UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended MAY 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-25117
NEVADA MANHATTAN GROUP, INCORPORATED
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(Exact name of registrant as specified in its charter)
NEVADA 88-0219765
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification Number)
2151 MICHELSON, SUITE 150, IRVINE, CALIFORNIA 92612
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (949) 477-9965
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $.01 Par Value OTC
Preferred Stock, $1.00 Par Value
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes No X
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Issuer's revenues for its most recent fiscal year. $0
The aggregate market value of the Common Stock held by non-affiliates of the
registrant, based on the average of the high and low prices of the Common Stock
on the OTC Bulletin Board on March 1, 2000, was $2,512,112. For purposes of this
computation, all officers, directors, and 5% beneficial owners of the registrant
(as indicated in Item 12) are deemed to be affiliates. Such determination should
not be deemed an admission that such directors, officers, or 5% beneficial
owners are, in fact, affiliates of the registrant.
Number of shares of Common Stock, $.01 Par Value, outstanding at March 1, 2000,
1998, was 72,730,376.
Documents incorporated by reference: None
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TABLE OF CONTENTS - 1999 FORM 10-KSB REPORT
Page
Numbers
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PART I
Item 1. Business 4
Item 2. Properties 6
Risk Factors 7
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 16
Item 6 Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 7. Financial Statements 20
F1-F32
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 21
PART III
Item 9. Directors, Executive Officers, Promoters and
Control Persons; Compliance with Section 16(a)
of the Exchange Act 21
Item 10. Executive Compensation 23
Item 11. Security Ownership of Certain Beneficial Owners
and Management 26
Item 12. Certain Relationships and Related Transactions 29
Item 13. Exhibits and Reports on Form 8-K 30
Signatures 33
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PART I
1. BUSINESS
Nevada Manhattan Group, Incorporated (the "Company"), was formed on June 10,
1985, in the state of Nevada1. The Company's Articles, as amended December 11,
1998, currently authorize the issuance of 250,000,000 shares of Common Stock
with a par value of one cent ($.01) per share and 250,000 shares of Series A
Preferred Stock with a par value of $1.00 per share (the "Preferred Stock")
convertible into Common Stock on the terms and conditions described elsewhere in
this Annual Report.
In August 1998, the management and financial control of the Company changed
pursuant to an agreement with TiNV1, a California corporation (see Part III -
Security Ownership of Certain Beneficial Owners and Management). Following this
1998 management change, the Company announced acquisitions in the Federation of
Russia in the fields of metals/mining processing and sales, fish products and
sales, timber harvesting/processing and sales, coal mining and exploration, oil
and gas products and technology. In August 1999, the management of the Company
changed again (see Part III - Officers and Directors). Approximately thirty days
after this 1999 management change, John Deniken, Company Chairman and CEO
visited the Federation of Russia to review the Company's operations there,
meeting with Mr. Vadim A. Maslov, the Deputy General Director of Ecologia, a
scientific and technology center, which represented the interests of the Company
in the Federation of Russia.
Management discussed the Gold Mining operation in which Transfor SIA
transferred a 51% interest to the Company for $15,000,000 in July 1999.
Apparently, the Company gave Transfor SIA $4,830,000 down and signed a
promissory note for $10,170,000. According to Mr. Maslov, the Company was also
required to provide an additional $30,000,000 for capital improvements and
operating funds for this project. Transfor SIA believes that the Company
breached the agreement and will not honor the terms.
Also discussed with Mr. Maslov were other mining and timber operations
where the Company owned 80% of certain timber and mining rights of tin, copper
sulfate, gold and silver (Chrustalnaya). The Company had issued 8,000,000 shares
of restricted Common Stock in consideration of these assets. Again, the seller
feels that the Company breached this agreement by non-performance. Previous
management never worked out an operating agreement as to the expenses of running
the operations and how much the operations would net against production. The
agreement only provides that Mr. Alexander Gonchar, Vadim's superior, was to
finalize the operating agreement. Current management does not believe it in the
best interest of the Company to invest further in these operations.
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1 The Company was originally incorporated on June 10, 1985, in the state of
Nevada under the name of Epic Enterprises, Ltd. On September 11, 1987, the
Company amended its Articles of Incorporation to change its name to Nevada
Manhattan Mining Incorporated. On May 12, 1998, the Company further amended its
Articles to change its name to Terra Natural Resources Corporation. On December
11, 1998, the Company further amended its Articles to change its name to Nevada
Manhattan Group, Incorporated.
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Also discussed were the fishing ships and fishing business for which the
Company paid approximately $1,200,000. The Company was to provide an additional
$1,000,000 for freezing operations which previous management did not provide in
the prescribed time frame. Again, the seller believes the Company breached the
agreement.
Since the Company does not have the financial ability to fulfill these
agreements, present management sees little hope of salvaging any of these
Federation of Russia acquisitions.
The Company previously owned and was generating revenue from timber
harvesting and production rights and facilities on up to 490,000 hectares
located in the state of Para, Brazil ("Brazilian Operations"). In late 1998 and
early 1999, Company management was informed by Brazilian Operations management
that without additional capital provided by the Company, operations were in
jeopardy as there were unpaid salaries and creditors. Further, if the Company
did not provide this additional capital, Brazilian Operation assets were in
jeopardy of seizure through legal action by unpaid employees and creditors.
Management at the time deemed these operations uneconomic and elected not to
provide additional capital. Brazilian Operations ceased.
The Company previously acquired rights in seven gold mining concessions and
four coal mining concessions in Indonesia. Current management is of the opinion
that the Company no longer controls any of these concessions. Political changes
as well as non compliance with performance criteria under the concession
agreements, as well as uneconomic mining conditions have predicated management's
current position. In support of current Management's position, the Company
previously entered into a coal exploration and development agreement with a
recognized coal company in North America and found the property to be
uneconomic.
The Company maintains an interest in a gold exploration property located
near Tonopah, Nevada. (See "Properties - The Nevada Property").
The Company has its principal executive offices at 2151 Michelson, Suite
150, Irvine, California, 92612; telephone 949-477-9965; fax 949-477-2150.
Management of the Company presently consists of a seven member board; two
seats are currently vacant. The Company employs one full-time executive officer
and contracts all other services.
The Company's Subsidiaries
The Company previously reported subsidiaries, including NMG Rexco, Inc.
(fishing, processing and distribution), Terra Resources Brazil, Ltda (Brazilian
Timber operations), Science & Technology Resources, Inc. (technologies);
Kalimantan Resources, Ltd. (Indonesian mining concessions). Because each of
these operations has been abandoned as uneconomic, as well as the Company's
inability to fund these operations, current management is of the opinion that
they are no longer operational.
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2. PROPERTIES
The Nevada Property
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Property Description. The Nevada Property is located in an historic mining
district which has experienced mining operations from 1866 to the present with
the major activity in the late 1860's, between 1906 and 1921, and from 1960 to
the present. Placer and lode mining took place principally in the Reliance Mine,
the White Caps Mine, the Union Amalgamated Mine, the Manhattan Consolidated
Mine, the Earle Mine, the Big Four Mine and the April Fool Mine.
In March 1997, the Company entered into a Sale and Purchase Agreement with
the Selig Entities. The Selig Entities were the original owners of the patented
and unpatented mining claims comprising the Nevada Property, having perfected
their rights to ownership pursuant to Federal and local law. Under the terms of
this agreement, the Selig Entities agreed to sell to the Company one hundred
percent (100%) of their interests in a certain promissory note (the "Nevada
Note"), the Deed of Trust and the Nevada Property for the sum of Three Hundred
Seventy Five Thousand Dollars ($375,000) payable as follows: One Hundred
Thousand Dollars $100,000) in March 1997 and the balance plus all accrued and
unpaid interest (calculated at the rate of 5.25%) on or before February 6, 1999.
The Company in fact paid the first installment of One Hundred Thousand Dollars
($100,000) in March 1997 and prepaid the remaining balance in June 1997. As a
result, all obligations to the Selig Entities have been fulfilled by the Company
and the original note and deed of trust have been delivered by the Selig
Entities to the Company. The agreement also acknowledges that the Company is the
only person or entity legally entitled to conduct mineral operations on the
Nevada Property. The Company is also required to pay all U.S. Bureau of Land
Management annual maintenance fees associated with the claims comprising the
Nevada Property. Such fees have been paid by the Company through August 2000.
The Company entered into a Subscription Agreement with Silenus Limited on
April 14, 1997 (the "Subscription Agreement"). The Subscription Agreement
required the Company to grant to Silenus Limited a $2,000,000 deed of trust
encompassing the Nevada Property until the Debentures issued to Silenus are
converted, redeemed or paid in full. The Company has neither delivered nor
recorded this deed.
Current Ownership Interest. The Nevada Property consists of twenty-eight
(28) patented and one hundred-eighteen (118) unpatented claims aggregating
approximately 1,800 acres. Due to many issues related to the Nevada Property
which present significant doubt regarding the future economic benefits this
property will have to the Company, a full reserve has been provided against its
investment in the property.
Abandoned Properties
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While the Company has previously reported properties in the Federation of
Russia, Brazil and Indonesia, current management is of the opinion that these
properties have been abandoned. Management cites the Company's financial
inability to maintain or develop these properties. (See Item 1 - "Business.")
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RISK FACTORS
The purchase of shares of common stock of the company involves a substantial
degree of risk and is suitable only for persons of substantial means who have no
need for liquidity in their investment. This section of the Annual Report sets
forth certain of the risks and special considerations which the company believes
may exist concerning an investment in the common stock. Prospective investors
should recognize that factors other than those set forth below may ultimately
affect an investment in a manner and to a degree which cannot be foreseen at
this time. All prospective investors are urged to consult with their advisors
prior to making an investment in common stock so that they understand fully the
nature of the undertaking and the risks which may be involved prior to
investing. Furthermore, all prospective investors are urged to review with their
counsel, accountants, and professional advisors the financial statements
attached to the Annual Report. and documents described in this Annual Report
which have not been attached as exhibits may be obtained by prospective
investors and/or their advisors upon request from the company.
This Annual Report also contains certain forward-looking statements and
information that are based upon management's beliefs as well as on assumptions
made by and upon information currently available to management. When used in
this Annual Report, the words "expect," "anticipate," "intend," "plan,"
"believe," "seek" and "estimate" or similar expressions are intended to identify
such forward-looking statements. However, this Annual Report also contains other
forward-looking statements. Forward-looking statements are not guarantees of
future performance and are subject to certain risks, uncertainties and
assumptions, including, but not limited to, the following risk factors, which
could cause the Company's future results and stock values to differ materially
from those expressed in any forward-looking statements made by or on behalf of
the Company. Many of such factors are beyond the Company's ability to control or
predict. Readers are cautioned not to put undue reliance on forward-looking
statements.
LACK OF OPERATIONS
The success of the Company will depend to a great extent on management's ability
to identify a business opportunity. While management intends to seek business
opportunities with entities having established operating histories there can be
no assurance that the Company will be successful in locating candidates meeting
such criteria. In the event the Company is unable to identify such an entity,
prospective investors should be aware that they are at risk for the loss of all
or part of their investment.
NO COMMERCIALLY VIABLE ORE DEPOSITS
Even though the Company has reviewed reports and records of its mineral
properties in Nevada and believes them to have potential, there is no assurance
that there are commercially viable ore deposits. Moreover, the Company has not
established any proven or probable gold or ore deposits as of the date of this
Annual Report.
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HISTORY OF LOSSES
Although the Company was formed in 1985 to engage in precious metal mining
activities, its net worth is limited. The Company has a stockholders' deficiency
of $$6,213,308 at May 31, 1999. As of May 31, 1999, the Company has realized an
aggregate net loss (since inception) of $47,984,721. Until the fiscal year ended
May 31, 1997, the Company had failed to post revenues from operations. Total
revenues for 1998 and 1999 were $557,691 and $0.00 respectively (see
"Management's Discussion - Discontinued operations"). Prospective investors
should be aware that the Company is a development-stage company for financial
statement of Financial Accounting Standards only and not for mining operations,
that not until 1997/1998 has begun to report sales. There is no guaranty that
the Company's operations will be successful or realize a profit in the future.
Moreover, the Company's net worth and the value of its Common Stock will
ultimately be dependent upon the overall success of operations currently being
contemplated.
The financial information accompanying this Annual Report reflects the
current financial condition of the Company. It should be noted that the Company
has not yet reported an annual profit from operations since its inception to the
present.
HISTORY OF UNSUCCESSFUL OPERATIONS
Mining operations are speculative by their nature. Management of the Company
has in the past selected certain mineral properties which have proven to be
uneconomic. There is no assurance that the present operations will prove to be
economic or profitable to the Company. If all or most of the businesses prove to
be uneconomic, the Company will be unable to realize a profit from its
operations which may have a profound impact upon the value of the Company and
the liquidity of the Common Stock.
TITLE FAILURE TO THE NEVADA PROPERTY
The Company has acquired its rights to the Nevada Property through a variety
of agreements with predecessors-in-interest. The precise nature and amount of
interest owned by the Company is now the subject of a lawsuit pending in Nye
County and more particularly described in the Section of the Annual Report
entitled "Legal Proceedings." The Company is seeking to obtain an order from the
court declaring that the Company is the owner of the undivided 100% interest in
a substantial number of the mining claims comprising the Nevada Property. If the
Company is unsuccessful in its request for declaratory relief, title to certain
of the interests in the Nevada Property may be retained by persons or entities
other than the Company.
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The Company encumbered the Nevada Property in the principal amount of Two
Million Dollars ($2,000,000) to Silenus Limited pursuant to a
privately-negotiated placement of 8% Senior Secured Convertible Debentures
described elsewhere in this Annual Report. Until such time as all obligations
due under the Debentures issued to Silenus Limited are paid, converted or
redeemed, and the encumbrances on the Nevada Property are reconveyed to the
Company, the Nevada Property will be subject to the terms and conditions of such
instruments. Any default under such agreement which remains uncured would
subject the Company to the possible loss of the Nevada Property.
GOVERNMENTAL REGULATION
Mining operations on the Nevada Property are and will be subject to
substantial federal, state and local regulation concerning mine safety and
environmental protection. Some of the laws and regulations which will pertain to
mining operations include maintenance of air and water quality standards; the
protection of threatened, endangered and other species of wildlife and
vegetation; the preservation of certain cultural resources and the reclamation
of exploration, mining and processing sites. These laws are continually changing
and, as a general matter, are becoming more restrictive. The location of the
Nevada Property is found in an area which strongly encourages mining operation.
However, the Company's inability to comply with such federal, state or local
ordinances and regulations on an ongoing basis may cause significant delays in
the permitting process or in operations. In addition, delays in such compliance
could result in unexpected and substantial capital expenditures. Although no
such problems or delays are anticipated, no assurances can be given that the
Company will be able to comply with all applicable law and regulations and
maintain all necessary permits, licenses and approvals or, in the alternative,
that compliance and/or permitting will be obtained without substantial delays
and/or expenses.
To comply with federal, state and local laws, the Company may in the future
be required to make capital and operating expenditures on environmental projects
with respect to the Nevada Property. Such projects may include, for example, air
and water pollution control equipment; treatment, storage and disposal
facilities for solid and hazardous waste; remedial actions required for the
containment of tailings pond seepage; continuous testing programs; data
collection and analysis land reclamation (specifically including existing mine
and processing waste on the Nevada Property); landscaping and construction
projects. There is no guaranty that the Company will technically or financially
be able to comply with any or all of these potential requirements.
ENVIRONMENTAL REGULATION AND LIABILITY
United States: The Company's potential mineral operations on the Nevada
Property are and will be subject to environmental regulation by federal, state
and local authorities. Under applicable federal and state law, the Company may
become jointly and severally liable with all prior property owners for the
treatment, cleanup, remediation and/or removal of substances discovered at the
Property which are deemed by federal and/or state law to be toxic or hazardous
("Hazardous Substances"). Liability may be imposed among other things for the
improper release, discharge, storage, use, disposal or transportation of
Hazardous Substances only in the areas which the Company disturbs.
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Applicable law imposes strict joint and several liability on, among others,
"owners" and "operators" of properties contaminated with Hazardous Substances.
Such liability may result in any and all "owners", "operators" and
"transporters" of contaminated property being required to bear the entire cost
of remediation. The Company may utilize substances which have been deemed by
applicable law to be Hazardous Substances. The potential liability of the
Company under such laws will be derived from the Company's classification as
both an "owner" and "operator" of a contaminated property. While the Company
intends to employ all reasonably practicable safeguards to prevent any liability
under applicable laws relating to Hazardous Substances, mineral exploration by
its very nature will subject the Company to substantial risk that remediation
may be required. If the cleanup or remediation of hazardous substances is
required on the Nevada Property, substantial delays could occur in the
permitting process and/or in the extraction of gold and other precious minerals
on the Nevada Property.
LIQUIDITY OF COMMON STOCK; CAPITALIZATION
As of February 25, 2000, the Company's Common Stock is traded on the "pink
sheets," until such time as the Company is in full compliance with the National
Association of Securities Dealers, Inc. ("NASD") reporting requirements for
Over-The-Counter Bulletin Board-traded companies. With the filing of this Annual
Report and subsequent quarterly reports, the Company expects to be reinstated
for trading on the OTC Bulletin Board. Over the past six (6) months ending
February 29, 2000, the average monthly trading volume has been approximately
3,400,000 shares (see Item 5 - "Market Price of and Dividends on the
Registrant's Common Equity and Related Stockholder Matters"). In addition, the
number of outstanding shares of the Company's common stock has increased from
12,215,415 shares as of May 31, 1997 to 72,730,376 shares as of January 25,
2000. The result of this increase in capitalization results in greater
difficulty for shareholders in the Company to realize a return of their
investment based upon price-earning ratios. Trading volumes on the pink sheets
and OTC Bulletin Board have been limited and there is no assurance that the pink
sheets or OTC Bulletin Board will provide an effective market for a prospective
investor to sell his or her shares of Common Stock.
DIVIDENDS
The Company has not paid cash dividends on any of its Common Stock and does
not anticipate paying any cash dividends on any of its Common Stock in the
foreseeable future. Holders of the 1998 Preferred Stock are entitled to an
annual cash or stock dividend offered at the rate of eight percent (8%) of par
value (equal to $.08 per share) payable out of any funds legally available
therefor. Such dividends are cumulative so that if full dividends in respect of
any previous dividend period are not paid, holders of the Preferred Stock are
entitled to receive any deficiency before any dividend or other distribution may
be made or declared by the Company with respect to any other class of stock
including other series of preferred shares should the Company elect to issue
such additional series.
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CLASSIFICATION OF SECURITIES
Currently, the Company's stock is considered to be "penny stock" pursuant to
Section 3(a)(51)(A) of the Securities Exchange Act of 1934. This designation has
resulted from various factors including a lack of performance by the Company and
increased capitalization. In the event the price of the Company's Common Stock
remains below $5.00 per share, the Company will continue to be subject to the
increased disclosure requirements associated with the issuers of "penny stock".
In addition to increased disclosure requirements, such situation may also result
in either a decrease in the liquidity of the stock or a total disappearance of a
market for the Common Stock. In either instance the difficulty associated with
disposition of the shares may increase.
CONSENT JUDGMENT AGAINST THE COMPANY AND CERTAIN EMPLOYEES
In May 1989, the Company received notice that the Securities and Exchange
Commission (the "Commission") had commenced an informal investigation into the
Company's compliance with the registration and disclosure requirements of the
Securities Act of 1933 (the " '33 Act") and the Securities Exchange Act of 1934
(the " '34 Act"). Thereafter the Commission commenced an extensive review of the
Company's books and records relating to the Company's business and mining
operations, its capital raising activities, and its financial condition and
history. Through all stages of the investigation, the Company voluntarily
cooperated with the Commission.
On August 3, 1993, the Commission and the Company agreed to terminate the
Commission's investigation by the entry of a consent judgment against the
Company and certain of the Company's past employees. The terms and conditions of
the consent judgment can be summarized as follows:
1. The Company and its officers, agents, servants, employees and others
receiving actual notice of the consent judgment neither admitted nor denied
any of the allegations alleged by the Commission;
2. The Company and its officers, agents, servants, employees, and others
receiving actual notice of the consent judgment are permanently restrained
and enjoined from violating section 5 of the '33 Act or from selling
securities in interstate commerce unless and until a registration statement
is in effect or the security or transaction is exempt from the registration
provisions of the '33 Act and/or the '34 Act;
3. The Company and its officers, agents, servants, employees, and others
receiving actual notice of the consent judgment are permanently restrained
from engaging in any transaction, practice, or course of conduct, employing
any course of conduct, or obtaining any money or property by means of an
untrue statement of a material fact, or any omission to state a material
fact, necessary to make the statements made in light of the circumstances
under which they were made not misleading in violation of the antifraud
provisions of the '33 Act and '34 Act.
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As part of the consent judgment, the Company was required to engage an
independent certified public accountant to conduct a full and complete analysis
of the disposition of all funds received by the Company from investors and, to
the extent so discovered, to disgorge all ill-gotten gains.
On April 7, 1994, in response to the audits completed by the certified
public accountant, the Company and the Commission entered into a stipulation
regarding the resolution of all outstanding issues which then existed, which
stipulation was entered as an order by the United States District Court for the
Central District of California. Such stipulation contained an acknowledgement
that the Company and its executive officers had received no ill-gotten gains as
a result of prior activities by the Company in offering and selling its
securities, and that the consent judgment resolved once and for all, all issues
raised by the Commission as a result of the Company's prior activities. The
Company and the persons named in the formal order of investigation were not
required to pay any fines or required to disgorge any monies previously received
by it in connection with its securities.
On February 27, 1989, the Pennsylvania Securities Commission issued a cease
and desist order against the Company and certain past employees, prohibiting
them from violating Section 201 of the Pennsylvania Securities Act of 1972
relating to the sale of unregistered "penny stocks."
As a result of the foregoing regulatory and judicial actions, the Company
may not be able to utilize the exemptions from registration available under
Regulation A and Rule 701 promulgated under the '33 Act and may not be able to
rely upon certain private placement exemptions afforded by applicable state blue
sky laws in connection with the offer and sale of securities in a transaction
which qualifies as exempt from qualification under the '33 Act. In such cases,
the Company would be required to register/qualify the transaction under said
blue sky laws, which would likely increase the cost of, and extend the time for
completing, any private placement of securities.
FLUCTUATION OF COMMODITY PRICES
Since its deregulation in August 1971, the market price for gold has been
highly speculative and volatile. Since 1980, gold has fluctuated from a high of
approximately $850 per ounce in January 1980 to a low of approximately $280 per
ounce in February, 2000. Currently gold is trading at approximately $290 per
ounce. In 1996, gold averaged over $380 per ounce. Instability in gold prices
may affect the profitability of certain of the Company's future operations.
See below with respect to the Company's lack of engaging in any hedging or
similar transactions with respect to commodity price fluctuations.
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LACK OF HEDGING TRANSACTIONS
With respect to mineral resources, the Company does not presently engage in
any hedging transactions since the Company's production of such resources is
limited at the present time. At such time as the Company's production of such
resources begins, the Company may engage in hedging or other transactions which
are intended to manage risks relating to price fluctuations of these minerals.
The Company's failure to engage in any such hedging transactions may result in a
material adverse effect on the Company if commodity prices or foreign exchange
rates fluctuate.
USE OF FORWARD-LOOKING STATEMENTS
This Annual Report contains "forward-looking statements". Such statements
are found in the Sections of this Annual Report entitled "Business,"
"Properties," and "Management's Discussion and Analysis of Financial Condition"
and elsewhere. Prospective Investors are cautioned that the assumptions upon
which such statements are based cannot be guaranteed by the Company to occur in
the future or that the overall success of the Company might be materially
adversely affected should such bases (or some of them) not occur.
3. LEGAL PROCEEDINGS
o 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, Thomson Kernaghan
& Co., Ltd. and Mary Park Properties. In February, 2000, the Court dismissed the
Company as a plaintiff for failure to prosecute.
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o 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.
o On November 4, 1996, the Company filed a complaint (the "Action") in Nye
County, Nevada against Marlowe Harvey, Maran Holdings Inc., Calais Resources
Inc., and Argus Resources, Inc. (the "Harvey Entities"). The complaint in the
Action alleges, amongst other things, that the Harvey Entities breached their
obligations under various agreements (including the October 20, 1995 amendment
to the Joint Venture Agreement discussed in further detail in the Section of
this Annual Report entitled "Properties" -- The Nevada Property"). The Action,
as amended, seeks a judicial declaration that the Harvey Entities do not have
any joint venture or real property interest in the mining claims included within
the Nevada Property. The Action also seeks compensatory damages and other
financial relief based on the Harvey Entities' breach of contract and other
causes of action.
During April 1997 the Company through its counsel filed a first amendment to
its complaint in the action. Counsel for the Harvey Entities filed answers and a
counterclaim in the Action during July 1997. In their answer, the Harvey
Entities have generally denied the allegations of the first amended complaint
and have raised various affirmative defenses. In their counterclaims, the Harvey
entities were seeking an injunction preventing the Company from conducting
activities related to the Nevada Property pending resolution of the issues in
the Action and compensation and punitive damages and other financial relief
based on breach of contract and other causes of action.
14
<PAGE>
In July 1997, the Harvey Entities moved for a preliminary injunction against
the Company preventing it from conducting further activities at the Manhattan
Project without their consent, from issuing press releases describing certain
real property as being wholly owned by the Company, and from using the same as
security for loans. After a two-hour hearing on September 4, 1997, the court
refused to issue an injunction against the Company. Pursuant to stipulation, the
parties have agreed not to interfere with one another's operations on the Nevada
Property. Additionally, the Company has agreed not to further encumber the
Nevada Property pending trial. A trial date was set for September, 1998.
Settlement discussions have been instituted by the parties without resolve as of
the date of this filing. On August 28, 1998, on motion brought by the Company,
the court granted a continuance and ordered the parties to engage in "good
faith" settlement negotiations.
Presently, the Company has requested a pre-trial settlement conference with
the defendants. The Court has denied the request and has directed the Company to
commence argument in support of its position.
If the Company is successful in obtaining specific performance of the
agreement alleged in the Action, it will effectively continue to own or control
an undivided 100% interest in the Nevada property.
o A prior regulatory proceeding against the Company and certain past key
employees, which resulted in the entry of a consent judgment, but subsequently
was followed by a stipulation which contained an acknowledgment that the Company
and its executive officers had received no ill-gotten gains as a result of prior
activities by the Company in offering and selling its securities, is described
elsewhere in this Annual Report (see "Risk Factors - Consent Judgment Against
the Company and Certain Employees").
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth quarter
of Registrant's fiscal year ended May 31, 1999.
15
<PAGE>
PART II
5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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. The authorized capital stock of
the Company consists of 250,250,000 shares of which 250,000,000 shares are
Common Stock with a par value of one cent ($.01) per share and 250,000 shares of
Series A Preferred Stock with a par value of $1.00 per share (the "Preferred
Stock") convertible into Common Stock on the terms and conditions described
below. There were 72,730,376 shares of the Company's Common Stock and 12,150
shares of the Preferred Stock issued and outstanding as of January 25, 2000. The
latest series of Preferred Stock was issued as a dividend to shareholders on
December 31, 1997 on the basis of one share of Preferred for every 100 shares of
Common Stock.
Public Market
- -------------
The Company received approval for trading of its Common Stock on the
Electronic Bulletin Board (NASDAQ) in March 1996. From the period from December
1995 until March 1996, the Company published "bid" and "ask" prices on the "pink
sheets."
As of February 25, 2000, the Company's Common Stock is traded on the "pink
sheets," until such time as the Company is in full compliance with the National
Association of Securities Dealers, Inc. ("NASD") reporting requirements for
Over-The-Counter Bulletin Board-traded companies. With the filing of this Annual
Report and subsequent quarterly reports, the Company expects to be reinstated
for trading on the OTC Bulletin Board.
Over the past six (6) months ending February 29, 2000, the average monthly
trading volume has been approximately 3,400,000 shares
Prospective investors should be aware that the volume of trading on the pink
sheets and OTC Bulletin Board traditionally has been limited and there can be no
assurance that the pink sheets and OTC Bulletin Board will provide an effective
market for a shareholder to sell his or her Common Stock of the Company.
The Company's Registration Statement on Form 10 became effective on June 2,
1997. The Company is a "fully-reporting company" within the meaning of the
Securities and Exchange Act of 1934. As of January 25, 2000 there were 1200
stockholders of record plus approximately 1200 stockholders in "Street Name."
16
<PAGE>
The high and low interdealer prices for the last two fiscal years and latest
quarterly periods on the Electronic Bulletin Board (without retail markup,
markdown or commission) are as follows:
Quarter Ended High Low
------------- --------- --------
June 30, 1997............................... $ 9.75 $ 3.0625
September 30, 1997.......................... $ 7.50 $ 3.75
December 31, 1997........................... $ 4.5625 $ 0.6875
March 31, 1998.............................. $ 2.125 $ 0.9375
June 30, 1998............................... $ 1.80 $ 0.125
September 30, 1998.......................... $ 1.41 $ 0.15
December 31, 1998........................... $ 1.51 $ 0.55
March 31, 1999.............................. $ 1.55 $ 0.69
June 30, 1999............................... $ 1.04 $ 0.20
September 30, 1999.......................... $ 0.31 $ 0.06
December 31, 1999 .......................... $ 0.12 $ 0.037
(Two months ended) February 29, 2000........ $ 0.115 $ 0.00
Dividends
- ---------
The Company has not paid cash dividends on any of its Common Stock and does
not anticipate paying any cash dividends on any of its Common Stock for the
foreseeable future.
The Board of Directors declared a dividend to all shareholders of record as
of December 31, 1997 consisting of one share of a new series of Convertible
Preferred Stock (the "1998 Preferred Stock"), $1.00 par value, for every 100
shares of Common Stock owned. As authorized in the Company's Amended Certificate
of Determination of Preferences of Series A Preferred Stock filed with the
Nevada Secretary of State on January 14, 1998, the 1998 Preferred Stock will be
convertible to one share of Common Stock for a period of one year and carry a
dividend equal to eight percent (8%) of par value, payable in cash or stock at
the Company's election from funds legally available therefor. Such dividends
were cumulative such that if full dividends in respect of any previous dividend
period are not paid, holders of the 1998 Preferred Stock are entitled to receive
any deficiency before any dividend or other distribution may be made or declared
by the Company with respect to any other class of stock including other series
of preferred shares should the Company elect to issue such additional series.
Each share of 1998 Preferred Stock includes a warrant (the "Dividend Warrant")
to purchase two additional shares of Common Stock at $3.00 per share for a
period of two years. The Dividend Warrants expired on December 31, 1999.
The 1998 Preferred Stock was automatically converted to common stock at
December 31, 1998 pursuant to its terms.
17
<PAGE>
RECENT SALES OF UNREGISTERED SECURITIES
Sale of Common Stock
- --------------------
From the period March 1, 1999 to May 31, 1999 the Company offered and sold
the following unregistered securities:
On March 23, 1999, the Company issued 135,000 restricted shares of Common
Stock to Harrison Western Construction Company in consideration of a settlement
agreement between the parties. The shares were offered and sold pursuant to an
exemption from registration provided by Section 4 (2) of the Securities Act of
1933 , as amended, for issuances of securities not involving any public
offering.
On March 29, 1999, the Company issued 200,000 restricted shares of Common
Stock to AMC Consumer Services in consideration of financial services provided
to the Company. The shares were offered and sold pursuant to an exemption from
registration provided by Section 4 (2) of the Securities Act of 1933 , as
amended, for issuances of securities not involving any public offering.
On March 29, 1999, the Company issued 180,000 restricted shares of Common
Stock to Dr. Joe C. Rude, a director of the Company, for a purchase price of
$.50 per share. The shares were offered and sold pursuant to an exemption from
registration provided by Section 4 (2) of the Securities Act of 1933 , as
amended, for issuances of securities not involving any public offering.
6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company owns an interest in a mining exploration property (Nevada
Property). Current management is of the opinion that acquisitions made in the
fields of timber, mining, fishing and technology in the Federation of Russia,
Brazil and Indonesia are of no current economic value to the Company or are no
longer under the Company's control. The risk and contingencies associated with
the Nevada Property are more particularly described in the Section of the Annual
Report entitled "Properties" and "Risk Factors."
Present Management was unable to obtain from previous Management proper
documentation to sufficiently determine if the Company's revenues of $21,000,000
which were reported in the second and third quarter for the year ended May 31,
1999 had, in fact, occurred. As a result, present Management was unable to
validate a receivable of $3,320,168 which was a result of the sales revenue.
These transactions were reversed in the fourth quarter for the year ended May
31, 1999.
Comparison of Results of Operations --Year Ended May 31, 1999
Compared to Year Ended May 31, 1998
- --------------------------------------------------------------
For the year ended May 31, 1999 there were no revenues. Revenues previously
reported for the year ended May 31, 1998 have been presented under "Loss From
Operations of Discontinued Segments".
General and Administrative expense for the year ended May 31, 1999 was
$5,024,610 as compared to $5,061,129 for the same period in 1998, which
represents no significant change.
Other income and expense of $6,125,280 includes writedowns in fiscal 1999
on mineral properties in Indonesia and timber investment in Brazil vs. other
income and expense in 1998 of $4,836,000 which included writedowns of $2,936,000
of the Nevada Property acquisition costs, $1.2 million of the Indonesia
Concession acquisition costs and $700,000 of the Jonasa Concession (Brazilian
timber) acquisition costs.
18
<PAGE>
Loss from Operations of Discontinued Segments
Timber:
In fiscal 1999, the Company had a loss on discontinued timber operations of $1.3
million, versus a loss of $2.28 million in fiscal 1998, representing a $971,000
decline. Part of the decrease is attributable to no operating activity in the
fourth quarter and the balance to decreased travel expense.
Fishing Operation
In fiscal 1999, the Company had a loss on discontinued fishing operations of
$2.1 million. This consists of $1.2 million acquisition cost and a $900,00
nonrecoverable deposit.
Comparison of Results of Operations --Year Ended May 31, 1998
Compared to Year Ended May 31, 1997
- --------------------------------------------------------------
Revenues previously reported for the year ended May 31, 1998 have been
presented in the financial statements under "Loss From Operations of
Discontinued Segments".
The general and administrative expenses, after adjustment for discontinued
operations, for the year ended May 31, 1998 were approximately $5,061,129 as
compared to $4,270,000 for the same period in 1997. The $791,000 increase was a
result of increases in consulting fees and corporate salaries. Other income and
expense increased by $5,436,555 which was due to an increase in interest expense
related to the debentures and notes to shareholders and a $4,836,000 writedown
of mineral properties and timber investment which resulted from management's
test for impairment.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital position as of May 31, 1999 was a deficit of
approximately $(5,066,470). 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, the
Brazilian Properties, the Indonesian Concessions and properties in the
Federation of Russia.
19
<PAGE>
Over the past two years, the Company has raised approximately $4.5 million
from the issuance of stock and approximately $4.5 million from debt instruments.
The Company anticipates that it will require additional capital and may
attempt to secure it by utilizing a publicly registered offering of its
securities or "Private Placements." No assurances can be given that the Company
will be able to raise such necessary working capital. Prospective investors
should be aware that if the Company is unable to secure necessary operating and
working capital, such investors may be at risk of losing all or part of their
investment.
7. FINANCIAL STATEMENTS
The following pages contain the financial statements of the Company for the
fiscal years ending May 31, 1998 and 1999.
20
<PAGE>
NEVADA MANHATTAN GROUP, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report F-1
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Comprehensive Loss F-4
Consolidated Statements of Stockholders' Deficiency F-5 - 6
Consolidated Statements of Cash Flows F-7 - 8
Notes to Consolidated Financial Statements F-9 - 32
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
NEVADA MANHATTAN GROUP, INC.
We have audited the accompanying consolidated balance sheet of Nevada Manhattan
Group, Inc. and Subsidiaries as of May 31, 1999 and the related consolidated
statements of operations, comprehensive loss, stockholders' deficiency and cash
flows for each of the two years in the period ended May 31, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
Except as discussed in the following paragraph, we conducted our audits in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
We were unable to determine whether the Company had $21,000,000 of sales, which
were reported in the second and third quarter of the year ended May 31, 1999,
and were therefore unable to validate a receivable of $3,320,168, which was a
result of the sales. These transactions were reversed in the fourth quarter for
the year ended May 31, 1999. Management was unable to provide proper
documentation to sufficiently determine if the sales occurred. Due to a lack of
proper documentation, we were unable to satisfy ourselves about the occurrence
and completeness of these sales transactions, as well as the existence and
completeness of the related accounts receivable as of May 31, 1999 by means of
other auditing procedures.
Because of the matter discussed in the third paragraph, the scope of our work
was not sufficient to enable us to express, and we do not express, an opinion on
the May 31, 1999 consolidated financial statements.
In our opinion, except for the effects on the May 31, 1999 financial statements
of the matter discussed in the fourth paragraph, the related consolidated
statements of operations, comprehensive loss, stockholders' deficiency and cash
flows of Nevada Manhattan Group, Inc. and Subsidiaries for the year ended May
31, 1998, present fairly, in all material respects, the results of its
operations and its cash flows for the year ended May 31, 1998, in conformity
with generally accepted accounting principles.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
Los Angeles, California
March 13, 2000
F-1
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MAY 31, 1999
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,238
Debt issuance cost 140,682
-----------
Total Current Assets 146,920
FURNITURE AND EQUIPMENT, net 76,365
OTHER ASSETS 14,273
-----------
TOTAL ASSETS $ 237,558
===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 3,136,915
Convertible note payable 333,333
Notes payable to stockholders 242,932
Notes payable - current portion 108,329
Convertible debentures - current portion 1,425,214
-----------
Total Current Liabilities 5,213,390
NOTES PAYABLE, less current portion 56,982
CONVERTIBLE DEBENTURES, less current portion 1,180,494
-----------
TOTAL LIABILITIES 6,450,866
COMMITMENTS AND CONTINGENCIES (Note 6) -
STOCKHOLDERS' DEFICIENCY
Preferred stock, $1 par value, 250,000 shares
authorized, 13,500 shares issued and outstanding 13,500
Common stock, $0.01 par value, 250,000,000 shares
authorized, 66,454,607 shares issued and outstanding 664,546
Additional paid-in capital 43,079,139
Accumulated deficit (49,970,493)
------------
TOTAL STOCKHOLDERS' DEFICIENCY (6,213,308)
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 237,558
===========
The accompanying notes are an integral part of these consolidated
financial statements
F-2
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
For the year ended May 31,
1999 1998
------------ -------------
(As Restated)
REVENUE $ - $ 41,740
COST OF REVENUE - -
------------ -------------
GROSS PROFIT - 41,740
GENERAL AND ADMINISTRATIVE EXPENSES 6,919,321 5,061,129
------------ -------------
LOSS FROM OPERATIONS (6,919,321) ( 5,019,389)
------------ -------------
OTHER INCOME (EXPENSES)
Gain on extinguishment of debt 340,000 -
Interest expense ( 808,505) ( 700,423)
Impairment of mineral properties and
timber investment ( 6,125,280) (4,836,000)
------------ -------------
Total Other Income (Expenses) ( 6,593,785) (5,536,423)
------------ -------------
LOSS BEFORE PROVISION FOR INCOME TAXES (13,513,106) (10,555,812)
PROVISION FOR INCOME TAXES - -
------------ -------------
LOSS FROM CONTINUING OPERATIONS (13,513,106) (10,555,812)
DISCONTINUED OPERATIONS
Loss from operations of discontinued
Brazil operations (Net of applicable
income tax effect of $0, due to valuation
allowance for uncertainty of realization) (1,311,460) (2,282,567)
Loss from operations of discontinued fish
operations (Net of applicable income tax
effect of $0, due to valuation allowance
for uncertainty of realization) (174,622) -
Loss on disposal of fish operations
(Net of applicable income tax effect of $0,
due to valuation allowance for uncertainty
of realization) (2,097,190) -
------------ -------------
NET LOSS (17,096,378) (12,918,695)
CUMULATIVE PREFERRED DIVIDENDS - 80,316
------------ -------------
NET LOSS APPLICABLE TO COMMON STOCKHOLDER $(17,096,378) $(12,918,695)
============ =============
LOSS PER SHARE - basic and diluted
Loss from continuing operations $( 0.27) $( 0.71)
Loss from discontinued operations ( 0.07) ( 0.15)
------------ -------------
NET LOSS $( 0.34) $( 0.86)
============ ============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - basic and diluted 50,008,211 14,969,621
============ ============
The accompanying notes are an integral part of these consolidated financial
statements
F-3
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
For the year ended May 31,
1999 1998
------------ -------------
(As Restated)
COMPREHENSIVE LOSS
Net Loss $(17,096,378) $ (12,918,695)
Foreign Currency Translation Adjustment ( 24,940) 24,940
------------ -------------
COMPREHENSIVE LOSS $(17,121,318) $(12,893,755)
============ =============
The accompanying notes are an integral part of these consolidated financial
statements
F-4
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE YEAR ENDED MAY 31, 1999
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Capital
---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1998 (Restated) 176,414 $ 176,414 26,492,543 $264,926 $28,715,550
Common Stock Issued For:
Cash - - 25,834,356 258,343 3,604,265
Property - - 8,000,000 80,000 4,645,280
Conversion of Debt and Interest - - 1,332,632 13,326 2,467,743
Conversion of Debentures - - 107,500 1,075 83,925
Collateral for Stockholders Notes - - 98,572 986 ( 986)
Conversion of Preferred Stock (162,914) (162,914) 240,186 2,402 160,512
Liquidated Damages - - 153,849 1,539 206,623
Services Rendered - - 9,194,969 91,949 2,969,177
Warrants Issued For:
Services Rendered - - - - 177,050
Cancellation of Common Stock in Escrow - - (5,000,000) (50,000) 50,000
Foreign Currency Translation Adjustment - - - - -
Net Loss - - - - -
-------- --------- ---------- -------- ------------
Balance, May 31, 1999 13,500 $ 13,500 66,454,607 $664,546 $ 43,079,139
======== ========= ========== ======== ============
</TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY - continued
<TABLE>
<CAPTION>
Foreign Currency Accumulated
Translation Deficit Total
----------------- ------------ ---------
<S> <C> <C> <C>
Balance, May 31, 1998 (Restated) $ 24,940 $(32,874,115) $( 3,692,285)
Common Stock Issued For:
Cash - - 3,862,609
Property - - 4,725,280
Conversion of Debt and Interest - - 2,481,069
Conversion of Debentures - - 85,000
Collateral for Stockholders Notes - - -
Conversion of Preferred Stock - - -
Liquidated Damages - - 196,909
Services Rendered - - 1,682,276
Warrants Issued For:
Services Rendered - - 177,050
Cancellation of Common Stock in Escrow - - -
Foreign Currency Translation
Adjustment ( 24,940) - ( 24,940)
Net Loss - (17,096,378) (17,096,378)
------------ ----------- -----------
Balance, May 31, 1999 $ - $(49,970,493) $( 6,213,308)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
FOR THE YEAR ENDED MAY 31, 1998
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Capital
---------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1997 228,319 $ 228,319 12,273,565 $122,736 $23,699,683
Common Stock Issued For:
Cash - - 2,165,400 21,654 547,564
Property - - 5,005,000 50,050 3,946,123
Conversion of Debt and Interest - - 582,575 5,826 766,463
Conversion of Debentures - - 338,302 3,383 331,089
Collateral for Stockholders Notes - - 2,743,698 27,437 ( 27,437)
Conversion of Preferred Stock (207,444) (207,444) 2,280,199 22,802 389,886
Liquidated Damages - - 289,426 2,894 406,606
Services Rendered - - 814,378 8,144 1,545,026
Discount for Conversion of Debentures - - - - 500,000
Options Issued For:
Services Rendered - - - - 428,996
Common Stock Dividend
Issuance of Preferred Stock 167,789 167,789 - - -
Issuance of Common Stock Warrants - - - - 165,926
Dividends to be Paid ( 12,250) ( 12,250) - - -
Common Stock in Escrow - - - - (3,984,375)
Foreign Currency Translation Adjustment - - - - -
Preferred Dividend - - - - -
Net Loss - - - - -
-------- --------- ---------- -------- ------------
Balance, May 31, 1998 (As Restated) 176,414 $ 176,414 26,492,543 $264,926 $ 28,715,550
======== ========= ========== ======== ============
</TABLE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY - continued
<TABLE>
<CAPTION>
Foreign Currency Accumulated
Translation Deficit Total
----------------- ------------ ---------
<S> <C> <C> <C>
Balance, May 31, 1997 $ - $(19,633,955) $ 4,416,783
Common Stock Issued For:
Cash - - 569,218
Property - - 3,996,173
Conversion of Debt and Interest - - 772,289
Conversion of Debentures - - 334,472
Collateral for Stockholders Notes - - -
Conversion of Preferred Stock - - 205,244
Liquidated Damages - - 409,500
Services Rendered - - 1,553,170
Discountfor Conversion of Debentures - - 500,000
Warrants Issued For:
Services Rendered - - 428,996
Common Stock Dividend
Issuance of Preferred Stock - ( 167,789) -
Issuance of Common Stock Warrant - ( 165,926) -
Dividends to be Paid - 12,250 -
Common Stock in Escrow - - (3,984,375)
Foreign Currency Translation
Adjustment - 24,940 - 24,940
Preferred Dividend - ( 80,316) ( 80,316)
Net Loss - (15,110,606) (15,110,606)
------------ ----------- -----------
Balance, May 31, 1998 (As Restated) $ 24,940 $(32,874,115) $( 3,692,285)
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-6
<PAGE>
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended May 31
1999 1998
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES (As Restated)
Net loss $(17,096,378) $(12,918,695)
Adjustments to reconcile net loss to net
cash used in operating activities:
Provision for doubtful accounts - 150,000
Write-off of mineral properties and
timber investment 6,125,280 4,836,000
Common stock issued for services 3,061,125 1,442,447
Warrants issued for services 177,050 278,996
Write-off of officer advances - 52,013
Amortization of debenture discount 377,249 314,598
Depreciation 56,092 35,645
Write-off of mill acquisition costs - 291,246
Write-off of Brazil fixed assets 282,197 -
Gain on extinguishment of debt ( 340,000) -
(Increase) Decrease
Accounts receivable 255,027 ( 46,866)
Inventories 108,844 ( 108,844)
Prepaid expenses 283,353 61,878
Other assets 110,745 ( 40,701)
Increase (Decrease)
Accounts payable and accrued expenses 2,189,746 1,122,390
--------- -----------
Net Cash Used in Operating Activities (4,409,670) (4,529,893)
----------- -----------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of property and equipment (10,000) ( 333,441)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible
debentures - 1,500,000
Proceeds from the issuance of convertible
note payable 800,000 -
Payment for convertible note payable (500,000) -
Proceeds from issuances of notes payable 39,892 -
Payments for notes payable ( 52,279) ( 29,881)
Advances from officer - 718,000
Proceeds from issuances of notes payable to
stockholders 229,499 1,978,075
Payments for notes payable to stockholders (10,401) ( 375,000)
Proceeds from issuance of common stock 3,862,608 569,218
------------- ------------
Net Cash Provided by Financing Activities 4,369,319 4,360,412
------------- -----------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT (24,940) 24,940
------------- ------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (75,291) ( 477,982)
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 81,529 559,511
------------- ------------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 6,238 $ 81,529
============= =============
The accompanying notes are an integral part of these consolidated
financial statements
F-7
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
During the years ended May 31, 1999 and 1998, the Company paid no income
taxes and no interest.
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
During 1998, the Company issued 814,378 shares of its common stock for
services rendered by employees and third parties for $1,553,170, 338,302
shares of its common stock for conversion of $334,472 of convertible
debentures, 2,280,199 shares of its common stock for the conversion of
$207,444 of preferred stock and payment of cumulative dividends of
$205,244, 582,575 shares of its common stock for the conversion of $772,289
of stockholder's notes and interest, 289,426 shares of its common stock for
the payment of liquidating damages of $409,500 and 5,005,000 shares of its
common stock for the purchase of timberlands in Brazil for $3,996,173.
During 1999, the Company issued 9,194,969 shares of its common stock for
services rendered by employees and third parties for $3,061,126, 107,500
shares of its common stock for conversion of $85,000 of convertible
debentures, 240,186 shares of its common stock for the conversion of
$162,914 of preferred stock, 153,849 shares of its common stock for the
payment of liquidating damages of $208,192, 8,000,000 shares of its common
stock for the acquisition of an 80% interest in certain timber and mining
rights of tin, copper sulfate, gold and silver from a Russian joint stock
company for $4,725,280, and 1,332,632 shares of its common stock for the
conversion of stockholders' notes and interest in the amount of $2,481,069.
During 1999, the Company financed on a monthly installment basis the
purchase of a vehicle for $49,732 and agreed to pay a vendor on a monthly
installment basis for outstanding invoices of $51,426.
During 1999, in connection with a consulting agreement, the Company issued
an option to purchase 500,000 shares of the Company's common stock at $0.15
per share, which expires in July 2000. The option was valued at $177,050,
which was expensed.
The accompanying notes are an integral part of these consolidated financial
statements
F-8
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
Nevada Manhattan Group, Inc. and Subsidiaries (formerly Terra Natural
Resources Corporation) (the "Company") was organized to acquire,
explore, develop, finance and sell mining and timber rights and
properties. In December 1998, the Company changed its name from Terra
Natural Resources Corporation to Nevada Manhattan Group, Inc. For the
year ended May 31, 1999, the Company had four operating segments,
which included development and exploration of mineral properties,
harvesting of timber, harvesting and distribution of fish and the sale
of technology related products. During and subsequent to the year
ended May 31, 1999, the Company ceased to operate any of its holdings
and all operations have been shut down. The segments were operating
under the following structure:
For the year ended May 31, 1997, the Company's majority-owned
subsidiary, Equatorial Resources, Ltd. ("Equatorial"), conducted the
Company's Brazilian timber operations. For the year ended May 31,
1998, the Company has ceased to operate its Brazilian timber
operations under Equatorial and all of its timber concessions are
being assigned to the Company's newly formed majority-owned subsidiary
Terra Resources Brazil, Ltd. ("Terra"). In approximately the first
calendar quarter of 1999, the subsidiary was unable to pay certain
vendors and employees, who initiated action and received a judgment to
liquidate all of the assets of the Company to satisfy the debt. The
subsidiary is a Brazilian Limited Corporation and the Company is of
legal counsel that Brazilian debtors are unable to attach the Company
for any legal obligations; therefore, the assets and liabilities as of
May 31, 1999 were charged to loss from discontinued operations, see
Note 8 - Discontinued Operations.
On November 30, 1998, the Company announced that, as part of the
Company's diversification plan, the following three companies were
formed and were placed into operation: Science and Technology
Resources, Inc. ("STR"), Nevada Manhattan Tokyo and NV Rexco.
STR, a Nevada corporation and wholly owned subsidiary of the Company,
with offices in Washington, DC, 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. Dr. Thomas
Ward a consultant to the U.S. Department of Energy heads STR. This
subsidiary was discontinued as of May 31, 1999 and had no revenues and
minimal expenses incurred in 1999.
F-9
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Organization (continued)
------------
Nevada Manhattan Tokyo was formed to act on behalf of the Company to
transact the sale and marketing of the Company's products as well as
other companies' products produced from diverse areas around the
world. This subsidiary was discontinued as of May 31, 1999 and had no
revenues and minimal expenses incurred in 1999, see Note 9 -
Discontinued Operations.
NV Rexco, a California corporation, was formed to act on behalf of the
Company 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. The subsidiary had
significant operations during 1999 for the marketing of fish. Also,
the subsidiary entered into an agreement to purchase a fleet of
fishing boats and a fish processing plant, see Note 9 - Discontinued
Operations.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its majority-owned subsidiaries. All significant
intercompany accounts and transactions are eliminated in
consolidation.
Cash and Cash Equivalents
-------------------------
For statement of cash flow purposes, the Company considers short-term
investments with original maturities of three months or less to be
cash equivalents.
Concentration of Credit Risk
----------------------------
The Company places its cash with high quality financial institutions
and at times may exceed the FDEC $100,000 insurance limit.
F-10
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Debt Issuance Costs
-------------------
Fees associated with the issuance of the convertible debentures are
being amortized over the life of the convertible debentures, which is
two years.
Furniture and Equipment
-----------------------
Furniture and equipment is stated at its historical cost less
accumulated depreciation. Depreciation is primarily determined by
using the straight-line method over the estimated useful life of seven
years for furniture and fixtures.
Impairment of Long-Lived Assets
-------------------------------
In accordance with Financial Accounting Standards Board ("FASB")
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amounts of such assets may not be recoverable. Impairment
losses would be recognized if the carrying amounts of the assets
exceed the fair value of the assets. The Company had impairment
write-offs of long-lived assets associated with its mineral and timber
properties of $6,125,280 and $4,836,000 for the years ended May 31,
1999 and 1998, respectively.
Foreign Currency Translation
----------------------------
For foreign subsidiaries whose functional currency is the local
foreign currency, the balance sheet accounts are translated at
exchange rates in effect at the end of the year and income and expense
accounts are translated at average exchange rates for the year.
Translation gains and losses are included as a separate component of
stockholders' deficiency and included in the Statement of Operations
and Comprehensive Income (Loss).
Revenue Recognition
-------------------
Substantially all revenues are recognized when finished products are
shipped with appropriate provision for uncollectible accounts.
F-11
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Income Taxes
------------
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Deferred taxes are provided on a
liability method whereby deferred tax assets are recognized for
deductible temporary differences, and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more
likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted
for the effects of changes in tax laws and rates on the date of
enactment.
Net Loss Per Share
------------------
For the year ended May 31, 1998, the Company adopted SFAS No. 128,
"Earnings Per Share". Basic loss per share is computed by dividing net
loss attributable to common stockholders by the weighted average
number of common shares outstanding. Diluted loss per share is
computed similar to basic loss per share except that the denominator
is increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been
issued and if the additional common shares were dilutive. At May 31,
1999 and 1998, the weighted average shares outstanding would have been
increased by 72,010,539 and 1,635,539 shares of the Company's common
stock if the issued and exercisable stock options and warrants would
have been dilutive.
Estimates
---------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements, as well as the reported amounts of
revenues and expenses during the reported periods. Actual results
could differ from those estimates
F-12
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair Value of Financial Instruments
-----------------------------------
The Company measures its financial assets and liabilities in
accordance with generally accepted accounting principles. For certain
of the Company's financial instruments, including cash, accounts
receivable, and accounts payable and accrued expenses, the carrying
amounts approximate fair value due to their short maturities. The
amounts owed for notes payable and convertible debentures also
approximate fair value because current interest rates and terms
offered to the Company for similar notes are substantially the same.
Impact of Year 2000 Issue
-------------------------
During the year ended May 31, 1999, the Company conducted an
assessment of issues related to the Year 2000 and determined that no
issues existed which would cause its computer systems not to properly
utilize dates beyond December 31, 1999.
Comprehensive Income
--------------------
In June 1997, FASB issued SFAS No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and displaying
comprehensive income and its components in financial statements. This
pronouncement is effective for fiscal years beginning after December
31, 1997. This pronouncement is effective for the year ended May 31,
1999.
Segment Information
-------------------
In June 1997, FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which requires a company to
report certain information about its operating segments including
factors used to identify the reportable segments and types of products
and services from which each reportable segment derives its revenues.
Since the Company has discontinued all of its operating segments,
segment information has not been provided and the segment information
provided for the year ended May 31, 1998 has been eliminate since the
operations have been presented as discontinued operations.
Recent Accounting Prounouncemens
---------------------------------
Since the fiscal year 1999 FASB issued SFAS 136, "Transfers of Assets
to a Not-for-Profit Organization or Charitable Trust That Raises or
Holds Contributions for Others" and SFAS 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133". Management believes that
these Statements will not have an impact on the Company.
F-13
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 2- FURNITURE AND EQUIPMENT
Furniture and equipment consist of the following as of May 31, 1999:
Furniture and fixtures $ 113,737
Vehicle 58,242
------------
171,979
Less: accumulated depreciation 95,614
------------
Net furniture and equipment $ 76,365
============
The Company recorded depreciation expense of $56,092 and $35,645 for
the years ended May 31, 1999 and 1998.
NOTE 3 - IMPAIRMENT OF PROPERTIES AND EQUIPMENT
Domestic Mineral Properties and Timber Concessions
--------------------------------------------------
The Company has restated its financial statements as of May 31, 1998
and for the year then ended to account for impairment of its Domestic
Mineral Properties ("Nevada Properties") and its Timber Concession
("Jonasa Concession") in accordance with SFAS No. 121, see Note 10 -
"1998 Restatement". Subsequent to the previous issuance of the 1998
financial statements, management discovered certain circumstances and
facts, which existed, as of the financial statement date, that were
misinterpreted when evaluating whether the carrying amounts of these
two properties were recoverable, as follows:
- For the Nevada Properties, management was unable to substantiate
proven and probable reserves of extractable ore sufficient to
calculate the cash flows required to evaluate the recovery of the
acquisition costs.
- For the Jonasa Concessions, management did not properly estimate
the costs required to perfect the title to the property, and the
additional costs required to transport the harvested timber to
the Company's new sawmill, Tropical Woods. Given these facts
management believes these additional costs would prohibit the
Company's continuing involvement with this project.
F-14
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 3 - IMPAIRMENT OF PROPERTIES AND EQUIPMENT (Continued)
When properly applying these circumstances and facts in accordance
with SFAS No. 121, the Nevada Property acquisition costs of $2,936,000
and Jonasa Concession acquisition costs of $700,000 were deemed to be
unrecoverable and written off during the year ended May 31, 1998.
Indonesian Mineral Properties
-----------------------------
In August 1996 and January 1997, the Company acquired certain mineral
properties known as the Kalimantan and Cepa projects, respectively.
The Kalimantan properties were acquired by the issuance of 400,000
common shares valued at $1,200,000 based on the current market value
of the stock on the date of issuance. The Cepa properties were
acquired by the issuance of 200,000 common shares issued upon signing
of the agreement and an additional 3,800,000 shares to be released
only if an independent valuation of the property exceeds $40,000,000.
The Company has valued the 200,000 shares at $1,400,000 based upon the
current market price of the Company's common shares at the time. In
accordance with FASB No. 121, management has evaluated the
recoverability of these assets and determined that the properties had
no future economic value to the Company.
During the year ended May 31, 1998, Company determined that the
Kalimantan would not have the resources available to explore the
property for proven and probable reserves, so the Company recorded an
impairment loss of $1,200,000.
Current management is of the opinion that the Company no longer
controls any of the Cepa concessions. Political changes as well as
non-compliance with performance criteria under the concession
agreements, as well as uneconomic mining conditions have predicated
management's current position. In support of current management's
position, the Company previously entered into a coal exploration and
development agreement with a recognized coal company, in North
America, who in the summer of 1999 found the property to be uneconomic
and they, based on the terms of the agreement, cancelled the
agreement. During the year ended May 31, 1999, the Company recorded an
impairment loss of $1,400,000 related to the Cepa concessions.
F-15
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 3 - IMPAIRMENT OF PROPERTIES AND EQUIPMENT (continued)
Russian Mineral Properties
--------------------------
In December 1998, the Company acquired an 80% interest in certain
timber and mining rights of tin, copper sulfate, gold and silver from
Chrustalnaya, a Russian joint stock company headquartered in
Kavalerovo. The Company issued 8,000,000 shares of its Common Stock in
consideration of these assets. The investment was valued at the
current market price for the shares of $4,725,280. However, Company
management never worked out an operating agreement as to the operating
and financial activities of the parties for the mining operations. The
current Company management has had discussions with the joint venture
partner. These discussions brought forth an issue that the Company was
obligated to fund up to $5,000,000 for operating capital. The Company
and management do not have the resources to provide the $5,000,000 of
funding. Since the Company cannot provide the funds, the joint venture
partner has determined that the Company was in default and cancelled
the agreement. The Company has not been successful in obtaining the
8,000,000 shares. Therefore, the Company has recorded a loss on
impairment of $4,725,280.
NOTE 4 - NOTES PAYABLE
Convertible Note Payable
------------------------
In December 1998, the Company entered into an agreement to purchase
shares of an unaffiliated company. The Company advanced $500,000 as a
down payment. In February 1999, after due diligence work was
completed, the transaction was cancelled. Also, the majority
shareholder of the unaffiliated company had advanced $800,000 to the
Company. The $500,000 was agreed, both parties, to be offset against
the $800,000 loan. In November 1999, the $300,000, plus interest of
$100,000 was converted into 16,000,000 shares of the Company's common
stock, at the current market value.
Notes Payable to Stockholders
-----------------------------
Notes payable to stockholders of $242,932 accrue interest at rates
between 8% and 13.78%, are due on demand and are guaranteed by certain
Company officers.
F-16
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 4 - NOTES PAYABLE (Continued)
Notes Payable
-------------
As of May 31, 1999, notes payable consisted of:
18%-Note payable with all accrued and interest payable
due in July 1999 $ 39,891
6%-Note payable with monthly payments of $4,375 for
principal and interest due in January 2000 34,989
9.5%-Note payable with monthly payments of $1,035 for
principal and interest, secured by vehicle purchased
and due in May 2002 45,138
9%-Note payable to stockholder with monthly payments
of $1,000 including interest, due in April 2001 21,646
9%-Note payable to stockholder at $2,000 per
month including interest 23,647
-----------
165,311
Less Current portion 108,329
-----------
Long-term portion $ 56,982
===========
Maturities of notes payable principal are as follows for the years
ending May 31:
2000 $ 108,329
2001 24,866
2002 15,061
2003 11,278
2004 5,777
------------
$ 165,311
============
NOTE 5 - CONVERTIBLE DEBENTURES
In April and July 1997, the Company entered into Subscription
Agreements related to two negotiated private placements (the
"Debentures"). These transactions were made in reliance upon the
exemption from registration afforded by Section 4(2) of the Securities
Act of 1933. As a result, the Company issued an aggregate of
$3,500,000 of 8% Senior Secured Convertible Debentures due March 31,
2000 and July 1, 2000 for the April ($2,000,000) and July ($1,500,000)
offerings, respectively.
F-17
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 4 - CONVERTIBLE DEBENTURES (Continued)
The Debentures may be converted into shares of the Company's Common
Stock at any time commencing June 2, 1997 at a price equal to the
lesser of seventy-five percent (75%) of the closing bid price of the
Common Stock on the closing date; seventy-five percent (75%) of the
closing bid price of the Common Stock on the day prior to the funding
of any subsequent funding; or seventy-five percent (75%) of the
average closing bid price for the five trading days immediately
preceding the actual date of conversion of the Debentures. With
respect to the April 1997 funding, if conversion is made after August
16, 1997, the conversion price will be seventy-two and one-half
percent (72.5%) of the above-referenced valuation standards. As of May
31, 1999, the Company has recorded $344,292 of deferred financing
charges for the differences between the conversion price and the fair
market value of the stock at the date of each funding. The discount is
being amortized over the life of the debentures.
The Company was required to use its "best efforts" to cause a
Registration Statement with the Securities and Exchange Commission to
become effective. If the Registration Statement did not become
effective within 120 days of each respective funding, the Company is
required to pay liquidated damages equal to two percent (2%) of the
Debentures for the first thirty days and three percent (3%) per month
thereafter until the Registration Statement becomes effective. As of
May 31, 1999, the Company has incurred and expensed $717,636 of
liquidating damages of which $617,662 has been converted to 443,275
shares of the Company's common stock.
With regard to the April 1997 funding, until at least seventy-five
percent (75%) of the Debentures are converted, a deed of trust on the
Nevada Property and a pledge of 1,000,000 shares of Common Stock will
secure the Debentures. No such security is given on the Debentures
issued in July 1997.
The Company has issued warrants to the Subscribers of the April and
July offerings. Regarding the Subscribers of the April offering, the
Company has granted 62,500 warrants with an exercise price of $8 per
share and an expiration date of April 16, 2002. Regarding Subscribers
of the July 1997 offering, the Company has granted 75,250 warrants
with an exercise price of $6.75 per share and an expiration date of
July 16, 2002. The exercise price is subject to adjustment to account
for payments of dividends, stock splits, reverse stock splits, and
similar events.
F-18
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 6 - COMMITMENT AND CONTINGENCIES
Leases
The Company has noncancelable leases for its office spaces located in
Los Angeles. The following represents future lease payments due in
accordance with the lease agreements:
Year Ending May 31,:
2000 $ 174,870
2001 174,870
2002 156,870
2003 43,890
-----------
Total $ 550,500
===========
Rent expense for the years ended May 31, 1999 and 1998 was
approximately $122,348 and $6,400, respectively.
Securities and Exchange Commission
----------------------------------
In fiscal 1994, the Company entered into a consent judgment with the
Securities and Exchange Commission ("SEC") following an investigation
into the Company's business activities.
In connection with the judgment, the Company received the following
"Stipulation Regarding Resolution of Outstanding Issues" from the SEC
closing out the investigation and all related issues:
"Whereas the disposition of funds analysis conducted pursuant to the
Judgment of Permanent Injunction and Other Relief against Defendant
NEVADA MANHATTAN GROUP, INC. entered on August 3, 1993 has revealed no
ill-gotten gains received by any defendant, the undersigned parties
hereby stipulate that all outstanding issues in this action have been
resolved, including disgorgement, and that the judgment entered
against the defendants are final."
The entry of the judgment may impose certain burdens on the Company
with respect to its future activities. The more significant of such
burdens are as follows:
(i) The Company may not be able to utilize the exemptions from
registration available under Regulation A and Rule 701 under the
1933 Act.
(ii) The Company may not be able to rely on the private placement
exemptions provided in various state securities laws in
connection with the offer and sale of securities in a
transaction, which qualifies as an exempt sale of securities
under the 1933 Securities Act.
F-19
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 5 - COMMITMENT AND CONTINGENCIES (continued)
Securities and Exchange Commission (continued)
----------------------------------
In such case, the Company would be required to qualify the transaction
under the state securities laws, which may not be available. This
qualification would increase the cost of, and extend the time for
completing, such private placement of securities.
Commissions
-----------
During May 1997, the Company agreed to pay two shareholders an
aggregate of 3% of the "net profits" of the Company's Brazilian
operations. For the year ended May 31, 1999 and 1998, no commissions
were paid.
Legal Proceedings
-----------------
During November 1996, the Company filed a lawsuit in Nevada against
its former joint venture partners in the Nevada Properties ("the
Harvey Entities"). The complaint originally alleged, among other
things, that the Harvey Entities breached their obligations under
various agreements. The action as amended seeks damages of
approximately $4,000,000 resulting from the actions and inactions of
the defendants. In a counterclaim, the defendants are seeking an
injunction preventing the Company from conducting activities related
to the mine and punitive damages and other financial relief based on
breach of contract and other causes of action.
The Company subsequently amended its complaint, seeking a judicial
determination that the Joint Venture Agreement was null and void and a
determination that the Harvey Entities have forfeited all interest in
the Nevada properties. After a hearing in September 1997, the court
refused to issue an injunction against the Company. Pursuant to
stipulation, the parties have agreed not to interfere with one
another's operations on the Nevada Properties. Additionally, the
Company has agreed not to further encumber the Nevada property pending
trial.
If the Company is successful in obtaining specific performance of the
agreement alleged in the Action, it will effectively continue to own
or control an undivided 100% interest in the Nevada property.
Regardless of whether the Company is successful in the Action, it will
continue to own at least a 50% undivided interest in the Nevada
Properties by virtue of its contractual rights.
F-20
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 6 - COMMITMENT AND CONTINGENCIES (continued
Legal Proceedings (continued)
-----------------
In June 1996, the Company entered into an agreement with Harrison
Western Construction Corporation ("Harrison") to perform contract mine
development services on the Company's Nevada Properties. In October
1997, these services ceased and a dispute arose between the parties.
The scope of work estimated at the time of commencement was
approximately $600,000, as projected by Harrison. At termination of
the agreement, Harrison reportedly furnished a total amount of
services and materials totaling approximately $1,684,000 without
completion of the objectives for which the parties entered into the
agreement. The Company paid in 1997 approximately $1,155,000 in cash
to Harrison and in November 1996 issued 100,000 shares of the
Company's stock in payment of $250,000 of services. In July 1997, an
additional 65,000 shares were issued to Harrison as collateral for any
unpaid and owing amounts. Subsequent to the termination of the
agreement, Harrison filed a mechanic's and materialman's lien in the
amount of $482,749 on the Company's Nevada property in January 1998.
This filing was, in the opinion of the Company, in direct violation of
specific clauses contained in the agreement between the parties.
In support of its lien, Harrison filed a lawsuit in July 1998 in
Federal District Court in Nevada. In August 1998, the Company was
granted a motion to stay the proceedings and enter arbitration. The
parties have been ordered to report to the Federal District Court the
status of the arbitration proceedings on or before November 30, 1998.
The Company believes that any arbitration agreement or damages would
not have a material impact on the Company's financial statements. On
March 23, 1999, the Company issued 135,000 restricted shares of Common
Stock to Harrison Western Construction Company in consideration of a
settlement agreement between the parties.
In July 1998, the Company and several stockholders filed a lawsuit in
United States District Court for the Central District of California
against its debenture holders. The lawsuit contends that the
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. The
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.
F-21
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 6 - COMMITMENT AND CONTINGENCIES (continued)
Legal Proceedings (Continued)
-----------------
In July 1998, the Company and certain board members and officers of
the Company were named as defendants in lawsuits filed by certain
debenture holders. Each suit claims that the defendants breached
certain debentures and subscription agreements and failed to file a
registration statement with the Securities and Exchange Commission.
Also, the suits claim that the defendants were in violation of Section
10(b) and 20(a) of the Securities and Exchange Act. The Company and
other defendants deny any wrong doings and intend to vigorously defend
both these lawsuits. The impact of these lawsuits on the Company's
financial position or operations cannot be determined presently.
Regulations
-----------
The Company's mining operations, exploration and timber activities are
subject to various foreign, federal, state and local laws and
regulations governing protection of the environment. These laws are
continually changing and, as a general matter, are becoming more
restrictive. Management believes that the Company is in material
compliance with all applicable laws and regulations.
Investment Agreement
--------------------
During the year ended May 31, 1998, the Company entered into an
agreement for an investor to purchase up to $14,000,000 of the
Company's common stock over a period of three years from March 28,
1998. The principal terms of the agreement are as follows:
- The sale of the Company's common stock to the investor will be in
the form of a Put Notice in which the Company will designate the
dollar amount of shares to be purchased by the investor. Each Put
Notice must be in an amount not less than $50,000. The number of
shares to be issued under each Put Notice shall be an amount
equal to the Put amount divided by 78% of the lowest sale price
of the common stock as listed on the principal exchange during
the ten trading days prior to the Put Notice.
- The Company may not issue a Put Notice if a) trading of the
Company's common stock is suspended or delisted, b) the closing
price of the Company's common stock is less than $.25 per share,
c) a registration statement, covering the shares, is not
effective or is subject to a stop order or is otherwise
suspended, d) the Dow Jones Industrial Average has dropped more
than 3% within the preceding five business days, or e) the common
stock is not then registered under the Exchange Act.
F-22
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 6 - COMMITMENT AND CONTINGENCIES (continued)
Investment Agreement (Continued)
--------------------
- Also, with the issuance of the shares the investor is to receive
common stock purchase warrants to purchase shares of the
Company's common stock. Each warrant shall be for the purchase of
shares in an amount equal to 12% of the number of shares of
common stock purchased and with an exercise price of equal to 94%
of the average closing bid price for the Company's common stock
on the exchange for ten trading days prior to the Put Notice. The
warrant shall be exercisable for a five-year period.
- To the extent that the Company has not delivered Put Notices to
the investor on or before one year from the date of the agreement
in an aggregate dollar amount equal to the lessor of a)
$4,666,667 or b) the maximum dollar amount with respect to which
Put Notices could have been delivered prior to such date, then
any warrants that have not been issued had such Put Notices been
delivered shall be issued. The exercise price of the warrants
shall be equal to 94% of the average closing bid price for the
Company's common stock on the exchange during the ten trading
days prior to the one-year anniversary.
- To the extent that the Company has not delivered Put Notices to
the investor on or before two years from the date of the
agreements in an aggregate dollar amount equal to the lessor of
a) $9,333,332 or b) the maximum dollar amount with respect to
which Put Notices could have been delivered prior to such date,
then any warrants that have not been issued had such Put Notices
been delivered shall be issued. The exercise price of the
warrants shall be equal to 94% of the average closing bid price
for the Company's common stock on the exchange during the ten
trading days prior to the two-year anniversary.
- To the extent that the Company has not delivered Put Notices to
the investor on or before the termination of the agreement in an
aggregate dollar amount equal to $14,000,000 or b) the maximum
dollar amount with respect to which Put Notices could have been
delivered prior to such date, then any warrants which have not
been delivered to the investor which would have been issued had
such Put Notices been delivered shall be issued. The exercise
price of the warrants shall be equal to 94% of the average
closing bid price for the Company's common stock on the exchange
during the ten trading days prior to the termination date. F-19
F-23
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 7 - STOCKHOLDERS' EQUITY
Preferred Stock
---------------
The Company is authorized to issue up to 250,000 shares of Preferred
Stock with a par value of $1.00 per share. The Preferred Stock may be
issued from time to time in one or more series.
In October 1995, the Board of Directors authorized Series A Preferred
Stock ("Old Series A") for up to 250,000 shares. The Old Series A
holders are entitled to receive an 8% per annum cumulative dividend
and a liquidating preference of $10 per share. The holders of the Old
Series A shall have the right to convert each share of Series A into
10 shares of the Company's common stock, for the period of issuance to
December 31, 1997. The Old Series A shares automatically convert to 10
shares of the Company's common stock upon the earlier of December 31,
1997 or the Company's successful completion of an IPO for more than
$5,000,000.
In January 1998, the Board of Directors authorized a Series A
Preferred Stock ("New Series A") for up to 250,000 shares. The New
Series A holders are entitled to receive an 8% per annum cumulative
dividend payable December 31, 1998 and a liquidating preference of
$3.50 per share. The New Series A shares automatically convert into
one share of the Company's common stock on December 31, 1998. Also,
each New Series A share has a common stock purchase warrant entitling
the holder to purchase two shares of the Company's common stock at
$3.00 per share on or before December 31, 1999.
For the years ended May 31, 1996 and 1997, the Company issued 132,510
shares and 95,809 shares, respectively, of Old Series A for aggregate
proceeds of $1,791,425. As of May 31, 1999, 13,150 Old Series A shares
have not been converted, which have cumulative dividends of $35,172.
These shares are being converted as the holders present them for
conversion.
In December 1997, the Company declared a dividend for shareholders of
record as of December 31, 1997. The dividend is to be paid in one New
Series A for each 100 shares of the Company's common stock. As of May
31, 1999, the Company has issued approximately 166,474 New Series A
shares of the total to be issued of 167,789. As of May 31, 1999 all of
the 166,474 shares of New Series A have been converted to 166,474
shares of the Company's common stock.
Preferred Dividends
-------------------
The Company has accrued and unpaid cumulative preferred dividends of
$35,172 as of May 31, 1999.
F-24
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 7 - STOCKHOLDERS' EQUITY (continued)
Common Stock
------------
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.
For the year ended May 31, 1998, the Company had the following
significant common stock transactions:
- Issued 814,378 shares for payment of services rendered by
employees and unrelated parties. The shares have been valued at
$1,553,170, the fair market value of the shares at the date of
issuance, in accordance with SFAS No. 123.
- Issued 338,302 shares for the conversion of convertible
debentures for $334,472 of discounted principal.
- Issued 2,280,199 shares for the conversion of Old Series A
Preferred Stock for $207,444 of par value and $205,244 of
cumulative dividends.
- Issued 289,426 shares for the payment of liquidated damages of
$409,500 associated with the convertible debentures.
- Issued 5,000,000 shares for the acquisition of timberlands in
Brazil for $3,984,375, the fair market value of the stock at the
date of issuance. The shares have been issued as escrow shares
per the Company's purchase contract. The shareholder is required
to perform certain financial obligations prior to the release of
the shares from escrow. Also, the Company has to complete its due
diligence as to the proper conveyance of the deeds for the land.
The Company has not recorded the purchase as an asset until the
Stockholder's obligations and the Company's due diligence have
been completed.
- Issued 2,743,698 shares as collateral for shareholder notes of
which $436,088 of principal and interest and 355,000 shares have
converted to common stock for the year ended May 31, 1998.
- Issued 582,575 shares for the conversion of shareholder notes and
accrued interest for $772,289, of which $436,088 represents
principal and interest for shareholder notes secured by common
stock, the fair market value of the shares at the date of the
issuance of the notes.
F-25
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 7 - STOCKHOLDERS' EQUITY (continued)
Common Stock (continued)
------------------------
For the year ended May 31, 1999, the Company had the following
significant common stock transactions:
- Issued 5,500,000 shares and an option to purchase 70,000,000
shares of the Company's common stock at $0.335 in September 1998
for a stock purchase agreement for $500,000.
- Issued 25,663,857 shares for $3,362,609 in cash and stock
subscription receivable of $1,378,850.
- Issued 9,194,967 shares for service rendered for a total value of
$3,061,126. The Shares were valued at the fair market value of
the Company's common stock on the date of issuance, in accordance
with SFAS No. 123.
- Issued 8,000,000 shares for the acquisition of the Chrustalynia
Mining Operations for a total value of $4,725,280. The shares
were valued at the fair market value of the Company's common
stock on the date of issuance.
- In 1998, the Company issued 5,000,000 shares for the acquisition
of timberlands in Brazil for $3,984,375, the fair market value of
the stock at the date of issuance. The shares were issued as
escrow shares per the Company's purchase contract. In 1999, the
shareholder did not perform his requirements under the agreement,
so the Company obtained the shares from escrow and cancelled the
shares.
Warrants
--------
During the year ended May 31, 1998, the Company had the following
significant issuances of warrants:
- Issued to a shareholder for services 200,000 warrants to purchase
the Company's common stock at $2.50 per share for a period from
date of grant to May 2000. The Company recognized compensation
expense of $268,996, the fair market value of the warrants at
date of grant.
- Issued for services 350,000 warrants to purchase the Company's
common stock at $4.06 per share for a period from date of grant
to June 2002. The Company recognized compensation expense of
$10,000, the fair market value of the services rendered.
- Issued 167,789 warrants to purchase two shares of the Company's
common stock at $3.00 per share on or before December 31, 1999 in
association with the New Series A shares.
F-26
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 7 - STOCKHOLDERS' EQUITY (continued)
Warrants (Continued)
--------
During the year ended May 31, 1999, the Company had the following
significant issuances of warrants:
- In connection with the issuance of 5,500,000 shares of common
stock, issued an option to purchase 70,000,000 shares of the
Company's common stock at $0.335, which expire in September 2005.
- Issued an option to purchase 500,000 shares of the Company's
common stock at $0.15 per share, which expire July 2000. The
option was issued in connection with a consulting agreement that
was valued at $177,050, which was recorded as a prepaid expense
and is being amortized over the two-year period of the consulting
agreement. The fair value of this options was estimated at the
date of grant using the Black-Scholes option-pricing model with
the following assumptions: dividend yield of 0%; expected
volatility 129%; risk-free interest rate of 5.74%; and an
expected life of 2.0 years.
Stock Options
-------------
The Company has adopted only the disclosure provisions of SFAS No.
123. It applies Accounting Principles Bulletin ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and related
interpretations in accounting for its plan and does not recognize
compensation expense for its stock-based compensation plan other than
for restricted stock and options/warrants issued to outside third
parties. If the Company had elected to recognize compensation expense
based upon the fair value at the grant date for awards under its plan
consistent with the methodology prescribed by SFAS No. 123, the
Company's net income and earnings per share would be reduced to the
pro forma amounts indicated below for the year ended May 31, 1998 (no
amounts are disclosed for 1999, because no stock options were issued):
Net Loss
As Reported $(12,918,695)
============
Pro forma $(12,951,016)
============
Loss Per Share - Basic and Diluted
As Reported $( 0.86)
============
Pro forma $( 0.87)
============
F-27
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 7 - STOCKHOLDERS' EQUITY (continued)
Stock Options (Continued)
-------------
These pro forma amounts may not be representative of future
disclosures because they do not take into effect pro forma
compensation expense related to grants made before 1995. The fair
value of these options was estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions for the years ended May 31, 1998: dividend yield of 0%;
expected volatility 129%; risk-free interest rate of 5.74%; and an
expected life of 3.0 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options, which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including
the expected stock price volatility. Because the Company's employee
stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock
options.
The following summarizes the stock option and warrant transactions:
<TABLE>
<CAPTION>
Officers and Weighted Others Weighted
Directors Average Options Average
Stock Options Exercise and Exercise
Outstanding Price Warrants Price
------------- -------- --------- --------
<S> <C> <C> <C> <C>
Balance, May 31, 1997 380,000 $ 1.70 512,500 $ 3.49
Granted 50,000 $ 1.00 793,039 $ 3.80
Exercised - ( 100,000) $ 1.00
Canceled - -
------------- ---------
Outstanding and Exercisable,
Balance, May 31, 1998 430,000 $ 1.70 1,205,539 $ 3.90
Granted - $ - 70,500,000 $ .33
Exercised - $ - - $ -
Canceled - $ - (125,000) $ 1.50
------------- ----------
Outstanding and Exercisable,
Balance May 31, 1999 430,000 $ 1.70 71,580,539 $ .39
============ ==========
</TABLE>
F-28
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 7 - STOCKHOLDERS' EQUITY (continued)
Stock Options (continued)
-------------
The weighted average remaining contractual lives of the Officers and
Directors stock options is 6.3 years at May 31, 1999.
The following table summarizes information for other options and
warrants outstanding and exercisable at May 31, 1999:
Weighted Weighted
Average Average
Range of Outstanding Remaining Exercise
Exercise Price May 31, 1999 Life Price
-------------- ------------ --------- ---------
$0.15 - 0.34 70,500,000 4.9 years $0.33
$2.50 - 4.06 842,789 2.2 years $3.35
$6.75 - 8.00 237,750 2.2 years $7.14
NOTE 8 - INCOME TAXES
The components of the provision for income taxes is as follows for the
years ended May 31,:
1999 1998
----------- ----------
Current Tax Expense
U.S. Federal $ -- $ --
State and Local -- --
----------- ----------
Total Current -- --
Deferred Tax Expense
U.S. Federal -- --
State and Local -- --
----------- ----------
Total Deferred -- --
----------- ----------
Total Tax Provision from
Continuing Operations $ -- $ --
=========== =========
F-29
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 8 - INCOME TAXES (continued)
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows for the year ended May 31,:
1999 1998
--------- ----------
Federal Income Tax Rate (34.0)% (34.0)%
Effect of Valuation Allowance 34.0 % 34.0 %
--------- ----------
Effective Income Tax Rate 0.0 % 0.0 %
========= ==========
At December 31, 1999, the Company had net carryforward losses of
approximately $43,029,000. A valuation allowance equal to the tax
benefit for deferred taxes has been established due to the uncertainty
of realizing the benefit of the tax carryforward. The valuation
allowance increased by approximately $5,100,000 and $4,400,000 during
the years ended May 31, 1999 and 1998, respectively,
Deferred tax assets and liabilities reflect the net tax effect of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and amounts used for
income tax purposes. Significant components of the Company's deferred
tax assets are as follows as of May 31, 1999:
Deferred tax asset - loss
carryforwards $ 16,315,000
Less: Valuation Allowance 16,315,000
=============
Net deferred tax asset $ --
=============
Net operating loss carryforwards expire starting in 2003.
Note 9 - DISCONTINUED OPERATIONS
Brazilian Timber Operations
---------------------------
The Company owned and was generating revenue from timber harvesting
and production rights and facilities on up to 490,000 hectares located
in the state of Para, Brazil ("Brazilian Operations"). In late 1998
and early 1999, the president of the Brazilian Operations informed
Company management that without additional capital provided by the
Company, operations were in jeopardy as there were unpaid salaries and
creditors. Further, if the Company did not provide this additional
capital, Brazilian Operation assets were in jeopardy of seizure
through legal action by unpaid employees and creditors. Management at
the time deemed these operations uneconomic and elected not to provide
additional capital. At approximately the end of the Company's third
quarter the Brazilian Operations ceased. All of the assets were seized
by the local government and sold to extinguish liabilities. The loss
from discontinued operations consists of the operations through the
third quarter of 1999. Also, the Company charged all of the assets and
liabilities as of February 28, 1999 to loss from discontinued
operations since the assets were used to satisfy all existing
creditors as of that date.
F-30
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
Note 9 - DISCONTINUED OPERATIONS (Continued)
Fishing Operations
------------------
During the second quarter of 1999, the Company began acquiring and
deriving revenues from fishing operations in the Far East of Russia
that consisted of fishing, processing and distribution of fish and
other seafood products. The revenue incurred during the second and
third quarter was derived from the company purchasing and reselling
seafood products. In order to enhance the fish operations, the Company
entered into an agreement to purchase a fleet of fishing vessels and a
fish processing and freezing operations for approximately $2,200,000
in Far East of Russian for which the Company paid an approximate
$1,200,000 deposit. However, the Company was unable, due to cash flow
requirements, to pay the remaining $1,000,000. Since they were unable
to pay the remaining funds, the Company was in breach of its contract
and lost the original deposit. Since the current management is unable
to establish the contacts and distribution channels of the prior
management, they have chosen not to continue with these operations.
The loss from discontinued operations consists of the operations
through the third quarter of 1999. The $2,097,190 loss on disposition
of fishing operations consists primarily of a deposit for the fleet of
fishing vessels and a fish processing, and other deposits for fish
that was never received or sold.
For the Year Ended
-------------------------------
Brazilian Operations: 1999 1998
-------------------- ----------- ------------
Net Sales $ 515,951 $ 381,365
=========== ============
Loss from discontinued operations:
Before taxes $(1,311,460) $(2,282,567)
Provision for income taxes - -
------------ ------------
Net Loss $(1,311,460) $(2,282,567)
=========== ============
Fishing Operations:
Net Sales $ 3,096,120 $ -
=========== ============
Loss from discontinued operations:
Before taxes $( 174,622) -
Provision for income taxes - -
----------- ------------
Net Loss $( 174,622) $ -
============ ============
F-31
<PAGE>
NEVADA MANHATTAN GROUP, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE 10 - 1998 RESTATEMENT
The Company has restated its financial statements as of May 31, 1998
and for the year then ended to account for impairment of its Domestic
Mineral Properties ("Nevada Properties") and its Timber Concession
("Jonasa Concession") in accordance with SFAS No. 121, as described in
Note 2. The effect of the restatement was decrease to Mineral
Properties of $3,636,000, as of May 31, 1998 and a corresponding
increase in the net loss for the year then ended.
NOTE 11 - SUBSEQUENT EVENTS
Notes Payable
-------------
Subsequent to May 31, 1999, approximately $100,000 of notes payable
became due and are in default by the Company (see Note 4).
Convertible Debentures
----------------------
As of March 31, 2000, the Company became delinquent and in default on
the payment of $1,425,214 of convertible debentures. The note holders
have made no attempt to seize the collatoral or force the Company to
make payment through the date of the report (see Note 4).
Acquisition
-----------
In July 1999, the Company entered into an agreement to purchase a 51%
interest in the gold mining operation of Transfor SIA ("Sellers") for
$15,000,000. The Company made a down payment of $4,830,000, which
consisted of the $3,320,000 receivable that was subsequently reversed
by current management (see Independent Aauditor's Report) and the
Company's $1,100,000 stock subscription agreement from Dalex Trading
that was subsequently expensed for the year ended May 31, 1999 due to
lack of collectibility. The Company was in default as to the payment
of the remaining purchase price of $10,170,000, and the Sellers have
revoked the Company's 51% interest and the Company's down payment was
forfeited.
Office Space
------------
Subsequent to May 31, 1999, the Company has vacated office spaces and
has not satisfactorily negotiated a release of its liability under the
lease. The Company has moved into office space which is being rented
on a month-to-month basis.
F-32
<PAGE>
8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Changes in Certifying Accountants
On July 7, 1998, the Company decided to change accountants to a firm located
closer to the Company's executive offices, and requested the resignation of
Jackson & Rhodes P.C., the Company's independent auditors.
In connection with its audits of the Company's financial statements for the
Company's most recent fiscal years, there were no disagreements with Jackson &
Rhodes P.C. on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures which, if not resolved to
the satisfaction of Jackson & Rhodes P.C., would have caused Jackson & Rhodes
P.C. to make reference to the matter in their report. Jackson & Rhodes' report
on the Company's financial statements for each period for which Jackson & Rhodes
performed an audit of the Company's financial statements contained no adverse or
disclaimer of opinion and was not modified or qualified as to uncertainty, audit
scope, or accounting principles. The decision to change accountants was approved
by the board of directors of the Company.
On July 7, 1998, the board of directors appointed Merdinger, Fruchter, Rosen
& Corso, P.C. to serve as the Company's independent auditors for the fiscal year
ended May 31, 1998. Merdinger, Fruchter, Rosen & Corso, P.C. have also served as
the Company's independent auditors for the fiscal year ended May 31, 1999.
PART III
9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Executive Officers and Directors
The Company's Bylaws authorize the creation of the offices of President,
Treasurer (Chief Financial Officer), one or more Vice Presidents, Secretary, and
one or more Assistant Secretaries and Assistant Treasurers as the Board of
Directors deems proper. The Bylaws also provide for not less than three
directors and not more than seven directors who shall hold office until the
following annual meeting of the shareholders. The Bylaws further provide that
the number of directors may be increased by the affirmative vote of the Board of
Directors or a majority in interest of the shareholders at an annual or special
meeting. There are presently five directors and two vacancies on the Board.
The executive officers and directors of the Company are as follows:
21
<PAGE>
Principal Occupation and Director
Name Age Offices with the Company Since
----------------- --- ------------------------- -----------
John Deniken 61 Chief Executive Officer; August 1999
Chairman
Dr. Joe C. Rude III 54 Diagnostic radiologist with 1995
Quantum Radiology; Director
William E. Wilson 83 Retired; Director April 1998
Yuri Belman 43 Engineer and consultant; June 1999
Director
Dr. Lev N. Kuznetsov 63 Head of Mining and Metallurgy, July 1999
Ecologia Holdings, Moscow;
Director
JOHN DENIKEN has been a director and Chief Executive Officer of the Company
since August 20, 1999. For the last five years, Mr. Deniken has been
self-employed as a practicing Certified Public Accountant in Newport Beach,
California. He was chief financial officer for International Science and
Technology Center in Moscow, Russia from July 1995 to July 1996. He has been a
consultant for Ernst & Young, an accounting firm, for several of their major
clients with operations in Moscow. Mr. Deniken is fluent in Russian. Mr. Deniken
received his Bachelor of Science, Accounting from the University of Pennsylvania
and his CPA from University of Illinois.
YURI BELMAN has been a director of the Company since June 1999. Mr. Belman, who
became a permanent resident of the U.S. in 1991, has extensive business
experience in the FSU and Commonwealth of Independent States ("CIS") and U.S. in
management, as well as an engineer. Prior to becoming a director, he served as
Executive Assistant to the CEO. Mr. Belman is bilingual and bicultural in
Russian/English.
DR. LEV N. KUZNETSOV has been a director of the Company since July 20, 1999.
From 1993 to the present he has been Head of mining and metallurgy department of
Ecologia Holdings Company, a scientific and technology center (Moscow). Dr.
Kuznetsov is the author of numerous publications in the field of mining and
metallurgy.
DR. JOE C. RUDE III has been a Director since 1995. From 1977 to 1995, he was a
diagnostic radiologist associated with Cobb Radiology Associates, Austell,
Georgia, which merged with Quantum Radiology in 1995. Since 1995, Dr. Rude has
been a diagnostic radiologist at Quantum Radiology. Dr. Rude also is a co-owner
of the Ambulatory Care Center, a medical care company.
22
<PAGE>
WILLIAM E. WILSON was elected a director in April 1998. Mr. Wilson purchased his
own insurance agency in 1954, which was sold in 1985; however, Mr. Wilson
remained an associate agent until his retirement in 1996.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers, and persons who own more than 10% of
the Company's Common Stock to file with the Securities and Exchange Commission
reports of ownership and of changes in beneficial ownership of Common Stock and
other equity securities of the Company. For the fiscal year ended May 31, 1999,
all reports were timely filed.
10. EXECUTIVE COMPENSATION
Executive Compensation
The table set forth below identifies the compensation paid to the Company's
executive officers for the last three completed fiscal years (i.e. fiscal years
ending May 31, 1997; May 31, 1998; and May 31, 1999):
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
Awards Payouts
Annual Compensation Restricted Securities All
Name and Other Stock Underlying LTIP Other
Principal Annual Award(s) Optional/ Payouts Compensation
Position Year Salary($) Bonus($) Compensation($)(4) ($) SARs(#)(5) ($) ($)
- --------------------- ---------- ----------------------- ------------------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Christopher D. Michaels 1999 $224,400 -- $1,500 -- -- -- --
President, Chief 1998 $156,000 -- $5,408 -- 10,000 -- --
Executive Officer and 1997 $251,299 -- $6,264 -- 10,000 -- --
Chairman of the Board
of Directors (1)
Jeffrey S. Kramer, 1999 $134,950 -- $1,500 -- -- -- --
Senior Vice President, 1998 $156,000 -- $6,056 -- 10,000 -- --
Chief Financial Officer 1997 $224,397 -- $8,080 -- 10,000 -- --
and Secretary-
Treasurer (2)
Richard Izumi, Chief 1999 0 -- 0 -- -- -- --
Executive Officer and
Chairman of the Board (3)
</TABLE>
23
<PAGE>
- ----------------------
(1) Mr. Michaels resigned as Chief Executive Officer and President in February
1999 and as Chairman of the Board in April 1999. He was reappointed a
director of the Company in August 1999 and served until his resignation in
February 2000.
(2) Mr. Kramer was replaced as the Chief Financial and Operating Officer,
Secretary and Treasurer in September 1998, but remained an employee of the
Company. Mr. Kramer resigned as a director in May 1999.
(3) Mr. Izumi served as Chief Executive Officer and a director from February
1999 until his resignation in August, 1999.
(4) The Company paid the annual cost of health insurance for Messrs. Michaels
and Kramer and their respective dependents until the Company terminated
this benefit for employees in January 1999.
(5) In lieu of any other compensation the Company annually grants options to
purchase 10,000 shares of Common Stock at a purchase price of $1.00 per
share to all members of the Board of Directors for each full year of
service as an active member of the Board. In general, options are
exercisable in full upon issuance and may not be exercised after the
expiration of ten years from the date of the grant and are nontransferable
other than by inheritance. (In 1996, the options granted to Messrs.
Michaels and Kramer were extended to be exercisable through May 31, 2006.)
No options were granted in the last fiscal year. As of May 31, 1999, the
Company has granted options aggregating 120,000 shares to Mr. Michaels and
90,000 shares to Mr. Kramer.
Messrs. Michaels and Kramer entered into employment agreements with the
Company as of January 1995 employing them as President and Senior Vice
President, respectively, until June 2001, subject to their rights to terminate
their agreements on 90 days notice. Their annual salaries were to be equal to
their salaries at the time of execution of the agreements, subject to annual
increases (or in limited cases decreases) at the Board of Directors' discretion.
The agreements also provide for bonuses of from 25% (if the Company's cash flow
is at least $1,000,000) to 75% (if the Company's cash flow exceeds $3,000,000)
of their base salaries. If within 12 months of a change in control (as defined
in the agreements) their employment is terminated other than for cause or if
they resign and their compensation, status, title and/or reporting
responsibilities were diminished after the change in control, they will be
entitled to a payment equal to 36 times their highest monthly salary during the
employment term. In addition, upon a change of control which effects a change in
incumbent management they will have the right to purchase a number of shares of
Common Stock at a price of $.05 per share equal to 5% of the Company's
outstanding Common Stock prior to giving effect to the exercise of the option,
and the Company will pay them an amount equal to their taxes in connection with
such exercise. Substantially all of the Company's obligations under the
agreements continue if there is a termination of the employees as a result of
disability. In May, 1999 Jeffrey S. Kramer entered into a Settlement and Release
Agreement with the Company wherein he waived his rights to purchase stock under
his employment agreement (see Item 12 - "Certain Relationships and Related
Transactions).
24
<PAGE>
Options and Stock Appreciation Rights
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
No Options/SAR Grants were issued in the last fiscal year to any person
named in the Summary Compensation Table above or to any other officer or
director of the Company.
The following table sets forth certain information with regard to option
exercises during fiscal 1999 by each of the executive officers named in the
"Summary Compensation Table" above:
<TABLE>
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND
FY-END OPTION/SAR VALUES
<CAPTION>
Number Of Unexercised Value Of Unexercised
Securities Underlying In-The-Money
Shares Options/SARS Option/SARs
Acquired at May 31, 1998 At May 31, 1999
On Exercise Value Exercisable/ Exercisable/
Name (#) Realized Unexercisable Unexercisable
---- ----------- -------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Christopher Michaels 0 0 120,000 --
Jeffrey S. Kramer 0 0 90,000 --
</TABLE>
Compensation of Directors
The Company has granted stock options to all members of its board of
directors pursuant to Stock Option Agreements executed at various times. Under
the terms of these agreements, each director has been granted options to
purchase 10,000 shares of Common Stock per full year of service. The exercise
price for such options is $1.00 per share. The years in which stock options were
initially granted to each respective board member are as follows: Christopher
Michaels, 1986; Jeffrey Kramer, 1989; and Joe Rude' III.. In 1996, the Stock
Option Agreements relating to Messrs. Michaels and Kramer were extended so that
they may be exercised through May 31, 2006. The remaining may not be exercised
after the expiration of ten (10) years from the date of grant and are
nontransferable other than by inheritance.
No options were granted to any directors in the fiscal year ended May 31,
1999
25
<PAGE>
11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of January 25,
2000 regarding the record and beneficial ownership of the Common Stock by (i)
any individual or group (as that term is defined in the federal securities laws)
of affiliated individuals or entities who is known by the Company to be the
beneficial owner of more than five percent of the outstanding shares of Common
Stock; (ii) each executive officer and Director of the Company; and (iii) the
executive officers and Directors of the Company as a group. Except as otherwise
indicated, the Company believes that the beneficial owners listed below, based
upon information provided by such owners, have sole voting and investment power
with respect to such shares.
AMOUNT OF
NAME AND ADDRESS TITLE OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER CLASS OWNERSHIP CLASS (1)
- ------------------- ------------ ----------- ----------
TiNV1, Inc.(2) Common Stock 5,500,000 (2) 7.6%
701 Ocean Avenue, Ste 108
Santa Monica, CA 90402
Alikhan Gakaev Common Stock 7,808,795 10.7%
Lomonosovsky 14
Moscow, Russia
LLC NPK Edikt Common Stock 8,000,000 11.0%
Mikhailova str. 39,1
Moscow, Russia
Dalex Trading Limited Common Stock 6,000,000 8.2%
21 Demosthenis Severis Ave
Anna Court 2nd Floor Suite
P.O. Box 8978
CY 2084 Nicosia, Cyprus
John Deniken Common Stock -- --
1512 Michelson, Suite 150
Irvine, CA 92612
Joe C. Rude III, M.D. Common Stock 3,409,735 (3) 4.7%
3065 River N. Pkwy
Atlanta, Georgia 30328
William E. Wilson Common Stock 143,304 (4) *
1819 E. Brainard Street
Pensacola, FL 32503
26
<PAGE>
AMOUNT OF
NAME AND ADDRESS TITLE OF BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER CLASS OWNERSHIP CLASS (1)
- ------------------- ------------ ----------- ----------
Yuri Belman Common Stock -- --
2151 Michelson, Suite 150
Irvine, CA 92612
Lev N. Kuznetsov Common Stock -- --
2151 Michelson, Suite 150
Irvine, CA 92612
Christopher D. Michaels Common Stock 1,049,500 (5) 1.4%
6188 Fleury Lane
Woodland Hills, CA 91367
Jeffrey S. Kramer Common Stock 800,000 (6) 1.1%
2151 Michelson, Suite 150
Irvine, CA 92612
All Officers and Directors Common Stock 3,553,039 (7) 4.9%
as a Group
(five persons)
- -----
* Less than 1%.
(1) Based on 72,730,376 shares of Common Stock issued and outstanding as of
January 25, 2000. Does not include 16,000,000 shares to be issued in
connection with the conversion of a Note Payable in November, 1999 by the
major shareholder of an unaffiliated company (see Note 3 to the
Consolidated Financial Statements). Does not include 6,569,104 shares of
Common Stock issuable upon the alleged conversion of convertible debentures
by parties to a lawsuit as described under "Legal Proceedings". The Company
does not believe that it is currently obligated to issue such Common Stock
and, accordingly, does not consider such stock to be outstanding as of this
date.
(2) On September 21, 1998 TiNV1, Inc. ("TiNV1"), newly formed California
corporation, filed with the Securities and Exchange Commission a Schedule
13D (the "Schedule 13D") regarding 5,500,000 shares of Common Stock it
purchased from the Company. The Schedule 13D indicated that TiNV1 was a
wholly-owned subsidiary of SYMIC, Inc. ("SYMIC"), a California corporation,
which in turn was a wholly-owned subsidiary of RDI, Inc. ("RDI"), a
California corporation. (The Schedule 13D further indicated that SYMIC had
entered into subscription agreements to issue 5% of its stock to each of
the following persons: Tetsuo Kitagawa, elected a Director in December,
1998, but resigned in August 1999; Hironao Mutoh, elected a Director in
December, 1998 but resigned in January 1999, and Richard Izumi elected a
Director in April, 1999 but resigned in August 1999. During September,
1998, Messrs. Kitagawa, Mutoh and Izumi had become 5% shareholders,
respectively, upon providing consideration to SYMIC.) The Schedule 13D
stated that RDI was in turn owned and controlled by Mr. Movdy Gakayev,
whose address is 701 Ocean Avenue, Suite 108, Santa Monica, California
90402, and that Mr. Kitagawa was sole Director and President, Chief
27
<PAGE>
Financial Officer and Secretary of TiNV1, SYMIC and RDI. The Schedule 13D
indicated that the source of the funds used to purchase the stock was
capital contributions to RDI from personal funds of Mr. Movdy Gakayev,
TiNV1's ultimate owner, and in turn as capital contributions from RDI to
SYMIC to TiNV1.
(3) Excludes up to 70,000,000 shares of Common Stock which may be issued
pursuant to an option granted to TiNV1. The 70,000,000 shares, together
with the 5,500,000 shares presently held by TiNV1, would represent
approximately 53% of the Company's presently outstanding Common Stock on a
pro forma basis as of January 25, 2000. [agreement to cancel the options]
(4) Includes shares owned by Dr. Carolyn Rude and Quantum Radiology (an
affiliate of Dr. Rude), as well as 30,000 shares of Common Stock issuable
upon exercise of stock options which may be exercised in whole or in part
within 60 days of the date of this Annual Report.
(5) Includes 120,000 shares of Common Stock issuable upon exercise of stock
options which may be exercised in whole or in part within 60 days of the
date of this Annual Report.
Mr. Michaels resigned as Chief Executive Officer and President in February
1999 and as Chairman of the Board in April 1999. He was reappointed a
director of the Company in August 1999 and served until his resignation in
February 2000.
(6) Includes 90,000 shares of Common Stock issuable upon exercise of stock
options which may be exercised in whole or in part within 60 days of the
date of this Annual Report.
Mr. Kramer was replaced as Chief Financial and Operating Officer, Secretary
and Treasurer in September 1998. Mr. Kramer resigned as a director in May
1999.
(7) Includes 30,000 shares of Common Stock issuable upon exercise of stock
options held by all current officers and Directors as a group which may be
exercised in whole or in part within 60 days of the date of this Annual
Report.
28
<PAGE>
12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year 1998, the Company entered into certain transactions
with Jeffrey S. Kramer, a former officer and Director of the Company.
Specifically, as of August 14, 1998, Mr. Kramer had loaned the Company an
aggregate of $718,000 which was evidenced by promissory notes payable in his
name (the "Notes"). The Notes were: payable in September 1998 and bear interest
at the rate of 8.0%. On October 23, 1998, the Company issued Mr. Kramer 583,200
shares of restricted common stock in partial settlement of the note. On May 25,
1999 Mr. Kramer entered into a Settlement and Release Agreement. Pursuant to the
terms of the agreement, the Company issued an additional 700,000 shares of
restricted common stock to Kramer, representing an average price of $0.45 per
share, reducing the amount owed to Mr. Kramer by the Company from $718,000 plus
accrued interest to $141.604. Mr. Kramer was issued a Promissory Note in the
amount of $141,604, due on November 26, 1999, which remains unpaid by the
Company.
On October 20, 1998, Christopher Michaels 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.
During the fiscal year ended May 31, 1999, Dr. Rude purchased 180,000 shares
of Common Stock from the Company for $90,000. As of May 31, 1999 Dr. Rude has
loans outstanding to the Company of $85,000 at the interest rate of 10% per
annum.
29
<PAGE>
13. EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------
3.(i) Articles of Incorporation of Epic Enterprises, Ltd., Filed June 10,
1985*
3.(ii) Certificate of Amendment to Articles of Incorporation of
Epic Enterprises, Ltd., Filed September 11, 1987*
3.(iii) Certificate of Amendment to Articles of Incorporation of
Nevada Manhattan Mining Incorporated Filed October 26, 1987*
3.(iv) Certificate of Amendment of Articles of Incorporation of Nevada
Manhattan Mining Incorporated Filed August 31, 1995*
3.(v) Certificate of Determination of Preferences of Series A Preferred
Stock of Nevada Manhattan Mining Incorporated Filed October 25, 1995*
3.(vi) Bylaws of Epic Enterprises, Ltd.*
3.(ix) Amended Certificate of Determination of Preferences of Series A
Preferred Stock of Nevada Manhattan Mining Inc. Filed January 14,
1998+
3.(x) Certificate of Amendment of Articles of Incorporation of Terra Natural
Resources Corporation Filed May 12, 1998+
3.(xi) Amended Bylaws of Terra Natural Resources Corporation as of August
31, 1998#
3.(xii) Restated Amended Bylaws of Terra Natural Resources Corporation as of
Nov. 30, 1998##
3.(xiii) Certificate of Amendment of Articles of Incorporation of Terra
Natural Resources Corp. filed December 11, 1998##
4.(iii) Stock Options Issued to Directors+
4.(iv) Subscription Agreement dated April 14, 1997 with Silenus Limited**
4.(v) Warrant to Purchase Common Stock**
4.(vi) Deed of Trust in favor of Silenus Limited**
4.(vii) Form of Debenture**
30
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------
4.(viii) Subscription Agreement dated July 15, 1997****
4.(ix) Warrants to Purchase Common Stock****
4.(x) Form of Debenture****
10.(i) Mining Agreement Dated April 4, 1987*
10.(ii) Amendment to Mining Agreement Dated December 9, 1987*
10.(iii) Manhattan Mining Property Agreement Dated March 2, 1989*
10.(iv) Corporation Quitclaim Deed Filed March 9, 1989*
10.(v) Deed of Trust and Assignment of Rents Recorded March 9, 1989*
10.(vi) Joint Venture Agreement Dated June 1993*
10.(vii) Letter Agreement Dated August 10, 1995*
10.(viii) Amendment to Joint Venture Agreement Dated October 20, 1995*
10.(ix) Contract Between Nevada Manhattan Mining, Inc. and Harrison Western
Construction Corp.*
10.(xi) Employment Agreement Dated January 1, 1995 with Christopher D.
Michaels*
10.(xii) Employment Agreement Dated January 1, 1995 with Jeffrey Kramer*
10 (xxxvii) Subscription Agreement with TiNV1, Inc. dated as of August 28,
1998++
10 (xxxix) Option Agreement with TiNV1, Inc. dated as of August 28, 1998++
10 (xl) Letter Agreement with TiNV1, Inc. dated as of August 28, 1998++
10 (xliv) Letter Agreement for Asset Acquisition by and between Nevada
Manhattan Group, Inc. and LLC NPK Edikt, re Chrustalnaya Mining,
dated December 23, 1998##
10 (xlv) General Agreement between Nevada Manhattan Group, Inc. and OAO
"Sibnefteprovod" dated February 10, 1999+
10 (xlvi) Letter of Understanding between Phystechmed and the Company dated
November 30, 1998+
31
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------------------------------------------------------
10 (xlvii) Joint Venture/Representation Agreement between Nevada Manhattan
Group, Inc. and Bauman Moscow State Technical University as of
April 1, 1999.+
10 (xlviii) Joint Venture/Representation Agreement between Nevada Manhattan
Group, Inc. and Novosibirsk State University as of March 6, 1999+
10 (xlix) Jeffrey Kramer Settlement and Release Agreement dated May 25, 1999
27 Financial Data Schedule
- ---------------
+ Filed with Registration Statement on Form 10-SB, as amended (Registration
No. 0-25117
* Filed with Registration Statement on Form SB-2 on December 6, 1996
(Registration No. 333-17423).
** Filed with Registration Statement on Form SB-2 on May 28, 1997
(Registration No. 333-27923).
**** Filed with Registration Statement on Form SB-2 on July 31, 1997
(Registration No. 333-27923).
++ Filed with Form 10-KSB for the fiscal year ended May 31, 1998
# Filed with Form 10-QSB for the quarter ended August 28, 1998
## Filed with Form 10-QSB for the quarter ended November 30, 1998
Reports on Form 8-K
- -------------------
No 8-K Reports were filed in the fourth quarter of fiscal year ended May
31, 1999.
32
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
NEVADA MANHATTAN GROUP, INCORPORATED
/s/ John Deniken
Date: April 7, 2000 By: --------------------------------------
Chairman of the Board,
Chief Executive Officer
In accordance with the Exchange Act, this Report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.
/s/ JOE RUDE III, M.D. Director April 7, 2000
- -----------------------------------------
Joe C. Rude III, M.D.
/s/ WILLIAM E. WILSON Director April 7, 2000
- -----------------------------------------
William E. Wilson
/s/ YURI BELMAN Director April 7, 2000
- ----------------------------------------
Yuri Belman
33
Exhibit 10.(xlix)
SETTLEMENT AND RELEASE AGREEMENT
This Settlement Agreement is made as of May 25, 1999 ("Effective Date") by and
between Nevada Manhattan Group, Inc., a Nevada Corporation doing business in
California (the "Company") and Jeffrey Kramer, an individual residing in
California ("Kramer"). The Company has requested the resignation of Kramer.
Kramer will provide his immediate resignation, both as an Officer and Director,
as of the Effective Date, under the following terms and conditions:
1. The Company will pay in full, $26,500.00 currently owed, outstanding and in
arrears to Kramer pursuant to the terms and conditions of Kramer's Employment
Agreement originally dated January 1, 1995, as amended. Payments will be made in
three installments, on or before June 10, 1999 ($8,834), on or before June 30,
1999 ($8,833) and on or before July 31, 1999 ($8,833);
2. The Company will pay in fill, on or before June 28, 1999, current and
outstanding amounts to Kramer totaling (a) $200.00 for an outstanding aged
expense report, and (b) $1650.00 for finds advanced by Kramer to pay health
insurance for the period beginning April 1999;
3. The Company will issue, on or before the Effective Date, a new Promissory
Note to Kramer in the amount of $141,604.00. Said Note will be due and payable
on or before six (6) months after the Effective Date with interest accruing at
8%. Should the Company receive any payment(s) from the "Marlowe Harvey
Settlement" related to the Company's Manhattan, Nevada Mining Property, related
legal fees will be paid first, and then 50% of any payments received by the
Company will be first applied to the reduction of the Kramer Note until paid in
fill (current related legal fees are approximately $10,000). Payments to Kramer
under this Note will be made to Kramer or his designee at Kramer's election.
Should the Company elect, it may prepay the Note in full within thirty (30) days
of the Effective Date, without interest, by the delivery of negotiable finds in
the amount of $110,000.00. Kramer will, without any compensation and without any
liability, follow up on the Harvey settlement on behalf of the Company. Kramer
will keep the CFO of the Company informed of the status of the settlement and
will not make any commitments, representations or warranties on behalf of the
Company;
4. In consideration of prior finds provided to the Company by Kramer, the
Company will issue, on or before the Effective Date, 700,000 shares of the
restricted Common Stock of the Company to Kramer or his designee(s). Said shares
will be applied toward the reduction in the price paid by Kramer, $1.00 per
share in October 1998, to approximately $0.45. Kramer acknowledges that the
Company had obligations to issue common stock in excess of the representations
made by he and Christopher Michaels in the subscription agreement between TiNVI,
Inc., dated on or around August 28, 1998. Kramer further acknowledges, to the
best of his knowledge, that there are no further obligations to issue common
stock that existed at August 28, 1998 other than those due Joe Rude
(approximately 2.82 million), Brazil employees (approximately 600,000) and
<PAGE>
Nathan Neff/related parties (approximately 800,000) which would cause to exceed
the 5,380,000 amount described in paragraph (g), page 6 of said subscription
agreement. Kramer does not have knowledge, and assumes no liability for
transactions which Christopher Michaels may have entered into;
5. The Company will issue, on or before the Effective Date, a letter, with
copies addressed to both, Kramer, and U. S. Stock Transfer, declaring that
Kramer is no longer an officer, director or afliate of the Company. Language
will also be included, declaring that Kramer had provided funds to the Company
between June 1997 and August 1998, for which the 585,000 shares issued
previously, and the 700,000 shares to be issued, were delivered to Kramer.
Further, language will be included re-confirming the Board Of Directors'
resolution that any tax liability incurred by Kramer or the Company, as a result
of funds provided by Kramer to the Company through the sale of stock or
otherwise, will be the sole responsibility of the Company;
6. Should the Company agree and comply fully with all the payments, terms and
conditions contained herein, Kramer will waive all rights pursuant to his
aforementioned Employment Contract and, on his own behalf and on behalf of his
heirs, legal representatives successors and assigns, hereby fully and forever
releases the Company and its officers, directors, employees, administrators,
affiliates, divisions, subsidiaries, predecessors, successors and assigns from,
and agrees not to sue concerning, any claim, demand, right, duty, obligation,
liability, cause or cause of action relating to any matters or things of any
kind, nature or description whatsoever, whether presently known or unknown,
suspected or unsuspected, that Kramer may possess arising from any omissions,
acts or facts that have occurred up until and including today. Further, the
forgoing release shall not apply to, and Kramer reserves the right to assert,
any act or omission by the Company, which constitutes, or is alleged to
constitute gross negligence, willful misconduct, or bad faith. Kramer also
hereby agrees to provide ongoing consulting services to the Company, at the rate
of $750.00 per day under mutually acceptable terms. The forgoing release shall
not apply to, and Kramer reserves the right to assert any act or omission by the
Company which constitutes gross negligence, willful misconduct, or bad faith;
7. The Company, on its own behalf and on behalf of its officers, directors,
employees, administrators, affiliates, divisions, subsidiaries, predecessors,
successors and assigns (as used in this paragraph, each, the "Company"), hereby
fully and forever releases Kramer and his heirs, legal representatives,
successors and assigns from, and agrees not to sue concerning, any claim,
demand, right, duty, obligation, liability, cause or cause of action relating to
any matters or things of any kind, nature or description whatsoever, whether
presently known or unknown, suspected or unsuspected, that the Company may
possess arising from any omissions, acts or facts that have occurred up until
and including today. The forgoing release shall not apply to, and the Company
reserves the right to assert any act or omission by Kramer which constitutes
gross negligence, willful misconduct, or bad faith;
<PAGE>
8. The Company shall indemnify and hold Kramer harmless, to the maximum extent
permitted by applicable law, from and against any and all loss, cost, damage or
expense, including but not limited to actual attorney's fees and costs, if any,
arising out of, pertaining or related to, or in connection with, any threatened,
pending or completed claim, demand, assertion, allegation, action or proceeding,
whether civil, criminal, administrative or investigative, arising out of, or
pertaining or related to, or in connection with the fact that Kramer is or was
an officer, director, employee, or agent of the Company or any subsidiary of the
Company, or any action, omission or inaction on Kramer's part while an officer,
director, employee, or agent of the Company, or the fact that Kramer was serving
at the request of the company as an officer, director, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise. The
forgoing indemnification shall not apply to any act or omission by Kramer which
constitutes gross negligence, willful misconduct, or was the result of bad
faith;
9. This Settlement Agreement shall be governed by and interpreted according to
the law of the State of California, without reference to its conflict of laws
principles. In the event of a dispute relating to this Settlement Agreement, it
shall be interpreted in accordance with its fair meaning and shall not be
interpreted for or against any party on the ground that such party drafted or
caused to be drafted this Settlement Agreement or any part hereof. Any dispute
relating to this Settlement Agreement shall be submitted to the Los Angeles
office of the American Arbitration Association and determined according to the
rules of the American Arbitration Association for commercial disputes. In any
dispute arising out of this Settlement Agreement, the prevailing party shall be
entitled to recover its attorneys' fees and costs, including the arbitrator's
fees.
If the above terms and conditions are acceptable, please execute where provided
below.
Agreed and accepted:
/s/ Richard Izumi
- ----------------------------------------
Richard Izumi, Chairman and CEO
Nevada Manhattan Group, Inc.
/s/ Jeffrey Kramer
- ---------------------------------
Jeffrey Kramer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAY-31-1999
<PERIOD-END> MAY-31-1999
<CASH> 6,238
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 6,238
<PP&E> 171,979
<DEPRECIATION> 95,614
<TOTAL-ASSETS> 237,558
<CURRENT-LIABILITIES> 3,136,914
<BONDS> 0
0
13,500
<COMMON> 696,942
<OTHER-SE> (10,172,629)
<TOTAL-LIABILITY-AND-EQUITY> 237,558
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 12,704,601
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 808,505
<INCOME-PRETAX> (13,513,106)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,513,106)
<DISCONTINUED> (3,583,272)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (17,096,378)
<EPS-BASIC> (0.34)
<EPS-DILUTED> (0.34)
</TABLE>
