize no manufacturers and/or
suppliers as well as no equipment with possible imbedded chips and/or
microcontrollers.
The Company's subsidiaries in Brazil and the Commonwealth of
Independent States are currently in the process of assessing their
state of readiness and any possible counter measures that need to be
undertaken in order to assure Y2K compliance. Although it is believed
that all subsidiaries in Brazil and within the Commonwealth of
Independent States are Y2K compliant, the Company believes that since
the majority of the operations are manually conducted, the effects of
any possible technological problem shall be minimal. The Company has
further assessed that if there should happen to be a Y2K problem, the
Company's financial statement shall not be affected.
<PAGE> 16
16
NEVADA MANHATTAN GROUP, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
1. LEGAL PROCEEDINGS
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., Top
- --------------------------------------------------------------------------------
Holding International, Ltd., Praha Investments S.A., UFH Endowment, Ltd., Atead
- --------------------------------------------------------------------------------
Consulting S.A., and Ausinvest Anstalt Balzers, (Case No. 98-5624 JSL(CTx) (the
- ----------------------------------------------
"Securities Action") was filed in United States District Court for the Central
District of California (the "Court") on July 14, 1998 on behalf of the Company
and Francis Parkes, Dr. Joe C. Rude and Christopher D. Michaels, who are
individual Company shareholders. In the Securities Action, plaintiffs contend
that defendants violated Section 10(b) and 13(g) of the Securities Exchange Act
of 1934, 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. On November 2, 1998, the Court denied various motions
to dismiss, strike or transfer the complaint filed by various defendants.
Thereafter, separate counterclaims for breach of contract and declaratory relief
were filed by each of Tusk Investments, Inc., Silenus Limited, and Thomson
Kernaghan & Co., Ltd. Discovery in the Securities Action is proceeding.
UFH Endowment, Ltd. and Austost Anstalt Schaan v. Nevada Manhattan Mining,
----------------------------------------------------------------------------
Inc., Jeffrey Kramer and Christopher Michaels, (Case No. 98 Civ. 5032) (the "UFH
- ---------------------------------------------
Action") was filed in United States District Court for the Southern District of
New York on July 15, 1998, by the Securities Action defendants UFH Endowment,
Ltd. and Austost Anstalt Schaan against the Company, Jeffrey S. Kramer and
Christopher Michaels, officers and directors of the Company, President of the
Company. The plaintiffs in the UFH Action claim that the Company breached
certain debentures and subscription agreements, and that the other defendants
induced such breach, and thus seek an injunction directing the Company to file a
registration statement with the Securities and Exchange Commission ("SEC") and
to issue common stock, as well as damages from the Company and defendants Kramer
and Michaels. Approximately one month after first filing their complaint, the
plaintiffs amended their complaint to include a claim purporting to allege
violations by the Company and Jeffrey S. Kramer and Christopher Michaels. On or
about July 30, 1998 plaintiffs sought a preliminary injunction requesting that
the Company be compelled to file a registration statement with the SEC and issue
stock to the plaintiffs. This motion was denied. On July 27, 1998, the Company
and Messrs. Kramer and Michaels filed various motions to dismiss, stay, or
transfer the UFH Action. These motions have not yet been ruled upon by the
United States District Court for the Southern District of New York.
<PAGE> 17
17
Silenus Limited v. Terra Natural Resources Corp. aka Nevada Manhattan Mining
----------------------------------------------------------------------------
Incorporated, TiNV1, Inc., Jeffrey Kramer, Joseph C. Rude and Christopher
- --------------------------------------------------------------------------------
Michaels, LASC Case No. BC 201577 (the "Silenus State Action"), was filed in Los
- --------
Angeles County Superior Court on December 1, 1998. The Silenus State Action
accused the Company and Messrs. Kramer and Michaels and Joseph Rude, a director,
of issuing new common stock and options to purchase additional new common stock
in the Company to TiNV1, Inc. ("TiNV1") as part of a conspiracy to effect a
"fraudulent transfer" of assets of the Company to TiNV1, and further accused
Messrs. Kramer, Michaels and Rude of breaching their fiduciary duties as
directors by engaging in the alleged conduct described above, as well as by
allegedly attempting to fraudulently transfer assets of the Company to
themselves. On December 7, 1998, plaintiff Silenus Limited ("Silenus") sought a
temporary restraining order and order to show cause re preliminary injunction in
the Los Angeles County Superior Court, seeking an order enjoining the Company
from holding its December 9, 1998 annual shareholders meeting as well as
imposition of a receivership over any common stock in the Company issued to
TiNV1. After briefing and oral argument, on December 7, 1998 the Court denied
Silenus's application for temporary restraining order and order to show cause re
preliminary injunction. On December 31, 1998, the Company and Messrs. Kramer,
Michaels and Rude filed a demurrer in the Silenus State Action, contending that
the allegations of the Silenus State Action failed to state a legally viable
claim for relief, which demurrer is presently set for hearing on January 20,
1999. On March 9, 1999, the Court granted the demurrer and gave the plaintiff
leave to amend by March 30, 1999 only if the plaintiff seeks to proceed on a
"nonderivative" basis, failing which the complaint will be dismissed on March
31, 1999.
<PAGE>
2. CHANGES IN SECURITIES
From the period December 1, 1998 to February 28, 1999, the Company
offered and sold 6,511,908 shares of its Common Stock in a private placement in
reliance upon Section 4(2), at the average weighted price of $.29 per share. The
Company believes that it met all of the requirements contained in Section 4(2).
Sales of shares were made only to the class of persons meeting the
suitability requirements contained within the Offering. The Company reviewed
subscription documents which it required all prospective purchasers to complete.
From the period December 1, 1998 to February 28, 1999, the Company
offered and sold 7,808,795 shares of its Common Stock in a private placement in
reliance upon the exemption provided by Regulation S, at a price of $.19 per
share. Sales of shares were made only to the class of persons meeting the
suitability requirements contained within the Offering. The Company reviewed
subscription documents which it required the purchasers to complete and
conducted due diligence to confirm the representations and warranties of the
Purchasers. By corporate resolution, the Company will prevent any transfer of
the shares not in compliance with the provisions of Regulation S.
On January 11, 1999 the Company delivered 8,000,000 shares of common
stock for the acquisition of 80% of the assets of Chrustalnaya, a Russian joint
stock company. These shares were issued in reliance upon Section 4(2). Sales of
shares were made only to the class of persons meeting suitability requirements
of the offering and the Company has reviewed subscription documents which it
required the purchaser to complete. The Company believes that it met all of the
requirements contained in Section 4(2).
<PAGE> 18
18
From the period December 1, 1998 to February 28, 1999, the Company
issued 1,000,000 shares of common stock in payment of performance under a
contract, and 107,500 shares to a debentureholder in full settlement of all
amounts due and conversion of an 8% Convertible Debenture. These shares were
issued in reliance upon Section 4(2). Sales of shares were made only to the
class of persons meeting suitability requirements of the offering and the
Company has reviewed subscription documents which it required the purchasers to
complete. The Company believes that it met all of the requirements contained in
Section 4(2).
From the period December 1, 1998 to February 28, 1999, the Company
issued an aggregate 189,000 shares of Common Stock as a bonus to employees for
services rendered to the Company. These shares were issued in reliance upon
Section 4(2) and were at a price of $.33 to $.875 per share based on a price
equal to 70% of market on the date the shares were granted. Sales of shares were
made only to the class of persons meeting suitability requirements and the
Company has reviewed subscription documents which it required all prospective
purchasers to complete. The Company believes that it met all of the requirements
contained in Section 4(2).
On December 9, 1998 the Company's stockholders approved an option for
TiNV1 to purchase an additional 70,000,000 shares of restricted common stock at
an exercise price of $0.335 per share which was the trading price of the
Company's common stock on August 28, 1998 (see "Management's Discussion -
Liquidity and Capital Resources").
3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
5. OTHER INFORMATION
On January 13, 1999 and January 27, 1999, the Company received comments
from the Securities and Exchange Commission relative to its valuation of
its domestic mineral properties. The Company and its accountants have taken
a prior period writedown of $2,936,000 against its Domestic Mineral
Properties and $700,000 against the Brazilian Timber Properties, pursuant
to SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of."
<PAGE> 19
19
6. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBITS
--------
Exhibit Description Reference No.
------------------- -------------
Financial Data Schedule 27
REPORTS ON FORM 8-K
-------------------
8-K Current Report dated January 11, 1999 to report the acquisition of 80%
of the assets, including mining and timber rights, of Chrustalnaya, a
Russian joint stock company, from LLC NPK Edikt, a Russian Limited
Liability Company, for 8,000,000 shares of restricted common stock.
<PAGE> 20
20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Nevada Manhattan Group, Incorporated
/s/ Tetsuo Kitagawa
-----------------------------------
April 19, 1999 Tetsuo Kitagawa, Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
------- ----------------------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-START> JUN-01-1998
<PERIOD-END> FEB-28-1999
<CASH> 754,733
<SECURITIES> 0
<RECEIVABLES> 4,212,577
<ALLOWANCES> 150,000
<INVENTORY> 143,148
<CURRENT-ASSETS> 6,646,009
<PP&E> 1,124,880
<DEPRECIATION> (164,763)
<TOTAL-ASSETS> 13,958,643
<CURRENT-LIABILITIES> 4,933,823
<BONDS> 0
0
143,908
<COMMON> 660,447
<OTHER-SE> 5,596,243
<TOTAL-LIABILITY-AND-EQUITY> 13,958,643
<SALES> 24,573,243
<TOTAL-REVENUES> 24,573,243
<CGS> 20,962,191
<TOTAL-COSTS> 20,962,191
<OTHER-EXPENSES> 4,643,845
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 425,527
<INCOME-PRETAX> (1,458,320)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,458,320)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,458,320)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
