-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MN5pSQiOgzR+BmhJolXLZrfhD1FWT+w9Mfu8tKm14A4LVHvHFeAi/k5bM8sGAMPb 2SvOHrZw/UFO6dfuryUnEw== 0001090002-00-000119.txt : 20000411 0001090002-00-000119.hdr.sgml : 20000411 ACCESSION NUMBER: 0001090002-00-000119 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 20000410 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NEVADA MANHATTAN GROUP INC CENTRAL INDEX KEY: 0000848821 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 880219765 STATE OF INCORPORATION: NV FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: 10KSB SEC ACT: SEC FILE NUMBER: 000-25117 FILM NUMBER: 596648 BUSINESS ADDRESS: STREET 1: 2151 MICHELSON, SUITE 150 CITY: IRVINE STATE: CA ZIP: 92612 BUSINESS PHONE: 949-477-9965 MAIL ADDRESS: STREET 1: 5038 N PARKWAY CALABASAS STREET 2: STE 100 CITY: CALABASAS STATE: CA ZIP: 91302 FORMER COMPANY: FORMER CONFORMED NAME: TERRA NATURAL RESOURCES CORP DATE OF NAME CHANGE: 19980828 FORMER COMPANY: FORMER CONFORMED NAME: NEVADA MANHATTAN MINING INC DATE OF NAME CHANGE: 19961126 10KSB 1 ANNUAL REPORT 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 ------------------------------------------------------ (Exact name of registrant as specified in its charter) NEVADA 88-0219765 ------------------------------- ---------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification Number) 2151 MICHELSON, SUITE 150, IRVINE, CALIFORNIA 92612 --------------------------------------------- --------- (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 1 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, $.01 Par Value, outstanding at March 1, 2000, 1998, was 72,730,376. Documents incorporated by reference: None 2 TABLE OF CONTENTS - 1999 FORM 10-KSB REPORT Page Numbers ----------- PART I Item 1. Business 4 Item 2. Properties 6 Risk Factors 7 Item 3. Legal Proceedings 13 Item 4. Submission of Matters to a Vote of Security Holders 15 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 16 Item 6 Management's Discussion and Analysis of Financial Condition and Results of Operations 18 Item 7. Financial Statements 20 F1-F32 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 21 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act 21 Item 10. Executive Compensation 23 Item 11. Security Ownership of Certain Beneficial Owners and Management 26 Item 12. Certain Relationships and Related Transactions 29 Item 13. Exhibits and Reports on Form 8-K 30 Signatures 33 3 PART I 1. BUSINESS Nevada Manhattan Group, Incorporated (the "Company"), was formed on June 10, 1985, in the state of Nevada1. The Company's Articles, as amended December 11, 1998, currently authorize the issuance of 250,000,000 shares of Common Stock with a par value of one cent ($.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. - -------- 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. 4 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. 5 2. PROPERTIES The Nevada Property - ------------------- 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 - -------------------- 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.") 6 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. 7 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. 8 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. 9 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. 10 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. 11 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. 12 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. 13 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 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 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 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 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 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 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 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 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 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 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 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 NEVADA MANHATTAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY FOR THE YEAR ENDED MAY 31, 1999
Additional Preferred Stock Common Stock Paid-in Shares Amount Shares Amount Capital ---------- --------- ---------- ---------- ----------- 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 ======== ========= ========== ======== ============
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY - continued
Foreign Currency Accumulated Translation Deficit Total ----------------- ------------ --------- 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) ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements F-5 NEVADA MANHATTAN GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY FOR THE YEAR ENDED MAY 31, 1998
Additional Preferred Stock Common Stock Paid-in Shares Amount Shares Amount Capital ---------- --------- ---------- ---------- ----------- 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 ======== ========= ========== ======== ============
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY - continued
Foreign Currency Accumulated Translation Deficit Total ----------------- ------------ --------- 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) ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements F-6 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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 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:
Officers and Weighted Others Weighted Directors Average Options Average Stock Options Exercise and Exercise Outstanding Price Warrants Price ------------- -------- --------- -------- 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 ============ ==========
F-28 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 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 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 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 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 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 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): SUMMARY COMPENSATION TABLE
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) ($) SARs(#)(5) ($) ($) - --------------------- ---------- ----------------------- ------------------ ---------- ------------ -------- ----------- 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)
23 - ---------------------- (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 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: AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
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 ---- ----------- -------- --------------------- --------------------- Christopher Michaels 0 0 120,000 -- Jeffrey S. Kramer 0 0 90,000 --
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 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 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 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 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 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 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 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 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 EX-10.(XLIX) 2 JEFFREY KRAMER SETTLEMENT AGREEMENT 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 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; 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 EX-27 3 FINANCIAL DATA SCHEDULE
5 12-MOS MAY-31-1999 MAY-31-1999 6,238 0 0 0 0 6,238 171,979 95,614 237,558 3,136,914 0 0 13,500 696,942 (10,172,629) 237,558 0 0 0 0 12,704,601 0 808,505 (13,513,106) 0 (13,513,106) (3,583,272) 0 0 (17,096,378) (0.34) (0.34)
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