Registration No. 33-3882
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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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AMENDMENT NO. 1 ON FORM S-1
TO FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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HANOVER GOLD COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 1041 11-2740461
(State or other (Primary Standard Industrial (IRS Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
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1000 Northwest Boulevard, Suite 100
Coeur d'Alene, Idaho 83814
(208) 664-4653
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
James A. Fish
Chairman and President
Hanover Gold Company, Inc.
1000 Northwest Boulevard, Suite 100
Coeur d'Alene, Idaho 83814
(208) 664-4653
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copy to:
Douglas J. Siddoway, Esq.
Randall & Danskin, P.S.
1500 Seafirst Financial Center
601 West Riverside Avenue
Spokane, Washington 99201
(509) 747-2052
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Approximate date of commencement of the proposed sale of the securities to the
public: As soon as practicable following the effective date of this
Registration Statement.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1993, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
[ ].
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
- - -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed
Title of each class Proposed maximum
of securities to be Amount to be maximum offering aggregate offering Amount of
registered registered price per unit price registration fee
<S> <C> <C> <C> <C>
Common Stock, par
value $.0001 per
share 13,757,307 shares - - $ 5,664.72
</TABLE>
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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CALCULATION OF REGISTRATION FEE
The amount of the registration fee with respect to the shares of Common
Stock registered hereby was calculated in accordance with Section 6(c) of the
Securities Act and Rule 457(c) adopted thereunder, using the average bid and
asked prices of the Common Stock as reported by the Nasdaq SmallCap Market on
July 22, 1996, which was $1.35 per share. $782.93 of such registration fee
was paid on January 18, 1996, when the registration statement to which this
amendment relates was first filed. Such fee related to 2,270,486 shares of
Common Stock encompassed by such registration statement.
CROSS REFERENCE SHEET PURSUANT TO ITEM 501(b)
Item Caption or
No. Form S-1 Caption Location in Prospectus
- - ---- ---------------- ----------------------
1. Forepart of the Registration Statement Forepart of Registration
and Outside Front Cover of Prospectus Statement; Outside
Front Cover Page of
Prospectus
2. Inside Front and Outside Back Inside Front and Outside
Cover Pages of Prospectus Back Cover Pages of Prospectus
3. Summary Information, Risk Factors Prospectus Summary;
and Ratio of Earnings to Fixed Charges Risk Factors
4. Use of Proceeds Plan of Distribution
5. Determination of Offering Price Plan of Distribution
6. Dilution Plan of Distribution
7. Selling Security Holders Selling Stockholders;
Plan of Distribution
8. Plan of Distribution Plan of Distribution
9. Description of Securities to Description of Capital Stock
be Registered
10. Interests of Named Experts and Legal Matters; Experts
Counsel
11. Information with Respect to the Prospectus Summary; Risk
Registrant Factors; The Company; Market
for Capital Stock; Dividends;
Capitalization; Selected
Consolidated Financial
Information; Management's
Discussion and Analysis of
Financial Condition and
Results of Operation;
Business; Management;
Principal Shareholders;
Certain Transactions
12. Disclosure of Commission Position Plan of Distribution
Position on Indemnification for
Securities Act Liabilities
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12,552,307 PREVIOUSLY ISSUED SHARES OF COMMON STOCK, 205,000 SHARES OF COMMON
STOCK ISSUABLE UPON EXERCISE OF OUTSTANDING OPTIONS AND 1,000,000
NEWLY ISSUABLE SHARES OF COMMON STOCK
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HANOVER GOLD COMPANY, INC.
This Prospectus relates to 12,552,307 previously issued and outstanding
shares of common stock, par value $.0001 per share (the "Common Stock"), of
Hanover Gold Company, Inc. (the "Company" or "Hanover"), a Delaware
corporation, which are owned and offered for sale by the Selling Stockholders;
205,000 shares of Common Stock issuable upon the exercise of outstanding
options, which are also owned and offered for sale by the Selling
Stockholders; and 1,000,000 newly issuable shares, which are offered for sale
by the Company by certain of its directors and executive officers on a best
efforts basis at the price of $___ per share. The Company will not receive
any of the proceeds from the sale of the shares offered hereby by the Selling
Stockholders.
The Selling Stockholders propose to sell the shares from time-to-time or
at any time during a period of eighteen months after the registration
statement of which this Prospectus is a part has become effective, in the
over-the-counter market, in other permitted public sales, in privately
negotiated transactions or otherwise, at market prices prevailing at the time
of sale or at negotiated prices. Some or all of such shares may be sold in
transactions involving broker-dealers, who may act solely as agent or may
acquire shares as principal. Broker-dealers participating in such
transactions as agent may receive commissions from the Selling Stockholders
and, if they act as agent for the purchaser, also from the purchaser. Selling
Stockholders and any such broker-dealers may be deemed to be "underwriters,"
as that term is defined in the Securities Act. Any commissions received by
such broker-dealers in connection with such sales, and any profits received
from the resale of shares acquired by such broker-dealers as principal, may be
deemed to be underwriting discounts and commissions pursuant to the Securities
Act. No commission or other form of remuneration will be paid with respect
the sale of the 1,000,000 shares offered hereby by the Company. See "Selling
Stockholders" and "Plan of Distribution."
The Company has paid all fees and expenses incident to the registration
of the shares. Normal commission expenses, brokerage fees and applicable
transfer taxes relating to the shares offered hereby by the Selling
Stockholders are payable by the Selling Stockholders.
The Common Stock is traded on the Nasdaq Stock Market under the symbol
"HVGO". On August __, 1996, the closing sales price per share of the Common
Stock, as reported by the Nasdaq SmallCap Market, was $___.
THESE ARE SPECULATIVE SECURITIES AND INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting Discounts Proceeds to Selling
Price to Public or Commissions Stockholders/Company
<S> <C> <C> <C>
Sales Per Share By:
Selling Stockholders See Text Above See Text Above See Text Above
The Company $____ $0 $____
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE
IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
THE DATE OF THIS PROSPECTUS IS AUGUST __, 1996.
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PERSONS WHO PUBLICLY REOFFER THE SECURITIES OFFERED HEREBY IN THE UNITED
STATES MAY BE DEEMED UNDER CERTAIN CIRCUMSTANCES TO BE "UNDERWRITERS" AS THAT
TERM IS DEFINED IN SECTION 2(11) OF THE SECURITIES ACT. PERSONS PLANNING TO
REOFFER SUCH SECURITIES PUBLICLY IN THE UNITED STATES SHOULD CONSULT WITH
THEIR COUNSEL PRIOR TO ANY SUCH REOFFER IN ORDER TO DETERMINE WHETHER SUCH
REOFFERS SHOULD BE ACCOMPANIED BY DELIVERY OF A PROSPECTUS.
____________________
AVAILABLE INFORMATION
Hanover has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-4, as amended on Form S-1
(the "Registration Statement") pursuant to the provisions of the Securities
Act and the rules and regulations promulgated thereunder for the registration
of the shares offered hereby. This Prospectus, which constitutes a part of
the Registration Statement, does not contain all of the information set forth
in the Registration Statement, certain portions of which have been omitted as
permitted by the rules and regulations of the Commission. For further
information with respect to Hanover and the shares offered hereby, reference
is made to the Registration Statement, including the exhibits thereto and
financial statements and notes incorporated by reference as a part thereof.
Statements made in this Prospectus concerning the contents of any contract or
other document are not necessarily complete. With respect to each such
contract or other document filed with the Commission as an exhibit to the
Registration Statement, or incorporated by reference to exhibits previously
filed, reference is made to the exhibit for a more complete description of the
matter involved, and each such statement shall be deemed qualified in its
entirety by such reference.
Hanover is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. The
Registration Statements and the exhibits thereto, and other reports and
information filed by Hanover with the Commission, may be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also
be available for inspection and copying at the following regional offices of
the Commission upon payment of prescribed fees: Northeast Regional Office,
7 World Trade Center, Suite 1300, New York, New York 10048 and Midwest
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661.
The Commission also maintains a Web site at http://www.sec.gov that
contains reports, proxy information statements and other information regarding
registrants that file electronically with the Commission. Hanover's Common
Stock is traded on the Nasdaq SmallCap Market. Materials filed by Hanover can
be inspected at the offices of The National Association of Securities Dealers,
Inc., Reports Section, 1735 K Street, N.W., Washington, D.C. 20006.
[The balance of this page has been intentionally left blank.]
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PROSPECTUS SUMMARY
The following is a summary of certain information contained in this Prospectus
and is qualified in its entirety by reference to the more detailed information
and financial statements appearing elsewhere in this Prospectus.
The Company
Hanover Gold Company, Inc. (the "Company") was organized as a Delaware
corporation in 1984 and is in the business of acquiring and maintaining gold
mining properties in the Alder Gulch area of the Virginia City Mining District
in southwestern Montana for exploration and future development. Although the
Company has no established proven or probable reserves, recent compilations of
data derived from the Company's exploration activities in 1995 and data
collected earlier by Kennecott Exploration Company ("Kennecott") support
Kennecott's previous estimate of a potential mineralized gold deposit on the
properties of approximately 26,000,000 tons, having an average grade of .0615
ounces per ton. A mineralized deposit is a mineralized body which has been
delineated by appropriate drilling or underground sampling to support
estimates of tonnage and average mineral grade. Such a deposit does not
qualify as a reserve until a comprehensive evaluation based upon unit cost,
grade, recovery and other factors has been conducted, and the economic
feasibility of exploiting the deposit has been determined. The Company has
not yet undertaken such a comprehensive evaluation. See "The Company" and
"Business."
Effective August __, 1996, Hanover Resources, Inc. ("Hanover Resources")
and Group S Limited ("Group S"), each of which was affiliated with the Company
and both of which controlled significant mining claims and interests in the
Alder Gulch area contiguous to those of the Company, were merged into the
Company. As consideration for the merger, the Company issued 2,270,486 new
shares of Common Stock to the former stockholders of Hanover Resources and
Group S in the transaction; an additional 3,625,000 shares of Common Stock
were also issued to the stockholders of Hanover Resources, in exchange for the
same number of shares of Common Stock then held by Hanover Resources, which
shares were then canceled. Such shares comprise a portion of the shares
offered hereby by the Selling Stockholders. The merger was approved by the
boards of directors and stockholders of Hanover Resources and Group S on
December 29, 1995, and was approved by the board of directors and stockholders
of the Company on April 18, 1995 and July 31, 1996, respectively. See
"Business" and "Selling Stockholders."
The principal executive offices of the Company are located at 1000
Northwest Boulevard, Suite 100, Coeur d'Alene, Idaho 83814. The Company's
telephone number is (208) 664-4653.
The Offering
The securities being offered consist of: 12,552,307 previously issued
and outstanding shares of Common Stock, which are owned and offered for sale
by the Selling Stockholders; 205,000 shares of Common Stock issuable upon the
exercise of outstanding options, which are also owned and offered for sale by
the Selling Stockholders; and 1,000,000 newly issuable shares of Common Stock,
which are offered for sale by the Company by certain of its directors and
executive officers on a best efforts basis. See "Plan of Distribution."
The shares offered for sale by the Selling Stockholders will be sold in
secondary transactions at varying prices. The shares offered and sold by the
Company will be sold at the price of $____ per share, which is the closing
price of the Common Stock as reported by the Nasdaq SmallCap Market as of the
date of this Prospectus. The Company will receive no proceeds from the sale
or distribution of the shares offered by the Selling Stockholders. The
Company will receive proceeds of up to $________, if, as and when the shares
offered by the Company hereby are sold, which will be used for general
corporate purposes, including additional exploration of the Company's Alder
Gulch mining properties.
The Selling Shareholders, which include certain affiliates of the
Company, acquired the shares in private placements within the United States
for cash, in exchange for their interests in Hanover Resources and Group S,
and as compensation for mining properties and other assets conveyed to the
Company, at prices or values per share equal to then-prevailing market prices
for the Common Stock. See "Selling Stockholders."
As of August __, 1996, 19,848,022 shares of Common Stock were outstanding
or deemed outstanding pursuant to presently exercisable options or other
purchase commitments. See "Management" and "Principal Stockholders."
The Common Stock of the Company is approved for quotation on the Nasdaq
SmallCap Market under the symbol HVGO. See "Market for Capital Stock."
Risk Factors
Investment in the shares is extremely risky and suitable only for persons
who can afford a loss of their investment. Hanover has lost money in every
year since its inception and has only limited cash resources and no proven or
probable reserves. Development of its Alder Gulch mining properties is
contingent on a number of factors, including additional drilling and other
exploratory activities to determine the economic feasibility of development,
and the procurement of funds or the negotiation of other arrangements, such as
a joint venture arrangement with a major mining company, to finance such
exploration and, if warranted, development activities. See "Risk Factors."
Statement Regarding Forward Looking Information
The Company's ability to develop and profitably operate its Alder Gulch
mining properties is dependent on a number of future events. These events
include: the establishment, through additional drilling and other exploratory
activities, of delineated gold reserves on the properties sufficient to
warrant commercial production; the successful negotiation of a joint venture
agreement or other economic arrangement with a major mining company to finance
such additional exploration activities, and if warranted, commercial
production of the properties; the procurement of all necessary permits and
other governmental approvals for such development; the procurement of bank or
other financing to support such development activities; sustained market
prices for gold sufficient to enable the Company to develop the properties
profitably; and the procurement by the Company of additional capital, through
the sale of additional securities or otherwise, to support its working capital
needs.
Statements contained in this Prospectus regarding the Company's future
prospects and economic performance, including those contained in the section
of this Prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations", are expressly conditioned on these
future events, as stated therein and in other sections of this Prospectus.
Prospective purchasers of the shares of Common Stock offered hereby are
cautioned that these future events may or may not occur. Were these events
not to occur, the Company's prospects for developing and profitably operating
its Alder Gulch mining properties would be materially and adversely
diminished. This would have the effect of significantly diminishing the value
of the Company and, correspondingly, the value of the shares of Common Stock
offered hereby.
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RISK FACTORS
The following matters, in addition to those discussed elsewhere in this
Prospectus, should be carefully considered before purchasing the shares
offered hereby.
No Established Mineral Reserves; No Significant Mining Operations
The Company has not yet established either proven or probable reserves on
its Alder Gulch mining properties and no assurance can be given that any
reserves will be established. Although previous engineering and geological
studies lead management to believe that a significant potential mineralized
gold deposit exists, no comprehensive evaluation of the properties based upon
unit cost, grade, recovery and other factors, has been undertaken to determine
whether the properties contain a commercially viable ore body, or reserve.
Accordingly, the Company cannot presently determine whether development of the
Alder Gulch properties is economically feasible. Significant additional
drilling and other exploratory activities will have to be undertaken before
any such determination can be made. Although certain members of management
are or were affiliated with other companies engaged in significant mining
operations, the Company itself has engaged in only limited and relatively
insignificant mining operations in the Alder Gulch area since inception. See
"The Company", "Business" and "Management."
History of Losses
The Company has lost money in every year since its inception. The
Company reported a net loss of $778,772 for the six months ended June 30,
1996, and a net loss of $2,321,569 for the year ended December 31, 1995.
Cumulative losses for the period from inception through June 30, 1996 were
$5,404,871. The Company received only limited revenues from mining operations
conducted in 1994 and 1995, and such operations have since been suspended.
For the first three months of 1995, the Company reported a net loss of
$627,743, and for the years ended December 31, 1994 and 1993, the Company
reported losses of $1,247,973 and $252,046, respectively. The Company expects
to incur losses from operations for the next several years as the result of
increased expenditures associated with the management of exploration and
development activities on its Alder Gulch properties. This trend is expected
to continue until such time, if ever, as it profitably develops its Alder
Gulch mining properties. See "Selected Consolidated Financial Information",
"Management's Discussion and Analysis of Financial Condition and Results of
Operation", "Business" and Consolidated Financial Statements.
Project Development
The Company's mining assets consist of 493 contiguous claims and one
mining lease, all in the Alder Gulch area, which are in the exploration stage.
The Company currently estimates that capital expenditures for ongoing
operations, inclusive of amounts payable to the landowner-lessors of its
mining claims, will total approximately $1,000,000 during the remainder of
1996, and may be significantly more in ensuing years if, as and when the Alder
Gulch properties are placed into production. The Company will fund 1996
expenditures, in part, from proceeds to be received from the sale of the
1,000,000 shares of Common Stock offered by the Company hereby; in part, from
funds expected to be contributed to a joint venture comprising the Company and
another mining company, assuming the Company is successful in negotiating such
an arrangement; and in part, from possible additional sales of Common Stock,
including sales pursuant to an existing securities purchase agreement between
the Company and an affiliate. The Company presently does not have any
agreement, understanding or arrangement with another mining company regarding
joint exploration or development of the Alder Gulch properties, and no
assurance can be given such a joint venture arrangement can be successfully
negotiated. Similarly, no assurance can be given that the Company would be
successful in obtaining funds through the sale of additional shares of its
Common Stock, were it to undertake an offering. The Company's estimate of
capital expenditures for the project is based upon currently available
information and could increase or decrease depending upon a number of factors
beyond the Company's control. It is not unusual in new mining operations to
experience unexpected problems during the development phase. As is described
under " - Risks Inherent in the Mining Industry Generally," the mining
business is subject to a number of risks and hazards. There can be no
assurance these risks and hazards will be avoided if, as and when the Alder
Gulch properties are developed. See "The Company" and "Business."
Significant Rental and Royalty Obligations
The Company does not own the majority of its Alder Gulch mining claims
outright, but instead leases the claims from various landowner-lessors under
various lease and purchase option agreements, to whom it pays rentals and
royalties in exchange for the right to conduct mining activities. At June 30,
1996, these rental obligations aggregated approximately $8,700,000, of which
$400,000 is payable in 1996 and the balance of which is payable over a
seven year period at the approximate rate of $1,350,000 per year. Production
royalty obligations with respect to these claims, which become payable once
minerals are produced from the claims, range from 0.5% to 5%. The Company
presently does not have sufficient funds to meet its rental obligations beyond
1996, and if such funds cannot be obtained when such obligations become due,
the Company will forfeit its interests in these claims. See "Business."
Part-Time Management
The Company restructured its management in early 1996 and, among other
matters, replaced its two full-time executive officers, Fred R. Schmid, who
was formerly chairman and president of the Company, and Stephen J. Schmid, who
was formerly secretary and treasurer. James A. Fish, the Company's current
chairman and president, is also vice president and general counsel of N. A.
Degerstrom, Inc., Spokane, Washington, a privately-held company engaged in
railroad, heavy highway and bridge construction, large open pit mining and
worldwide mineral exploration. Neal A. Degerstrom, the president of N. A.
Degerstrom, Inc., is also a director and principal shareholder of the Company
and one of several persons comprising the Degerstrom group of investors whose
members own approximately 30% of the Company's outstanding Common Stock deemed
outstanding as of the date of this Prospectus.
The Company also relocated its principal offices to Coeur d'Alene, Idaho
in early 1996, and in conjunction with this move elected Wayne Schoonmaker as
secretary and treasurer. Mr. Schoonmaker is a certified public accountant
whose duties are divided between the Company and other clients for whom he
performs accounting services. Frank Duval, who may be deemed to be an
executive officer of the Company and who has acted on the Company's behalf as
an advisor since late 1995, has been the subject of certain Securities and
Exchange Commission proceedings within the past ten years. In addition, a
business enterprise with whom Mr. Duval is affiliated filed for protection
from creditors under federal bankruptcy laws within the past ten years. See
"Management."
Shares Eligible for Future Sale; Effect on Market Price of Common Stock
As the result of the registration under the Securities Act of the
13,757,307 shares offered hereby, a total of 17,892,907 shares of Common
Stock, inclusive of 4,135,600 shares publicly offered by the Company in 1993
and 1994, are now available for sale in the secondary market. These shares
represent approximately 90% of the Company's Common Stock deemed outstanding
(86% if all 1,000,000 shares offered hereby by the Company are sold). Of
these, 10,582,129 shares, or approximately 53% of the outstanding and deemed
outstanding shares of Common Stock, are owned by directors, executive officers
and other affiliates of the Company. Although the Common Stock is approved
for quotation on the Nasdaq SmallCap Market, trading activity in this market
is sometimes characterized by infrequent transactions. As a consequence, the
sale from time-to-time of the shares offered hereby by the Selling
Stockholders, and resales of the Common Stock offered hereby on behalf of the
Company may have the effect of depressing the market price of the Common
Stock. See "Market for Capital Stock" and "Description of Capital Stock."
Possible Issuance of Additional Shares
On February 26, 1996, the Company announced that it had entered into a
letter of intent with Easton-Pacific and Riverside Mining Company ("Easton-
Pacific") contemplating a possible merger of Easton-Pacific into the Company
in exchange for 14,368,713 shares of the Company's Common Stock. Easton-
Pacific has advised the Company that it owns or controls 36 patented and 137
unpatented mining claims in the Alder Gulch area, all of which are contiguous
to the Company's claims, and an additional 35 patented and 58 unpatented
claims near Norris and Pony, Montana, some 35 miles northwest of the Alder
Gulch area. As of the date of this Prospectus, management of the Company
cannot predict whether the letter of intent will culminate in a definitive
merger agreement with Easton-Pacific, or whether any such agreement would be
approved by the companies' boards of directors and stockholders. Were the
transaction contemplated by the letter of intent to be completed, the number
of outstanding shares of the Company's Common Stock would increase by
approximately 41%. This would result in a corresponding decrease in the
percentage ownership interests of the Company's present stockholders and would
increase the number of shares available for sale in the secondary market,
which could have the effect of further depressing the market price for the
Common Stock. See "Business."
Risks Inherent in the Mining Industry Generally
The Company is subject to all of the risks inherent in the mining
industry, including environmental hazards, industrial accidents, labor
disputes, unusual or unexpected geologic formations, cave-ins, flooding and
periodic interruptions due to inclement weather. Such risks could result in
damage to, or destruction of, mineral properties and production facilities,
personal injury, environmental damage, delays, monetary losses and legal
liability. The Company does not presently maintain insurance covering
environmental or other catastrophic liabilities, and is not expected to do so
unless and until it is economically feasible to do so. Insurance against
environmental risks (including pollution or other hazards resulting from the
disposal of waste products generated from exploration and production
activities) is not generally available to the Company or other companies in
the mining industry at present. Were the Company subjected to environmental
liabilities, the payment of such liabilities would reduce the funds available
to the Company. Were the Company unable to fund fully the cost of remedying
an environmental problem, it might be required to suspend operations or enter
into interim compliance measures pending completion of remedial activities.
In addition to the foregoing risks, the Company will also encounter or be
subject to competition from other mining companies having significantly
greater resources than the Company, governmental regulation of its mining
activities and practices, the speculative nature of mineral exploration and
development, operating hazards, fluctuating metals prices, and inflation and
other economic conditions over which it has no control.
Environmental Matters
The Company's Alder Gulch properties are located in southwestern Montana,
which, has a history as a major mining area. Although management believes the
Company will meet existing criteria for additional permits and approvals
necessary to large scale development, substantial planning will be required in
order to comply with the requirements of existing and proposed laws and
regulations, and no assurance can be given that large scale development of the
Alder Gulch properties, if warranted, will be timely realized. See
"Business."
Fluctuating Prices of Gold
The Company's ability to obtain additional funds through a joint venture
with another mining company or otherwise, and its ability to develop the Alder
Gulch properties, if warranted, will be significantly influenced by the price
of gold. Gold prices fluctuate widely and are affected by numerous factors
beyond the Company's control, such as inflation, the strength of the United
States dollar relative to foreign currencies, global and regional demand, and
the political and economic conditions of major gold producing countries
throughout the world.
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THE COMPANY
The Company
Hanover was organized as a Delaware corporation in 1984 and is in the
business of acquiring and maintaining gold mining properties in the Alder
Gulch area of the Virginia City Mining District in southwestern Montana for
exploration and future development. Although the Company has no established
proven or probable reserves, recent compilations of data derived from the
Company's exploration activities in 1995 and data collected earlier by
Kennecott support Kennecott's previous estimate of a potential mineralized
gold deposit on the properties of approximately 26,000,000 tons, having an
average grade of .0615 ounces per ton.
A mineralized deposit is a mineralized body which has been delineated by
appropriate drilling or underground sampling to support estimates of tonnage
and average mineral grade. Such a deposit does not qualify as a reserve until
a comprehensive evaluation based upon unit cost, grade, recovery and other
factors has been conducted and the economic feasibility of exploiting the
deposit has been determined. The Company has not yet undertaken such a
comprehensive evaluation.
The Alder Gulch Mining Properties
The Company's mining assets comprise 493 contiguous claims and one mining
lease, all located in the Alder Gulch area. The Company acquired these claims
beginning in 1990, through the acquisition of Hanover International Limited
("Hanover International") and a series of subsequent subleasing and option
agreements with Hanover Resources and Group S, and from nonaffiliated third
parties. Hanover International was controlled by Fred R. Schmid, a director
of the Company and its former chairman and president, and by members of his
immediate family; Hanover Resources was controlled by Mr. Schmid and such
persons, and by Group S; and Group S was controlled by Mr. Schmid and members
of his immediate family, and by Nicholas S. Young, Laurence Steinbaum and
Pierre Gousseland, who are also directors of the Company. As is disclosed
elsewhere in this Prospectus, Hanover Resources and Group S were merged into
the Company effective as of August __, 1996, in exchange for 2,270,486 new
shares of the Company's Common Stock. An additional 3,625,000 shares of
Common Stock were also issued to the stockholders of Hanover Resources in the
transaction, in exchange for the same number of shares of Common Stock then
held by Hanover Resources; the shares held by Hanover Resources were then
canceled. See "Business."
Exploration and Development Activities
The Company's efforts to develop its mining properties commenced in 1992
when the Kearsarge group of claims, 33 additional claims held by Hanover
Resources and 216 mining claims held by Group S were contributed to a joint
venture. This joint venture, in turn, entered into a mining venture agreement
with Kennecott, pursuant to which Kennecott was to have received a 51%
interest in the claims and certain options rights, and in return would conduct
a $5,700,000 multi-year work program and pay interim rentals and royalty
obligations to the various landholders from whom the Company, Hanover
Resources and Group S leased their claims. Kennecott withdrew from the mining
venture in March of 1995 when it was unable to acquire additional claims in
the Alder Gulch area believed necessary to support a large-scale mining
development.
The Company engaged in limited exploration activities and minor
production activities in the Alder Gulch area in 1993 and 1994, largely as the
result of its relationship with Kennecott and with proceeds derived from
financing activities undertaken or completed in 1994. These exploration and
development activities included the reopening of the Kearsarge and Apex mines
(the latter of which was acquired in 1993 from Group S, which held an 80%
interest in the mine, and from a nonaffiliated party), underground
development, diamond drilling, mapping and sampling, lithologic logging of the
drill holes, assaying, mining and milling. These activities were suspended
due to a lack of funds following Kennecott's withdrawal from the mining
venture. See "Properties."
Through June 30, 1996, the Company and its affiliates have expended
approximately $2,225,106 to conduct exploration and limited development
activities on the Alder Gulch properties, and approximately $6,410,201 to pay
rental and royalty payments to the landowner-lessors of the properties.
Approximately $8,457,747 of these expenditures have been capitalized and will
be depleted using the estimated recoverable units method at such time, if
ever, as the properties are placed into production. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 5 to the Consolidated Financial Statements of the Company.
<PAGE>
<PAGE>
MARKET FOR CAPITAL STOCK
The Common Stock of the Company is traded on the Nasdaq SmallCap Market
under the symbol "HVGO". The following table sets out the high and low prices
per share for the Common Stock for the first and second quarters of 1996, and
for 1995 and 1994, as reported by Nasdaq. The prices reported reflect inter-
dealer prices, without regard to retail mark-ups, mark-downs or commissions,
and do not necessarily reflect actual transactions. High and low sales prices
are shown for all quarters.
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
High Low High Low High Low
<S> <C> <C> <C> <C> <C> <C>
First Quarter $2-3/8 $ 1 $1-5/8 $ 1/4 $3-7/8 $2-1/8
Second Quarter $2-7/8 $1-1/4 $1-1/16 $ 5/16 $3-1/2 $2-3/8
Third Quarter (1) $1-1/4 $1-1/8 $2-1/2 $13/16 $2-3/4 $2
Fourth Quarter $2 $ 3/4 $2-1/2 $1-3/8
____________________
<FN>
(1) Through July 22, 1996.
</FN>
</TABLE>
The number of holders of Common Stock of record on August __, 1996 was
approximately 1,200.
DIVIDENDS
The Company has declared no cash or stock dividends on its Common Stock
since inception, and in the opinion of management of the Company will declare
cash dividends in the future only if the earnings and capital of the Company
are sufficient to justify the payment of such dividends.
[The balance of this page has been intentionally left blank.]
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at
June 30, 1996, and as adjusted to give effect to the merger of Hanover
Resources and Group S into the Company and the sale of the 1,000,000 shares of
Common Stock offered hereby by the Company. The table should be read in
conjunction with the financial statements and notes thereto appearing
elsewhere in this Prospectus. The Company will receive no proceeds from the
sale of the shares offered hereby by the Selling Stockholders. To the extent
the 1,000,000 shares offered hereby by the Company are sold, the Company will
receive up to $______. See "Index to Financial Statements."
Proforma
At June 30, 1996 June 30, 1996
---------------- -------------
Stockholders' equity:
Preferred Stock, par value $.001 per share:
Authorized: 2,000,000 shares
Issued: 0 shares; proforma 0 shares
Common stock, par value $.0001 per share:
Authorized: 48,000,000 shares
Issued: 17,777,536 shares; proforma:
20,848,022 shares 1,778 (1) 2,085 (2)
Additional paid in capital 16,284,629 __________ (2)
Accumulated deficit (5,104,071) (5,104,071)
Total stockholders' equity $11,182,316 $
____________________
(1) Consists of 16,229,678 shares of Common Stock outstanding as of June 30,
1996 and 1,547,858 additional shares issuable pursuant to presently
exercisable options and purchase commitments.
(2) After giving effect to the issuance of an additional 2,270,486 shares in
conjunction with the merger of Hanover Resources and Group S into the
Company, and the issuance of the 1,000,000 shares offered hereby by the
Company at the price of $____ per share.
[The balance of this page has been intentionally left blank.]
<PAGE>
<PAGE>
SELECTED FINANCIAL INFORMATION
Selected Financial Information of the Company
The selected consolidated financial data set forth below has been derived
from, and should be read in conjunction with the Company's consolidated
financial statements. The selected financial data for the five years ended
December 31, 1995, 1994, 1993, 1992 and 1991 have been selected by the Company
and derived from the Company's consolidated financial statements appearing
elsewhere in this Prospectus, which have been audited by Zeller Weiss & Kahn,
Mountainside, New Jersey. The consolidated financial data shown below for the
six-month periods ended June 30, 1996 and 1995 and as of June 30, 1996 and
1995, are derived from the unaudited consolidated financial statements of the
Company included elsewhere in this Prospectus. The selected financial data
should be read in conjunction with, and is qualified by such financial
statements and the notes thereto. See "Index to Financial Statements." This
data does not reflect the merger of Hanover Resources and Group S with and
into the Company, which occurred effective August __, 1996 and which will be
accounted for as a purchase of interests under common control. See
"Supplemental Actual and ProForma Combined Financial Information of the
Company, Hanover Resources and Group S." For historical financial information
with respect to Hanover Resources and Group S, reference is made to such
companies' historical financial statements appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
Six Months
Ended June 30, Years Ended December 31,
-------------- --------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(in thousands of dollars, except share amounts and number of shares)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data
Income $ 3.5 $ 249.3 $ 499.3 $ 216.4 $ - $ - $ -
Net loss 778.7 687.0 2,321.6 1,248.0 252.0 205.3 260.5
Loss per share of
Common Stock 0.05 0.07 0.20 0.15 0.03 0.05 0.07
Balance Sheet Data
Total assets 9,543.4 8,023.8 8,310.4 8,293.6 8,112.6 3,098.6 1,375.2
Current liabilities 427.7 723.4 358.9 457.3 505.1 364.4 177.5
Stockholders
equity $9,745.9 $7,300.4 $7,951.5 $7,835.7 $7,357.5 $2,634.3 $1,197.7
Weighted average
number of shares of
Common Stock
outstanding: (1) 15,736,683 10,016,930 11,728,882 8,314,859 7,498,786 4,402,178 3,410,390
Other Financial Data
Description, depletion
and amortization 13.5 71.6 38.2 28.4 4.9 1.4 0.2
Capital expenditures 2,478.1 792.2 578.7 1,546.9 1,174.4 169.1 0
_____________________
<FN>
(1) As of June 30, 1996, 17,577,536 shares of Common Stock were outstanding and an additional 1,547,858
shares were deemed outstanding pursuant to presently exercisable options and purchase commitments.
</FN>
</TABLE>
<PAGE>
<PAGE>
Supplemental Selected Actual and ProForma Combined Financial Statements of the
Company, Hanover Resources and Group S
The following tables set forth certain selected actual and proforma
combined financial information of the Company, Hanover Resources and Group S
as of June 30, 1996 and December 31, 1995 to illustrate the effects of their
combination accounted for as a purchase of interests under common control.
This supplemental information should be read in conjunction with the
historical financial statements of the Company, Hanover Resources and Group S,
including the notes thereto, which are included elsewhere in this Prospectus.
The supplemental information does not purport to represent what the combined
financial information actually would have been had the combination occurred at
the beginning of the periods presented or to project the combined financial
position or results of operations of the combined companies for any future
date or period.
<TABLE>
<CAPTION>
At June 30, 1996
(in thousands of dollars, except share amounts and number of shares)
------------------------------------------------------------------
Historical ProForma (1)
-------------------------------- ------------------
The Hanover Combined Financial
Company Resources Group S Statement
------- --------- ------- -------------------
<S> <C> <C> <C> <C>
Statement of Operations Data
Income $ 3.5 $31.2 $0 $ 34.7
Net income (loss) (778.7) 13.5 (1.1) (766.4)
Net income (loss) per share
of common stock (0.05) 0.01 (0.01) (0.05)
Balance Sheet Data
Total assets 9,543.4 1,402.0 778.7 10,200.0
Current liabilities 47.7 411.1 509.7 434.5
Stockholders equity 9,115.7 990.8 144.0 9,765.5
Weighted average number
of shares of common
stock outstanding 15,736,682 (2) 2,137,970 153,875 ________
Other Financial Data
Depreciation, depletion
and amortization 13.6 0 0 13.6
Capital expenditures 2,478.1 ______ ______ ______
____________________
<FN>
(1) Reference is made to the section of this Prospectus entitled "Supplemental Actual and ProForma Combined
Financial Statements of the Company, Hanover Resources and Group S," including the adjustments for
combination described therein.
(2) As of June 30, 1996, 17,577,536 shares of common stock of the Company were outstanding and an
additional 1,547,858 shares were deemed outstanding pursuant to presently exercisable options and purchase
commitments.
</FN>
</TABLE>
[The balance of this page has been intentionally left blank.]
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1995
(in thousands of dollars, except share amounts and number of shares)
------------------------------------------------------------------
Historical ProForma (1)
-------------------------------- ------------------
The Hanover Combined Financial
Company Resources Group S Statement
------- --------- ------- -------------------
<S> <C> <C> <C> <C>
Statement of Operations Data
Income $ 499.3 $ 128 $ 0 $ 499.3
Net income (loss) (2,321.6) 2.8 (10.4) (2,329.2)
Net income (loss) per share
of common stock (0.20) 0 (0.07) (0.15)
Balance Sheet Data
Total assets 8,310.4 1,919.1 1,288.3 -
Current liabilities 358.9 92.5 9.2 -
Stockholders equity 7,951.5 977.3 145.1 -
Weighted average number
of shares of common
stock outstanding 11,728,882 2,137,970 153,875 15,920,164
Other Financial Data
Depreciation, depletion
and amortization 38.2 0 0 0
Capital expenditures 578.7 ______ ______ ______
____________________
<FN>
(1) Reference is made to the section of this Prospectus entitled "Supplemental Actual and ProForma Combined
Financial Statements of the Company, Hanover Resources and Group S," including the adjustments for
combination described therein.
</FN>
</TABLE>
[The balance of this page has been intentionally left blank.]
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Summary
1995 was a transitional year for the Company. It began disappointingly
in March with Kennecott's decision to withdraw from the mining venture with
the Company, Hanover Resources and Group S, a decision that forced the Company
and its affiliates to curtail their exploration and development activities on
the Alder Gulch properties due to a lack of funds. Starting in June, however,
the Company was buoyed by an infusion of new capital from an investor group
lead by Neal A. Degerstrom, and by the business and technical mining
experience Mr. Degerstrom and his associates brought to the Company. By the
end of the year, the Company had restructured its senior management team and
had significantly progressed its agenda to consolidate the mining claims in
the Alder Gulch area for possible large-scale development. As of the date of
this Prospectus, the Company does not have the cash resources necessary to
explore or develop its properties, nor a development agreement with any major
mining company. The Company has received expressions of interest from a
number of North American mining companies concerning a joint venture or other
economic arrangement to explore and develop the properties, and is presently
discussing such possibilities with representatives of these companies.
Results of Operations
Six Months Ended June 30, 1996 compared to Six Months Ended June 30,
1995. The Company had total assets of $9,543,437 at June 30, 1996, compared
to $8,023,792 at June 30, 1995. At June 30, 1996, these assets consisted of
$166,020 in current assets, $8,388,837 in resource properties and claims,
$87,762 in property and equipment, net of depreciation, and $900,728 in
reclamation bonds and other assets, inclusive of $880,704 in notes receivable
from affiliates. This compares to $6,359,755 in resource properties and
claims, $169,516 in property and equipment, net of depreciation, $1,306,382 in
reclamation bonds and other assets, inclusive of the $_______ in notes
receivable from affiliates, at June 30, 1995. The increase in total assets at
June 30, 1996 is attributable primarily to an increase in resource properties
and claims stemming from the company's acquisition of additional mining claims
and interests in the Alder Gulch area. The decrease in current assets is
primarily due to a decrease in cash for the period, which is itself
attributable to the payment of increased expenses of operation; payment of
consulting fees to former executive officers of the Company and the Company's
geological consultant, a portion of which were accrued during the year ended
December 31, 1995; payment of directors and officers liability insurance
premiums; and increased legal and accounting expenses incurred in connection
with the acquisition of additional mining claims and interests.
The Company's current assets at June 30, 1996 consisted of $91,842 in
cash, $29,494 in inventory and $43,434 in prepaid expenses, compared to
$77,750 in cash, $89,887 in inventory and $20,502 in prepaid expenses at June
30, 1995.
Total liabilities at June 30, 1996 were $427,705, compared to total
liabilities of $723,435 at June 30, 1995. At June 30, 1996, these liabilities
consisted of $105,000 in notes payable, $242,042 in accounts payable and
$80,663 in accrued expenses. This compares to $24,675 in notes payable,
$259,446 in accounts payable and $439,314 in accrued expenses at June 30,
1995. The decrease in notes payable is attributable to the payment during the
first six months of 1996 of premiums for directors and officers liability
insurance, the effect of which reduced a note formerly given in conjunction
with the financing of such premiums. The slight increase in accounts payable
during the six months ended June 30, 1996 is primarily due to increased
activities involving the acquisition of additional mining claims and interests
in the Alder Gulch area.
Revenues for the six month period ended June 30, 1996 consisted of $3,511
received from the sale of carbon products. General and administrative
expenses for the 1996 period were $769,878, up from $582,191 during the
comparable period in 1995. The increase in general and administrative
expenses is primarily attributable to the fact that the Company was not
engaged in mining activities during the first and second quarters of 1996,
and, secondarily, to a decrease in the amounts payable to executive officers
during the period.
During the six months ended June 30, 1996, the Company experienced a loss
from operations of $778,772, or approximately $0.05 per share, compared to a
loss of $687,030, or approximately $0.07 per share, during the comparable
period in the previous year. The significant decrease in losses is due
primarily to the fact that the Company was not engaged in mining activities in
the Alder Gulch during the six month period ended June 30, 1996.
1995 compared to 1994. At December 31, 1995, the Company had working
capital of $491,382, current assets of $850,242 and current liabilities of
$358,860. This compares to current assets of $917,075 and current liabilities
of $457,261 at December 31, 1994. The increase in working capital at year-end
is attributable to sales of common stock to Neal A. Degerstrom and associated
persons during the year. Current assets consisted of $723,162 of cash,
$29,494 of inventory and $97,586 of prepaid expenses; the decrease in current
assets during the year is primarily attributable to adjustments to the market
value of inventory.
Total assets of the Company at December 31, 1995 were $8,310,364,
compared to $8,293,628 for the previous year. At year-end 1995, the Company's
total assets, net of current assets, consisted of $6,147,279 in resource
properties and claims, $102,819 in property and equipment, net of
depreciation, and $1,210,024 in reclamation bonds and other assets, including
$880,804 in note receivables from affiliates. This compares to $5,616,829 in
resource properties and claims, $139,114 in property and equipment, net of
depreciation, $1,620,610 in reclamation bonds and other assets, including
$527,572 in note receivables from affiliates for the prior year. The increase
of $530,450 in resource properties and claims during the year is the result of
the capitalization of rental payments made to the landowner-lessors of the
claims during the year, and the slight decreases in property and equipment,
and reclamation bonds and other assets is attributable to equipment sales.
The $764,087 reduction in notes receivable from affiliates during the year is
primarily the result of the write down of the note receivable from Geneva Mill
L.C.
During the year ended December 31, 1995, the Company generated revenues
of $499,299, of which $250,000 was attributable to a non-recurring option
payment under the Kennecott mining venture and $249,299 was attributable to
sales of refined gold during the year. Gold sales during the previous year,
by comparison, were $216,418. The increase in gold sales during the year is
attributable to increased production at the mill and higher ore grades at the
Kearsarge mine. The Company's mining operations were suspended in March of
1995 due to a lack of funds following Kennecott's withdrawal from the mining
venture; mill operations were similarly suspended in April of 1995.
The Company experienced a net loss from operations of $2,321,569, or
$0.20 per share, in 1995, compared to a net loss of $1,247,973, or $0.15 per
share, for the year ended December 31, 1994. The increase in losses is
primarily attributable to an increase of $291,031 in general and
administrative expenses (which aggregated $922,847 for the year), the $779,921
write down of the note receivable from Geneva Mill L.C., a $32,509 loss on the
sale of equipment and a $9,814 increase in depreciation expense. The cost of
goods mined increased by $165,853, to $1,076,668, in 1995, compared to
$910,815 in the previous year. The increase in general and administrative
expenses is primarily due to a $78,281 increase in insurance costs, a $126,770
increase in public relations expenses, a $79,545 increase in officers salary,
a $53,142 increase in professional fees and a $21,999 in consulting and
engineering costs. During the year ended December 31, 1995, auto expenses
decreased by $14,924 and meeting-related expenses, travel and entertainment
expenses and office and telephone charges decreased by $57,315. The Company
earned $29,306 in interest income during the year, compared to $106,655 for
the year ended December 31, 1994. The decrease in interest income is
attributable to significantly lower levels of invested funds during the year.
During the year-ended December 31, 1995, the Company also reversed a
prior period salary accrual of $542,347 attributable to Fred R. Schmid, which
resulted in a commensurate decrease in accrued expenses. The Company also
recognized a decrease of $779,921 in the carrying value of a $1,595,200 note
received from Geneva Mill L.C. in 1994 in connection with its acquisition and
rehabilitation of a carbon-in-leach processing facility near Radersburg,
Montana, some 60 miles from the Company's Alder Gulch properties. The
decision to finance the acquisition of the mill was made prior to Kennecott's
withdrawal from the mining venture, and was based on prior management's belief
that its Alder Gulch claims could be mined underground and that the ores could
be economically transported and milled at the Geneva Mill facility. New
management has since concluded that the claims can be more economically mined
using open pit methods and that the Geneva Mill lacks the capacity for large-
scale processing. At December 31, 1995, the Company was attempting to sell
the equipment at the mill on behalf of Geneva Mill L.C. and estimated that
approximately $220,000 could ultimately be recovered. Approximately $779,921
of the amount advanced to Geneva Mill L.C was expended to acquire materials
used in operations, and to pay for power and labor at the facility. As noted
in this Prospectus, the Company transfered the Geneva Mill facility and
related real properties to Roy Moen and related parties in partial
consideration for a $3,000,000 reduction in rental and royalty obligations
payable with respect to mining claims leased by the Company's Group S
affiliate. This transaction was effective as of April 26, 1996.
1994 compared to 1993. The Company had total assets of $8,293,628 at
December 31, 1994, compared to $8,112,529 at December 31, 1993. At
December 31, 1994, these assets consisted of $917,075 in current assets,
$5,616,829 in resource properties and claims, $139,114 in property and
equipment, net of depreciation, and $1,620,610 in reclamation bonds and other
assets, including $1,600,955 in notes receivable from affiliates. This
compares to $2,966,781 in current assets, $4,154,883 in resource properties
and claims, $83,019 in property and equipment, and $285,206 in reclamation
bonds and other assets at December 31, 1993. The increase in total assets at
December 31, 1994 is attributable primarily to an increase in the Company's
receivables from affiliates, the most significant of which were $981,279 in
advances to Geneva Mill L.C. during the year for plant acquisition, crushing
equipment, refurbishing, the installation of new pumps, the construction of
tailings ponds and liners, trucking equipment, end loaders and working
capital, and a $130,000 advance to Group S so that it could meet its royalty
payment obligations. As previously noted, Group S is affiliated with the
Company.
The Company's current assets at December 31, 1994 consisted of $646,141
in cash and accounts receivable, $181,238 of inventory and $89,696 of prepaid
expenses, compared to $2,884,368 in cash, $835 in accounts receivable, $70,439
of inventory and $11,139 of prepaid expenses at December 31, 1993. Operating
revenues of the Company for the year ended December 31, 1994 were $216,418.
No operating revenues were received in 1993.
Total liabilities at December 31, 1994 were $707,621, compared to total
liabilities of $755,064 at December 31, 1993. At year-end 1994, these
liabilities consisted of $411,930 in accounts payable, $45,331 in accrued
expenses and $250,000 in deposits against a purchase option. This compares to
$97,525 in accounts payable, $16,109 in accrued expenses and $250,000 in
deposits at December 31, 1993. In addition, the Company owed $13,819 to its
Hanover Resources affiliate, which was paid during 1994. The increase in
accounts payable during 1993 is primarily due to increased mine-related
activities. The Company had no sales in 1993, compared to gold sales of
$216,418 during 1994.
During the year ended December 31, 1994, the Company experienced a loss
from operations of $1,247,973, compared to a loss of $252,046 in the previous
year. The increase in losses during 1994 is due primarily to an increase in
mining costs of $910,815 during the year, an increase in depreciation of
$23,500, an increase in general and administrative costs of $362,566 and an
increase in interest income of $84,536.
The cost of goods mined increased to $910,815 in 1994, which was the
Company's first year of production. Milling, smelting and timber costs amount
to $283,049 during the year, contract mining expenses amounted to $117,177,
and haulage and direct labor amounted to $104,656 and $117,350, respectively.
General and administrative expenses were primarily due to a $55,000
increase in officers salaries, a $15,326 increase in auto expenses, a $41,492
increase in insurance costs, a $97,173 increase in deferred offering and
public relations costs, a $16,483 increase in professional fees, a $17,729
increase in rent, a $13,121 increase in repairs, a $48,730 increase in travel
expenses, a $24,008 increase in office-related expenses, an $11,133 increase
in transfer agent's fees and a $9,365 increase in telephone expenses.
The increase in interest income during 1994 is attributable to
significantly higher levels of invested funds during the year.
Liquidity and Capital Resources
As a consequence of Kennecott's withdrawal from the mining venture in
March 1995, the Company assumed full responsibility for certain landowner
rental and royalty obligations on its Alder Gulch mining claims. At
December 31, 1995 the rental and royalty obligations payable in 1996 totalled
$1,255,120. Management believes the Company will meet its 1996, largely
because of financing commitments that have been made by Neal A. Degerstrom and
associated persons, who have purchased 5,457,142 shares of Common Stock under
the June 1995 securities purchase agreement and amendments as of the date of
this Prospectus, and are obligated to purchase an additional 542,858 shares of
Common Stock at various times during the period ending October 16, 1996, which
will result in additional proceeds to the Company of approximately $271,500.
However, unless the Company is able to negotiate a joint venture or other
agreement with a major mining company for the continued exploration and
development of the Alder Gulch claims, it may continue to experience a
shortage of working capital.
The Company has incurred aggregate losses of $5,404,871 from inception
through June 30, 1996 because it has not yet been able to place the Alder
Gulch properties into large-scale production. The Company's inability to
achieve this objective is attributable to a number of factors, including
Kennecott's unexpected withdrawal from the mining venture and the Company's
lack of success, judged at least historically, in consolidating the various
claims and interests in the area. Although the Company was able to conduct
fairly extensive exploration and limited development of the properties,
largely as the result of its former arrangement with Kennecott, significant
additional work must be performed to support further development efforts. The
Company has received expressions of interest from several North American
mining companies regarding a joint venture or other economic arrangement to
explore and develop the properties, and believes such an arrangement will be
concluded during 1996.
As discussed elsewhere in this report, the Company has recently
restructured its management and taken significant additional steps to
consolidate the Alder Gulch claims. In addition, the Company has completed a
compilation of geologic and other technical data generated from its and
Kennecott's prior exploration activities. (See "Business.") Management
believes these activities will have a positive effect on the Company's
performance during 1996, and that the Company will be successful in
negotiating a joint venture or other arrangement with a major mining company
to explore and, if warranted, develop its properties.
Although the Company's operations are subject to general inflationary
pressures, these pressures have not had a significant effect on operations,
particularly since early 1995 when mining and processing operations were
suspended for lack of funds. If the Company resumes exploration and
development activities, which can be expected during 1996 if it is successful
in negotiating a joint venture or other economic arrangement with another
mining company, inflation will result in an increase in the cost of goods and
services necessary to its mining operations.
1995 compared to 1994. Cash flow from operating activities in 1995
reflected the use of $1,869,350 in cash, which is a decrease in the use of
cash during 1994 of $884,737. The increased use of cash during 1995 was
attributable to higher net operating losses during the year, which amounted to
$2,321,569, an increase of $1,073,596 over the prior year; a decrease in
accounts payable and accrued expenses during the year of $122,959, an increase
of $137,364 over the prior year; an increase of $198,867 in amounts due from
Hanover Resources during the year, an increase of $181,454 over the prior
year; and a decrease in the option payable of $250,000. In addition, cash
flow increased during 1995 by $764,087, an increase over 1994 of $1,739,859 as
the result of a decrease in notes receivable during the year of $1,739,859, a
decrease in inventory of $262,543, a decrease in prepaid expenses of $78,557
and an increase in loans payable of $214,638.
Cash flow from investing activities during the year reflected the use of
$564,843 in cash, as compared to $1,546,855 in 1994, which was a difference of
$982,012. The decrease in cash flow from investing activities during 1995 is
primarily attributable to a decrease in the amount of mining properties and
other intangible assets purchased during the year.
Cash flows from financing activities increased during 1995 by $448,498
over 1994. Of this increase, $349,844 was attributable to proceeds received
from the sale of the Company's common stock during the year, $48,654 was
attributable to a note receivable and $50,000 was attributable to a loan from
Neal A. Degerstrom, an affiliate of the Company.
1994 compared to 1993. Cash flows from operating activities in 1993
reflected the use of $212,919, primarily as the result of a net loss of
$252,046 during the year. Cash was used during the year primarily to offset
increases in notes receivable of $97,611, inventory increases of $70,439,
increases in amounts due from affiliates of $266,079 (of which $97,884 is
attributable to Hanover Resources and $168,195 was attributable to Group S)
and a decrease in loans payable of $311,829. Sources of cash during the year
were a decrease in deferred offering expenses of $95,716, an increase in
accounts payable of $397,525, accrued expenses of $152,893 and an option
payable of $150,000.
Cash flow from investing activities reflected the use of $1,174,415 of
cash during the year, which was primarily attributable to purchases of
property and equipment aggregating $81,210 and the purchase of mining
properties and other intangible assets which aggregated $1,093,205.
Cash flow from financing activities during the year reflected an increase
in cash of $4,127,578, which reflects proceeds received by the Company from
the sale of its common stock.
Cash flows from operating activities in 1994 reflected the use of
$2,754,087 of cash, an increase of $2,541,168 of cash used in operating
activities during 1993. The primary uses of cash during 1994 were to offset a
net loss during the year of $1,247,973 (which was an increase in net losses of
$995,927 over the prior year) and an increase in notes receivables during the
year of $975,772 (an increase of $878,161 over 1993 amounts). Cash flow
increased by $14,405 during 1994, as compared to a cash flow increase of
$550,418 during 1993, and was primarily attributable to increases in accounts
payable and accrued expenses. Cash flow increased by $14,405 during 1994 due
to an increase in accounts payable and accrued expenses as compared to 1993,
where the increase in cash flow was $550,418. Other increases in cash flow
during 1993 compared to 1994 were due to an increase in an option payable,
which was $150,000 in 1993 and zero in 1994.
Cash flow from investing activities reflected the use of $1,546,855 in
cash during 1994, an increase of $372,440 compared to 1993. The increase is
attributable to an increase in mining properties and other intangible assets
during the year.
Cash flows from financing activities in 1994 reflect an increase of
$2,062,716 in cash, which is due to the receipt during the year of proceeds
from the sale of the Company's Common Stock. This represents a decrease of
$2,064,862 during 1994 over 1993, when the Company received $4,127,578 from
the sale of its Common Stock.
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BUSINESS
Overview of the Company
Hanover was organized as a Delaware corporation in 1984 and is in the
business of acquiring and maintaining gold mining properties in the Alder
Gulch area of the Virginia City Mining District in southwestern Montana for
exploration and future development.
The Company restructured its management early in 1996 and is actively
pursuing efforts to consolidate its mining claims with those of other
affiliated and nonaffiliated entities in the area, which will significantly
increase the Company's land position in the area and the potential for
additional discovery. The Company has received expressions of interest from
several major North American mining companies regarding a joint venture or
other arrangement to explore and develop its properties, and is currently
pursuing discussions with representatives of these companies toward this
objective. As of the date of this Prospectus, no agreement, understanding or
arrangement regarding future exploration or development of the properties has
been reached; management believes, however, that a joint venture agreement or
other arrangement will be concluded during 1996.
The Company's efforts to develop its mining properties commenced in 1992
when the Kearsarge group of claims, 33 additional claims held by Hanover
Resources and 216 mining claims held by Group S were contributed to a joint
venture. This joint venture, in turn, entered into a mining venture agreement
with Kennecott pursuant to which Kennecott was to have received a 51% interest
in the claims and certain options rights, and in return would conduct a
$5,700,000 multi-year work program and pay interim rentals and royalty
obligations to the various landholders from whom the Company, Hanover
Resources and Group S leased their claims. Kennecott withdrew from the mining
venture in March of 1995 when it was unable to acquire additional claims in
the Alder Gulch area believed necessary to support a large-scale mining
development.
During 1993 and 1994 the Company raised $6,616,960 in capital from a
public offering of warrants for the purchase of 4,135,600 shares of Common
Stock. The Company raised an additional $2,200,000 during 1994 from the sale
to an affiliate of 4,057,142 additional shares of Common Stock in a private
placement. These funds, together with funds contributed by Kennecott under
the mining venture, were the primary sources of funds used to maintain the
Company's mining claims and finance its exploration and limited development
activities through 1995.
In June of 1995, the Company entered into a securities purchase agreement
with Neal A. Degerstrom to provide financing to the Company. Mr. Degerstrom
is the president of N. A. Degerstrom, Inc., Spokane, Washington, a privately-
held company engaged in railroad, heavy highway and bridge construction, large
open pit mining and worldwide mineral exploration. As of the date of this
Prospectus, Mr. Degerstrom and associated persons have invested approximately
$2,500,000 in the Company, and have committed to invest approximately $271,500
of additional funds during the period ending October 16, 1996. In
consideration for these investments, Mr. Degerstrom and such persons have been
issued 5,457,142 shares of Common Stock (approximately 28% of the Company's
Common Stock deemed outstanding as of the date of this Prospectus, which will
increase to approximately 30% once the additional 542,858 shares are
purchased).
Subsequent to June of 1995, the Company stepped up its efforts to acquire
additional claims and interests in the Alder Gulch area, with a view toward
entering into a joint venture or other economic arrangement with a major
mining company for additional exploration and possible large-scale development
of the properties. (See "-Continued Consolidation of Claims in the Alder
Gulch Area.") As previously noted, the Company is presently holding
discussions with representatives of several North American mining companies
familiar with the Alder Gulch area, and believes it could conclude a joint
venture agreement or other arrangement to explore and develop the properties
during 1996. As of the date of this Prospectus no such agreement,
understanding or arrangement has been reached.
The Company is solely engaged in mining, which is a single industry
segment.
Degerstrom Group Financing and Management Restructuring
As previously noted, the Company entered into a securities purchase
agreement with Neal A. Degerstrom in June of 1995 in order to provide the
Company with funds sufficient to meet its obligations to the landowner-lessors
of the Company's Alder Gulch mining claims. The Company issued and sold
2,270,486 shares of Common Stock to Mr. Degerstrom and associated persons in
June of 1995, at the price of $0.35 per share. In addition, the Company
granted Mr. Degerstrom options to purchase an additional 2,142,858 shares on
or before April 15, 1996, at the price of $0.50 per share.
Pursuant to a first amendment to the purchase agreement, dated October
31, 1995, the Company issued and sold an additional 300,000 shares of Common
Stock to other of Mr. Degerstrom's associates, at the price of $1.00 per
share. Pursuant to a second amendment approved by the board of directors on
January 27, 1996, the Company issued and sold 700,000 additional shares to
certain existing and new associates of Mr. Degerstrom, at the price of
$1.00 per share. The second amendment also revised the terms and conditions
of the previously granted options to enable Mr. Degerstrom to exercise them as
and when funds were needed by the Company to meet its rental and royalty
obligations to the landowner-lessors of its mining claims.
Pursuant to a third amendment to the purchase agreement approved by the
board of directors on March 3, 1996, Mr. Degerstrom firmly committed to
purchase the 2,142,858 shares of Common Stock represented by the previously
granted options, and the options themselves were rescinded. These shares are
to be purchased by Mr. Degerstrom at the price of $0.50 per share (which is
equal to the exercise price of the former options) on or before the dates the
former options were to have been exercised: 400,000 shares were purchased on
April 15, 1996 by N. A. Degerstrom, Inc., which is controlled by Mr.
Degerstrom; an additional 1,000,000 shares were purchased on June 1, 1996; and
the remaining 542,858 shares will be purchased on or before October 16, 1996.
Proceeds received by the Company from the purchase of these shares will be
used to ensure payment of rental and royalty obligations coming due in 1996,
and as working capital.
The purchase agreement also provided that, at such time as 2,857,142
shares were purchased by Mr. Degerstrom and his associates, Mr. Degerstrom
would have the exclusive right to nominate three members for election to the
Company's board of directors and the right to appoint a new president.
Mr. Degerstrom exercised his director nomination rights at meetings of the
board of directors of the Company held on August 17, 1995 and September 13,
1995, at which times he, James A. Fish and F. D. Owsley were elected to the
seven-person board of directors. The presidential appointment rights were
exercised at a meeting of the board of directors held on March 3, 1996, at
which Mr. Fish was appointed to succeed Fred R. Schmid; Mr. Fish was also
appointed to succeed Mr. Schmid as chairman in May of 1996. The nomination
and appointment rights granted to Mr. Degerstrom will continue to be exercised
so long as he and his associated purchasers collectively own at least fifteen
percent (15%) of the Company's outstanding Common Stock. The Company and its
board of directors have agreed to take such action as is appropriate and
consistent with their powers to ensure that such rights can be exercised.
According to a Schedule 13D filed by Mr. Degerstrom and associated
purchasers as a group, Mr. Degerstrom has disclaimed beneficial ownership of
the shares owned by such associated persons (other than shares owned by N. A.
Degerstrom, Inc.) and such associated persons have disclaimed beneficial
ownership of the shares owned by Mr. Degerstrom and N. A. Degerstrom, Inc.
Recent Consolidation and Acquisition Activities
The Company's activities in 1995 and early 1996 were dominated by
Kennecott's withdrawal from the mining venture and the Company's decision to
suspend all mining activities due to lack of funds, and by the Degerstrom
financing transaction, both of which are described above, and by the merger of
Hanover Resources and Group S into the Company, the continued consolidation of
other claims and interests in the Alder Gulch area, and the compilation of
existing geologic and other data from the Alder Gulch claims, which are
described below in further detail.
Merger of Affiliated Companies. The boards of directors and stockholders
of the Company, Hanover Resources and Group S approved a plan of merger,
effective as of August __, 1996, pursuant to which Hanover Resources and Group
S have been merged into the Company in exchange for the issuance of
2,270,486 shares of Common Stock to the stockholders of Hanover Resources and
Group S, and the distribution to Hanover Resources' stockholders of 3,625,000
additional shares of Common Stock in exchange for the same number of shares of
Common Stock then held by Hanover Resources.
Under the terms of the merger agreement, the Company issued 1,271,110
shares of Common Stock to acquire Hanover Resources (the Company actually
issued 4,896,110 shares to the Hanover Resources stockholders, of which
3,625,000 shares were simultaneously exchanged for the same number of shares
of Common Stock then held by Hanover Resources, which shares were then
canceled), and issued 999,376 shares to acquire Group S, taking into account a
193,220 share adjustment to repay loans made by the Company to Group S. A
total of 2,270,486 new shares of Common Stock were issued in the transaction,
which represented approximately 11% of the Company's outstanding Common Stock
as of the effective date of the merger.
The number of shares issued in the merger was determined and approved
by the boards of directors of each company, and was based on three factors:
namely, the amount each company had invested to acquire and maintain its
properties, the estimated mineral values of the properties held by each
company, and (in the case of Hanover Resources) its existing ownership of
3,625,000 shares of the Company's Common Stock. These amounts and values,
once determined, were then correlated to a presumed market values for the
Common Stock of $3.00 per share and $1.50 per share, which approximated the
market values of the stock during the period of the Kennecott mining venture
and immediately prior to Kennecott's withdrawal from the mining venture in
March of 1995, respectively.
As part of the merger, all inter-company balances were eliminated and
various mining sublease and option agreements between or among the three
companies were terminated. Prior to the merger, the Company was a party to
three such agreements with Hanover Resources: under the terms of a July 1990
sublease and option agreement, the Company was obligated to pay Hanover
Resources minimum monthly royalties of $10,000; under the terms of a December
1990 claim option agreement, the Company was obligated to pay Hanover
Resources $450,000 for five mining claims; and under a February 1992
assignment agreement, the Company was obligated to pay Hanover Resources 70%
of all gold and silver mined from Hanover Resource's interest in 28 mining
claims, and in addition, was obligated to pay Hanover Resources a management
fee of $15,000 per month. Under the terms of an August 1993 sublease
agreement with Group S, the Company was obligated to pay Group S 20% of the
net profits from the sale of production derived from the Apex mining claims.
As previously noted in this Prospectus, Hanover Resources was controlled by
Fred R. Schmid, a director of the Company and its former president, and
members of his immediate family. Group S was also controlled by Mr. Schmid
and members of his immediate family, and by certain other affiliates of the
Company.
As a consequence of the merger, the Company assumed ongoing rental and
royalty obligations with respect to Hanover Resources' and Group S's mining
claims. The Company's, Hanover Resources' and Group S's aggregate rental and
royalty obligations to the landowner-lessors of their respective claims were
approximately $8,700,000 as of June 30, 1996, of which approximately
$5,300,000 was formerly attributable to Hanover Resources' claims and
approximately $3,400,000 was formerly attributable to Group S's claims. As
described below under "-Continued Consolidation of Claims in the Alder Gulch
Area," the Company reached an agreement with one such landowner-lessor in
April of 1996, which reduced the amount of Group S's obligation by
approximately $3,000,000, in exchange for the forgiveness of certain
indebtedness, the issuance of shares of the Company's common stock, and the
assignment of an unusable ore processing facility and other mining equipment.
See Note 14 to the Consolidated Financial Statements.
The Company has accounted for the merger of Hanover Resources and Group S
as a purchase and not as a pooling of interests. Under purchase accounting
treatment, the excess, if any, of the fair value of the shares of common stock
issued in a merger over the book value of the assets to be acquired is charged
to good will and is required to be amortized over a period of fifteen years.
Because Hanover Resources and Group S are affiliated with the Company, the
Company has recorded their assets at cost in the merger, and has not ascribed
any value to good will.
The boards of directors of the Company, Hanover Resources and Group S
approved the proposed merger for a variety of reasons, the principal reason
being to consolidate the mining properties of the three companies under a
single entity so that the Company can move forward in a simple,
straightforward manner with continued exploration and development. Although
the constituent companies' mining claims are contiguous, the terms of the
related party transactions through which they were controlled would have made
it difficult, in management's opinion, to proceed with any comprehensive
financing or mine development plan. Such transactions were eliminated as a
result of the merger, however, and such fact, management believes, has already
better positioned the Company to negotiate with other mining companies
regarding a joint venture or other arrangement to develop the properties. The
merger consolidation has also placed the Company in a more prominent role in
the Alder Gulch area, and has improved management's ability to enter into
negotiations for the acquisition of other mining properties in the area.
As a consequence of the merger, the Company's mining properties now
consist of some 493 contiguous claims and one mining lease having an estimated
potential mineralized gold deposit, based on Kennecott's activities, of
approximately 26,000,000 tons, having an average grade of .0615 ounces per
ton. A mineralized deposit is a mineralized body which has been delineated by
appropriate drilling or underground sampling to support estimates of tonnage
and average mineral grade. Such a deposit does not qualify as a reserve until
a comprehensive evaluation based upon unit cost, grade, recovery and other
factors has been conducted and the economic feasibility of exploiting the
deposit has been determined. Mineralized deposit estimates are based on
widely spaced drill hole data and should not be confused with drill indicated
reserves. Drill indicated reserves can only be established through extensive
in-fill drilling (usually on 50 foot centers), and are interpreted within the
mining industry to be a much more reliable estimate of a mining property's
economic potential than is a mineralized deposit estimate. Reserves are
classified as either proven, probable, possible or inferred reserves, and
reflect the degree of certainty, established by drilling and other exploratory
means, that a given property contains metalliferous ores that can be mined and
extracted at a profit. The Company has not yet undertaken additional drilling
or a comprehensive evaluation of the Alder Gulch properties.
Continued Consolidation of Claims in the Alder Gulch Area. The Company
has made substantial progress in its efforts to consolidate the mining claims
belonging to nonaffiliated entities in the Alder Gulch area since June of
1995. These efforts are described below.
Additional Apex Claims. In early February of 1996, the Company announced
that it had acquired the remaining 20% interest in seven patented and one
unpatented mining claim in the Apex mine area from a nonaffiliated entity for
$90,000, and that it had also entered into an agreement to acquire a 0.5%
gross overriding royalty interest burdening the Company's Kearsarge group of
claims held by another nonaffiliated entity in exchange for 5,000 shares of
Common Stock and options to acquire an additional 5,000 shares, exercisable on
or before November 1, 1997 at the price of $2.50 per share.
Possible Merger with Easton-Pacific. On February 26, 1996, the Company
announced that it had entered into a letter of intent with Easton-Pacific
contemplating a possible merger of Easton-Pacific into the Company in exchange
for 14,368,713 shares of Common Stock. Easton-Pacific has advised the Company
that it owns or controls 36 patented and 137 unpatented mining claims in the
Virginia City area, near the Alder Gulch, all of which are contiguous to the
Company's claims, and an additional 35 patented and 58 unpatented claims near
Norris and Pony, Montana, some 35 miles northwest of the Alder Gulch. The
proposed number of shares to be issued in the contemplated transaction is
based upon a number of factors, including the presumed value of Easton-
Pacific's mineral resources, the absence of any landowner royalty obligations
with respect to the Easton-Pacific claims and the market price of the
Company's Common Stock at the time negotiations commenced.
The Easton-Pacific letter of intent provides for a 90 day due diligence
period (which was extended for sixty additional days, until July 15, 1996),
during which each company will investigate each other's mining claims,
technical data and mineral resources, and any environmental or litigation
risks to which either may be subject. Depending on the results of these
investigations, the companies will then enter into a definitive merger
agreement, consummation of which will be subject to the approvals of the
boards of directors and stockholders of each company, the delivery of a
fairness opinion by an independent financial advisor, and the preparation and
effectiveness of a registration statement under federal and state securities
laws.
As of the date of this Prospectus, management of the Company cannot
predict whether these due diligence investigations will culminate in a
definitive merger agreement with Easton-Pacific, or whether any such agreement
will be approved. As a consequence of its due diligence activities to date,
the Company has discovered that Easton-Pacific's Norris and Pony mining
claims, located some 35 miles from the Alder Gulch area, may be subject to yet
unasserted environmental claims under the Comprehensive Environmental Response
and Liability Act ("CERCLA") and the Montana Comprehensive Environmental
Cleanup and Responsibility Act (the "Montana Act"). Although Easton-Pacific
has expressed a willingness to segregate these claims from the Alder Gulch
claims, such segregation would not, in the opinion of management of the
Company, necessarily relieve the Company from successor liability for
environmental cleanup costs under CERCLA and the Montana Act. Moreover, were
Easton-Pacific to segregate the Norris and Pony claims in an acceptable
manner--thereby reducing the likelihood the Company would be liable for such
costs as a successor entity--such segregation likely would result in the
transaction being restructured as an asset acquisition, as opposed to a
merger, the effect of which would render the transaction taxable to Easton-
Pacific and its shareholders. Based on the Company's current discussions, it
does not appear as if Easton-Pacific is amenable to proceeding with the
transaction under these circumstances.
The uncertainty of the Easton-Pacific transaction is further compounded
by the fact that the Tabor and Moen transactions, which are described
elsewhere in this Prospectus, have, in the opinion of the Company's
management, benefitted the Company's Alder Gulch mining claims (and thereby
increased their potential value, assuming mining activities are commenced),
without any corresponding increase in the potential value of Easton-Pacific's
Alder Gulch mining claims. As a consequence, management of the Company
presently believes that the transaction cannot be completed, as a merger or
otherwise, unless Easton-Pacific consents to a significant reduction in the
number of shares of the Company's Common Stock it would receive as
consideration for its Alder Gulch mining claims. Easton-Pacific has conducted
only limited exploration activities on its properties, and thus far has not
been able to demonstrate to the Company that its mining claims contain a
mineable gold deposit warranting the consideration set forth in the letter of
intent.
Acquisition of Claims from Tabor Resources. Effective March 25, 1996,
the Company entered into an asset purchase agreement with Tabor Resources
Corporation, a Minnesota corporation, for the purchase of ten patented and 120
unpatented mining claims, and one mining lease, covering properties located in
the Alder Gulch area. The Company has issued Tabor 525,000 shares of Common
Stock in the transaction and also agreed that if, during the two year period
commencing with the effective date of the agreement, the average bid price of
the Common Stock during any period of thirty consecutive trading days does not
exceed $2.00 per share, it will issue Tabor such number of additional shares
sufficient to raise the aggregate market value of the shares then owned by
Tabor to $2.00.
As part of the transaction, the Company also agreed to prepare and file a
registration statement under the Securities Act (of which this Prospectus is a
part) covering the shares of Common Stock to be issued to Tabor, which shares
comprise a portion of the shares offered by the Selling Stockholders hereby.
The Company also agreed to maintain the registration statement of which this
Prospectus is a part in effect for a period of eighteen months to enable Tabor
to resell the shares should it so choose. In addition, the Company has
granted Tabor certain piggy-back registration rights under the Securities Act,
the effect of which is to enable Tabor to include any shares remaining unsold
following the termination of effectiveness of the registration statement
described above in any registration statement subsequently filed by the
Company relating to securities to be sold for the account of the Company or
for the accounts of any of its affiliates.
Restructuring of Certain Rental and Royalty Obligations. As previously
noted, the Company does not own their Alder Gulch mining claims outright, but
instead leases the claims from various landowner-lessors under various lease
and purchase option agreements, to whom it pays rentals in exchange for the
right to conduct mining activities. At June 30, 1996, these rental
obligations aggregated approximately $8,700,000, of which $400,000 is payable
in 1996, and the balance of which is payable over a seven year period at the
approximate rate of $1,350,000 per year. Approximately $5,300,000 of this
amount was payable with respect to claims leased by Hanover Resources and
approximately $3,400,000 was payable with respect to claims leased by Group S.
Production royalty obligations with respect to these claims, which become
payable once minerals are produced from the claims, range from 0.5% to 5%.
Since late 1995, management of the Company has made a concerted effort to
renegotiate the terms of certain of these leases to reduce the Company's
future cash requirements and, more importantly, to lessen the production
royalty obligations and thereby make the claims more attractive to joint
venture or other development. Effective April 26, 1996, Group S entered into
an agreement with Roy Moen and related interests amending the terms of an
October 1991 lease and option agreement covering 216 mining claims in the
Alder Gulch area. Under the terms of the former agreement, Group S was
obligated to pay Moen aggregate rentals and other costs of $7,581,764 over a
period of seven years, of which $4,150,000 was payable during a three year
period beginning in 2001. In addition, once the claims were placed into
production Group S was also obligated to pay Moen a landowner's production
royalty (essentially a royalty equal to the sales price of the minerals
produced, less smelting charges) of up to 5% if the price of gold was $425 per
ounce or higher, declining to 1% if the event the price of gold was less than
$425 per ounce. The agreement further provided that Group S would acquire a
proportionate ownership interest in the claims as rental payments were made,
thereby reducing the risk of forfeiture in the event Group S was unable to
meet its obligations.
The amendment agreement reduces Group S's overall rental obligations by
$3,000,000 and establishes a new payment schedule providing for bi-annual
payments of $200,000 to $300,000, commencing October 16, 1996 and ending
September 1, 2002. The revised agreement also reduces, from 5% to 2.5%, the
production royalty Moen will receive if the claims are placed into production.
Like the former agreement, the production royalty declines to 1% in the event
the price of gold is less than $425 per ounce; unlike the former agreement,
the Company will not acquire a proportionate ownership interest in the claims
as rental payments are made. Rather, such ownership will become vested only
when all future rental payments, now totalling $3.4 million, have been made.
Pursuant to an amendment to the April 26, 1966 agreement, dated June 28, 1996,
Moen has also granted Group S the right to commingle ores taken from the
claims and to measure the volume of such ores from vertical side lines
perpendicular to the outside boundary lines of the claims.
In consideration of the reductions in rental and royalty obligations
payable to Moen, the Company issued 250,000 shares of Common Stock to Moen,
and granted Moen three-year options, exercisable at the price of $2.00 per
share, to acquire an additional 200,000 shares. The Company also agreed to
prepare and file a registration statement under the Securities Act covering
the shares and the shares underlying the options, which are included in the
registration statement of which this Prospectus is a part. The Company is
obligated under its agreement with Moen to maintain the effectiveness of the
registration statement for a period of eighteen months years so that Moen may
resell the shares.
As further consideration for the agreed reductions, the Company forgave
approximately $89,000 in indebtedness which Moen and a related entity incurred
in 1993 in connection with purchase of equipment and the customizing of a mill
facility near Virginia City. The Company also transfered two mine trucks to
Moen, having a book value at December 31, 1995 of $43,183, and caused Geneva
Mill L.C. to assign and convey to Moen an unusable ore processing facility
located in Radersburg, Montana, together with approximately twenty acres of
real property on which the facility is located. (As is disclosed elsewhere in
this Prospectus and in Note 5 to the Consolidated Financial Statements, the
carrying value of a promissory note issued to the Company by Geneva Mill L.C.
in 1994 in connection with the Company's financing of the mill's acquisition
and refurbishment was written down in 1995 to $220,000.) In addition, N. A.
Degerstrom, Inc., which is controlled by an affiliate of the Company,
transfered to Moen certain equipment maintained at a Degerstrom-operated
milling facility near Soda Springs, Idaho. Such equipment is estimated by
Degerstrom to have a fair market value of approximately $30,000; the Company
has agreed to compensate N. A. Degerstrom, Inc. for such value.
The Alder Gulch Properties
Overview of the Properties. The Company's mining properties are located
in the historic Alder Gulch area of the Virginia City Mining District in
southwestern Montana, approximately 50 miles southeast of Butte, Montana.
Gold was first discovered in the area in 1863. An estimated 10,000,000 ounces
of gold have since been produced from placer operations in the Alder Gulch and
from an area extending 15 miles downstream from the Alder Gulch to the town of
Alder, Montana. Gold has also been produced from lode mines in the area since
the late nineteenth century, although historical production is difficult to
estimate due to an absence of reliable records. The Company believes the
historical production in the area is indicative of large gold-bearing mineral
systems, and that the area has a very high potential for additional discovery.
As of the date of this Prospectus, the Company's properties consisted of
493 contiguous mining claims and one mining lease covering an area of
approximately 15.4 square miles. The topography of the area is mountainous,
however the properties are seasonally accessible by road.
The Company's Kearsarge and Apex claims area, and other prospects in the
Virginia City Mining District, are interpreted to be Archean volcanogenic
quartz carbonate facies Iron Formation deposits. These deposits are noted for
their prolific gold production, and account for approximately 20% of current
world production.
The rocks and mineralization of the Virginia City Mining District have
been overprinted by one or more metamorphic events, and by folding and
faulting. The Kearsarge, Apex and other prospects occur in major shear zones;
the data compiled by the Company indicate that the mineralization is
stratabound and occurs in quartz carbonate feldspar rock units containing
variable amounts of green muscovite, biotite, garnet, graphite and pyrite.
There is evidence of hydrothermal alteration younger than metamorphism, which
indicates the possibility of additional mineralization in the area.
The Company's mining claims and lease in the Alder Gulch area (and those
of Easton-Pacific) are more particularly identified on the following map.
[Map showing location of claims and leasehold interests
in the Alder Gulch area.]
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Historical Exploration Activities on the Properties. During 1993
Kennecott conducted a surface drilling program on the Company's Alder Gulch
claims and the adjoining claims owned by Group S. Eight diamond drill core
holes were drilled to test the Big Vein and the Kearsarge Vein. These holes
encountered significant mineralization. During 1994 and 1995 the Company
drove approximately 3,000 feet of lateral and cross cut workings in the
Kearsarge and Apex mines, and drilled 23 diamond drill core holes along and
between the Big Vein and the Kearsarge Vein to evaluate and extend the
mineralization encountered by Kennecott's drilling. The Company's recently
concluded compilation included the results of mapping and sampling of the
workings, lithologic logging of all underground drill holes, and splitting and
assaying all previously unassayed intervals of the holes. The drill holes
intercept mineralization over a strike length of 1,000 feet with a thickness
that varies from 100 to 200 feet and a vertical extent of at least 480 feet.
The vertically deepest hole ends in mineralization. Mineralization is open in
all directions, particularly depth and across stratigraphic section. The
following table sets forth information concerning drill holes representative
of the grades and thickness encountered.
Drill Hole From To Length Au opt
---------- ----- -- ------ ------
UGKS 1 95.0 135.0 40.0 0.061
UGKS 4 85.0 109.9 24.9 0.020
140.0 213.0 73.0 0.109
UGKS 5 55.0 75.8 20.8 0.076
114.7 191.0 76.3 0.115
UGKS 9 45.4 80.0 34.6 0.088
155.0 229.6 74.6 0.152
UGKS 11 51.0 106.2 55.2 0.213
UGKS 12 0.0 138.8 138.8 0.092
7000-1 5.5 103.9 98.4 0.222
7000-3 9.6 110.4 100.8 0.379
7000-6 5.0 88.6 83.6 0.094
KS 1 305.0 507.0 202.0 0.191
KS 2 313.0 383.0 70.0 0.051
428.0 453.0 25.0 0.135
465.0 507.0 42.0 0.157
KS 4 311.0 371.0 60.0 0.031
KS 5 404.0 479.0 75.0 0.094
KS 8 295.0 480.0 185.0 0.095
Based on the Company's examination of the drill core, the underground
workings, and the geology maps and cross sections, management believes that
the mineral system is more extensive than the two parallel vein systems. The
Big Vein and Kearsarge Vein and the interval between these structures are
mineralized. The mineralization occurs in lenticular shaped bodies that vary
in thickness on strike and dip. Additional drilling, however, will be
required to detail the configuration of the mineralization and to define its
limits in three dimensions. The estimated mineralized deposit to an average
depth of 500 feet below the surface is approximately 6,000,000 tons with an
average grade of .083 ounces of gold per ton.
The mineralization has been overprinted by one or more metamorphic
events, occurs in a major shear zone that is parallel to the regional strike
of stratigraphy and has been dislocated by post mineral faulting along
northwest, northeast and near horizontal faults. The data indicates the
mineralization is stratabound, and gold occurs in quartz carbonate feldspar
rock units with variable amounts of green muscovite, biotite, garnet, graphite
and pyrite. The mineral system is interpreted to be an Archean volcanogenic
quartz carbonate facies iron formation.
The Company's work added detail to the Kennecott data and supports its
estimates for the Kearsarge-Apex area. The volume of mineralization was
indicated by the drilling (1,000' x 150' x 480') assuming an average grade of
0.1 ounce of gold per ton. However, these deposits have not been proven as
reserves. The thickness and grade of mineralization, combined with
metallurgical studies indicate that open pit mining and carbon-in-leach
milling are the preferred methods for extracting the resource. The Company
presently lacks the financial resources to resume mining.
Future Exploration Activities. The Company has budgeted $250,000 for
further exploration of the Alder Gulch properties during 1996. These
exploration activities are dependent on funding, and are expected to include a
continuation of surface geologic mapping and sampling, and additional diamond
core drilling on the Kearsarge and Apex claims to define further the extent
and grade of mineralization on these prospects. These activities will be
supplemented by core drilling on other targets on the Company's claims, and on
those claims acquired from Tabor Resources Corporation.
As previously noted in this Prospectus, the Company has received
expressions of interest from a number of North American mining companies
regarding a joint venture or other economic arrangement to develop the Alder
Gulch mining properties. The Company has entered into discussions with
representatives of these companies and believes such an arrangement could be
concluded during the next twelve months. Exploration activities to be
conducted during the year are expected to be funded through such an
arrangement.
Mining, Environmental and Other Matters Pertaining to the Properties.
The Company, like other mining companies doing business in the United States,
is subject to a variety of federal, state and local statutes, rules and
regulations designed to protect the quality of the air and water in the
vicinity of its mining operations. These include "permitting" or pre-
operating approval requirements designed to ensure the environmental integrity
of a proposed mining facility, operating requirements designed to mitigate the
effects of discharges into the environment during mining operations, and
reclamation or post-operation requirements designed to remediate the lands
effected by a mining facility once commercial mining operations have ceased.
Federal legislation and implementing regulations adopted and administered by
the United States Environmental Protection Agency, the Bureau of Land
Management--in particular, legislation such as the federal Clean Water Act,
the Clean Air Act and the Comprehensive Environmental Response, Compensation
and Liability Act--have a direct bearing on domestic mining operations.
The Company's Alder Gulch properties are located in southwestern Montana,
which, despite its history as a major mining area, has in the last decade
gradually limited mine development as tourism and environmental concerns have
assumed greater economic and political importance. Although mines continue to
be approved for development in the state, the cost and uncertainty associated
with the permitting process have resulted in fewer mining applications and
higher operating costs for those mining companies seeking to do business in
the state. Compliance with legislation and regulations--such as Montana's
Metal Mine Reclamation Act and its Environmental Policy Act, which are
administered by the Department of Lands, and the state's Air Quality Act and
Water Quality Act, which are administered through various bureaus of the
Department of Environmental Quality--while necessary for the protection of the
state's lands and waters, have nonetheless made permitting and development
difficult.
In addition, the Montana Historical Society has recently announced plans
to raise funds to acquire much of the town of Virginia City, near the Alder
Gulch area, and convert it to an historical district; this could have an
effect on future mining operations. A similar proposal by the federal
National Park Service was abandoned last year due to Congressional budget
cuts.
Finally, a citizens initiative proposal scheduled to be voted upon in
this November's general election, would, if approved, implement stringent
water quality control standards throughout Montana which could have the effect
of limiting or curtailing entirely certain mining development projects within
the state, possibly including proposed development activities on the Company's
Alder Gulch properties. As of the date of this Prospectus, it is not possible
to predict with any degree of certainty whether the initiative will be
approved.
Gold was first discovered at Daylight Creek in the Alder Gulch area in
1863, and extensive mining activities in the area continued relatively
unabated until the 1930s, when production from conventional mining processes
dwindled. As a consequence of these activities, the Company believes it will
experience less difficulty in obtaining permits for large scale mining
development than would be the case were it seeking to develop an area that had
no history of mining operations. The Company has obtained certain permits and
approvals in conjunction with the limited exploration and minor development
activities conducted on the Alder Gulch properties from 1993 to 1995, and
believes that it will meet existing criteria for additional permits and
approvals necessary to large scale development. Nonetheless, substantial
planning will be required of the Company in order to comply with the
requirements of these existing laws and regulations, and no assurance can be
given that its proposed plans to conduct large scale development of the Alder
Gulch properties will be timely realized. Extensive data regarding the effect
of any such development on the air, water and scenic value of the area will
have to be collected and analyzed at significant cost to the Company, and then
presented to the various regulatory agencies in the form of a mine development
and reclamation plan. These agencies will then review and evaluate the plan,
and are free to reject it or impose additional requirements which could
increase the cost of development to a level beyond that deemed economically
feasible. It can be expected that the Company will encounter opposition from
local environmental groups and organizations once its development plans are
presented to the regulatory authorities and made available for public comment.
Other Activities
The Company continually evaluates other precious metals mining
opportunities for possible acquisition or joint venture, and from time-to-time
engages in exploratory discussions regarding such opportunities. As of the
date of this Prospectus, the Company has no agreement, understanding or
arrangement with any person regarding the acquisition of mining properties
outside the Alder Gulch area.
Executive Offices and Employees
The Company's principal executive offices are located in a 1,850-square
foot facility at 1000 Northwest Boulevard, Suite 100, Coeur d'Alene, Idaho
83814. (Prior to February 1, 1996, such offices were located at 14 Hewlett
Drive, East Williston, New York 11596.) The Company leases these facilities
at the rate of $11.65 per square foot, or approximately $21,600 per year. As
of the date of this Prospectus, the Company employed two full-time and one
part-time management, finance and administrative employees in Coeur d'Alene
and in neighboring Spokane, Washington.
[The balance of this page has been intentionally left blank.]
<PAGE>
<PAGE>
MANAGEMENT
Directors and Executive Officers
The names, ages, business experience (for at least the past five years)
and positions of the directors and executive officers of the Company as of the
date of this Prospectus are set out below. The Company's board of directors
consists of seven members. All directors serve until the next annual meeting
of the Company's stockholders or until their successors are elected and
qualified. Executive officers of the Company are appointed by the board of
directors. As is disclosed elsewhere in this Prospectus, in the section
entitled "Business-Degerstrom Group Financing and Management Restructuring,"
Mr. Degerstrom, Mr. Fish and Mr. Owsley were each appointed to the board of
directors in September of 1995 and Mr. Fish was elected president of the
Company in March of 1996, all pursuant to the terms of a securities purchase
agreement between the Company and Mr. Degerstrom. Mr. Fish was subsequently
elected chairman of the board of directors in May of 1996.
Name Age Position
---- --- --------
James A. Fish 65 Chairman and President
Neal A. Degerstrom 71 Director
Pierre Gousseland 72 Director
F.D. Owsley 63 Director
Fred R. Schmid 61 Director
Laurence Steinbaum 69 Director
Nicholas S. Young 46 Director
Frank D. Duval (1) 60 Chief Operating Officer (de facto)
Merlin Bingham (1) 62 Exploration Manager
____________________
(1) Neither Mr. Duval nor Mr. Bingham are executive officers of the Company,
but may be deemed such by virtue of their activities on behalf of the
Company.
Biographies of Directors, Executive Officers and Key Individuals
James A. Fish. Mr. Fish was appointed a director of the Company in
September of 1995, President in March of 1996 and Chairman in May of 1996. He
is also Vice President and General Counsel for N. A. Degerstrom, Inc.,
positions he has held since September of 1987. Prior to that, he was in
private law practice with the firm of Winston & Cashatt in Spokane from 1980
through 1987, and at the firm of Fish, Schultz & Tombari from 1962 through
1980. Mr. Fish was employed as superintendent at S&F Construction from 1955
through 1962. He received a bachelor of arts degree in geology from Berea
College in Kentucky in 1959 and a law degree from Gonzaga University School of
Law in 1962.
Neal A. Degerstrom. Mr. Degerstrom was appointed a director of the
Company in September of 1995. He is President of N. A. Degerstrom, Inc.,
Spokane, Washington, a privately-held company which has been engaged in heavy
railroad, highway, bridge and dam construction, large open pit mining and
worldwide mineral exploration since 1904, and prior to that was the managing
partner of N. A. Degerstrom Company, the predecessor in interest to N. A.
Degerstrom, Inc. Mr. Degerstrom has been a member of the Advisory Board of
the College of Engineering at Washington State University, president of the
Spokane Chapter of Associated General Contractors, a member of the Society of
Explosives Engineers and the Society of Mining Engineers, and a trustee of the
Northwest Mining Association. He received a Civil Engineering degree from
Washington State University in 1949.
Pierre Gousseland. Mr. Gousseland has been a director of the Company
since July of 1992, and is also currently a director of SMB North America,
Inc., SIRE, Latin-American Gold Company and Royal Gold, Inc. He was the
former Chairman of the Board, Chief Executive Officer and director of AMAX, a
director with AIG, Inc., Chase Manhattan International, Degussa AG, French
American Banking Corp. Saurer Group Investments Ltd., IBM World Trade
Europe/Middle East Africa Corp. and Pancontinental Mining Europe GmbH.
Mr. Gousseland received the degree of Ingenieur Civil des Mines from the Ecole
Nationale Superieure des Mines and a law degree from the Sorbonne. He has
been awarded the National Order of Merit in France and the Chevalier of Legion
of Honor from France.
F. D. Owsley. Mr. Owsley was appointed a director of the Company in
September of 1995. He was formerly employed by ASARCO as General Manager of
its Northwest Mining Department and was responsible for the company's silver
mining operations in the Coeur d'Alene Mining District and its lead-zinc and
silver-copper mines in Colorado and Montana. Mr. Owsley spent 34 years with
ASARCO in various mining positions with the company before his retirement in
1993. He graduated from Montana School of Mines with a bachelor of sciences
degree in mining engineering in 1955 and has received honorary degrees from
the Montana College of Mineral Science and Technology.
Fred R. Schmid. Mr. Schmid was Chairman of the Board and President of
the Company from September of 1990 through May of 1996 and March of 1996,
respectively, and of Hanover International, Inc. since its inception. He was
also Chairman of the Board and President of Hanover Resource and Group S, both
of which were merged into the Company effective August __, 1996. Since 1972
he has been Chairman of the Board, Chief Executive Officer and President of
The Hanover Group, Inc., a privately held company he founded, which is engaged
in investing in natural resource properties. Prior to becoming involved in
the Company and its affiliates, Mr. Schmid was President of National Equipment
Rental, Inc., which was engaged in equipment leasing and financing. Prior to
then, he was employed by IBM in various marketing, manufacturing and research
functions. Mr. Schmid graduated from New York University with a bachelor of
sciences degree in industrial engineering in 1963.
Laurence Steinbaum. Mr. Steinbaum has been a director of the Company
since December of 1994. From October 1990 through December 1994, he was co-
chairman of the Company's Board of Advisors. Since 1986 he has been a private
financier and owner/investor of several businesses, including restaurants,
real estate and oil and gas producing companies. Between 1960 and 1985, he
was Executive Director of the Sommerset Hills School, a private school located
in New Jersey for handicapped children, which he owns. From 1975 to 1980, he
owned a major dredging company in Florida. He graduated from New York
University in 1951 receiving a bachelor of sciences degree and completed
courses toward a Masters Degree at New York University's School of Social
Sciences.
Nicholas S. Young. Mr. Young has been a director of the Company,
Hanover International, Inc. and Hanover Resources since October of 1990. From
October 1990 through December 1994, he was co-chairman of the Company's Board
of Advisors. He is presently a director of Spencer Stuart, a privately-held
executive search firm headquartered in New York City. Since July of 1992,
Mr. Young has served as President of TriCoastal Steel Corp. and as a Vice
President of Citibank, where he founded and managed the Global Gold Business
Department, which provided corporate financing and investment banking services
to governments, corporations and private investors using gold as the medium of
exchange. Prior to joining Citibank, Mr. Young held various sales, marketing,
trading and management positions with AMAX, Kennecott and Hudson Bay Mining
Company. He attended Franconia College and Harvard Business and Management
School.
Frank D. Duval. Mr. Duval presently serves in an ex officio capacity as
acting chief operating officer of the Company and exercised responsibility
with respect to the Company's day-to-day operations. He is also presently a
consultant on mining-related matters to N. A. Degerstrom, Inc. and a director
of Midnite Mines Company, based in Spokane, Washington. From 1974 until his
resignation in 1989, Mr. Duval was also a director of Pegasus Gold Inc., a
major North American mining company, which he founded. He is also a co-
founder and principal shareholder of Montana Reserves Company, a privately-
held mining company which, until operations were curtailed in 1995, was a
joint venture partner with Noranda Minerals Corp. of a large copper and silver
mine located in Sanders and Lincoln counties, Montana. Mr. Duval has been
engaged in the mining business in various capacities for over 30 years.
Mr. Duval was one of several defendants named in a civil administrative
proceeding initiated by the Securities and Exchange Commission in 1988
alleging violations of certain of the reporting provisions of the Securities
Exchange Act of 1934. Mr. Duval settled such proceedings in 1988 by
consenting to the entry of a permanent injunction prohibiting further
violations, without admitting or denying any of the Commission's allegations
and without a finding that any violation occurred. The events leading to the
administrative proceeding occurred while Mr. Duval was associated with Pegasus
Gold Inc.
In 1991, Star Phoenix Mining Company, an Idaho corporation with which Mr.
Duval was affiliated as its president, a director and a significant
shareholder, filed for protection from creditors under federal bankruptcy law
following the termination by Hecla Mining Company of a lease and option
agreement between Star Phoenix and Hecla covering mining properties in the
Coeur d'Alene Mining District that Star Phoenix was then operating. Star
Phoenix subsequently brought suit against Hecla in Shoshone County, Idaho
District Court for breach of the lease and option agreement, and in 1994
obtained a $20 million judgment against Hecla which is now pending appeal
before the Idaho Supreme Court. Mr. Duval was also one of several guarantors
of indebtedness incurred by Star Phoenix. As a consequence of the bankruptcy,
certain creditors of Star Phoenix brought suit against Mr. Duval predicated on
the guaranties, and obtained judgments against Mr. Duval which have not yet
been fully satisfied and are presently the subject of further bankruptcy court
review.
Wayne Schoonmaker. Mr. Schoonmaker was appointed Secretary, Treasurer
and Principal Accounting Officer of the Company effective as of January of
1996, succeeding Stephen J. Schmid. From 1981 until 1993, he was Financial
Manager of the Northwest Mining Department of ASARCO, and from 1978 until
1991, was Chief Accountant at ASARCO's Troy Unit in Montana, where he was
responsible for the installation and implementation of the accounting system
for the start-up Troy mine. From July of 1978 through December of 1978, Mr.
Schoonmaker was Assistant Treasurer of the Bunker Hill Company, and from 1964
to 1978, was Assistant Corporate Secretary of Hecla Mining Company.
Mr. Schoonmaker received a bachelor of sciences degree in accounting from the
University of Montana in 1962 and masters degree in business administration
from the University of Idaho in 1987.
Merlin Bingham. Mr. Bingham has been associated with the Company as its
Exploration Manager since January of 1996. From 1984 until joining the
Company, he served as a consultant to various companies engaged in mineral
exploration, including the Bunker Hill Company and Star Phoenix Mining
Company, and from 1979 to 1984, he was employed by Diversified Exploration
Services in Denver as Vice President of Exploration. Mr. Bingham has over
thirty years' experience in mineral exploration and mine development,
operation and reclamation. He received a bachelor of sciences degree in
mineralogy from the University of Utah in 1963 and undertook studies toward a
masters degree at that institution during 1963 and 1964.
Section 16(a) Reporting Obligations
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires the Company's directors and executive officers, and
persons who own more than 10% of a registered class of the Company's equity
securities, to file initial reports of ownership and reports of changes in
ownership with the Securities and Exchange Commission (the "Commission").
Such persons are required by Commission regulations to furnish the Company
with copies of all Section 16(a) forms they file.
Based solely on its review of copies of reports made pursuant to
Section 16(a) of the Exchange Act and related regulations, the Company
believes that during the year ended December 31, 1994 all filing requirements
applicable to its directors, executive officers and 10% shareholders were
satisfied, except that initial reports on Form 3 required to be filed by
Mr. Fish, Mr. Degerstrom and Mr. Duval were not timely filed.
Executive Compensation
Summary Compensation Table. The following table discloses compensation
received by the Company's president and chief executive officer for the years
ended December 31, 1995, 1994 and 1993. No other executive officer's salary
and bonus exceeded $100,000 for such years.
Annual Compensation
- - -----------------------------------------------------------------------------
Other
Annual
Executive Officer Year Salary Bonus Compensation
- - ----------------- ---- --------- -------- ------------
Fred R. Schmid 1995 $ 137,435 $ 0 $ 0
President and Chief 1994 126,445 150,000 (1) 0
Executive Officer 1993 114,950 0 0
________________
(1) Consists of a bonus awarded Mr. Schmid in 1994 for his services in
raising the initial working capital for the Company and completing its
public financing.
<TABLE>
<CAPTION>
Long-Term Compensation
- - ----------------------------------------------------------------------------------
Dollar Value Securities All Other
of Restricted Underlying LTIP Compen-
Executive Officer Year Stock Awards Options/SARS Payouts sation
- - ----------------- ------ ------------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C>
Fred R. Schmid 1995 $ 0 $ 0 $ 0
President and Chief 1994 $ 0 $ 0 $ 0
Executive Officer 1993 $ 0 $ 0 $ 0
________________
</TABLE>
Compensation of Current President. As previously noted in this
Prospectus, James A. Fish succeeded Fred R. Schmid as president of the Company
effective March of 1996. Mr. Fish receives an annual salary of $90,000 in
such capacity, payable each month in the form of $3,750 in cash and $3,750 in
restricted shares of Common Stock based on 60% of the average of the "asked"
market prices of the Common Stock as reported on the Nasdaq SmallCap Market
during the preceding calendar-month. The aggregate compensation payable to
Mr. Fish during 1996, without attributing any value to the discounted portion
of the Common Stock, is expected to total $75,000.
Overall Compensation Policy. Salary compensation of the Company's
executive officers is determined by the board of directors and by a
compensation committee of the board, which is responsible for considering
specific information and making recommendations to the full board. The
compensation committee is comprised of two outside directors appointed
annually by the Company's board of directors and presently comprises Mr.
Gousseland and Mr. Steinbaum. In considering and recommending executive
compensation the compensation committee reviews factors such as individual
executive compensation, corporate performance, stock price appreciation and
the total return to stockholders. The committee also considers executive
compensation levels within a peer group of publicly-held North American gold-
mining companies and, at least historically, takes into account the views of
the Company's chief executive officer.
The objectives of the Company's total executive compensation package are
to attract and retain the best possible executive talent, to provide an
economic framework to motivate the Company's executives to achieve goals
consistent with the Company's business strategy, to provide an identity
between executive and stockholder interests through stock option plans, and to
provide a compensation package that recognizes an executive's individual
results and contributions to the Company's overall business objectives.
Salary. The key elements of the Company's executive compensation
consists of salary and incentive stock options. The compensation committee of
the board acts on salary levels of officers and the stock plan committee of
the board acts on employee stock option awards. Together, these committees
design an overall compensation package for each executive.
Salaries for executive officers are determined by evaluating the
responsibilities of the position held and the experience of the individual,
and by reference to the market for executive talent, the latter of which
provides a comparison of salaries for comparable positions at other gold-
mining companies. The salary levels of the chief executive officer and other
executive officers of the Company for the following calendar year are
generally established by the board of directors at its December meeting or at
a later special meeting of the board. Specific individual performance and
overall corporate or business segment performance are reviewed in determining
the compensation level of each individual officer. The compensation
committee, where appropriate, also considers other performance measures, such
as increase in market share, safety, environmental awareness, and improvements
in relations with the Company's stockholders, employees, the public and
government regulators. In evaluating the performance and setting the
compensation of the chief executive officer and the other executive officers
of the Company, the compensation committee, board of directors and stock
option plan committee have traditionally maintained salary compensation at
levels below those of other companies within the Company's peer group; in
order to compensate for these lower salaries, the chief executive officer and
other executive officers of the Company have historically been granted
performance incentives in the form of incentive stock options.
Cash Bonuses. From time to time, the board of directors and the
compensation committee may approve cash bonuses to executives and key
employees, based on outstanding achievement in the performance of their
respective duties. During 1994 the compensation committee recommended to the
board, and the board authorized and approved, the payment to Fred R. Schmid of
a cash bonus of $150,000 for his services in raising the initial working
capital and completing the 1993 public financing for the Company. No cash
bonuses were awarded in 1995.
Stock Options. The Company currently maintains one stock option plan,
the 1995 Stock Option Plan. The plan provides for the issuance of incentive
stock options intended to qualify under Section 422A of the Internal Revenue
Code of 1986, as amended (the "Code"), and options that are not qualified
under the Code. Key individuals of the Company and its subsidiaries,
including officers and directors who are also employees, are eligible to
receive grants of options under the plan. All options are exercisable at
prices equivalent to the mean of the high and low sales prices of the Common
Stock, as reported by the Nasdaq SmallCap Market as of the date of grant. As
of the date of this Prospectus, options for 800,000 shares of Common Stock had
been granted, and options for 3,200,000 additional shares were available for
grant, under the 1995 Stock Option Plan.
The Company's incentive stock option plan is jointly administered by the
stock option plan committee and by the board. The primary function of the
stock option plan committee is to review and evaluate the fairness of the
recommendations of management concerning proposed grants of options to
directors and executive officers of the Company. The primary function of the
board in such matters is to consider the recommendations of the stock option
plan committee and to authorize proposed grants of options to such persons.
Stockholder approval of the 1995 Stock Option Plan was obtained at the
1996 special meeting of shareholders for the purposes of qualifying the plan
pursuant to Rule 16b-3 promulgated under the Securities Exchange Act of 1934
(the "Exchange Act").
Options Granted in 1995. The following table provides information on
options granted during the year ended December 31, 1995 to the named executive
officer of the Company.
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Number of Percent of Total Option Stock Price Appreciation
Options Options Granted Exercise Expiration for Option Price (2)
Executive Officer Granted to Employees (1) Price Date at 5% at 10%
- - ----------------- --------- ---------------- -------- ----------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Fred R. Schmid 250,000 31% $1.60 June 2, 2000 $510,000 $645,000
President and Chief
Executive Officer
____________________
<fn1>
(1) During the year ended December 31, 1995, the Company granted options for the purchase of 800,000 shares
of Common Stock to eligible participants under the 1995 Stock Option Plan. Such options consisted of
the 250,000 options granted to Fred R. Schmid described in the preceding table, options for 100,000
shares granted to Pierre S. Gousseland, options for 175,000 shares granted to Stephen J. Schmid,
options for 125,000 shares granted to Laurence Steinbaum and options for 150,000 shares granted to
Nicholas S. Young. Fred R. Schmid, Mr. Gousseland, Mr. Steinbaum and Mr. Young are all directors of
the Company. Stephen J. Schmid is a former director and executive officer of the Company. All such
options are exercisable for a period of five years from the date of grant, or until June 2, 2000, at
the exercise price of $1.60 per share.
</fn1>
<fn2>
(2) The potential realizable value of the options has been calculated according to prescribed regulations,
and assumes the market price of the underlying Common Stock appreciates in value from the date such
options were granted until the expiration date of the options, at the specified annual compounded
rates.
</fn2>
</TABLE>
Option Exercises and Option Values. No options were exercised during the
year ended December 31, 1995 by the named executive officer of the Company.
Employment Contracts and Agreements
Agreements with Fred R. Schmid. On March 14, 1995, the Company amended
Fred R. Schmid's employment agreement retroactive to August 27, 1994,
employing him as its president and chief executive officer until August 31,
1997. The agreement, as amended, provided for a base salary of $125,000 in
the first year, a salary of $137,000 in the second year and a salary of
$150,000 for the third year, payable in equal monthly installments. In
addition to salary, Mr. Schmid was entitled to receive cost-of-living increase
based upon increases in the applicable consumer price index. The agreement
also provided Mr. Schmid with a cash bonus equal to 3% of the Company's pre-
tax net revenues, a severance package equal to the greater of $2,500,000 or
10% of the Company's net worth, or if Mr. Schmid terminated the agreement for
"good reason," an amount equal to 300% of his base compensation, and certain
other benefits.
In January 1996, Mr. Schmid and the Company agreed to terminate the
employment agreement, and Mr. Schmid agreed to resign as president of the
Company effective upon the election of a new president, who was appointed in
March of 1996. Mr. Schmid has subsequently been engaged as a consultant to
the Company, for which he is paid a fee of $7,500 a month through December 31,
1996. Mr. Schmid retained his stock options and rights under the 1995 Stock
Option Plan to purchase up to 250,000 shares of Common Stock of the Company
for $1.60 per share, exercisable through the end of the year 2000. In
addition, the Company has released Mr. Schmid from any claims which the
Company has or might have as a result of all actions taken or omitted by
Mr. Schmid in his capacities as an officer, director or employee of the
Company, unless the Company can demonstrate that he committed any criminal or
deliberately fraudulent acts resulting in actual damages to the Company.
Agreement with Stephen J. Schmid. On September 5, 1995, the Company
entered into an employment agreement with Stephen J. Schmid, the Company's
vice president, treasurer and secretary, providing for certain payments to Mr.
Schmid in the event a "change in control" of the Company, as defined in the
agreement, were to occur. Were such a "change in control" event to occur, the
Company was obligated to continue Mr. Schmid's employment for a period of 24
months thereafter at an annual base salary essentially equal to Mr. Schmid's
base salary immediately before the change in control event, unless Mr. Schmid
elected to terminate the agreement after 12 months. In addition, Mr. Schmid
was entitled to terminate the agreement and to continue to receive a salary
for the balance of the 24 month period, provided such termination was for
"good reason".
In January 1996, Mr. Schmid and the Company agreed to terminate the
agreement, and Mr. Schmid agreed to resign as an officer and director of the
Company following the filing of the Company's annual report on Form 10-K for
the year ended December 31, 1995. Mr. Schmid has been engaged as a consultant
for the Company since January 1, 1996, for which he is paid a fee of $5,500
per month through September 30, 1996, reduced by any compensation he may earn
from new employment during the period from April 1, 1996 through September 30,
1996. Mr. Schmid retained his stock options and rights under the 1995 Stock
Option Plan to purchase up to 175,000 shares of common stock of the Company
for $1.60 per share exercisable through the end of the year 2000. In
addition, the Company has released Mr. Schmid from any claims which the
Company has or might have as a result of all actions taken or omitted by
Mr. Schmid in his capacities as an officer, director or employee of the
Company unless the Company can demonstrate that he committed any criminal or
deliberately fraudulent acts resulting in actual damages to the Company.
Performance Graph. The following graph compares the five year cumulative
total return on an investment of $100 among the Company, the Nasdaq Stock
Market Index and the S&P Gold Index, assuming reinvestment of dividends
received. Cumulative total return is measured by the difference between the
median high and low bid prices of the Company's Common Stock, as reported by
the Nasdaq Stock Market, at the end and beginning of the measurement period.
[performance graph to be added.]
[The balance of this page has been intentionally left blank.]
<PAGE>
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of the date of this Prospectus, the
names of, and number of shares beneficially owned by, persons known to the
Company to own more than five percent (5%) of the Company's Common Stock; the
names of, and number of shares beneficially owned by each director and
executive officer of the Company; and the number of shares beneficially owned
by, of all directors and executive officers as a group. At such date, the
number of shares of Common Stock of the Company outstanding or deemed
outstanding pursuant to presently exercisable options and purchase commitments
was 19,848,022.
Amount and Nature of
Beneficial Ownership
(all direct unless Percent
Name of Owner otherwise noted) of Class
- - -------------------- ------------------------ ---------------
James A. Fish (1), (2) 48,000 0.24%
Neal A. Degerstrom (1), (3) 6,000,000 30.23%
Pierre Gousseland (1), (4) 190,017 0.95%
F. D. Owsley (1), (5) 29,000 0.15%
Fred R. Schmid (1), (6) 3,224,943 16.25%
Laurence Steinbaum (1), (7) 442,856 2.23%
Nicholas S. Young (1), (8) 719,307 3.62%
Frank D. Duval (9) 1,311,571 6.61%
Merlin Bingham (10) 57,000 0.29%
All Directors and Executive Officers
as a Group (9 persons) (11) 10,582,129 53.32%
____________________
(1) Director of the Company.
(2) Mr. Fish is Chairman and President of the Company. The shares
attributable to Mr. Fish include 43,000 shares acquired pursuant to the
securities purchase agreement described in footnote 3, below. Such
shares are also attributable to Neal A. Degerstrom in the foregoing
table.
(3) The foregoing table attributes to Mr. Degerstrom all of the shares of the
Company that have been purchased by him and his permitted assigns through
the date of this Prospectus pursuant to the securities purchase agreement
between the Company and Mr. Degerstrom dated as of June 1, 1995, as
amended, including the additional shares he is committed to purchase on
or before October 16, 1996 at the price of $.50 per share.
2,857,142 shares now owned by Mr. Degerstrom and his permitted assigns
were purchased for $0.35 per share; 1,400,000 of such shares were
purchased for $.50 per share; 1,000,000 shares were purchased for $1.00
per share; and 542,858 additional shares will be purchased at the price
of $0.50 per share. When the additional 542,858 shares are purchased,
Mr. Degerstrom will be the beneficial owner of 6,000,000 shares,
representing approximately 30% of the Common Stock of the Company to be
outstanding.
Although all shares purchased by Mr. Degerstrom and his assigns are shown
in the table above as beneficially owned by Mr. Degerstrom, Schedule 13D
dated June 20, 1995, as amended through the date of this Prospectus,
filed by Mr. Degerstrom and others states that 2,623,142 of such shares
have been registered in Mr. Degerstrom's and his company's own name as of
the date of this Prospectus. Schedule 13D filed by Mr. Degerstrom and
his permitted assigns also states that neither he nor any of his assigns,
all of whom are identified as reporting persons in the Schedule 13D,
controls the voting or disposition of any shares of Common Stock of the
Company other than those shares owned by each such person, and on this
basis Mr. Degerstrom disclaims beneficial ownership of the shares owned
by his assigns.
(4) Includes 100,000 shares issuable pursuant to presently exercisable
options granted under the Company's 1995 Stock Option Plan.
(5) The shares attributable to Mr. Owsley were acquired pursuant to the
securities purchase agreement described in footnote 3, above, and have
also been attributable to Mr. Degerstrom in the foregoing table.
(6) Includes 425,000 shares issuable to Mr. Schmid and his son, Stephen
Schmid, pursuant to the Company's 1995 Stock Option Plan. In addition,
members of Mr. Schmid's family beneficially own an additional 2,341,887
shares issued upon the merger of Hanover Resources and Group S into the
Company, which, when combined with Mr. Schmid's shareholdings, respresent
approximately 28% of the outstanding Common Stock as of the date of this
Prospectus. Mr. Schmid disclaims beneficial ownership of the shares
owned by members of his family. See "Selling Stockholders."
(7) Includes 125,000 shares issuable pursuant to presently exercisable
options granted under the Company's 1995 Stock Option Plan.
(8) Includes 150,000 shares issuable pursuant to presently exercisable
options granted under the Company's 1995 Stock Option Plan.
(9) Mr. Duval has not been elected to office as an executive officer or
director of the Company, but by virtue of his activities in the name and
on behalf of the Company may be deemed to be an affiliate of the Company.
In addition, according to the Schedule 13D, filed by Mr. Degerstrom,
Mr. Duval and others, they have an understanding pursuant to which Mr.
Duval may purchase up to one-half of the shares of Common Stock of the
Company acquired by Mr. Degerstrom and N.A. Degerstrom, Inc. under the
securities purchase agreement dated June 1, 1995, as amended, between the
Company and Mr. Degerstrom, at a price equal to the price paid by Mr.
Degerstrom or N.A. Degerstrom, Inc. for such shares. Such understanding
presently encompasses 1,311,571 shares of Common Stock, which is one-half
of the number of shares acquired by Mr. Degerstrom and N.A.
Degerstrom, Inc. pursuant to the securities purchase agreement as of the
date of this Prospectus, but could increase if and when Mr. Degerstrom or
N.A. Degerstrom, Inc. purchases additional shares pursuant to the
agreement. Such understanding has not been memorialized by agreement or
other writing as of the date of this Prospectus. The shares attributable
to Mr. Duval were acquired pursuant to the securities purchase agreement
described in footnote 3, above, and have also been attributed to Mr.
Degerstrom in the foregoing table.
(10) Mr. Bingham has not been elected to office as an executive officer or
director of the Company, but by virtue of his activities in the name of
and on behalf of the Company may be deemed to be an affiliate of the
Company. The shares attributable to Mr. Bingham were acquired pursuant
to the securities purchase agreement described in footnote 3, above, and
have also been attributed to Mr. Degerstrom in the foregoing table.
(11) See footnotes 2, 3, 5, 9 and 10, above.
[The balance of this page has been intentionally left blank.]
<PAGE>
<PAGE>
CERTAIN TRANSACTIONS
Transactions with Hanover Resources and Group S
As previously discussed in this Prospectus, the boards of directors and
stockholders of the Company, Hanover Resources and Group S approved a plan of
merger, effective as of August __, 1996, pursuant to which Hanover Resources
and Group S have been merged into the Company in exchange for the issuance of
2,270,486 shares of Common Stock to the stockholders of Hanover Resources and
Group S, and the distribution to Hanover Resources' stockholders of 3,625,000
additional shares of Common Stock held by Hanover Resources.
Under the terms of the merger agreement, the Company issued 1,271,110
shares of Common Stock to acquire Hanover Resources (the Company actually
issued 4,896,110 shares to the Hanover Resources stockholders, of which
3,625,000 shares were simultaneously exchanged for the same number of shares
of Common Stock then held by Hanover Resources, which shares were then
canceled), and issued 999,376 shares to acquire Group S, taking into account a
193,220 share adjustment to repay loans made by the Company to Group S. A
total of 2,270,486 new shares of Common Stock were issued in the transaction,
which represented approximately 11% of the Company's outstanding Common Stock
as of the effective date of the merger.
The board of directors of the Company approved the proposed merger and
the resulting consolidation of the mining claims of the three companies
without the benefit of an opinion as to fairness from an independent
investment banking or mining engineering firm. Instead, the Company relied on
the results of previous exploration work undertaken on the properties by
Kennecott, which work resulted in a finding that tentatively quantified the
mineralized gold deposits existing on the claims held by each of the Company,
Hanover Resources and Group S. Laurence Steinbaum, Nicholas S. Young, Stephen
J. Schmid and Fred R. Schmid were stockholders of Hanover Resources, and
Nicholas S. Young, Stephen J. Schmid and Fred R. Schmid were directors and
executive officers of Hanover Resources. Pierre Gousseland, Laurence
Steinbaum, Nicholas S. Young, Stephen J. Schmid and Fred R. Schmid were
stockholders of Group S, and Fred R. Schmid and Stephen J. Schmid were also
directors and executive officers of Group S.
Through June 30, 1996, approximately $458,469 of the development costs
and rental payments incurred by Hanover Resources with respect to the
Kearsarge mine and related claims had been paid to the Company and accounted
by the companies as a capital contribution to the Company.
During 1994 and through June 30, 1996, the Company advanced $474,895 to
Group S to enable Group S to pay royalty obligations with respect to its
mining claims. Kennecott, in turn, owed Group S $300,695 under the terms of
the mining venture agreement among Kennecott, Company, Hanover Resources and
Group S; because Kennecott terminated the mining venture agreement, these
advances will not be recouped by Group S. As a consequence of the merger of
Hanover Resources and Group S into the Company, Group S agreed to reimburse
$477,254 (inclusive of interest) to the Company by accepting 193,220 less
shares of Common Stock in the merger.
During 1994 and through June 30, 1996, the Company contributed $120,000
to Hanover Resources for royalty payments that it was obligated to pay under a
sublease and purchase option agreement dated July 31, 1990.
Transactions with Fred R. Schmid and Stephen J. Schmid
For the years ended December 31, 1994 and 1995, Hanover Resources accrued
a total of $170,568 and $60,974 in salary for Fred R. Schmid and Stephen J.
Schmid, respectively. As of November 30, 1995, the balance owed to Fred R.
Schmid was increased to $274,718, and the balance owed to Stephen J. Schmid
was decreased to $11,214. As a result of the merger of Hanover Resources and
Group S into the Company, the total salary obligation that would have been due
Fred R. Schmid amounted to $635,512. Since he had received advances from
Hanover Resources of $497,515, and from Group S of $62,715, upon completion of
the merger a balance of $75,282 remained due to Fred R. Schmid for previously
accrued salary, and $11,214 remained due to Stephen J. Schmid for previously
accrued salary at December 31, 1995. These obligations were canceled during
the second quarter of 1996.
Transactions with Neal A. Degerstrom and the Degerstrom Group of Investors
As previously discussed in this Prospectus, the Company entered into a
securities purchase agreement with Neal A. Degerstrom in June of 1995 in order
to provide the Company with funds sufficient to meet its obligations to the
landowner-lessors of the Company's Alder Gulch mining claims. The Company has
issued and sold 5,457,142 shares of Common Stock to Mr. Degerstrom and
associated persons as of the date of this Prospectus, at prices ranging from
$0.35 per share to $0.50 per share. In addition, the Company is obligated to
sell Mr. Degerstrom an additional 542,858 shares on or before October 16, 1996
pursuant to the agreement, at the price of $0.50 per share.
The original securities purchase agreement was entered into between the
Company and Mr. Degerstrom prior to Mr. Degerstrom's affiliation with the
Company, and may therefore be deemed to be an arms-length transaction.
Subsequent amendments to the purchase agreement which had the effect of
increasing the number of shares available for purchase by Mr. Degerstrom and
associated persons were negotiated and concluded after Mr. Degerstrom became
affiliated with the Company, however, and may be deemed to be arms-length
transaction. All such amendments were approved by a disinterested majority of
the Company's board of directors.
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<PAGE>
<PAGE>
SELLING STOCKHOLDERS
The following table sets out as of the date of this Prospectus the name
of each Selling Stockholder known to the Company to own any of the shares
included in the Registration Statement of which this Prospectus is a part; any
position, office or other material relationship between the Selling
Stockholder and the Company within the past three years; the number of shares
of Common Stock known to the Company to be beneficially owned by the Selling
Stockholder at such date; the number of shares offered hereby by the Selling
Stockholder; and the number of shares of Common Stock and percentage ownership
interest of the Selling Stockholder following this offering.
<TABLE>
<CAPTION>
Shares of Common Stock
----------------------------------------------------
Beneficially Offered Remaining After Offering
Name Owned Hereby and Percentage (1)
- - --------- ---------- -------- ---------------------------
<S> <C> <C> <C>
Stockholders who Acquired Shares in
Merger of Hanover Resources and
Group S with and into the Company:
William McCoy 80,065 80,065 0 / 0%
Joseph Belden 24,463 24,463 0 / 0%
Nicholas Young (2) 544,307 544,307 0 / 0%
Laurence Steinbaum (2) 287,076 287,076 0 / 0%
Manuel Garcia 55,601 55,601 0 / 0%
Paul Stevens 184,503 184,503 0 / 0%
Anthony Sharkey 38,341 38,341 0 / 0%
Stephen J. Schmid (3) 365,987 365,987 0 / 0%
Robert C. Schmid 234,189 234,189 0 / 0%
Susan E. Schmid 234,189 234,189 0 / 0%
Paul G. Schmid 234,189 234,189 0 / 0%
Heidi A. Schmid 234,189 234,189 0 / 0%
Mary Anna Schmid 1,170,943 1,170,943 0 / 0%
Fred Schmid (2) 325,000 325,000 0 / 0%
Michael Koronsky 12,232 12,232 0 / 0%
Selig Zises 55,601 55,601 0 / 0%
Joseph Katz 400,046 400,046 0 / 0%
Paul Schratwieser 83,360 83,360 0 / 0%
Joseph Sussen 83,360 83,360 0 / 0%
Mark Epstein 218,930 218,930 0 / 0%
Wendy Braunstein 6,990 6,990 0 / 0%
Roseann Gedman 33,851 33,851 0 / 0%
Alfred J. Arsenault 80,476 80,476 0 / 0%
Floyd Kimble 166,715 166,715 0 / 0%
Pierre Gousseland (2) 50,017 50,017 0 / 0%
Ira Kent 166,715 166,715 0 / 0%
Thomas Neff 121,906 121,906 0 / 0%
Frank Wheaton 152,074 152,074 0 / 0%
Castel SA 40,938 40,938 0 / 0%
Gertrude Gary 40,939 40,939 0 / 0%
Signature Development
Group, Inc. 40,939 40,939 0 / 0%
Phyllis Schwartz 40,939 40,939 0 / 0%
Atlantic Marketing
Group, Inc. 26,786 26,786 0 / 0%
Canopus Limited 29,815 29,815 0 / 0%
Axel Wallenberg 29,815 29,815 0 / 0%
Degerstrom Group Stockholders:
Neal A. Degerstrom (2) 2,223,142(5) 2,223,142 0 / 0%
N.A. Degerstrom,
Inc. (4) 400,000(5) 400,000 0 / 0%
James A. Fish (2) 43,000 43,000 0 / 0%
James F. Etter 400,000 400,000 0 / 0%
Hobart Teneff 571,000 571,000 0 / 0%
Raymond A. Hansen 671,000 671,000 0 / 0%
Michael Coleman 43,000 43,000 0 / 0%
Susan Roberts 70,000 70,000 0 / 0%
James Bradbury 50,000 50,000 0 / 0%
Merlin Bingham (6) 57,000 57,000 0 / 0%
F. D. Owsley (2) 29,000 29,000 0 / 0%
Chester Chastek 133,000 133,000 0 / 0%
Steve Teneff 150,000 150,000 0 / 0%
Roy Pearson 133,000 133,000 0 / 0%
John Czinger 34,000 34,000 0 / 0%
Robert Kistler 125,000 125,000 0 / 0%
James Workland 7,500 7,500 0 / 0%
David Levitch 7,500 7,500 0 / 0%
John Steinmetz 10,000 10,000 0 / 0%
William Winkler 30,000 30,000 0 / 0%
Robert Kovacevich 25,000 25,000 0 / 0%
Frank Sallee 200,000 200,000 0 / 0%
Ralph Welsh 15,000 15,000 0 / 0%
Thomas Schenk 5,000 5,000 0 / 0%
David Peterson 25,000 25,000 0 / 0%
Other Selling Stockholders:
Tabor Resources
Corporation 525,000 525,000 0 / 0%
Roy A. Moen and Marlene Moen,
husband and wife 382,500(7) 382,500(7) 0 / 0%
Moen Builders, Inc. 67,500 67,500 0 / 0%
United Reef Petroleum
Ltd. 150,000 150,000 0 / 0%
Patrick Harrison 47,000 47,000 0 / 0%
Estate of William
Marston 22,679 22,679 0 / 0%
William Goodridge 10,000(8) 10,000(8) 0 / 0%
____________________
<FN>
(1) The number of shares of Common Stock of the Company outstanding or deemed outstanding as of the date of
this Prospectus was 19,848,022 shares.
(2) Messrs. Young, Steinbaum, Schmid, Gousseland, Degerstrom, Fish and Owsley are directors of the Company.
Mr. Fish is also Chairman and President of the Company.
(3) Mr. Schmid was formerly Secretary and Treasurer of the Company, and is currently a consultant to the
Company.
(4) N.A. Degerstrom, Inc. is controlled by Neal A. Degerstrom.
(5) See Note 9 to the Principal Stockholders table at page 35 of this Prospectus.
(6) Mr. Bingham is employed by the Company as its Exploration Manager and may be deemed to be an executive
officer of the Company.
(7) Includes 200,000 shares of Common Stock issuable pursuant to presently exercisable options. Such
options are exercisable at the price of $2.00 per share and expire on April 27, 1999.
(8) Includes 5,000 shares of Common Stock issuable pursuant to presently exercisable options. Such options
are exercisable at the price of $2.50 per share and expire on November 1, 1997.
</FN>
</TABLE>
<PAGE>
<PAGE>
PLAN OF DISTRIBUTION
Sales by the Selling Stockholders
The Selling Shareholders propose to sell the shares from time-to-time or
at any time during a period of eighteen months commencing the date the
registration statement of which this Prospectus is a part has become
effective, in transactions in the over-the-counter market, in other permitted
public sales, in privately negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated prices.
Some or all of the shares may be sold in transactions involving broker-
dealers, who may act solely as agent or may acquire shares as principal.
Broker-dealers who participate in such transactions as agent may receive
commissions from Selling Stockholders and, if they act as agent for the
purchaser, also from the purchaser. Selling Stockholders and any such broker-
dealer may be deemed to be "underwriters", as that term is defined in
Section 2(11) of the Securities Act. Any commissions received by any such
broker-dealers in connection with any such sales, and any profits received
from the resale of shares acquired by such broker-dealers as principal, may be
deemed to be underwriting discounts and commissions pursuant to the Securities
Act.
The Company has agreed to indemnify the Selling Stockholders for certain
liabilities, including liabilities arising under the Securities Act, in
conjunction with the offer and sale of the shares by the Selling Stockholders
pursuant to the Registration Statement of which this Prospectus is a part.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted pursuant to the foregoing, or to directors, officers and
controlling persons of the Company pursuant to applicable provisions of the
Delaware General Corporation Law and the Company's bylaws, the Company has
been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in a
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the shares being
registered pursuant to this Registration Statement, the Company will, unless
in the opinion of its counsel such matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification is against public policy as expressed in the
Securities Act, and will be governed by the final adjudication of such issue.
Sales by the Company
Terms of Sale. Subject to the terms and conditions set forth in this
Prospectus, certain of the directors and executive officers of the Company
have agreed to offer and sell 1,000,000 shares of Common Stock to the public
on a best efforts basis at the price of $____ per share. The obligations of
the Company to issue such shares is not conditioned upon the receipt of
minimum subscriptions from the sale of the shares offered. No commission or
other form of remuneration will be paid to any director or executive officer
with respect to the shares offered by the Company hereby. The Company has
agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act.
Determination of Offering Price. Prior to this offering, there has been
only a very limited public market for the Common Stock of the Company.
Consequently, the public offering price has been determined by the Company.
Among the factors considered were the market price of the Common Stock at the
time of this offering, prevailing conditions in the securities markets at the
time of this offering, the economic outlook of the mining industry, the
Company's position in the industry, the Company's financial position, and the
present state of the Company's development.
Dilution. The net tangible book value of the Company at June 30, 1996
was $9,318,232 or $0.47 per share of Common Stock outstanding or deemed
outstanding, after giving effect to the merger of Hanover Resources and Group
S into the Company. Net tangible book value per share is determined by
dividing the net tangible book value (book value less goodwill) of the Company
by the number of outstanding shares of Common Stock. After giving effect to
the issuance and sale of the 1,000,000 shares of Common Stock being offered by
the Company hereby at the price of $____ per share, and the receipt of the
proceeds therefrom, the net tangible book value of the Company at June 30,
1996 would have been $__________, or $____ per share. This represents an
immediate increase in the net tangible book value of $___ per share to
existing stockholders and an immediate dilution in book value of $___ per
share to new investors.
Use of Proceeds. The net proceeds to the Company from the sale of the
shares of Common Stock offered hereby on its behalf, after deduction of
anticipated offering costs of approximately $71,000 incurred in connection
with the offering, will be approximately $_________, assuming all
1,000,000 shares offered hereby are sold at the price of $___ per share.
The net proceeds will be used to fund limited drilling and other
exploration activities on the Alder Gulch properties during 1996, to pay
general and administrative expenses, and as working capital.
DESCRIPTION OF CAPITAL STOCK
Overview
The Company is authorized under its Articles of Incorporation, as
amended, to issue up to 50,000,000 shares of capital stock, of which
48,000,000 shares are designated Common Stock, par value $.0001 per share, and
2,000,000 shares are designated preferred stock, par value $.001 per share,
issuable in one or more series, with such rights, preferences, limitations and
other characteristics as the board of directors may from time-to-time
determine. As of the date of this Prospectus, 19,848,022 shares of Common
Stock were outstanding or deemed outstanding pursuant to presently exercisable
options and purchase commitments. No shares of preferred stock were
outstanding at such date.
Common Stock
Holders of Common Stock are entitled to one vote per share upon all
matters on which they have the right to vote, and with respect to the election
of directors are entitled to cumulate their votes. Shares of Common Stock do
not have preemptive rights and are not subject to redemption. Holders of
Common Stock are entitled to receive such dividends as may be declared by the
board of directors out of funds legally available therefore, subject to the
preferential dividend rights of holders of any outstanding shares of preferred
stock. In the event of dissolution or winding up of the affairs of the
Company, holders of Common Stock are entitled to share ratably in all assets
of the Company remaining after payment of all creditors and any preferential
liquidating dividends payable to the holders of any outstanding shares of
preferred stock. The Common Stock is fully paid and nonassessable.
The transfer agent and registrar for the Common Stock is Jersey Transfer
and Trust Company, 201 Bloomfield Avenue, Verona, New Jersey 07044.
Preferred Stock
The preferred stock is issuable in one or more series by resolution
adopted by at least two-thirds of the board of directors, without stockholder
approval, with such rights, preferences, limitations and other characteristics
as the board of directors may determine.
Some corporate and securities law commentators believe that companies
having authorized preferred stock are less vulnerable to unsolicited takeovers
(and by implication, the higher prices that may be paid to shareholders in an
unsolicited takeover), since preferred stock can be issued by a board of
directors as a defensive strategy to such offers. Other commentators believe
that the issuance of preferred stock as a defensive strategy increases the
price eventually paid to shareholders in a successful takeover because the
specter of such issuance forces an offeror to negotiate price with the board
of directors. The Company is presently not aware of any unsolicited takeover
attempt and cannot predict whether any such attempt would be made in the
future. Similarly, the board of directors has not adopted a prospective
defensive strategy to an unsolicited takeover attempt utilizing the preferred
stock, and is not expected to consider or adopt any such strategy in the
absence of such an attempt. It is the present position of the board of
directors that any such defensive strategy should be adopted, if at all, only
after the terms and conditions of any such takeover attempt have been made
known and the board of directors, together with its financial advisors, have
had an opportunity to study the offer and its effect on the Company and its
shareholders.
Shares Issuable Pursuant to Options
Up to 200,000 of the shares offered hereby consist of Common Stock
issuable upon the exercise of options granted to Roy A. Moen and Marlene Moen
on April 27, 1996, as partial consideration for their agreement to reduce
rental and royalty obligations payable under the terms of an October 1991
lease and option agreement with the Company. Such options are exercisable, in
whole or in part, at any time prior to April 27, 1999, at the exercise price
of $2.00 per share.
Up to 5,000 of the shares offered hereby consist of Common Stock issuable
upon the exercise of options granted to William Goodridge on November 1, 1995,
as partial consideration for his agreement to transfer to the Company a 0.5%
overriding royalty interest burdening the Company's Kearsarge group of mining
claims. Such options are exercisable, in whole or in part, at any time prior
to November 1, 1995, at the exercise price of $2.50 per share.
Shares Eligible for Future Sale
Prior to this offering, there has been only a limited public market for
the Common Stock of the Company. Future sales of substantial amounts of
Common Stock in the public market could adversely affect prevailing market
prices.
Upon completion of this offering, there will be 20,848,022 shares of
Common Stock outstanding. Of these shares, the 13,757,307 shares sold in this
offering and 4,135,600 previously outstanding shares will be transferable
without restriction under the Securities Act, unless purchased or held by an
"affiliate" of the Company, as that term is defined in Rule 144. The
remaining shares outstanding after completion of this offering will be
"restricted securities" as defined in Rule 144. Restricted securities and
securities held by affiliates may be sold only if registered under the
Securities Act or if they qualify for an exemption from registration,
including an exemption pursuant to Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days
after the date of this Prospectus, a person who has beneficially owned
restricted securities for at least two years would be entitled to sell, within
any three-month period, a number of shares that does not exceed the greater of
one percent of the then outstanding shares of Common Stock or the average
weekly trading volume of the Common Stock in the over-the-counter market
during the four calendar weeks preceding the date on which notice of the sale
is filed with the Securities and Exchange Commission. Sales under Rule 144
are subject to a certain manner of sale provisions, notice requirements and
the availability of current public information about the Company. A person
who is not deemed an affiliate of the Company at any time during the three
months preceding a sale, and who has beneficially owned restricted securities
for at least three years, is entitled to sell such shares under Rule 144(k)
without regard to volume limitations, manner of sale provisions, notice
requirements or the availability of current public information concerning the
Company. Rule 144A under the Securities Act permits the immediate sale by the
current holders of restricted securities of all or a portion of their shares
to certain qualified institutional buyers as defined in Rule 144A.
LEGAL MATTERS
The legality of the Common Stock offered hereby will be passed upon for
the Company by Randall & Danskin, P.S., 1500 Seafirst Financial Center,
Spokane, Washington 99201.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1995, 1994 and 1993 and for each of the years in the two-year period ended
December 31, 1995 included in this Prospectus have been included herein in
reliance on the report of Zeller Weiss & Kahn, Mountainside, New Jersey,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
The financial statements of Hanover Resources and Group S as of
December 31, 1995 and 1994 and for each of the years then ended, and for the
periods from inception to December 31, 1995, included in this Prospectus have
been included herein in reliance on the report of Grossman, Tuchman & Shah
LLP, New York, New York, independent public accountants, given on the
authority of that firm as experts in accounting and auditing.
<PAGE>
<PAGE>
ADDITIONAL INFORMATION
The Company filed with the Securities and Exchange Commission a
Registration Statement under the Securities Act of 1933, with respect to the
Common Stock offered pursuant to this Prospectus. In accordance with the
Commission's rules, this Prospectus does not contain all of the information
contained in the Registration Statement. For further information regarding
the Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits which are a part thereof, which
may be examined at the principal office of the Commission in Washington, D.C.
without charge. Copies thereof may be obtained upon request to the Commission
and payment of the prescribed fee. Statements contained in this Prospectus as
to the contents of any contract or document referred to are not necessarily
complete, and in each instance reference is made to the copy of such contract
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference.
SUPPLEMENTAL ACTUAL AND PROFORMA COMBINED FINANCIAL INFORMATION
OF THE COMPANY, HANOVER RESOURCES AND GROUP S
ACTUAL AND PROFORMA COMBINED FINANCIAL STATEMENTS OF THE COMPANY,
HANOVER RESOURCES AND GROUP S AT JUNE 30, 1996
As previously noted in this Prospectus, effective August __, 1996,
Hanover Resources and Group S were merged into the Company. The transaction
has been accounted for as a purchase of entities under common control.
The following unaudited proforma condensed consolidated balance sheet of
the Company as of June 30, 1996, and unaudited proforma condensed consolidated
statement of income (loss) for the period then ended, is comprised of the
historical balance sheets and the historical statements of income for the
Company, Hanover Resources and Group S for the six-month period ended June 30,
1996. (Such unaudited financial statements of the Company, Hanover Resources
and Group S are also included in this Prospectus.) The proforma financial
statements reflect the then prospective merger of Hanover Resources and
Group S with and into the Company, at such date, as adjusted to give effect to
the other proforma adjustments described in the footnotes thereto. The
unaudited proforma adjustments are based on conditions existing at the
effective time and reflect the reorganization as if the merger of Hanover
Resources and Group S with the Company had been consummated at June 30, 1996.
The Company has not had any significant material transactions between June 30,
1996 and the date of this Prospectus. These proforma financial statements
should be read in conjunction with the financial statements of the Company,
Hanover Resources and Group S appearing elsewhere in this Prospectus, and are
qualified by such financial statements and the notes thereto.
[The balance of this page has been intentionally left blank.]
<PAGE>
HANOVER GOLD COMPANY, INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
for the period ended June 30, 1996
ASSETS
<TABLE>
<CAPTION>
Historical ProForma
------------------------------------- ------------------------------
Hanover Adjustments Combined
The Company Resources Group S for Combination Balance Sheet
----------- --------- ------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Current Assets:
Cash $ 91,842 $ 17,662 $ 782 $ 110,286
Inventory 29,494 29,494
Accts. rec. 1,250 1,250
Prepaid expenses 43,434 7,173 50,607
Prepaid fees 1,167 1,167
Total current
assets 166,020 26,002 782 192,804
Resource properties
Claims and fixed assets:
Exploration, eng.,
site dev. 2,225,106 2,225,106
Mining
properties 6,163,731 1,342,720 292,838 (125,000) (1) 7,674,289
Option 90 (90) (2)
Fixed assets 140,324 140,324
Accumumulated
depreciation (52,562) (52,562)
Total resource
properties, claims &
fixed assets 8,476,689 1,342,720 292,838 9,987,157
Other assets:
Reclamation bonds 19,924 19,924
Loan receivables 100 100
Due from Group S
Limited 474,895 33,274 (474,885) (3)
(33,274) (4)
Due from Hanover
Resources, Inc. 405,809 (405,809) (5)
Investment in Hanover
Resources, Inc. 485,038 (485,038) (6)
Total other
assets 900,728 33,374 485,038 20,024
Total assets 9,543,437 1,401,996 778,658 10,199,985
</TABLE>
<PAGE>
LIABILITIES
<TABLE>
<CAPTION>
Historical ProForma
------------------------------------- ------------------------------
Hanover Adjustments Combined
The Company Resources Group S for Combination Balance Sheet
----------- --------- ------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Current liabilities:
Note and loan
payable $ 105,000 $ 5,247 $ 110,247
Accounts payable 242,042 1,500 243,542
Accrued expenses 80,663 80,663
Due to Hanover Gold
Company, Inc. 405,809 474,895 474,895 (3)
405,809 (5)
Due to Hanover Resources, Inc. 33,274 33,274 (4)
Total current
liabilities 47,705 411,058 509,668 434,452
Other liabilities: 90 (1)
Option deposit 90 125,000 125,000 (2)
Total other liabilities 90 125,000
Total
liabilities 427,705 411,146 834,669 434,452
Stockholder's equity: 21,379 (7)
Common stock 1,590 21,379 (127) (7) 1,817
(100) (8)
Additional paid
in capital 14,118,213 1,220,375 166,670 485,038 (6)
1,220,375 (7) 14,767,787
(990,723) (7)
188,870 (8)
(143,889) (8)
Advance received against
stock purchase 100,000 100,000
(250,904) (7)
Retained earnings
(loss) (5,404,871) (250,904) (22,881) (22,681) (8) (5,104,071)
Total equity
accounts 9,115,732 990,850 143,988 9,765,533
Total liabilities
and stockholders
equity 9,543,437 1,401,996 778,658 10,199,985
</TABLE>
<PAGE>
HANOVER GOLD COMPANY, INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND LOSS
for the period ended June 30, 1996
<TABLE>
<CAPTION>
Historical ProForma
------------------------------------- ------------------------------
Hanover Adjustments Combined
The Company Resources Group S for Combination Balance Sheet
----------- --------- ------- --------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUE
Sales $ 3,511 $ 0 $ 3,511
Royalty income 31,252 31,252
Total income 3,511 31,252 0 34,763
EXPENSE
Cost of goods mined 0 0
Depreciation, depletion
and amortization 13,549 13,549
General and administrative
expenses 769,878 17,775 1,287 788,720
Total expenses 783,427 17,775 1,267 802,469
Gross profit
(loss) (779,916) 13,477 (1,267) (767,706)
Other income and
expenses 621 621
Interest income
(expenses) 523 122 645
Total other income
and expenses 1,144 0 122 1,266
Net income (loss) (778,772) 13,477 (1,145) (766,440)
Net loss per share 0.01 (0.01)
Fully diluted
weighted average
common shares
outstanding (1) 15,736,682 2,137,970 124,000
- - --------------------
<FN>
(1) As of June 30, 1996, 17,577,556 shares of Common Stock were outstanding and an additional 1,547,858
shares were deemed outstanding pursuant to presently exercisable options and purchase commitments.
</FN>
</TABLE>
<PAGE>
Footnotes to Actual and ProForma Consolidated Financial Statements of the
Company, Hanover Resources and Group S at June 30, 1996
1 and 2. The options paid by the Company to the affiliated entities for
the following claim groups are reversed:
(i) Par value of the 900,000 shares of Common Stock issued to Hanover
Resources, Inc. pursuant to the claim option agreement, dated December 31,
1990, giving the Company the option to acquire five claims adjacent to the
Kearsarge group of claims, and:
(ii) Reflects the elimination of the option fee paid to Group S Limited
for the JTC, Randolph and 20% of the Apex claim group:
Hanover Resources, Inc. - Option deposit $90
Group S Limited - Option deposit 125,000
-------
The Company $(125,090)
3 through 5. Reflects the elimination of the intercompany balances
reflected on each company's records for advances made and received in the
normal course of business involving: landowner rental payments, working
capital, engineering services and general administrative costs:
Group S - Due to the Company $474,895
The Company - Due from Group S Limited (474,895)
Group S Limited - Due to the Company $33,274
The Company - Due from Group S Limited (33,274)
Hanover Resources, Inc. - Due to the Company $405,809
The Company - Due from Hanover Resources, Inc. (405,809)
6. Reflects the elimination of the investment account maintained by
Group S Limited for costs incurred on behalf of the Company, by offsetting its
respective balance with the Company's equity account as follows:
Hanover Resources, Inc. - Paid in capital $485,038
Group S Limited - investment in the Hanover
Resources, Inc. common stock (485,038)
7. Reflects the extinguishment of Hanover Resources, Inc. capital
accounts and retained loss upon merger with the Company, and records the
issuance of 1,271,110 (4,896,110 - 3,625,000) shares of the Company's Common
Stock at par value for all of the outstanding common stock of Hanover
Resources, Inc.:
Hanover Resources, Inc. - common stock $21,379
- paid in capital 1,220,375
- retained earnings (250,904)
The Company - common stock (127)
- paid in capital (990,723)
8. Reflects the extinguishment of Group S Limited's capital accounts and
retained loss upon merger with the Company, and records the issuance of
999,376 shares of the Company's Common Stock for all of the outstanding common
stock of Group S Limited:
Group S Limited - paid in capital $166,670
- retained earnings (22,681)
The Company - common stock (100)
- paid in capital (143,889)
9. Reflects the estimated cost of the merger transaction (legal,
accounting, printing and mailing costs, and filing fees) of $30,000, $30,000,
$2,000, and $1,500, respectively, for a total of $63,500. Such cost are not
reflected on the proforma balance sheet, and have not been accrued.
<PAGE>
<PAGE>
ACTUAL AND PROFORMA COMBINED FINANCIAL STATEMENTS OF THE COMPANY, HANOVER
RESOURCES AND GROUP S AT DECEMBER 31, 1995
The following table sets forth the profit and loss statements of the
Company, Resources and Group S at December 31, 1995, and a proforma combined
profit and loss statement at such date, as if the merger of Hanover Resources
and Group S with and into the Company had then been completed. The financial
data of the Company has been derived from the Company's consolidated financial
statements appearing elsewhere in this Prospectus, which have been audited by
Zeller Weiss & Kahn, Mountainside, New Jersey. The financial data of Hanover
Resources and Group S has been derived from the financial statements of these
companies appearing elsewhere in this Prospectus, which have been audited by
Grossman, Tuchman & Shah LLP, New York, New York. The financial data should
be read in conjunction with, and is qualified by such financial statements and
the notes thereto.
HANOVER GOLD COMPANY, INC.
UNAUDITED PROFORMA CONDENSED CONSOLIDATED STATEMENTS OF
INCOME AND LOSS
For the period ended December 31, 1995
<TABLE>
<CAPTION>
Historical ProForma
------------------------------------- ------------------------------
Hanover Adjustments Combined
The Company Resources Group S for Combination Balance Sheet
----------- --------- ------- --------------- -------------
<S> <C> <C> <C> <C> <C>
REVENUE
Sales $ 499,299 $ $ 0 $499,299
Royalty income 128,000 (1) 128,000
Total income 499,299 128,000 0 499,299
EXPENSE
Cost of goods
mined 1,076,668 1,076,668
Depreciation, depletion
and amortization 38,229 38,229
General and administrative
expenses 922,847 125,103 11,032 (1) (128,000) 930,982
Provision for bad
debt 779,921 779,921
Total expense 2,817,665 125,103 11,032 2,825,800
Gross profit
(loss) (2,318,366) 2,897 (11,032) (2,326,501)
Other income and expenses
Interest income
(expense) 29,306 (75) 589 29,820
Loss on equipment
sale (32,509) (32,509)
Total other income
and expenses (3,203) (75) 589 (2,689)
Net income
(loss) $(2,321,569) $2,822 $(10,443) $(2,329,190)
Net loss per
share $(0.20) $0.00 $(0.07) $(0.15)
Fully diluted weighted average
common shares
outstanding 11,728,882 2,137,970 153,875 15,920,164
____________________
(1) Reflects the reversal of the intercompany royalty paid by the Company to the affiliated entity, as
follows:
Hanover Resources, Inc. - royalty income $128,000
The Company - general and administrative expenses $(128,000)
</TABLE>
Hanover Resources, Inc.
Selected Financial Data
The selected consolidated financial data set forth below has been derived
from, and should be read in conjunction with, Hanover Resources, Inc.
("Hanover Resources") audited financial statements. The selected financial
data for the five years ended December 31, 1995 have been derived from the
Company's audited financial statements appearing elsewhere in this proxy,
which have been audited by Grossman, Tuchman & Shah LLP, New York, New York.
The selected financial data should be read in conjunction with, and is
qualified by such financial statements and the notes thereto.
The selected financial data for the interim period ended June 30, 1996,
has been derived from, and should be read in conjunction with, management's
prepared unaudited financial statements.
Summary of Consolidated Balance Sheets:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
June 30,
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficit) $ 26,002 (58,191) (172,921) 63,007 (15,629) (24,339)
Current assets 26,002 34,345 75,621 64,161 27,313 686
Total assets 1,401,996 1,919,103 1,898,811 1,564,532 7,667,914 7,655,107
Current liabilities 0 92,536 248,542 1,154 42,942 25,025
Long-term obligations 411,146 849,195 957,167 601,704 6,597,596 6,762,209
Total liabilities 411,146 941,731 1,205,709 602,858 6,640,538 6,787,234
Stockholder's equity 990,850 977,372 693,102 961,674 1,027,376 867,873
Summary of Consolidated Statements of Operations:
Royalty income 0 120,000 120,000 120,000 120,000 120,000
Fee income 31,252 8,000 0 50,000 135,262 748
Net income (loss) 13,477 2,822 (12,659) (2,452) (119,503) 9,234
Net income (loss) per share 0.006 0.001 (0.006) (0.002) 0.100 0.008
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
On April 26, 1995, the Board of Directors of Hanover Resources approved
the merger with Hanover Gold Company, Inc. (the "Company"). On December 29,
1995, the stockholders of Hanover Resources also approved the merger of
Hanover Resources with the Company. Under the terms of the merger, Hanover
Resources' stockholders will receive 4,896,110 shares of common stock of the
Company, consisting of 3,625,000 shares (which will be exchanged for the same
number of shares that are currently owned by Hanover Resources, and which will
be extinguished upon receipt by the Company) and 1,271,110 additional shares.
In March of 1995, when Kennecott announced its withdrawal from the mining
venture that Hanover Resources, the Company and Group S Limited were parties
to, it became apparent to the management of these companies that they must
consolidate their property holdings to successfully attract another major
mining partner for developing the Alder Gulch properties. Neither of these
companies have sufficient cash resources to independently continue to explore
and develop their claims. The Company was forced to curtail its exploration
and development activities at the Kearsarge/Apex mines due to a lack of funds.
Beginning in June 1995, and continuing through year-end, an investment was
made by the N. A. Degerstrom group. Additionally, the Company had
restructured its senior management team. Priority was given to consolidating
the properties in the Alder Gulch under the Company's control and to
attracting mining companies as potential joint venture partners. As of the
date of this report, the merger of Hanover Resources with the Company
continues to be of significant importance to the companies' management, and is
awaiting a vote by the Company's shareholders. Discussions are underway with
several North American mining companies who have expressed interest in a joint
venture to explore and develop the Alder Gulch property area, including
Hanover Resource's property.
Results of Operations
June 30, 1996 compared to June 30, 1995. At June 30, 1996, Hanover Resources
had working capital of $26,002 current assets of $26,002 and no current
liabilities. This compares to current assets of $62,964 and current
liabilities of $32,520, at April 30, 1995. The decrease of $4,442 in working
capital at June 30, 1996 is primarily attributable to a decrease in costs and
an increase in professional fees attributable to the proposed merger with the
Company. Failing the approval of the merger by the Company's stockholders,
Hanover Resources would not be liable for the payment of management's salaries
that have been eliminated. Current assets consisted of $17,622 of cash,
$7,173 of prepaid taxes, and $1,167 of prepaid fees; the decrease in current
assets is primarily attributable to a reduction in cash of $16,361 used in
operations, and $20,000 reduction in prepaid taxes.
Total assets of Hanover Resources at June 30, 1996 was $1,342,720
compared to $1,898,274 for the same period in the previous year. At June 30,
1996, Hanover Resources' total assets, net of current assets, was $1,342,720
which consisted of patented (deeded) claims. This compares to $1,835,310 at
June 30, 1995 which is comprised of $1,278,480 in patented (deeded) claims,
and $505,030 in receivables from affiliated companies, and $51,800 in loan
receivable from shareholders. The $555,554 reduction in total assets was
primarily due to $534,038 reduction in due from affiliates and a decrease of
$21,516 in cash.
During the period January 1, 1996 to June 30, 1996, Hanover Resources had
revenues of $31,252, which was fee income. This compares to revenues of
$60,000 from royalty receipts for the same period ending June 30, 1995.
For the period January 1, 1996 to April 30, 1996, Hanover Resources
experienced net income from operations of $13,477, which was attributable to a
decrease of $33,352 in payroll and payroll taxes and other operating costs
when compared to the same period in 1995, and an increase in administrative
and other expenses by $17,775, in anticipation of the proposed merger with the
Company. This compares to a net income of $838 for the period January 1, 1995
to June 30, 1995.
1995 compared to 1994. At December 31, 1995, Hanover Resources had working
capital deficit of $58,191, current assets of $34,345, and current
liabilities of $92,536. This compares to current assets of $75,621 and
current liabilities of $248,542, at December 31, 1994. The decrease of
$172,921 in the working capital deficit at year-end is primarily attributable
to a $25,500 increase in accrued professional fees, and a decrease of $181,526
of payroll and payroll tax accruals. Current assets consisted of $2,178 of
cash, and $31,000 of prepaid taxes; the decrease in current assets during the
year is primarily attributable to a reduction in cash of $38,443 used in
operations, and $4,000 reduction in prepaid taxes.
Total assets of Hanover Resources at December 31, 1995 were $1,919,103,
compared to $1,898,811 for the previous year. At year-end 1995, Hanover
Resources' total assets, net of current assets, consisted of $1,342,720 in
patented (deeded) claims, and $542,038 in receivables from affiliated
companies and shareholders. This compares to $1,246,360 in patented (deeded)
claims, and $576,830 in receivables from affiliated companies and
shareholders. The increase of $96,360, which increased the patented (deeded)
claim account, is attributable to capitalizing landowner rental payments made
to the landowners of the claims during the year, and there was a slight
increase of $34,792 in receivables from affiliated companies and shareholders.
During the year ended December 31, 1995, Hanover Resources had revenues
of $128,000, of which, $120,000 was from royalty receipts, and $8,000 was fee
income. This compares to revenues of $120,000 from royalty receipts for the
year ended December 31, 1994.
For the year ended December 31, 1995 Hanover Resources experienced net
income from operations of $6,897, which was attributable to a decrease of
$50,091 in payroll and payroll taxes, an increase in professional fees of
$14,922, a slight decrease of $1,026 in travel expenses, a $47,444 decrease in
contract services and, a decrease in general and administrative expenses of
$15,781. Additionally, Hanover Resources paid taxes of $4,000 and interest
expense of $75.
1994 compared to 1993. At December 31, 1994, Hanover Resources had working
capital deficit of $172,921, current assets of $75,621, and current
liabilities of $248,542. This compares to current assets of $64,161 and
current liabilities of $1,154, at December 31, 1993. The increase of $235,928
in the working capital deficit at year-end is primarily attributable to a
$230,388 increase in payroll and payroll tax accruals. Current assets
consisted of $64,161 of cash; the increase in current assets during the year
is primarily attributable to a reduction in cash of $23,540 used in
operations, and a $35,000 increase in prepaid taxes.
Total assets of Hanover Resources at December 31, 1994 were $1,898,811,
compared to $1,564,532 for the previous year. At year-end 1994, Hanover
Resources' total assets, net of current assets, consisted of $1,246,360 in
patented (deeded) claims, and $576,830 in receivables from affiliated
companies and shareholders. This compares to $1,141,240 in patented (deeded)
claims, and $34,180 in receivables from affiliated companies and shareholders,
and $338,771 in investment in affiliates. The increase of $105,120, which
increased the patented (deeded) claim account, is attributable to capitalizing
landowner rental payments made to the landowners of the claims during the
year, and there was an increase of $275,875 in receivables from affiliated
companies and shareholders.
During the year ended December 31, 1994, Hanover Resources had revenues
of $120,000, from royalty receipts. This compares to revenues of $170,000,
from royalty receipts for the year ended December 31, 1993.
For the year ended December 31, 1994, Hanover Resources experienced a net
loss from operations of $2,452, which was attributable to an increase of
$1,327 in payroll and payroll taxes, an decrease in professional fees of
$24,501, a decrease of $21,573 in travel expenses, a $40,116 increase in
contract services and, a decrease in general and administrative expenses of
$14,416. Additionally, Hanover Resources paid taxes of $12,620 and interest
expense of $22,942.
Liquidity and Capital Resources
January 1, 1996 to June 30, 1996. Cash flow from operating activities from
January 1, 1996 to June 30, 1996 reflected an increase of $11,657 in cash.
The increase was attributable to a $17,574 decrease in prepaid taxes; a $1,167
increase in prepaid fees; an increase of $49,640 in patented (deeded) claims;
a $412,000 decrease in due from stockholders; a $12,090 increase in due to
affiliated companies; an a $40,536 decrease in accrued expenses.
Cash flow from investing activities for the period was zero.
Cash flow from financing activities for the period was zero.
Hanover Resources has financed its operations primarily from royalty
income it receives from the Company pursuant to a lease agreement, and from
advances from its affiliates. Pending the merger of Hanover Resources and the
Company, the Company has assumed responsibility for all landowner royalty
payments, and has suspended making royalty payments to Hanover Resources.
1995 compared to 1994. Cash flow from operating activities in 1995 reflected
the use of $38,443 in cash. The increased use of cash was attributable to a
decrease of $4,000 for prepaid taxes; an increase in prepaid fees of $1,167;
an increase in patented deeded claims of $96,360; a decrease in shareholder
loans of $63,800; an increase of $154,876 in receivables from affiliates; a
decrease in accrued expenses of $156,006, which was primarily for payroll and
payroll taxes; and a decrease in notes payable of $291,856 because the note
holders converted their notes to common stock of Hanover Resources as per the
terms of the note.
Cash flow from investing activities during the year was zero.
Cash flow from financing activities increase by $281,448 due to the
conversion of the note to shares of Hanover Resources' common stock.
1994 compared to 1993. Cash flow from operating activities in 1994 reflected
a use of $23,540 in cash. The increased use of cash was attributable to an
increase of $35,000 for prepaid taxes; an increase in patented deeded claims
of $105,120; an increase in shareholder loans of $51,440; an increase of
$129,624 in payables to affiliates; an increase in accrued expenses of
$247,388, which was primarily for payroll and payroll taxes; and an increase
in notes payable of $11,558.
Cash flow from investing activities increased by $149,750 attributable to
the proceeds from sale warrants to purchase Common Stock of the Company that
Hanover Resources owned.
There was no cash flow generated from financing activities.
<PAGE>
<PAGE>
Group S Limited
Selected Financial Data
The selected consolidated financial data set forth below has been derived
from, and should be read in conjunction with, Group S Limited's ("Group S")
audited financial statements. The selected financial data for the five years
ended December 31, 1995 have been derived from the Company's audited
financial statements appearing elsewhere in this proxy, which have been
audited by Grossman, Tuchman & Shah LLP, New York, New York. The selected
financial data should be read in conjunction with, and is qualified by such
financial statements and the notes thereto.
The selected financial data for the interim period ended April 30, 1996,
has been derived from, and should be read in conjunction with, management's
prepared unaudited financial statements.
Summary of Consolidated Balance Sheets:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
June 30,
1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Working capital (deficit) $ (718) 427 36,385 22,332 10,773 30,622
Current assets 782 9,642 36,385 22,332 11,523 30,622
Total assets 778,658 1,288,282 623,272 494,701 204,527 207,386
Current liabilities 1,500 9,215 0 0 750 0
Long-term obligations 633,169 1,133,933 425,695 293,195 0 0
Total liabilities 634,669 1,143,148 425,695 293,195 750 0
Stockholder's equity 143,989 145,134 197,577 201,506 203,777 207,386
Summary of Consolidated Statements of Operations:
Sales 0 0 0 517 710 182
Net income (loss) (1,145) (10,443) (3,929) (2,271) (4,319) (1,284)
Net income (loss) per share (0.009) (0.080) (0.080) (0.050) (0.090) (0.030)
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
On April 26, 1995, the board of directors of Group S approved the merger
with Hanover Gold Company, Inc. (the "Company"). On December 29, 1995, the
stockholders of Group S also approved the merger of their company with the
Company. Under the terms of the merger, Group S's stockholders will receive
999,376 shares of common stock of the Company. In March of 1995, when
Kennecott announced its withdrawal from the mining venture that Group S,
Hanover Resources, Inc. ("Hanover Resources") and the Company were parties to,
it became apparent to the management of these companies that they must
consolidate their property holdings to successfully attract another major
mining partner to develop the Alder Gulch properties. Neither of these
companies have sufficient cash resources to independently continue to explore
and develop their claims. The Company was forced to curtail their exploration
and development activities at the Kearsarge/Apex mines due to a lack of funds.
Beginning in June 1995, and continuing through year-end, an investment was
made by the N. A. Degerstrom group. Additionally, the Company had
restructured its senior management team. Priority was given to consolidating
the properties in the Alder Gulch under the Company's control and to
attracting mining companies as potential joint venture partners. As of the
date of this report, the merger of Group S with the Company continues to be of
significant importance to the companies' management, and is awaiting a vote by
the Company's shareholders. Discussions are underway with several North
American mining companies who have expressed interest in a joint venture to
explore and develop the Alder Gulch property area, including Group S's
property.
Results of Operations
June 30, 1996 compared to June 30, 1995. At June 30, 1996, Group S had a
working capital deficit of $718 current assets of $782, and current
liabilities of $1,500. This compares to current assets of $32,955 and no
current liabilities at June 30, 1995. The decrease of $33,673 in working
capital at June 30, 1996 compared to June 30, 1995 is primarily attributable
to an increase in intercompany accounts with Hanover Resources, and an
increase in landowner royalty payments. Current assets consisted of $8,801 of
cash. The decrease in current assets during the year is primarily
attributable to a reduction in cash of $32,173 used in operations and with
affiliates.
Total assets of Group S at June 30, 1996 were $778,658 compared to
$619,842 at June 30, 1995. At June 30, 1996, Group S's total assets, net of
current assets, consisted of $292,839 in patented (deeded) claims, and
$485,038 in investment in Hanover Resources. This compares to $92,838 in
patented (deeded) claims, and $494,049 in receivables from affiliated
companies and shareholders. The increase of $200,001, which increased the
patented (deeded) claim account, is attributable to capitalizing landowner
rental payments made to the landowners of the claims during the year, while
there was a decrease of $494,049 in receivables from affiliated companies and
shareholders, and an increase of $485,038 in investment in Hanover Resources.
During the periods from January 1, to June 30, 1995 and 1996, Group S did
not have any operating revenue.
For the period January 1, 1996 to June 30, 1996, Group S had a net loss
from operations of $1,145 which was attributable to general and administrative
expenses. For the same period in 1995, the loss was $3,430, and was primarily
attributable to professional fees.
1995 compared to 1994. At December 31, 1995, Group S had working capital of
$427, current assets of $9,642, and current liabilities of $9,215. This
compares to current assets of $36,385 and current liabilities of $0, at
December 31, 1994. The decrease of $35,958 in working capital at year-end is
primarily attributable to a $10,000 decrease in intercompany accounts with the
Company, and approximately $13,000 spent on the claims. Current assets
consisted of $9,642 of cash. The decrease in current assets during the year
is primarily attributable to a reduction in cash of $26,743 used in
operations.
Total assets of Group S at December 31, 1995 were $1,288,282, compared to
$623,272 for the previous year. At year-end 1995, Group S's total assets, net
of current assets, consisted of $292,839 in patented (deeded) claims, and
$500,764 in receivables from affiliated companies and shareholders. This
compares to $92,838 in patented (deeded) claims, and $494,049 in receivables
from affiliated companies and shareholders. The increase of $200,001, which
increased the patented (deeded) claim account, is attributable to capitalizing
landowner rental payments made to the landowners of the claims during the
year, and there was a slight decrease of $6,715 in receivables from affiliated
companies and shareholders.
During the years ended December 31, 1995 and 1994, Group S did not have
any operating revenue.
For the year ended December 31, 1995, Group S had a net loss from
operations of $10,443, which was attributable to an increase in professional
fees of $9,215, a decrease in general and administrative expenses of $4,194.
1994 compared to 1993. At December 31, 1994, Group S had working capital of
$36,385, current assets of $36,385, and no current liabilities. This compares
to current assets of $22,332 and no current liabilities at December 31, 1993.
The increase of $14,053 in the working capital at year-end is solely
attributable to a $14,053 increase in cash.
Total assets of Group S at December 31, 1994 were $623,272, compared to
$494,701 for the previous year. At year-end 1994, Group S's total assets, net
of current assets, consisted of $92,838 in patented (deeded) claims, and
$494,049 in receivables from affiliated companies and shareholders. This
compares to $256,764 in patented (deeded) claims, and $215,605 in receivables
from affiliated companies and shareholders. The decrease of $163,925, in the
patented (deeded) claim account, is attributable to reclassifying a portion of
the previously capitalized landowner rental payments made to the landowners of
the claims during previous years, and an increase of $278,444 in receivables
from affiliated companies and shareholders.
During the years ended December 31, 1994, and 1993, Group S did not have
any operating revenues.
For the year ended December 31, 1994, Group S experienced a net loss from
operations of $3,929, which was attributable to general and administrative
expenses of $6,011. Additionally, Group S paid taxes of $2,082.
Liquidity and Capital Resources
June 30, 1996 compared to June 30, 1995. Cash flow from operating activities
for the period January 1, 1996 to April 30, 1996 reflected the use of $1,267
in cash. The increased use of cash was attributable to an increase in
administrative and office expenses of $1,145 over the same period during 1995.
Cash flow from investing activities for both periods was zero.
Cash flow from financing activities for both periods was zero.
Group S has financed its operations primarily from equity raised when
incorporated, and from advances from its affiliates. Pending the merger of
the Group S and the Company, the Company has assumed responsibility for all
landowner royalty payments, and has suspended making advances to Group S.
1995 Compared to 1994. Cash flow from operating activities in 1995 reflected
the use of $500,295 in cash. The increased use of cash was attributable to an
increase of $363,925 in patented (deeded) claims; a decrease in accounts
payable of $9,215; a decrease in due from affiliates of $334,443; an increase
in shareholder loans of $41,700; and an increase of $534,038 in payables to
affiliates.
Cash flow from investing activities increased by $485,038 which was
entirely the result of the Company's acquisition of Hanover Group, Inc. (See
Note 6 to the audited financial statements of Group S appearing elsewhere in
this Prospectus.)
Cash flow from financing activities increased by $42,000 for the same
reason as previously noted.
1994 Compared to 1993. Cash flow from operating activities in 1994 reflected
a use of $14,053 in cash. The increased use of cash was attributable to an
increase of $163,925 in patented deeded claims; and an increase of $145,943 in
payables to affiliates.
Cash flow from investing activities was zero.
There was no cash flow generated from financing activities.
[The balance of this page has been intentionally left blank.]
<PAGE>
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Item Page
Unaudited Interim Financial Statements of the Company:
Consolidated Balance Sheet as of June 30, 1996
and December 31, 1995 F/S-3
Consolidated Statements of Operations for the Six
Months Ended June 30, 1996 and 1995 F/S-4
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months Ended June 30, 1996 and the Year
Ended December 31, 1995 F/S-5
Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1996 and 1995 F/S-6
Notes to Interim Consolidated Financial Statements F/S-7
Audited Year-End Financial Statements of the Company:
Report of Independent Accountants F/S-12
Consolidated Balance Sheet as of December 31, 1995 and 1994 F/S-13
Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993 F/S-14
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993 F/S-15
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993 F/S-17
Notes to Consolidated Financial Statements F/S-18
Unaudited Interim Financial Statements of Hanover Resources
Interim Management Report for the Year Ended December 31, 1995,
and for the Periods January 1 to June 30, 1995 and 1996, and
April 26, 1990 (Inception) to June 30, 1996 F/S-41
Audited Year-End Financial Statements of Hanover Resources:
Independent Auditor's Report F/S-51
Balance Sheet as of December 31, 1995 and 1994 F/S-52
Statements of Income (Loss) and Accumulated Deficit F/S-53
Statements of Cash Flows F/S-54
Notes to Financial Statements F/S-55
Unaudited Interim Financial Statements of Group S
Interim Management Report for the Year Ended December 31, 1995,
and for the Periods January 1 to June 30, 1995 and 1996, and
September 9, 1991 (Inception) to June 30, 1996 F/S-59
Audited Year-End Financial Statements of Group S
Independent Auditor's Report F/S-68
Balance Sheet as of December 31, 1995 and 1994 F/S-69
Statements of Income (Loss) and Accumulated Deficit F/S-70
Statements of Cash Flow F/S-71
Notes to Financial Statements F/S-72
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC.
UNAUDITED INTERIM FINANCIAL STATEMENTS
FOR THE PERIOD ENDED
JUNE 30, 1996
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
June 30, December 31,
1996 1995
(Unaudited) (Audited)
----------- -----------
Current assets:
Cash $ 91,842 $ 723,162
Inventory (Note 3) 29,494 29,494
Accounts receivable
Prepaid expenses 1,250 97,586
------- -------
Total current assets 166,020 850,242
Resource properties and claims:
Exploration, engineering and site
development 2,225,106 2,225,106
Mining properties (Notes 5 and 6) 6,366,231 3,922,083
Option 90 90
--------- ---------
Total resource properties
and claims 8,591,427 6,147,279
--------- ---------
Property and equipment, at cost 140,324 150,494
Less accumulated depreciation 56,562 47,675
--------- ---------
Net property and plant and
equipment 87,762 102,819
--------- ---------
Other assets:
Reclamation bonds 19,924 19,924
Note receivable (Note 4) - 309,296
Due from Group S, Ltd. 474,895 474,895
Due from Hanover Resources, Inc. 405,909 405,909
--------- ---------
Total resource properties
and claims 900,728 1,210,024
--------- ---------
Total assets $9,745,937 $8,310,364
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 105,000 $ 48,654
Loans payable-shareholder - 50,000
Accounts Payable 242,042 221,756
Accrued Expenses 80,663 38,450
--------- ---------
Total current
liabilities 427,705 358,860
--------- ---------
Stockholders' equity:
Common Stock, $.0001 par value, authorized
25,000,000 shares; issued and outstanding
16,029,678 (1) and 13,649,678
shares respectively 1,603 1,365
Additional paid-in capital 14,320,700 12,275,438
Advance against stock purchase
obligation 100,000 -
Deficit accumulated during the
development stage (5,104,071) (4,325,299)
--------- ---------
9,318,322 7,951,504
--------- ---------
Total liabilities &
stockholders' equity $9,745,937 $8,310,364
========= =========
_____________________
(1) Does not include 1,547,858 shares issuable to presently exercisable
options and purchase commitments.
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
------------- -------------
Revenue $ 3,511 $ 249,299
Cost of goods mined - 628,955
------- -------
Gross profit (loss) 3,511 (379,656)
General and administrative
expenses 783,427 582,191
------- -------
Loss from operations (779,916) (961,847)
Interest and Other Income 1,144 24,817
Option Received - 250,000
------- -------
Net Loss ($778,772) ($687,030)
Net Loss per share $ (0.05) $ (0.07)
Weighted average common
shares outstanding (1) 15,736,683 10,016,930
_____________________
(1) As of June 30, 1996, 17,577,556 shares of Common Stock were outstanding
and an additional 1,547,858 shares were deemed outstanding pursuant to
presently exercisable options and purchase commitments.
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Additional During the
Common Common Paid In Development
Shares Stock Capital Stage
----------- ------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 8,845,857 $ 885 $9,838,572 ($2,003,730)
Issuance of 250,000 shares of common stock to Hanover
Resources, Inc. pursuant to Modification
Agreement dated 12/31/90 ($1.60/share) 250,000 25
Issuance of 2,142,856 shares of common stock to N.A.
Degerstrom pursuant to Securities Purchase
Agreement dated 06/01/95 ($0.35/share) 2,142,856 214 749,786
Issuance of 714,286 shares of common stock to N.A.
Degerstrom pursuant to Securities Purchase
Agreement dated 06/01/95 ($0.35/share) 714,286 71 249,929
Issuance of 200,000 shares of restricted
common stock pursuant to a private
placement ($1.00/share) 200,000 20 199,980
Issuance of remaining 250,000 shares of common stock to
Hanover Resources, Inc. pursuant to
Modification Agreement dated
12/31/90 ($.0001/share) 250,000 25 -
Issuance of 69,679 shares of common stock in
satisfaction of vendor obligations
($1.06/share) 69,679 7 74,089
Issuance of 200,000 shares of common stock in
satisfaction of vendor obligations
($1.00/share) 200,000 20 199,980
Issuance of 1,000,000 shares of common stock to
N.A. Degerstrom pursuant to amendment to
Securities Purchase Agreement
dated 06/01/95 ($1.00/share) 1,000,000 100 999,900
Redemption of previously issued shares
($1.60/share) (23,000) (2) (36,798)
Net loss (2,321,569)
---------- ----- --------- ---------
Balance, December 31, 1995 13,649,678 1,365 12,275,438 (4,325,299)
Issuance of 5,000 shares of common stock to
W.W. Goodridge pursuant to Agreement
of Assignment dated
11/30/95 ($1.00/share) 5,000 5,000
Issuance of 525,000 shares of common stock to
Tabor Resources Corporation pursuant to
Asset Purchase Agreement dated March 25,
1996 ($1.62/share) 525,000 53 850,447
Issuance of 250,000 shares of common stock to Roy A.
Moen pursuant to Agreement and Amendment to
Mining Lease and Option to Purchase dated
March 26, 1996 ($1.56/share) 250,000 25 389,975
Issuance of 1,000,000 shares of common stock to
N.A. Degerstrom pursuant to amendment to
Securities Purchase Agreement
dated 06/01/95 ($0.50/share) 1,600,000 160 999,840
Net loss ( 778,772)
--------- ------ ---------- ---------
Balance, June 30, 1996 16,029,678 $1,603 $14,320,700 ($5,104,071)
</TABLE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
------------- -------------
<S> <C> <C>
Operating activities: $(778,772) $(687,030)
Net loss
Adjustments to reconcile net cash and equivalents
provided by operating activities:
depreciation 13,549 15,887
depletion - -
Changes in operating assets and liabilities:
(Increase) decrease in subscription receivable - 647,981
(Increase) decrease in inventory - 91,351
(Increase) decrease in prepaid expenses 54,152 69,194
Increase (decrease) in accounts payable 20,286 (152,484)
Increase (decrease) in accrued expenses 42,213 (109,678)
Increase (decrease) in accounts receivable (1,250) -
Changes in other assets and liabilities:
(Increase) decrease in reclamation bond - (106)
(Increase) decrease in notes receivable 309,296 (10,873)
(Increase) decrease in due to Group S Limited - 118,165
(Increase) decrease in due to Hanover
Resources, Inc. - 66,847
Increase (decrease) in note payable 6,346 -
(Decrease) in option payable - (250,000)
Increase (decrease) in payroll taxes & disability - 71,635
-------- --------
Net cash used in operating activities (334,180) (129,201)
-------- --------
Investing Activities:
Purchase of property and equipment (33,945) (46,289)
Increase in mining properties (2,444,148) (742,926)
--------- --------
Net cash used in investing activities (2,478,093) (789,215)
--------- --------
Financing Activities:
Disposition of equipment for mining interests 35,453 -
Issuance of common stock for mining interests 1,245,500 -
Proceeds from sale of Common Stock 900,000 350,025
--------- --------
Net cash provided by financing activities 2,180,953 350,025
--------- --------
Net increase (decrease) in cash (631,320) (568,391)
Cash, beginning of period 723,162 646,141
-------- --------
Cash, end of period 91,842 77,750
====== ======
</TABLE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Financing information presented in the Company's quarterly reports follow the
policies set forth in its Annual Report to Stockholders and its Annual Report
on Form 10-K filed with the Securities and Exchange Commission. In accordance
with generally accepted accounting principles for interm financial
information, the instructions to Form 10-Q, and Rule 10-01 of Regulation S-X,
these quarterly reports do not include all of the information and footnotes.
In the opinion of the Company's management, all adjustments (consisting of
only normal recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the six month period ended June 30,
1996 are not necessarily indicative of the results that may be expected for
the full year ending December 31, 1996.
1. Nature of business:
The objectives of the Company are to invest in precious metal claims,
namely gold and silver deposits having economic potential for development and
mining and related activities in the precious metals and mining industries.
2. Organization:
Hanover Gold Company, Inc. was incorporated in Delaware on December 6,
1984 and on September 24, 1990 exchanged 14,000,000 shares of its $.0001 par
value common stock for 100% of the outstanding stock of Hanover International
Limited. On July 31, 1990 the Company acquired the Kearsarge Lode Claim,
south of Virginia City, Montana, entering into a Sublease and Purchase Option
Agreement with the Hanover Resources, Inc. As of December 1990 the company
reverse split the stock 1 for 20.
3. Inventories:
Inventories consist of:
June 30, 1996 June 30, 1995
------------- -------------
Raw materials $29,494 $69,688
Work in process - -
Yard and supplies - 20,199
Inventory write-down - -
------ ------
Total Inventory $29,494 $89,887
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Note Receivable:
In February, March and April 1993, the Company made total loans of
$100,000 to Moen Builders, Inc. and M&W Milling and Refining, Inc.
(Collectively referred to as "M&W") for M&W to acquire certain equipment to
complete its custom mill facility. M&W is not affiliated with the Company.
The Company secured this loan with a fully executed and recorded UCC Financing
Statement covering certain equipment. M&W was obligated to repay the notes
from cash flow proceeds at the rate of $3.33 per ton of the Company's ore
processed by M&W at the mill and at the rate of $2.00 per ton for third party
ore processed by M&W at the mill. As of December 31, 1994 M&W had paid back
$7,897, leaving a balance due from M&W of $92,103. As of December 31, 1995
M&W paid back $2,806, leaving a balance due of $89,297.
During 1994, the Company acquired the exclusive use of the gravity and
carbon-in-leach mill processing facility known as Geneva Mill, L.C. at Toston,
Montana. The Company entered into an agreement with Geneva Mill, L.C. on
June 14, 1994 and provided the necessary funds for Geneva Mill, L.C. to
acquire and refurbish the facility. In addition to the note receivable to
M&W, the Company had made loan advances in 1994 to Geneva Mill, L.C. in the
amount of $1,221,922 and an additional amount in 1995 of $373,278, for plant
acquisition, crushing equipment, refurbishing used mill equipment,
installation of new pumps, construction of tailings ponds and liners,
transportation trucking equipment, and loaders and working capital. The terms
of the repayment of the loans were based on the tons of ore processed at the
mill at the rate of $45 per ton plus a $5 credit per ton as a payment toward
the advance. For 1994 and 1995 Geneva Mill, L.C. repaid from processing
$240,642 and $266,137, respectively, and made cash payments of $88,500 in
1995. In 1995 all operations between Geneva Mill, L.C. and Hanover Gold
ceased. The balance due to the Company prior to the write-off of the
uncollectible portion of the amounts due was $999,921. Management determined
to write off $779,921 as an uncollectible bad debt for 1995 due to the
prospect that the mill would no longer be utilized and the inability of Geneva
Mill, L.C. to repay the loan. The remaining balance of $220,000 was secured
by tangible assets and a security interest.
The Company's Group S subsidiary entered into an agreement with Roy Moen
and related interests effective March 26, 1996 amending the terms of an
October 1991 lease and option agreement covering 216 mining claims in the
Alder Gulch area. As partial consideration for amending the agreement, the
Company became obligated for the issuance of 250,000 shares of its common
stock; the granting of a three year option for the issuance of an additional
200,000 shares of its common stock at an exercise price of $2.00 per share;
the transfer of two mining trucks that it owns free and clear of encumbrances
with a book value of approximately $35,000; the forgiveness of the note
receivable in the amount of $89,297 due from M&W, and release of the UCC
filing the Company held as security for that note; and the elimination of the
note receivable in the amount of $220,000 due from Geneva Mill, L.C. in
exchange for a $3,000,000 reduction in the landowner rental obligations that
are owed to M&W by Group S, Ltd., which, upon approval of the pending merger
of Group S, Ltd. and the Company, would become the Company's obligation to pay
M&W. M&W will also take title to all of the assets owned by Geneva Mill, L.C.
as part of the consideration for the reduction in rental payments to be
received by M&W.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. Patented (deeded) claims:
The Company acquired the mining rights to the Kearsarge Load Claim, a
precious metals tract from Hanover Resources, Inc. pursuant to a Mineral
Sublease and Purchase Option Agreement dated July 31, 1990. The agreement
provides for the payment of rent as follows:
On or before November 1, 1990 $ 100,000
March 1, 199 100,000
June 1, 1991 125,000
September 1, 1991 50,000
December 1, 1991 50,000
January 1, 1992 25,000
February 1, 1992 25,000
March 1, 19992 25,000
April 1, 1992 25,000
May 1, 1992 50,000
September 1, 1992 50,000
June 1, 1993 150,000
June 1, 1994 100,000
June 1, 1995 350,000
June 1, 1996 400,000
June 1, 1997 400,000
June 1, 1998 400,000
June 1, 1999 875,000
---------
$3,300,000
=========
6. Agreements:
On February 13, 1992, the Hanover Group, Inc. entered into an agreement
with Bearcat for Bearcat's 30% working interest in the 34 claims known as the
Kearsarge Group of Claims. Hanover Group then assigned the agreement to the
Company without consideration and thereafter the Company acquired the working
interest for a consideration of 600,000 shares of restricted common stock
issued by the Company to Bearcat. The negotiated value of the stock between
the Company and Bearcat on the closing date was $2.0 per share or a total of
$1,200,000 for the working interest. In addition, Bearcat was granted two
future stock options by the Company, one at $3.00 per share for 171,000 shares
of legended common stock which expired May 14, 1995, and another at $10.00 per
share for 500,000 shares of legend common stock which expires May 14, 1997.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On February 20, 1982, the Company entered into an Assignment and Mineral
Sublease agreement with Hanover Resources, Inc. The Agreement provides for
the Company to pay the underlying landowner rental obligations as follows:
June 1, 1992 $ 150,000
September 1, 1992 50,000
June 1, 1993 112,500
June 1, 1994 85,000
June 1, 1995 200,000
June 1, 1996 200,000
June 1, 1997 200,000
June 1, 1998 200,000
June 1, 1999 1,377,500
---------
$2,775,000
=========
Additionally, on November 10, 1993 the Company entered into an Option to
Purchase Agreement, with an unrelated party, for the remaining 20% of the Apex
claim and two additional claims, the JTC and Randolph claims for $1,650,000
and a five percent (5%) Net Smelter Return royalty. Under the Agreement, the
Company has the right to purchase this claim package for $1,650,000 less the
amount previously paid of $250,000. This is pursuant to the underlying
landowner rental payment obligations as follows:
April 15, 1995 $ 150,000
April 15, 1996 200,000
April 15, 1997 250,000
April 15, 1998 300,000
April 15, 1999 500,000
---------
$1,400,000
=========
Effective March 25, 1996 the Company entered into an asset purchase
agreement with the Tabor Resources Corporation, a Minnesota corporation, for
the purchase of ten patented and 20 unpatented mining claims, and one mining
lease, covering properties located in the Alder Gulch area. The Company
issued Tabor 525,000 shares of common stock in the transaction.
7. Development stage company;
The Company's operations have been centered around its organization,
evaluation of the mining industry, start-up financing of its operations,
including acquisition of the Kearsarge Mine, evaluation of engineering data,
obtaining necessary mining permits and formulation and implementation of tis
business plan. From May 2, 1990 through the period ending June 30, 1996, the
Company has secured required financing from its public warrant offering, and
Hanover Resources, Inc. its principal shareholder, in the total aggregate
amount of $11,076,514, which financing has been in the form of cash for
exploration, engineering, site development and rental payments for the
Kearsarge Claim. Additionally, financing has been provided from the public
offering of the Company's warrants. The Company has incurred losses in
connection with its operations through the period ended June 30, 1996 of
$5,104,071.
<PAGE>
HANOVER GOLD COMPANY, INC.
AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED
DECEMBER 31, 1995 AND 1994
AND FOR THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Hanover Gold Company, Inc.
Roslyn, New York
We have audited the accompanying consolidated balance sheet of Hanover
Gold Company, Inc. and Subsidiary as of December 31, 1995 and December 31,
1994, and the related consolidated statements of income (loss) and
stockholders' equity and cash flows for the years ended December 31, 1995,
1994 and 1993 and for the period May 2, 1990 (inception) to December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statements based
on our audit.
We conducted our audit 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 also 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly the
financial position of Hanover Gold Company, Inc., and Subsidiary, as of
December 31, 1995 and 1994 and the consolidated statements of income (loss),
stockholders' equity and cash flow for the years ended December 31, 1995, 1994
and 1993 and May 2, 1990 (inception) to December 31, 1995, in conformity with
generally accepted accounting principles.
As discussed in Note 12, the Company has been in the development stage
since May 2, 1990.
Zeller Weiss & Kahn
March 29, 1996, except for
Note 24 as to which the
date is May 28, 1996
<PAGE>
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
Item 1 Consolidated Financial Statements
---------------------------------
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
ASSETS
(Restated)
(Note 18)
December 31, December 31,
1994 1995
------------ ------------
Current assets:
Cash $ 646,141 $ 723,162
Inventory (Note 7) 181,238 29,494
Prepaid expenses 89,696 97,586
--------- ----------
Total current assets 917,075 850,242
--------- ----------
Resource properties and claims:
Exploration, engineering and site development
(Note 8) 2,228,118 2,225,106
Mining properties (Notes 9 & 11) 3,388,621 3,922,083
Option (Note 10) 90 90
--------- ---------
Total resource properties and claims 5,616,829 6,147,279
--------- ---------
Property and equipment, at cost (Note 3) 167,319 150,494
Less accumulated depreciation 28,205 47,675
--------- ---------
Net property plant and equipment 139,114 102,819
--------- ---------
Other assets:
Reclamation bonds (Note 15) 19,655 19,924
Note receivable (Note 5) 1,073,383 309,296
Due from Group S, Ltd. (Note 13) 300,695 474,895
Due from Hanover Group, Inc. (Note 13) 19,835 0
Due from Hanover Resources, Inc. (Note 13) 207,042 405,909
--------- ---------
Total resource properties and claims 1,620,610 1,210,024
--------- ---------
Total assets $8,293,628 $8,310,364
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 0 $ 48,654
Loans payable - shareholder (Note 13) 50,000
Accounts payable 411,930 221,756
Accrued expenses 45,331 38,450
--------- ---------
Total current liabilities 457,261 358,860
--------- ---------
Other liabilities:
Option deposit 250,000 0
--------- ---------
Stockholders' equity:
Common stock, $.0001 par value, authorized
25,000,000 shares issued and outstanding
8,845,857 and 13,649,678 shares respectively 885 1,365
Additional paid in capital 9,838,572 12,275,438
Deficit accumulated during the development
stage (2,003,730) (4,325,299)
Less: Subscription receivable (Note 6) ( 249,360) 0
--------- ---------
7,586,367 7,951,504
--------- ---------
Total liabilities and stockholders' equity $8,293,628 $8,310,364
========= =========
See notes to consolidated financial statements.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF INCOME (LOSS)
<TABLE>
<CAPTION>
(Restated) (Restated) May 02, 1990
(Note 18) (Note 18) (Inception)
Year Ended Year Ended Year Ended to
December 31, December 31, December 31, December 31,
1993 1994 1995 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenue:
Sales $ 0 $ 216,418 $ 499,299 $ 715,717
-------- --------- ---------- ---------
Expenses:
Cost of goods mined 0 910,815 1,076,668 1,987,483
Depreciation, depletion
and amortization 4,915 28,415 38,229 71,559
General and
administrative 269,250 631,816 922,847 2,547,297
Provision for bad debt 779,921 779,921
-------- --------- --------- ---------
Total cost and
expenses 274,165 1,571,046 2,817,665 5,168,204
-------- --------- --------- ---------
Gross profit (loss)
operations ( 274,165) (1,354,628) ( 2,318,366) (4,452,487)
Other income and expenses:
Interest income 22,119 106,655 29,306 159,697
Loss on sale of
equipment ( 32,509) ( 32,509)
-------- --------- --------- ----------
Total other income
and expenses 22,119 106,655 ( 3,203) 127,188
-------- --------- --------- ----------
Net loss ($ 252,046) ($1,247,973) ($2,321,569) ($4,325,299)
========= ========= ========== =========
Earnings per common
share:
Primary ($ 0.03) ($ 0.15) ($ 0.20)
Weighted average common
shares outstanding 7,498,786 8,314,859 11,728,882
========= ========= ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Additional During the
Common Common Paid In Development
Shares Stock Capital Stage
----------- ------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, May 2, 1990 700,000 $ 70 $ 264,311
Issuance of common stock, Sept. 24, 1990
($0.07/share) 86,250 9 6,009
Issuance of common stock for modification,
Dec. 31, 1990 ($.0001/share) 1,500,000 150
Issuance of common stock for additional claims
Dec. 31, 1990 ($.0001/share) 900,000 90
Payments by Hanover Resources, Inc.:
Deferred offering expense 12,636
Exploration, engineering and site development 26,280
Deposit, Kearsarge Lode Claim 100,000
Cash infusion 5,000
Net loss (37,962)
--------- ---- -------- ------
Balance, December 31, 1990 3,186,250 319 414,236 (37,962)
Payment by Hanover Resources, Inc.:
Deposit purchase of claim 325,000
Issuance of common stock to directors
($.0001/share) 200,000 20
Issuance of common stock for claims and
engineering costs ($2.50/share) 229,007 23 572,496
Exercise 74,400 A&B Warrants ($.60/share) 74,400 7 44,633
Exercise 111,500 C Warrants ($1.25/share) 111,500 11 139,363
Net loss (260,486)
------- --- ------- -------
Balance, December 31, 1991 3,801,157 380 1,495,728 (298,448)
Issuance of common stock
($2.00 per share) 712,500 71 1,424,918
Payment by Hanover Resources, Inc.:
Deposit purchase of claim 93,659
Deposit, purchase of Kearsarge Claim 62,500
Deferred offering expense 3,144
Exploration, engineering and site development 5,603
Exercise 41,600 Class C Warrants ($1.25/share) 41,600 5 51,996
Net loss (205,263)
-------- ---- --------- -------
Balance, December 31, 1992 4,555,257 456 3,137,548 (503,711)
Write off on deferred offering expense (148,507)
Purchase of Apex Claim at $1.50 per share 150,000 15 224,985
Exercise 3,061,703 Class C Warrants
($1.60/share) 3,061,703 306 4,898,419
Net loss (252,046)
--------- --- --------- -------
Balance, December 31, 1993 7,766,960 777 8,112,445 (755,757)
Exercise 1,328,897 Class C Warrants ($1.60
per share) 1,328,897 133 2,126,102
Cancellation of previously issued shares
($1.60/share) (250,000) (25) (399,975)
Net loss (1,247,973)
--------- --- ------- ---------
Balance, December 31, 1994 8,845,857 885 9,838,572 (2,003,730)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Deficit)
Accumulated
During the
Development
Additional Stage
Common Common Paid In (Restated
Shares Stock Capital Note 18)
----------- ------- ---------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1994 8,845,857 $ 885 $9,838,572 $(2,003,730)
Issuance of 250,000 shares of common stock to
Hanover Resources, Inc. as per Modification
Agreement dated 12/31/90 ($1.60/share) 250,000 25
Issuance of 2,142,856 shares of common stock to
N.A. Degerstrom as per Securities Purchase
Agreement dated 06/01/95 ($.35/share) 2,142,856 214 749,786
Issuance of 714,286 shares of common stock to
N.A. Degerstrom as per Securities Purchase
Agreement dated 06/01/95 ($.35/share) 714,286 71 249,929
Issuance of 200,000 shares of restricted common
stock pursuant to a private placement
(1.00/share) 200,000 20 199,980
Issuance remaining 250,000 shares of common
stock to Hanover Resources, Inc. as per
Modification Agreement dated 12/31/90
($.0001/share) 250,000 25
Issuance of 69,679 shares of common stock in
satisfaction of vendor obligations
($1.06/share) 69,679 7 74,089
Issuance of 200,000 shares of common stock in
satisfaction of vendor obligations
($1.00/shares) 200,000 20 199,980
Issuance of 1,000,000 shares of common stock to
N.A. Degerstrom per amendment to Securities
Purchase Agreement dated 06/01/95
($1.00/share) 1,000,000 100 999,900
Redemption of previously issued shares
($1.60/share) (23,000) (2) (36,798)
Net loss (2,321,569)
---------- ----- ---------- ---------
Balance, December 31, 1995 13,649,678 $1,365 $12,275,438 $(4,325,299)
========== ===== ========== =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
May 2, 1990
Year Year Year (Inception)
Ended Dec. Ended Dec. Ended Dec. to Dec.
31, 1993 31, 1994 31, 1995 31, 1995
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Operating activities:
Net loss $(252,046) $(1,247,943) $(2,321,569) $(4,325,299)
Adjustments to reconcile net cash
and equivalents provided by
operating activities:
Loss on sale of equipment 32,509 32,509
Amortization 225
Depreciation 4,915 21,885 30,529 58,734
Depletion 6,530 7,700 14,230
Common stock issued for public
relations fees 200,000 200,000
Changes in operating assets & liabilities:
(Increase) decrease in accounts receivable 175 835
(Increase) decrease in deferred
offering expense 95,716 (7,890) 21,574
(Increase) decrease in notes receivable (97,611) (975,772) 764,087 (309,296)
(Increase) decrease in inventory (70,439) (110,799) 151,744 (29,494)
(Increase) decrease in prepaid expenses (11,139) (78,557) (97,586)
(Increase) decrease in accounts payable 397,525 14,405 (116,078) 221,756
Increase (decrease) in accrued expenses 152,893 (6,881) 38,450
Increase (decrease) in loan payable,
stockholder (311,829) (214,638)
Changes of other assets and liabilities:
(Increase) decrease in reclamation bond (5,000) (255) (269) (19,924)
(Increase) decrease in due to Group S
Limited (168,195) (132,500) (174,200) (474,895)
(Increase) decrease in due from Hanover
Group, Inc. (19,835) 19,835
(Increase) decrease in due to Hanover
Resources, Inc. (97,884) (17,413) (198,867) (369,110)
Increase in option payable 150,000 (250,000)
Organizational cost (202)
------- --------- ---------- ---------
Net cash used in operating
activities (212,919) (2,754,087) (1,869,350) (5,038,328)
------- --------- --------- ---------
Investing activities:
Proceeds from sale of equipment 13,871 13,871
Purchase of subsidiary (6,018)
Purchase of property and equipment (81,210) (77,980) (40,614) (207,933)
Increase in exploration, engineering and site
development (855,705) (908,475) (1,765,335)
Increase in deposit, purchase of claims (112,500) (162,500)
Increase in mining properties (125,000) (560,400) (538,100) (1,358,382)
-------- --------- ------- ---------
Net cash used in investing activities (1,174,415) (1,546,855) (564,843) (3,486,297)
Financing activities:
Increase in notes receivable 48,654 48,654
Increase in loans from N.A. Degerstrom 50,000 50,000
Proceeds from sale of common stock 4,127,578 2,062,716 2,412,560 9,149,032
--------- --------- --------- ---------
Net cash provided by financing activities 4,127,578 2,062,716 2,511,214 9,247,686
--------- --------- --------- ---------
Net increase in cash 2,740,244 (2,238,226) 77,021 723,061
Cash, beginning of year 144,124 2,884,368 646,141 101
-------- --------- --------- ---------
Cash, end of year $2,884,368 $ 646,142 $ 723,162 $ 723,162
========= ========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 864 $ 864
========= =========
Supplemental schedule on non-cash investing and
financing activities (Note 23)
</TABLE>
See notes to consolidated financial statements.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
1. Nature of business:
The objectives of the Company are to invest in precious metal claims,
namely gold and silver deposits having economic potential for development
and mining and related activities in the precious metals and mining
industries.
2. Organization:
Hanover Gold Company, Inc. was incorporated in Delaware on December 6,
1984 and on September 24, 1990 exchanged 14,000,000 shares of its $.0001
par value common stock for 100 % of the outstanding stock of Hanover
International Limited. On July 31, 1990 the Company acquired the
Kearsarge Lode Claim, south of Virginia City, Montana entering into a
Sublease and Purchase Option Agreement with Hanover Resources, Inc. As
of December 1990 the Company reverse split the stock 1 for 20.
3. Summary of significant accounting policies:
Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of the Company and the Company's wholly owned subsidiary,
Hanover International Limited, inter-company transactions and
balances have been eliminated in consolidation.
Principles of organization:
The acquisition of the Company's subsidiary on September 24, 1990
has been accounted for as a reverse purchase of the assets and
liabilities of the Company by Hanover International Limited.
Accordingly, the consolidated financial statements represents
assets, liabilities, and operations of only Hanover International
Limited prior to September 24, 1990 and the combined assets,
liabilities and operations for the ensuing period. The financial
statements reflect the purchase of the stock of Venture Enterprises,
Inc., the former name of Hanover Gold Company, Inc., by Hanover
International Limited, for the value of the historical cost of the
assets acquired. All significant intercompany profits and losses
from transactions have been eliminated.
Hanover International Limited was incorporated May 2, 1990 in the
State of New York for the purpose of acquiring economic interests in
precious metal deposits, namely gold and silver claims. On July 31,
1990 the Company acquired the Kearsarge Lode Claim, south of
Virginia City, Montana by entering into a Sublease and Purchase
Option Agreement with Hanover Resources, Inc.
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
3. Summary of significant accounting policies (continued):
Principles of organization (continued):
The Company, after giving effect to a 20 for 1 reverse split of its
stock, issued 700,000 shares of its authorized 25,000,000 shares of
$.0001 par value stock to Hanover Resources, Inc., which owned 100% of
Hanover International Limited. As part of the reverse acquisition of
Hanover Gold Company, Inc. by Hanover International Limited the 700,000
shares represented 89.0% of all the outstanding stock of Hanover Gold
Company, Inc. which was exchanged for $898,203 of actual costs incurred
by Hanover Resources, Inc., the 100% owner of Hanover International
Limited. The $898,203 consisted of the original capitalization of
$264,381 plus additional paid in capital contribution of $633,822 of
which $581,159 was for purchase deposits of the Kearsarge Claim, $15,780
was for deferred offering costs, $31,883 was for exploration, engineering
and site development and the site development and the balance of $5,000
was for working capital.
Inventories:
Inventory consists of costs for extracting and hauling ore to
various stockpiles at the mine and mill. Market value is determined
by assay samples and milling costs to convert the ore into
concentrates. Inventories are stated at the lower of cost or
market.
Property and equipment:
Property and equipment are carried at cost. The Company computes
depreciation substantially by the straight-line method over the
estimated useful lives of the related assets.
Revenue recognition:
The Company maintains its books and records on the accrual basis of
accounting, recognizing revenue when goods are shipped and expenses
when they are incurred.
Depletion:
The Company depletes the cost of resource properties by an estimate
of the amount of natural resources to be extracted in tons of
material, which is the estimated recoverable units, divided into the
total cost to arrive at the rate per unit. The rate is multiplied
by the number of units extracted to determine the annual depletion
expense.
Resource properties and claims:
The Company accounts for resource properties and claims at the
actual cost incurred for exploration, engineering and site
development and for the purchases of mining properties and the
options to purchase additional claims.
The Company capitalizes lease payments which are to be allocated to the
acquisition cost of the mining claims upon completion of the term of the
lease. The provisions of the lease call for termination of the lease for
any default in payments and allow for the acquisition of the claims at
the end of the lease for the total rental payments made.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
3. Summary of significant accounting policies (continued):
Resource properties and claims (continued):
The Company amortizes the acquisition costs of mining claims as the
claims are put in service based on the allocated cost of the claim
divided by the estimated recoverable units of ore multiplied by the
units of ore extracted.
The Company writes off to operating expense the unamortized cost of the
resource property when it determines that the carrying amount of the
property may not be recoverable and the asset value is impaired.
Effect of Recently Issued Accounting Standards:
The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121, "Accounting for the
Impaired of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of. "SFAS No. 121 requires that Long-Lived Assets and
certain identifiable intangibles to be held and used by the Company
be reviewed for impairment whenever events indicated that the
carrying amount of an asset may not be recoverable. The Company
reviews the cost of Mining Properties for impairment when events
indicate that the carrying value of the asset may not be
recoverable.
Additionally, The Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock Based Compensation." The effective date of SFAS No. 123 is
for fiscal years beginning after December 15, 1995, and establishes
a method of accounting for stock compensation plans based on fair
value. The Company does not believe the SFAS No. 123 will have an
impact on its financial statements.
Earnings per share:
Earnings per share has been computed based on the weighted average
number of shares of common stock outstanding during each period.
There would have been no material diluting effect on net loss per
share for any outstanding stock warrants.
4. Nature of operations, risks and uncertainties:
The Company has had no significant operating history and must be
considered a development stage enterprise. As such, the Company is
subject to all of the risks inherent in a new mining operation and
business enterprise, including the absence of an operating history,
established banking relations and community and industry recognition.
Due to the lack of sufficient capital to commence sustainable mining
operations the Company is focusing its efforts on plotting and mapping
its data base, logging its core samples taken over the previous six
months, exploring selected claims and discussing possible joint venture
arrangements with major mining companies for the purpose of putting its
claims into commercially feasible production. There can be no
guarantees that the Company will be successful negotiating a joint
venture with a major mining company.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
4. Nature of operations, risks and uncertainties (continued):
The Company maintains cash balances at several financial institutions
located in Montana, Idaho and New York. Accounts at each institution are
insured by the Federal Deposit Insurance Corporation up to $100,000. At
December 31, 1995, the Company had a $600,000 uninsured cash balance at
one institution and at December 31, 1994 there were no uninsured cash
balances.
5. Note receivable:
In February, March and April 1993, the Company made total loans of
$100,000 to Moen Builders, Inc. and M&W Milling and Refining, Inc.,
(collectively referred to as "M&W") for M&W to acquire certain equipment
to complete its custom mill facility. M&W is not affiliated with the
Company. The Company has secured this loan with a fully executed and
recorded UCC Financing Statement covering certain equipment. M&W is
obligated to repay the notes from cash flow proceeds at the rate of $3.33
per ton of the Company's ore processed by M&W at the mill and at the rate
of $2.00 per ton for third party ore processed by M&W at the mill.
Instead of investing directly in machinery and equipment to develop its
own mill at that time, the Company determined that it was advantageous
and cost effective to lend M&W these funds, which represent a fraction of
the total mill cost, in order that M&W could complete the mill. As noted
previously, the Company will recoup its loan as a credit from ore
processed at the mill. As of December 31, 1994 M&W has paid back $7,897,
leaving a balance due from M&W of $92,103. As of December 31, 1995 M&W
paid back $2,806, leaving a balance due of $89,297.
During 1994, the Company acquired the exclusive use of the gravity and
carbon-in-leach mill processing facility known as Geneva Mill, L.C. at
Toston, Montana. This step was considered advisable by management
following the cancellation of the agreement with M&W Milling & Refining,
Inc. due to numerous problems encountered in processing the Company's
ore, and in not achieving satisfactory gold recoveries. The Company
entered into an agreement with Geneva Mill, L.C. on June 15th, 1994 and
provided the necessary funds for Geneva Mill, L.C. to acquire and
refurbish the facility. The facility was permitted as a custom mill to
handle the Company's ore. If the Company had decided to construct a
facility it could possibly have taken up to 24 months, provided the State
granted the Company a construction permit. If the Company acquired
ownership of the mill, the mill would have lost its grandfathered permit
and the Company would have had to refile for a new permit with no
guarantees that it would have been successful in obtaining one. In
addition to the note receivable to M&W, the Company had made loan
advances in 1994 to Geneva Mill, L.C. in the amount of $1,221,922 and an
additional amount in 1995 of $373,278, for plant acquisition, crushing
equipment, refurbishing used mill equipment, installation of new pumps,
construction of tailings ponds and liners, transportation trucking
equipment, and loaders and working capital. The terms of the repayment
of the loans are based on the tons of ore processed at the mill at the
rate of $45 per ton plus a $5 credit per ton as a payment toward
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
5. Note receivable (continued):
the advance. For 1994 and 1995 Geneva Mill, L.C. repaid from processing
$240,642 and $266,137 respectively, and made cash payments of $88,500 in
1995. In 1995 all operations between Geneva Mill, L.C. and Hanover Gold
have ceased. The balance due to the Company prior to the write off of
the uncollectible amounts due was $999,921. Management has determined to
write off $779,921 as an uncollectible bad debt for 1995 due to the
prosect that the mill will no longer be utilized and the inability of
Geneva Mill, L.C. to repay the loan. The balance of $220,000 is secured
by tangible assets and a security interest. Management has considered
this value to be unimpaired and recoverable.
6. Subscription receivable:
During the year ended December 31, 1994 the Company had outstanding a
subscription receivable for the sale of 405,850 Class C Warrants at $1.60
per share for a total of $649,360. Subsequent to the year ending
December 31, 1994, 250,000 shares were withdrawn from the subscription
for a total of $400,000. The balance at December 31, 1994 was reduced to
$249,360.
As of December 31, 1995 the Company has received payments of $249,360 for
the remaining 155,850 shares.
7. Inventories:
Raw materials consists of costs associated with extracting and
transporting the ore to the stockpiles. Work in process consists of
costs associated with transporting ore to the mill and processing it at
the mill. Yard and supplies consist of mine materials and repair and
maintenance items.
Inventories consist of:
December 31 December 31
1994 1995
---- ----
Raw materials $ 83,825 $ 29,494
Work in process 71,984 0
Yard and supplies 25,429 0
------ --------
Total inventory $ 181,238 $ 29,494
======= ========
8. Exploration, engineering and site development:
The Company has capitalized the amounts that have been paid by the
Company, and by Hanover Resources, Inc. for services rendered in the
exploration, drilling, sampling, engineering and other related technical,
managerial and professional services toward the evaluation and
development of the Kearsarge Group of Claims. The Company continues to
capitalize these charges until production begins. The total unamortized
cost capitalized at 1995 and 1994 are $2,225,106 and $2,228,118
respectively.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
9. Patented (deeded claims):
The Company has acquired the mining rights to the Kearsarge Lode Claim, a
precious metals tract, from Hanover Resources, Inc. (the "Sub lessor"),
pursuant to a Mineral Sublease and Purchase Option Agreement dated July
31, 1990. Under the original agreement, the Company has the right to
purchase the Kearsarge Claim for $6,075,000. During the first nine years
of the agreement, all paid rental payments shall be applied as a credit
toward the purchase price.
On December 3, 1990 and which became effective after December 31, 1990,
the Company entered into a Modification Agreement and renegotiated the
terms of the purchase option. The Company's option to purchase the
Kearsarge Lode Claim was converted to $3,300,000 in cash, upon the same
terms and conditions as the original cash purchase price, and the
issuance of 1,500,000 shares of the Company's common stock. This
Modification Agreement further provided that the shares were accepted in
full payment of the stated reduction in the purchase price of $3,000,000,
but that should the fair market price for the share not attain a price of
$2.00 per share on or before December 1, 1991, then an additional number
of shares would be issued based upon the then current market price for
the shares so that the market price of the shares on that date would
equal $3,000,000. Should the market price of the Company's shares on
December 1, 1991 be $2.00 or more, then there would be no adjustment of
the number of shares issued. As of December 1, 1991 the market value of
the stock was $1.50 per share, therefore as of December 31, 1995 the
Company issued an additional 500,000 shares of its common stock pursuant
to this Agreement.
The Agreement permits the Company to develop, mine and extract the
minerals contained in the Kearsarge Lode Claim for a period of nine years
commencing September 1, 1990, or to exhaustion of the minerals by
exercising the purchase option, and calls for the payment of a minimum
monthly payment of $10,000 to Hanover Resources, Inc. beginning October
1, 1990 and on the first day of each month thereafter, unless terminated
as provided for in the agreement. In addition, the agreement provides
for the annual rentals as follows:
December 31, 1995
-----------------
December 1, 1991 $ 50,000
January 1, 1992 25,000
February 1, 1992 25,000
March 1, 1992 25,000
April 1, 1992 25,000
May 1, 1992 12,500
September 1, 1992 50,000
June 1, 1993 200,000
June 1, 1994 130,000
June 1, 1995 400,000
June 1, 1996 400,000
June 1, 1997 400,000
June 1, 1998 400,000
June 1, 1999 400,000
June 1, 2000 757,500
-------
$ 3,300,000
=========
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
9. Patented (deeded claims) (continued):
It should be noted that the Company has only purchased the rights to mine
the property and can purchase the property for $3,300,000 under the
December 31, 1990 modification to the Purchase Option Agreement.
As a condition of the pending merger with Hanover Resources, Inc. the
minimum monthly payment of $10,000 was terminated and the Company has
agreed to pay directly to the underlying landowner of an additional group
of claims, in lieu of the $10,000 monthly payments, which shall resume if
the pending merger does not take effect, rental payments of $8,760 per
month through March 1999 with a final payment in April 1999 of $4,925.
The total remaining rental payments amount to $346,565, at December 31,
1995 and will be applied toward the purchase of the claims at the
termination of the lease. In addition to the $8,760 monthly landowner
rental payment, the Company shall pay an overriding production royalty of
five percent (5%) of the net smelter return from the Kearsarge Group of
claims to the same landowner.
As of December 31, 1995 and 1994, the Company has made payments toward
the Kearsarge Group of Claims of $3,922,083 and $3,388,621 respectively.
The amounts represent payments to the landowners as rental payments
applied to the purchase of the claims.
10. Option:
In December 1990, the Company entered into an Option Agreement to
purchase five additional mining claims which are contiguous to the
Kearsarge Mining Claim, from Hanover Resources, Inc. which expires
December 31, 1997.
Under this Option Agreement, the Company has agreed to pay $90,000 per
claim for a total of $450,000 as an exercise option fee, which payment is
contingent upon the results of further exploratory testing of these
properties and subject to the necessary due diligence. In addition to
the exercise fee, the Company has agreed to pay a minimum royalty of
$2,500 per month and a 5% net smelter return, for each claim that the
Company retains following the exercise of its option. The Company has
the option of acquiring less than all of the claims at the sole
discretion of management.
In addition, the Company has the right to purchase each of the five
claims for a payment of $600,000 per claim during the first seven years
of the Agreement with all rental payments and option exercise fees being
applied toward the purchase price on a claim by claim basis. In
consideration of granting this Option Agreement, the Company has issued
900,000 shares of its common stock at par value of $90 to Hanover
Resources, Inc.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
11. Agreements:
On February 13, 1992, The Hanover Group, Inc. entered into an agreement
with Bearcat for Bearcat's 30% working interest in the 34 claims known as
the Kearsarge Group of Claims. Hanover Group then assigned the agreement
to the Company without consideration and thereafter, the Company acquired
the working interest for a consideration of 600,000 shares of restricted
common stock issued by the Company to Bearcat. The negotiated value of
the stock between the Company and Bearcat on the closing date was $2.00
per share or a total of $1,200,000 for the working interest. In
addition, Bearcat was granted two future stock options by the Company.
One at $3.00 per share for 171,000 shares of legended common stock which
expired May 14, 1995, and another at $10.00 per share for 500,000 shares
of legended common stock which expires May 14, 1997.
On February 20, 1992, the Company entered into an Assignment and Mineral
Sublease Agreement with Hanover Resources, Inc. Under the agreement,
Hanover Resources, Inc. assigned 70% interest in the remaining 28 claims
of the original 34 claims held by Hanover Resources, Inc. and to five
claims held under the Option Agreement to the Company.
The Assignment and Mineral Sublease Agreement permits the Company to
mine, extract, process, concentrate, refine or otherwise treat, sell and
dispose of such minerals (the "Products") contained in the 28 claims
through April 15, 1999, or if any claim is in production all of the
claims can be mined until exhaustion. This agreement also obligates the
Company to pay Hanover Resources, Inc. $15,000 per month commencing
January 1, 1996 through December 31, 1997 and thereafter $20,000 per
month until the agreement is terminated or upon the commencement of
commercial production on the claims which ever comes first. The
commencement of the management fee payment of $15,000 had been deferred
until January 1, 1997, as a result of the proposed merger with the
Company, which is subject to shareholder approval.
Hanover Resources, Inc. is entitled to receive 70% of the products mined
from the claims in kind multiplied by the Company's participating
interest in the claims, subject to the provision of any joint venture
mining agreement the Company may enter into. The Company shall receive
30% of the products mined from the claims in kind multiplied by its
participating interest in the claims subject to the provisions of any
joint venture mining agreement that the Company may enter into. Hanover
Resources has an option to assign to the Company the monetary value of
its share of any independently appraised Products contained in the claims
in exchange for additional shares in the Company at 75% of the then
public market price of the stock.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
11. Agreements (continued):
The Agreement provides for the Company to pay the underlying landowner
rental payment obligations as follows:
December 31, 1995
-----------------
June 1, 1992 $ 150,000
September 1, 1992 50,000
June 1, 1993 112,500
June 1, 1994 85,000
June 1, 1995 200,000
June 1, 1996 200,000
June 1, 1997 200,000
June 1, 1998 200,000
June 1, 1999 200,000
June 1, 2000 $ 1,377,500
---------
$ 2,775,000
=========
Under the Agreement, the Company has the right to purchase the claims
from the landowner for $2,775,000. If this right is exercised, all
rental payments paid to the landowner shall be applied as credit toward
the purchase price.
From January 1992, to May, 1992 the Company had been negotiating an
agreement, known as the Mining Venture Agreement, with Kennecott
Exploration Company ("Kennecott"), a major mining company capable of
undertaking the development of the Alder Gulch properties under a joint
venture (the "mining venture"). In order to accommodate Kennecott, the
Company consolidated its interests with Group S, Ltd., and Hanover
Resources, Inc., affiliated entities, and on May 1, 1992, formed "Hanover
JV". Each of these three entities contributed their claim interests to
the Hanover JV for a total of 250 claims in the Alder Gulch region.
Although each entity contributed their claim interests to the Hanover JV,
each entity retained their respective rights and obligations to their
respective claims.
To further clarify the Mining Venture Agreement and Hanover JV, the
arrangement refers to separate entities which are involved in the mining
venture. The participants are Group S, Ltd, and Hanover Resources, Inc.
which are separate entities from the Company, and the Company (under the
Hanover JV), and Kennecott. Each entity is separate and apart from each
other, as are the claims controlled by each participant. The claims of
Group S, Ltd. are not commingled with the claims of the Company and each
participant is responsible for their portion of the operating expenses as
it pertains to their individual group of claims.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
11. Agreements (continued):
As of December 31, 1994, the mining venture had no assets or liabilities
and had not conducted business. There had been no accounting for the
mining venture since Kennecott was required to complete the initial
exploration phase in order for the mining venture to commence. On March
16, 1995, Kennecott notified the Company that it was unilaterally
terminating the Mining Venture Agreement.
On August 31, 1993, the Company entered into a Mineral Sublease Agreement
with Group S, Ltd. and acquired 80% of the Apex Claim, a patented
(deeded) property adjacent to the Kearsarge Claim for a payment of
$125,000 and 150,000 restricted shares of Hanover Gold Company, Inc.
common stock at a value of $1.50 per share. Under the Agreement, Group
S, Ltd. also retains a 20% net profit interest payable quarterly in cash
or in kind.
Pursuant to Kennecott's instructions, the Company entered into an
Assignment of Lease and Option to Purchase Agreement with a third party
landowner on November 15, 1993, for the acquisition of two precious
metals claims, known as the JTC Lode and the Randolph Lode claims, and
for the 20% of the Apex Lode Claim that it did not already control.
The responsibility for the landowner royalty payments under this
Agreement were Kennecott's by virtue of the Mining Venture Agreement
which assigns landowner rental payments to Kennecott for any claims in
the Hanover JV. The first payment of $120,000 was paid by Kennecott. In
1994, the landowner was due a royalty payment of $130,000 on April 15,
which Kennecott informed Hanover JV it would not make. Since, Hanover
Gold's management felt that it was advisable to retain this claim group
as it mined the Apex Lode claim and prospected on the JTC Lode and
Randolph Lode claims, it made the second payment of $130,000.
Under the Agreement, the Company has the right to purchase this claim
package for $1,650,000, less the amount previously paid of $250,000.
This is pursuant to the underlying landowner rental payment obligations
as follows:
December 31, 1995
-----------------
April 15, 1995 $ 150,000
April 15, 1996 200,000
April 15, 1997 250,000
April 15, 1998 300,000
April 15, 1999 $ 500,000
---------
$ 1,400,000
=========
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
11. Agreements (continued):
Included in the April 15, 1999 payment is a purchase buy out required to
effectuate the purchase of the claim group.
On April 18, 1995, the Company's Board of Directors approved the merger
of Hanover Resources, Inc. and Group S Ltd. with the Company, for the
purpose of consolidating the precious metals claims of all three
companies in the Alder Gulch, Virginia City, Montana. Under the terms of
the merger, the Company will issue a total of 5,895,486 shares of its
Common Stock upon the conversion of, and in exchange for, the outstanding
capital stock of Hanover Resources, Inc. and Group S Ltd. Pursuant to
the merger, the Company will acquire the 3,625,000 shares of its Common
Stock presently held by Hanover Resources, Inc. and such shares will be
extinguished. The Company will replace these acquired shares with
3,625,000 shares of registered stock. Therefore, the net additional
number of shares to be outstanding after giving effect to the replacement
of the 3,625,000 shares of the Company to be acquired from Hanover
Resources, Inc. will be 2,270,486 shares of the Company's Common Stock.
12. Development stage company:
The Company's operations have been centered around its organization,
evaluation of the mining industry, start-up financing of its operations,
including acquisition of the Kearsarge Mine, evaluation of engineering
data, obtaining necessary mining permits and formulation and
implementation of its business plan. From May 2, 1990 through the period
ending December 31, 1995, the Company has secured required financing from
its public warrant offering, and Hanover Resources, Inc., its principal
shareholder, in the total aggregate amount of $11,076,514 which financing
has been in the form of cash contributions of $10,178,311 and advance
payments for exploration, engineering, site development and rental
payments for the Kearsarge Claim in the amount of $898,203. The Company
has incurred losses in connection with its operations during this same
period of $4,325,299.
13. Related party transactions:
As of December 31, 1995 and 1994 the Company was due from affiliated
companies the following amounts:
1994 1995
---- ----
Due from Group S, Ltd. $ 300,695 $ 474,895
Due from Hanover Group, Inc. 19,835 0
Due from Hanover Resources, Inc. 207,042 405,909
Certain of the officers and directors of the Company are also officers
and directors of the affiliated companies. The principal shareholders of
the affiliated companies are also shareholders in the Company. Hanover
Resources, Inc. is a major stockholder in the Company and owns 3,625,000
shares. The Company has advanced landowner rental payments to Group S,
Ltd. Hanover Resources, Inc. was paid advances to cover expenses and
salary advances to Fred R. Schmid. As a result of the proposal merger
these balances will be eliminated.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
13. Related party transactions (continued):
On June 1, 1995 the Company entered into a Securities Purchase Agreement
with N.A. Degerstrom, acting on his own behalf and for others, giving him
the right to purchase 2,857,142 shares of common stock at $.35 per share
and granting him an option to purchase an additional 2,142,858 shares at
$.50 per share. Effective October 31, 1995 the Company and
N.A. Degerstrom executed Amendment Number One to the Securities Purchase
Agreement, in which, the Company agreed to sell, and N.A. Degerstrom
agreed to purchase, an additional 300,000 shares of the Company's common
stock at the price of $1.00 per share. On December 1, 1995, Amendment
Number Two to the Securities Purchase Agreement was executed between the
parties noted previously, in which the Company agreed to sell to
N.A. Degerstrom an additional 700,000 shares of the Company's common
stock at the price of $1.00 per share. As of December 31, 1995 the
Company issued 3,857,142 shares for a total amount of $2,000,000 to
N.A. Degerstrom and his associates. In addition, N.A. Degerstrom had
advanced $50,000 in loans to the Company at 9% interest which was repaid
January 4, 1996.
On March 3, 1996, the Company and N.A. Degerstrom executed Amendment
Number Three to the Securities Purchase Agreement, which rescinded the
option that N.A. Degerstrom held for the purchase of an additional
2,142,858 shares at $.50 per share, and instead obligates N.A. Degerstrom
to purchase the 2,142,858 shares according to the following schedule:
Total @ $.50
On or before Shares per share
------------ ------ ------------
April 15, 1996 400,000 $ 200,000
June 1, 1996 1,200,000 600,000
October 16, 1996 542,858 271,429
--------- -------
Total 2,142,858 $1,071,429
========= =========
14. Subsequent events:
On February 26, 1996 the Company executed a letter of Intent with Easton-
Pacific & Riverside Mining Company for the purpose of merging the two
entities into the Company, and consolidating their respective mineral
resources in the Virginia City Mining District, in Madison County,
Montana. The letter of intent provides for a 90 day due diligence
period, which may be extended for an additional sixty days, during which
each company will investigate each others mining claims, technical data,
mineral resources and any environmental or litigation risks to which
either may be subject. Depending on the results of these investigations,
the letter of intent contemplates the merger of Easton-Pacific and
Riverside Mining into the Company in exchange for 14,368,713 shares of
the Company's common stock, subject to the companies entering into a
definitive merger agreement, consummation of which will be dependent upon
receiving the approvals of the Board of Directors and stockholders of
each company, the delivery of a fairness opinion by an independent
financial advisor and the preparation and effectiveness of a registration
statement under federal and state securities law. As of the date of this
report, management of the Company cannot predict whether these due
diligence investigations will culminate in a definitive merger agreement
with Easton-Pacific or whether such agreement will be approved by the
Company's Board of Directors and stockholders.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
14. Subsequent events (continued):
On January 18, 1996 the Company filed a registration statement/proxy
statement with Securities and Exchange Commission seeking shareholder
approval to:
1. Approve the merger of Hanover Resources, Inc. and Group S, Ltd.,
affiliated companies, into the Company pursuant to which the Company
will issue to the shareholders of such companies 2,270,486 shares of
the Company's common stock, in addition to the 3,625,000 shares of
the Company held by Hanover Resources, Inc. which will, in effect,
be distributed to the stockholders of Hanover Resources, Inc.
2. Amend the Company's Certificate of Incorporation to increase the
total number of all shares of capital stock which the Company is
authorized to issue from 25,000,000 to 50,000,000 consisting of (a)
48,000,000 shares of common stock, each of which have a par value of
$.0001 (the "Common Stock") and (b) 2,000,000 shares of preferred
stock, each of which have a par value of $.001 (the "Preferred
Stock").
3. Consider and approve the Company's 1995 Stock Option Plan.
4. Elect seven members of the Board of Directors to hold office until
the next annual meeting of shareholders or until their respective
successors are elected to have qualified.
5. Authorize the appointment of independent public accountants for the
fiscal year.
6. Consider and vote upon such other matters as may properly come
before the meeting or any adjustment(s) thereof.
The registration statement is currently under review by the Securities
and Exchange Commission and has not been effective as of March 29, 1996.
Effective March 25, 1996, the Company entered into an asset purchase
agreement with an unaffiliated landowner for the purchase of 10 patented
and 120 unpatented mining claims and one mining lease covering properties
located in the Alder Gulch near the Company's landholdings. The lease
agreement calls for the issuance of 400,000 shares of the Company's
common stock and three year options exercisable at the price of $2.00 per
share for the purchase of an additional 300,000 shares of the Company's
common stock. Additionally, the lease states that if, during the two
year period commencing with the effective date of the agreement, the
average bid price of the Company's common stock during any period of
thirty consecutive trading days does not exceed $2.00 per share it will
issue the landowner such number of additional shares sufficient to raise
the aggregate market value of the shares then owned by the landowner to
$2.00.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
14. Subsequent events (continued):
Effective March 26, 1996, the Company became obligated for the issuance
of 250,000 shares of its common stock; the granting of a three year
option for the issuance of an additional 200,000 shares of its common
stock at an exercise price of $2.00 per share; the transfer of two mining
trucks that it owns free and clear of encumbrances and that have a book
value of approximately $43,000; the forgiveness of a note receivable in
the amount of $89,297 due from M&W, and release of the UCC filing the
Company holds as security for that note; and the elimination of a note
receivable in the amount of $220,000 due from Geneva Mill, L.C. in
exchange for a $3,000,000 reduction in the landowner rental obligations
that are owed to M&W by Group S, Ltd. which, upon approval of the pending
merger of Group S, Ltd. and the Company, would become the Company's
obligation to pay M&W. M&W also takes title to all of the assets owned
by Geneva Mill, L.C. as part of the consideration for the reduction in
rental payments to be received by M&W.
15. Reclamation bonds:
At December 31, 1995 and 1994, reclamation bonds were outstanding and are
secured by certificates of deposit.
16. Income tax:
The Company has adopted SFAS No. 109 "Accounting for Income Taxes", as of
December 31, 1992. FASB Statement No. 109 is required for all fiscal
years beginning after December 15, 1992. This statement requires that
deferred taxes be established for all temporary differences between book
and tax basis of assets and liabilities. There was no cumulative effect
of adoption or current effect on continuing operations mainly because the
Company has been in a development stage since inception, May 2, 1990, and
has sustained net operating losses during this period. The Company has
made no provision for a deferred tax asset due to the net operating loss
carryforward because a valuation allowance has been provided which is
equal to the deferred tax asset. It cannot be determined at this time
that a deferred tax asset is more likely than not to be realized.
The Company has a loss carryforward of $4,283,477 that may be offset
against future taxable income. The carryforward losses expire at the end
of the years 2005 through 2020.
The Company has established a valuation allowance equal to the tax
benefit.
17. Lease agreements:
The Company has entered into a two year lease for office space, from
which it conducts its financial and accounting operations and its
engineering analysis. The lease expires in November 1997. The Company
has prepaid six months worth of rental payments for a total of $9,000 and
paid an additional $700 for a security deposit. During the first year
the monthly rental payment is $1,500 and during the second year the
monthly rental payment is $1,700. In addition to the monthly rental
payments, the Company is obligated for all utility charges.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
17. Lease agreements (continued):
The Company maintains additional office space under a lese which expires
in July 1996, from which it conducts administrative duties. The monthly
cost is approximately $1,400.
During November 1995, the Company entered into a 20 year lease with a
landowner which granted the Company the right to mine and extract
materials from the landowners property. The Company must pay $2,500 per
year to maintain its right to mine, plus 3% of the revenue received by
the Company from the sale of minerals extracted from the property that is
the subject of this lease. As of December 31, 1995 no material has been
extracted.
18. Restated financial statements:
In 1995 the Company reversed accrued salary payable to Fred R. Schmid for
the period ended December 31, 1991, 1992, 1993 and 1994. The total
accrued salary at December 31, 1994 amounted to $542,347. The reversal
of the accrued salary came as a result of a correction of salary
incorrectly accrued by the principal officer.
1992 and prior $ 137,823
1993 270,895
1994 133,629
--------
$ 542,347
========
In 1995 the Company also reversed the accrued salary payable to Stephen
Schmid for the period ended December 31, 1992 and 1993. The total
accrued salary at December 31, 1994 amounted to $56,165. The reversal of
the accrued salary came as a result of a correction of salary incorrectly
accrued by Stephen Schmid.
1992 $20,382
1993 35,783
------
$56,164
======
19. Options and warrants:
Stock option plan:
On June 2, 1995 the Board of Directors granted options to the
following officers, key employees, directors and advisors of the
Company, subject to shareholder approval of the Plan. The exercise
price of the stock option was established at $1.60 per share.
Officer or Director Options Granted Expiration Date
------------------- --------------- ---------------
Pierre Gousseland 100,000 June 1, 2000
Fred R. Schmid 250,000 June 1, 2000
Stephen J. Schmid 175,000 June 1, 2000
Laurence Steinbaum 125,000 June 1, 2000
Nicholas S. Young 150,000 June 1, 2000
Warrants:
All warrants outstanding have expired as of December 31, 1994.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
20. Employee contracts:
On March 14, 1995 the Company amended the employment agreement
retroactive to August 27, 1994 employing Fred R. Schmid as its President
and Chief Executive Officer until August 31, 1997. The agreement calls
for a base salary of:
First year $ 125,000
Second year 137,000
Third year 150,000
The agreement provides for cost of living increases and a bonus equal to
3% of the Company's pre-tax net revenues and a severance package equal to
the greater of $2,500,000 or 10% of the Company's net worth. If Mr.
Schmid terminated the agreement for good reason he will receive an amount
equal to 300% of the base compensation.
On September 5, 1995 the Company entered into an agreement with
Stephen J. Schmid, the Company's Vice President, Treasurer and Corporate
Secretary, to become effective only if there is a "change in control" of
the Company. If a change occurs the Company agrees to continue Mr.
Schmid's employment for a period of 24 months.
In January 1996 all employment contacts were terminated and both Fred
Schmid and Stephen Schmid agreed to remain as consultants to the Company
under consultant agreements, in the case of Fred Schmid for a monthly fee
of $7,500 until December 31, 1996, and in the case of Stephen Schmid,
$5,500 until September 30, 1996.
21. Calculation of earnings per share:
December
1993 1994 1995
---- ---- ----
Number of shares:
Weighted average shares
outstanding 6,136,089 8,306,409 10,012,215
Incremental shares for
outstanding stock warrants 1,362,697 8,450
Incremental shares for
outstanding stock options
and purchase commitments 1,716,667
---------- --------- ----------
7,498,786 8,314,859 11,728,882
========== ========= ==========
Primary earnings per share amounts are computed based on the weighted
average number of shares actually outstanding and shares that would be
outstanding assuming exercise of dilutive stock options and warrants.
All of which are considered to be common stock equivalents. Fully
diluted earnings per share are the same as primary earnings per share for
December 31, 1993, 1994 and 1995.
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 AND THE PERIOD
MAY 2, 1990 (INCEPTION) TO DECEMBER 31, 1995
22. Private placements:
On October 19, 1995, in a private placement, the Company sold 200,000
shares of restricted common stock to one investor at a price of $1 per
share for a total of $200,000.
23. Supplemental disclosures of cash flow information:
Supplemental schedule of non cash investing and financing activities:
December 31,
1993 1994 1995
---- ---- ----
On August 31, 1993 the Company
issued cash of $125,000 and
150,000 shares of restricted
common stock valued at $1.50
for a total consideration of
$350,000 for the purpose of
subleasing an 80 percent
(80%) interest in the Apex Claim.
(see Note 8) $225,000
Issuance of 500,000 shares of common
stock for modification agreement
of Hanover Resources, Inc. (See
Note 8) $ 50
Issuance of 269,679 shares of common
stock to vendors in settlement of
invoices due 274,096
------- -------- -------
$225,000 0 $274,146
======= ======== =======
24. Significant changes in the fourth quarter:
The Company recognized a $250,000 non-recurring option payment under the
Kennecott mining venture agreement. Under the agreement, if Kennecott
withdrew from the joint venture the option payable would be recognized as
income.
During the fourth quarter 1995 it became clear to the Company that the
note receivable from Geneva Mill L.C. would not be collectible.
Kennecott's withdrawal from the joint venture, the inability of Geneva
Mill L.C. to attract any new business and the decision to curtail mining
operation by the Company caused Geneva Mill L.C.'s facilities to cease
operations. As a result, an allowance for bad debt of $779,921 was set
up in the fourth quarter.
In addition, in the fourth quarter a write down of inventory in the
amount of $69,339 occurred to lower inventory to the lower of cost or
market.
Finally, in the fourth quarter a loss on sale of assets of $32,509
occurred when the Company began liquidating unused assets.
<PAGE>
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON FINANCIAL STATEMENT SCHEDULES
Board of Directors
Hanover Gold Company, Inc. and Subsidiary
Roslyn, New York
We have audited the consolidated financial statements of Hanover Gold
Company, Inc. and Subsidiary as of December 31, 1995, our report thereon dated
March 29, 1996. In connection with our audit of these financial statements,
we audited the financial statement schedules.
In our opinion, these financial statements schedules present fairly, in
all material respects, the information stated therein, when considered in
relation to the consolidated financial statements taken as a whole.
Zeller Weiss & Kahn
March 29, 1996
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
SCHEDULE II
Balance at
Name of beginning Amounts
Debtor of period Additions Collected Current
- - ------- --------- --------- --------- --------
Group S Limited $300,695 $174,200 $474,895
Hanover Group, Inc. 19,835 $19,835
Hanover Resources, Inc. 207,042 198,867 405,909
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
PROPERTY, PLANT AND EQUIPMENT
SCHEDULE V
Balance at Other Changes-
beginning Additions add (deduct) Balance at
Classification of period at cost describe end of period
- - -------------- --------- --------- ----------- -------------
Equipment $132,696 $34,754 $(57,439) $110,011
Building improvements 17,566 17,566
Office equipment 15,557 2,260 17,817
Vehicle 1,500 3,600 5,100
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
SCHEDULE VI
Additions
Balance at charged
beginning to costs & Balance at
Description of period expenses Retirements end of period
- - ----------- --------- --------- ----------- -------------
Equipment $19,448 $23,430 $11,059 $31,819
Building improvements 3,177 2,503 5,680
Office equipment 5,130 3,636 8,766
Vehicle 450 960 1,410
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
SHORT-TERM BORROWINGS
SCHEDULE IX
<TABLE>
<CAPTION>
Category of Weighted Maximum amt. Average amt. Weighted
appropriate average outstanding outstanding average interest
short-term Balance at interest during the during rate during
borrowing end of period rate period the period the period
- - ------------ ------------- --------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Note payable $48,654 8.44% $65,260 $57,273 8.44%
Loan payable -
shareholder 50,000 9.00% 50,000 50,000 9.00%
</TABLE>
<PAGE>
<PAGE>
HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
SUPPLEMENTARY INCOME STATEMENT INFORMATION
SCHEDULE X
Item Charged to costs and expenses
- - ----- -----------------------------
1. Maintenance and repairs $ 4,629
2. Depreciation and amortization of intangible assets,
preoperating costs and similar deferral 38,229
3. Taxes, other than payroll and income taxes 16,364
4. Royalties 120,000
5. Advertising costs 223,943
<PAGE>
<PAGE>
HANOVER RESOURCES, INC.
INTERIM MANAGEMENT REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1995, AND
FOR THE PERIODS
JANUARY 1, TO
JUNE 30, 1995, AND 1996, AND
APRIL 26, 1990 (INCEPTION) TO JUNE 30, 1996
<PAGE>
<PAGE>
HANOVER RESOURCES, INC.
(A Development Stage Company)
BALANCE SHEET
ASSETS
December 31 December 31
1995 1996
(audited) (unaudited)
----------- ------------
Current assets
Cash $ 2,178 $ 17,662
Prepaid income taxes 11,000 7,173
Prepaid fees 1,167 1,167
----- -----
Total current assets $34,345 $26,002
------ ------
Other assets
Patented (deeded) claims (Note 4) 1,342,720 1,342,720
Investment in Hanover Gold Company, Inc.
(Note 5) 0 0
Loan receivable from shareholders
(Note 6) 8,000 0
Due from affiliated company (Note 12) 134,038 33,274
------- ------
Total other assets $1,994,750 $1,375,994
--------- ---------
Total assets $1,919,103 $1,401,996
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued expenses (Note 7) $ 92,536 $ 0
------ --------
Total current liabilities $ 92,536 $ 0
------ --------
Long term liabilities
Due to affiliated companies (Note 12) 949,105 411,056
Notes payable and accrued interest
(Note 8) 0 0
Option payment 90 90
------- --------
Total long term liabilities $849,195 $411,046
------- -------
Total liabilities $941,731 $411,146
------- -------
Stockholders' equity
Common Stock, (Notes 1, and 10)
Authorized - 2,150,000 shares $.01 par value
Issued and outstanding
December 31, 1994 -
1,447,214 shares
December 31, 1995 -
2,137,970 shares 21,379 21,379
Additional paid in capital 1,220,375 1,220,375
Deficit accumulated during the
development stage (264,392) (250,904)
------- -------
Total stockholders' equity $977,372 $990,850
------- -------
Total liabilities and
stockholders' equity $1,919,103 $1,401,996
========= =========
See notes to financial statements.
<PAGE>
<PAGE>
HANOVER RESOURCES, INC.
(A Development Stage Company)
STATEMENTS OF INCOME (LOSS) AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
January 1, January 1, April 26, 1990
1995 to June 1996 to June (Inception) to June
30, 1995 30, 1996 30, 1996
------------ ------------ -------------------
<S> <C> <C> <C>
REVENUES
Royalty and fee income $ 60,000 $ 31,252 $ 853,983
EXPENSES
Payroll 19,000 0 460,834
Payroll taxes 2,740 0 40,519
Professional fees 9,305 0 134,891
Promotion and travel 865 0 53,262
Contract services 1,442 0 177,157
Administrative and other expenses 1,785 17,775 71,360
----- ------ -------
Total expenses $ 35,137 $ 17,775 $ 938,025
------ ------ -------
Income (loss) from operations $ 24,863 $ 13,477 $(84,040)
------ ------ ------
Other income (expense)
Loss on investment in Hanover
Gold Co., Inc. $ 0 $ 0 $(255,913)
Gain on sale of securities 0 0 172,243
Interest income 0 0 5,486
Interest expense (25) 0 (69,990)
State income taxes (4,113) 0 (18,691)
----- - ------
Total other income (expense) $ (20,750) $ 0 $(166,865)
Net income (loss) 830 15,692 (250,904)
Accumulated deficit at
beginning of period $(254,545) $(237,427) -
------- ------- --------
end of period $(233,795) $(250,904) $(250,904)
======= ======= =======
See notes to financial statements.
</TABLE>
<PAGE>
HANOVER RESOURCES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Apr. 26, 1990
(Inception)
January 1, 1995 to January 1, 1996 to to June 30,
June 30, 1995 April 30, 1996 1996
------------------ ------------------- -----------
<S> <C> <C> <C>
Operating activities
Net income (loss) from operations $20,750 $13,477 $ (250.904)
Adjustments to reconcile net income (loss)
to net cash provided by (used for)
operating activities
Gain on sale of securities (98,393)
Changes in operating assets and liabilities
(Increase) decrease in prepaid taxes 4,000 23,828 (7,173)
(Increase) in prepaid fees (1,167) - (1,167)
(Increase) in patented (deeded) claims (32,120) - (1,342,720)
(Increase) in investment in Hanover Gold
Company, Inc. - - (185,219)
(Increase) decrease in due from shareholder 20,000 8,000 0
Increase (decrease) in due to affiliates 50,625 62,715 377,782
(Decrease) increase in accrued expenses (52,000) (92,536) 0
Increase (decrease) in notes payable and
accrued interest - - 0
Increase in option payment - - 90
- - --
Net cash provided by (used in)
operating activities $(10,088) $15,484 $(1,581,554)
------ ------ ---------
Investing activities
Proceeds on sale of Hanover Gold Company,
Inc. warrants - - 357,462
------ ------ -------
Net cash provided by investing activities $ 0 $ 0 $357,462
------ ------ -------
Financing activities
Proceeds from sale of common stock - - 1,241,754
------ ------ ---------
Net cash provided by financing activities $ 0 $ 0 $1,241,754
------ ------ ---------
Net increase (decrease) in cash (10,088) 15,484 17,622
Cash, beginning of period 40,621 2,178 -
------ ------ ---------
Cash, end of period $50,709 $17,622 $17,622
------ ------ ------
</TABLE>
See notes to financial statements.
<PAGE>
<PAGE>
HANOVER RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1995
January 1, 1996 to June 30, 1996 and
April 26, 1990 (Inception) to June 30, 1996
1. Organization and Nature of Business
Hanover Resources, Inc. ("Company") was incorporated in New York on
April 26, 1990. The objectives of the Company are to invest in precious metal
claims, namely gold and silver deposits having economic and mining potential,
and related activities in the precious metals and mining industries.
On May 2, 1990, the Company formed Hanover International Limited
("International") as a wholly owned subsidiary and transferred its interest in
the Kearsarge Lode Claim to International in exchange for 100% of the
outstanding common stock of International. On July 31, 1990, International
was acquired by Hanover Gold Company, Inc. ("Hanover Gold") in exchange for
14,000,000 shares of Hanover Gold common stock. As of December, 1990, Hanover
Gold reverse split its shares 1 for 20.
2. Summary of significant accounting policies
The unaudited financial statements have been prepared by the Company in
accordance with generally accepted accounting principals for interim financial
information as required by Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements, In the
opinion of the Company's management, all adjustments (consisting of only
normal recurring accruals) considered necessary of a fair presentation have
been included. Operating results for the six month period ended June 30, 1996
are not necessarily indicative of the results that may be expected for the
full year ending December 31, 1996.
For further information refer to the financial statements, and footnotes
thereto, for the year ended December 31, 1995, incorporated elsewhere herein.
Revenue recognition:
The Company maintains its books and records on the accrual basis of
accounting, recognizing revenue when goods are shipped and expenses when they
are incurred.
Depletion:
The Company depletes the cost of resource properties by an estimate of
the amount of natural resources to be extracted in tons of material, which is
the estimated recoverable units divided into the total cost to arrive at the
rate per unit. The rate is multiplied by the number of units extracted to
determine the annual depletion expense.
Patented (Deeded) Claims and Resource Properties:
The Company accounts for resource properties and claims at the actual
cost incurred for exploration, engineering and site development and for the
purchases of mining properties and the options to purchase additional claims
The Company capitalizes lease payments which are to be allocated to the
acquisition cost of the mining claims upon completion of the term of the
lease. The provisions of the lease call for termination of the lease for any
default in payments and allow for the acquisition of the claims at the end of
the lease for the total rental payments made.
The Company amortizes the acquisition costs of mining claims as the
claims as put in service based on the allocated cost of the claim divided by
the estimated recoverable units of ore multiplied by the units ore extracted.
The Company writes off to operating expense the unamortized cost of the
resource property when it determines that the carrying amount of the property
may not be recoverable and the asset value is impaired.
Earnings per share:
Earnings per share has been computed based on the weighted average number
of shares of common stock outstanding during each period. There would have
been no material diluting effect on net loss per share for any outstanding
stock warrants.
Investments:
The Company accounts for investments in affiliated companies, which
constitute 20% to 50% of the equity of the investee company, by the equity
method.
Effect of Recently Issued Accounting Standards:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impaired of Long-
Lived Assets and for Long-Lived Assets to Be Disposed of. SFAS No. 121
requires that Long-Lived Assets and certain identifiable intangibles to be
held and used by the Company be reviewed for impairment whenever events
indicated that the carrying amount of an asset may not be recoverable. The
Company reviews the cost of Mining Properties for impairment when events
indicate that the carrying value of the asset may not be recoverable.
Additionally, The Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation." The effective date of SFAS No. 123 is for fiscal years
beginning after December 15, 1995, and establishes a method of accounting for
stock compensation plans based on fair value. The Company does not believe the
SFAS No. 123 will have an impact on its financial statements.
3. Nature of operations, risks and uncertainties:
The Company has had no significant operating history and must be
considered a development stage enterprise. As such, the Company is subject to
all of the risks inherent in a new mining operation and business enterprise,
including the absence of an operating history, established banking relations
and community and industry recognition.
4. Patented (Deeded) Claims
The Company acquired the mining rights to 34 patented precious metals
claims through an assignment of an agreement ("Primary Agreement") between The
Hanover Group, Inc. ("Group") and the Company dated April 26, 1990. The
Company acquired all the rights and obligations from group for which Group
received 100% of the Company's common stock.
Pursuant to a Mineral Sublease and Purchase Option (the "Secondary
Agreement") between the Company and International dated May 2, 1990, the
Company conveyed all of its rights in and to the Kearsarge Claim, leaving the
Company with the balance of 33 claims under the Primary Agreement. The
transfer was made subject to the former owner's 30% interest and landowner
rent and royalty obligations, and the obligation to pay a royalty of $10,000
per month to the Company.
On December 20, 1990, Hanover Gold acquired an option until December 20,
1995 for the mining rights to five additional claims from the Company in
exchange for 900,000 shares of Hanover Gold common stock. This option has
been extended until December 20, 1996 for no additional consideration.
In 1992, the Company entered into a mining venture agreement with
Kennecott Exploration Company. As part of the agreement the Company conveyed
to Hanover Gold its interest in 28 claims, subject to a reserved 70% interest
in all precious metals mined from the claims, and a management fee of $15,000
per month, commencing January 1, 1996. The commencement date for payment of
the management fee has been extended until January 1, 1997 for no additional
consideration. Under the various agreements Hanover Gold is obligated to pay
the underlying landowner's royalty payments on the 34 claims.
As of April 30, 1996, the payment obligations to two landowners on the
claims are as follows:
First Landowner:
June 1, 1997 $ 600,000
June 1, 1998 $ 600,000
June 1, 1999 $2,735,000
---------
$4,535,000
The obligation to the second landowner consist of monthly payments of
$8,760 through April 1999. As of June 30, 1996, the total remaining payments
are $294,005.
If Hanover Gold does not make these payments, then the 34 claims revert
back to the Company and it becomes the obligation of the Company to pay.
Failure of the Company to pay these monthly and annual payments to the
landowners triggers a default and the claims would revert back to the
landowners.
Under a Modification Agreement dated December 3, 1990 the Company agreed
to assume $3.0 million of Hanover Gold's obligation to the first landowner.
In exchange for this assumption by the Company, Hanover Gold issued 1,500,000
shares of its common stock to the Company. In accordance to the terms of the
agreement, the Company received an additional 500,000 shares of Hanover Gold
stock based on the fair market value of Hanover Gold common stock on
December 31, 1991.
5. Investment in Hanover Gold Company, Inc.
As of June 30, 1996 the Company owned 3,625,000 shares of Hanover Gold
common stock that it accounts for on the equity method. The shares were
acquired in exchange for various mining rights (see Note 4) and the assumption
of Hanover Gold's liability by the Company. Hanover Gold's condensed balance
sheet and condensed income statement at December 31, 1995, and June 30, 1996
are as follows:
ASSETS
December 31, June 30,
1995 1996
---- ----
Total current assets $ 850,242 $ 166,020
Resource property and claims 6,147,279 8,591,427
Property and equipment 102,819 87,762
Other assets 1,210,024 900,728
--------- ---------
Total assets $8,310,364 $9,745,937
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 358,860 $ 427,705
Other liabilities 0 0
Stockholders' equity 7,951,504 9,318,232
--------- ---------
Total liabilities and
stockholders' equity $8,310,364 $9,745,937
--------- ---------
Gross revenues $ 499,299 $ 4,655
--------- ---------
Cost of goods mined $ 830,197 $ 0
--------- ---------
General and administrative
expenses $1,934,655 $ 783,427
--------- ---------
Loss from operations $(2,265,553) $( 778,772)
--------- --------
As specified in Regulation S-X, summarized financial information has been
presented for the investment in Hanover Gold. The investment account of the
Company in Hanover Gold Company, Inc. is as follows:
December 31,
1995 June 30, 1996
---- -------------
Investment in Hanover Gold
Company, Inc. $255,913 $255,913
Losses recognized in
prior years 255,913 255,913
------- -------
Net investment at December 31,
1995 and June 30, 1996 $ 0 $ 0
------- -------
As required by ABP 18 paragraph 19(i) the cumulative losses on the
investment in Hanover Gold Company, Inc. as of June 30, 1996 amounted to
$1,755,213. The Company has discontinued applying the equity method as of
December 31, 1992 since the investment has been reduced to zero. The Company
will resume applying the equity method once its share of the net income equals
the share of net losses not recognized during the period the equity method was
suspended.
6. Loans Receivable Shareholders
The Company has advanced funds to several shareholders who have been
active in the management of the Company's affairs. The loans are fully
secured, non-interest bearing, and are due on demand.
7. Accrued Expenses
The balance of $92,536, as of December 31, 1995, includes salaries,
payroll taxes payable and accrued professional fees of approximately $38,803,
$11,213 and 42,520, respectively. The balance at April 30, 1996 is zero.
8. Notes Payable and Accrued Interest
In 1991, the Company borrowed $215,170 by issuing preferred, convertible
notes, bearing simple interest at 10% per annum, to shareholders of the
Company. During 1995, these note holders elected to convert their notes and
accrued interest into 574,076 shares of the Company's common stock.
9. Founder's Package
In December 1993, the Company's Board approved, with Fred R. Schmid not
voting, a Founders Stock Package ("Package") granting shares of the Company's
common stock to Fred R. Schmid. Pursuant to the Package, Fred R. Schmid
purchased 75,000 shares for $750, and was granted 116,680 shares of the
Company's common stock at no cost, which was approved by the shareholders.
Subject to approval of the merger of the Company with Hanover Gold, by the
Hanover Gold shareholders, Fred R. Schmid would receive a total of 325,000
shares of Hanover Gold's common stock, in exchange for Fred R. Schmid's
191,680 shares of the Company's common stock.
10. Increase in Capital Stock
The shareholders have approved an increase in the Company's authorized
shares of common stock from 2,000,000 shares to 2,150,000 shares and the
Company has filed the necessary documents with the State of New York.
11. Development Stage Company
The Company's operations have been centered around its organization,
evaluation of the mining industry, start-up financing of its operations,
including acquisition of the mining properties, evaluation of engineering
data, obtaining necessary mining permits and formulation and implementation of
its business plan. From April 21, 1990 through the period ending December 31,
1995 the Company has required financing from shareholders and affiliated
companies to fund the development and rental payments of the mining
properties. The Company has incurred losses in connection with its operations
during period from inception to June 30, 1996 of $250,904.
12. Related Parties
The inter-company balances represent payments to and advances from
affiliated companies in the normal course of business. The balances are
non-interest bearing and are due on demand.
As of December 31, 1995, and April 30, 1996, the Company had receivables
and payables with affiliated companies as follows:
December 31,
1995 June 30, 1996
---- -------------
$ 534,038
( 438,049)
--------
Due from Group S Limited $ 95,989 $ 33,274
Due to Hanover Gold
Company, Inc. $(405,809) $(405,809)
Certain of the officers and directors of the Company are also officers
and directors of the affiliated companies, namely, Hanover Group, Inc.,
Hanover Resources, Inc., and Hanover Gold Company, Inc. Additionally, certain
of the principal shareholders of the affiliated companies are also
shareholders in the Company. Furthermore, for the year ended December 31,
1995, and at June 30, 1996, the Company owned 3,625,000 shares (27%, and 25%,
respectively) of the outstanding common stock of Hanover Gold Company, Inc.
[The balance of this page has been intentionally left blank.]
<PAGE>
HANOVER RESOURCES, INC.
AUDITED REPORT
FOR THE YEARS ENDED
DECEMBER 31, 1994, AND 1995,
AND FOR THE PERIOD
APRIL 26, 1990 (INCEPTION) TO DECEMBER 31, 1995
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Hanover Resources, Inc.
Roslyn, New York
We have audited the accompanying balance sheet of Hanover Resources, Inc.
as of December 31, 1995 and December 31, 1994 and the related statements of
income (loss) and accumulated deficit and cash flows for the years then ended,
and for the period April 26, 1990 (inception) to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on
our audit.
We conducted our audit 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 also 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Hanover
Resources, Inc. as of December 31, 1995 and 1994, and the results of its
operations and cash flows for each of the years then ended, and April 26, 1990
(inception) to December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 11, the Company has been in the development stage
since April 26, 1990.
Grossman, Tuchman & Shah LLP
May 16, 1996
New York, New York
<PAGE>
<PAGE>
HANOVER RESOURCES, INC.
(A Development Stage Company)
BALANCE SHEET
ASSETS
December 31 December 31
1994 1995
----------- ------------
Current assets
Cash $ 40,621 $ 2,178
Prepaid income taxes $ 35,000 $ 31,000
Prepaid fees $ 0 $ 1,167
--------- ---------
Total current assets $ 75,621 $ 34,345
--------- ---------
Other assets
Patented (deeded) claims (Note 4) 1,246,360 1,342,720
Investment in Hanover Gold Company, Inc.
(Note 5) 0 0
Loan receivable shareholders (Note 6) 71,800 8,000
Due from affiliated company (Note 12) 505,030 534,038
--------- ---------
Total other assets $1,823,190 $1,884,758
--------- ---------
Total assets $1,898,811 $1,919,103
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accrued expenses (Note 7) $ 248,542 $ 92,536
--------- ---------
Total current liabilities $ 248,542 $ 92,536
--------- ---------
Long term liabilities
Due to affiliated companies (Note 12) 665,221 849,105
Notes payable and accrued interest
(Note 8) 291,856 0
Option payment 90 90
--------- ---------
Total long term liabilities $ 957,167 $ 849,195
--------- ---------
Total liabilities $1,205,709 $ 941,731
--------- ---------
Stockholders' equity
Common stock, (Notes 1 and 10)
Authorized - 2,150,000 shares $.01 par value
Issued and outstanding -
December 31, 1994 1,447,214 shares 14,472
December 31, 1995 2,137,970 shares 21,379
Additional paid in capital 945,834 1,200,375
Deficit accumulated during the development
stage (267,204) (264,382)
--------- ---------
Total stockholders' equity $ 693,102 $ 977,372
--------- ---------
Total liabilities and stockholders'
equity $1,898,811 $1,919,103
========= =========
See notes to financial statements.
<PAGE>
<PAGE>
HANOVER RESOURCES, INC.
(A Development Stage Company)
STATEMENTS OF INCOME (LOSS) AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Year Ended April 26, 1990
Year Ended December 31, (Inception) to
Dec. 31, 1994 1995 Dec. 31, 1995
------------ ------------ ---------------
<S> <C> <C> <C>
REVENUES
Royalty and fee income $ 120,000 $ 128,000 $ 822,731
-------- -------- --------
EXPENSES
Payroll 105,000 56,667 460,834
Payroll taxes 9,982 8,224 40,519
Professional fees 27,845 42,767 134,891
Promotion and travel 4,218 3,192 53,262
Contract services 52,444 5,000 177,157
Administrative and other
expenses 21,034 5,253 53,585
-------- -------- --------
Total expenses $ 220,523 $ 121,103 $ 920,248
-------- -------- --------
Income (loss) from operations $(100,523) $ 6,897 $ (97,517)
------- -------- --------
Other income (expense)
Loss on investment in Hanover Gold
Co., Inc. $ 0 $ 0 $(255,913)
Gain on sale of securities 98,393 0 172,243
Interest income 2,000 0 5,486
Interest expense (11,559) (75) (69,990)
State income taxes (970) (4,000) (18,691)
-------- -------- --------
Total other income (expense) $87,864 $ (4,075) $(166,865)
-------- -------- ---------
Net income (loss) (12,659) 2,822 (264,382)
Accumulated deficit at
beginning of period (254,545) (267,204) -
-------- -------- --------
End of period $(267,204) $(264,382) $(264,382)
======== ======== ========
</TABLE>
See notes to financial statements.
<PAGE>
<PAGE>
HANOVER RESOURCES, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Apr. 26, 1990
Year Ended December 31, (Inception) to
December 31, 1994 1995 Dec. 31, 1995
------------------ ----------- -------------
<S> <C> <C> <C>
Operating activities
Net income (loss) from operations $ (12,659) $ 2,922 $ (338,232)
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities
Gain on sale of securities (98,393) 0 (98,393)
Changes in operating assets and liabilities
(Increase) decrease in prepaid taxes (35,000) 4,000 (31,000)
Increase in prepaid fees - (1,167) (1,167)
(Increase) in patented (deeded) claims (105,120) (96,360) (1,342,720)
(Increase) in investment in Hanover Gold
Company, Inc. - - (185,219)
(Increase) decrease in due from
shareholder (51,440) 63,800 (8,000)
Increase (decrease) in due
to affiliates (129,624) 158,876 315,067
(Decrease) increase in accrued expenses 247,388 (156,006) 92,536
Increase (decrease) in notes payable and
accrued interest 11,558 (291,856) 0
Increase in option payment - - 90
-------- ------- ----------
Net cash provided by (used in) operating
activities: $(173,290) $(319,891) $(1,597,038)
-------- -------- ----------
Investing activities
Proceeds on sale of Hanover Gold Company, Inc.
Warrants 149,750 0 357,462
--------- -------- ----------
Net cash provided by investing activities: $ 149,750 $ 0 $ 357,462
-------- -------- ----------
Financing activities
Proceeds from sale of common stock 0 0 960,306
Converted preferred note - 281,448 281,448
-------- -------- ----------
Net cash provided by financing activities $ 0 $ 281,448 $ 1,241,754
-------- -------- ----------
Net increase (decrease) in cash (23,540) (38,443) 2,178
Cash, beginning of period 64,161 40,621 -
-------- -------- ----------
Cash, end of period $ 40,621 $ 2,178 $ 2,178
======== ======== ==========
</TABLE>
<PAGE>
<PAGE>
HANOVER RESOURCES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1994 and 1995 and
April 26, 1990 (Inception) to December 31, 1995
1. Organization and Nature of Business
Hanover Resources, Inc. ("Company") was incorporated in New York on
April 26, 1990. The objectives of the Company are to invest in precious metal
claims, namely gold and silver deposits having economic and mining potential,
and related activities in the precious metals and mining industries.
On May 2, 1990, the Company formed Hanover International Limited
("International") as a wholly owned subsidiary and transferred it interest in
the Kearsarge Lode Claim to International in exchange for 100% of the
outstanding common stock of International. On July 31, 1990, International
was acquired by Hanover Gold Company, Inc. ("Hanover Gold") in exchange for
14,000,000 shares of Hanover Gold common stock. As of December, 1990, Hanover
Gold reverse split its shares 1 for 20.
2. Summary of significant accounting policies
Revenue recognition:
The Company maintains its books and records on the accrual basis of
accounting, recognizing revenue when goods are shipped and expenses when they
are incurred.
Depletion:
The Company depletes the cost of resource properties by an estimate of
the amount of natural resources to be extracted in tons of material, which is
the estimated recoverable units, divided into the total cost to arrive at the
rate per unit. The rate is multiplied by the number of units extracted to
determine the annual depletion expense.
Patented (Deeded) Claims and Resource Properties:
The Company accounts for resource properties and claims at the actual
cost incurred for exploration, engineering and site development and for the
purchases of mining properties and the options to purchase additional claims.
The Company capitalizes lease payments which are to be allocated to the
acquisition cost of the mining claims upon completion of the term of the
lease. The provisions of the lease call for termination of the lease for any
default in payments and allow for the acquisition of the claims at the end of
the lease for the total rental payments made.
The Company amortizes the acquisition costs of mining claims as the
claims are put in service based on the allocated cost of the claim divided by
the stimulated recoverable units of ore multiplied by the units of ore
extracted.
The Company writes off to operating expense the unamortized cost of the
resource property when it determines that the carrying amount of the property
may not be recoverable and the asset value is impaired.
Earnings per share:
Earnings per share has been computed based on the weighted average number
of shares of common stock outstanding during each period. There would have
been no material diluting effect on net loss per share for any outstanding
stock warrants.
Investments:
The Company accounts for investments in affiliated companies, which
constitute 20% to 50% of the equity of the investee company, by the equity
method.
Effect of Recently Issued Accounting Standards:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impaired of Long-
Lived Assets and for Long-Lived Assets to Be Disposed of. SFAS No. 121
requires that Long-Lived Assets and certain identifiable intangibles to be
held and used by the Company be reviewed for impairment whenever events
indicated that the carrying amount of an asset may not be recoverable. The
Company reviews the cost of Mining Properties for impairment when events
indicate that the carrying value of the asset may not be recoverable.
Additionally, The Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation." The effective date of SFAS No. 123 is for fiscal years
beginning after December 15, 1995, and establishes a method of accounting for
stock compensation plans based on fair value. The Company does not believe
the SFAS No. 123 will have an impact on its financial statements.
3. Nature of operations, risks and uncertainties
The Company has had no significant operating history and must be
considered a development stage enterprise. As such, the Company is subject to
all of the risks inherent in a new mining operation and business enterprise,
including the absence of an operating history, established banking relations
and community and industry recognition.
4. Patented (Deeded) Claims
The Company acquired the mining rights to 34 patented precious metals
claims through an assignment of an agreement ("Primary Agreement") between The
Hanover Group, Inc. ("Group") and the Company dated April 26, 1990. The
Company acquired all the rights and obligations from Group for which Group
received 100% of the Company's common stock.
Pursuant to a Mineral Sublease and Purchase Option (the "Secondary
Agreement") between the Company and International dated May 2, 1990, the
Company conveyed all of its rights in and to the Kearsarge Claim, leaving the
Company with the balance of 33 claims under the Primary Agreement. The
transfer was made subject to the former owner's 30% interest and landowner
rent and royalty obligations, and the obligation to pay a royalty of $10,000
per month to the Company.
On December 20, 1990, Hanover Gold acquired an option until December 20,
1995 for the mining rights to five additional claims for the Company in
exchange for 900,000 shares of Hanover Gold common stock. This option has
been extended until December 20, 1996 for no additional consideration.
In 1992, the Company entered into a mining venture agreement with
Kennecott Exploration Company. As part of the agreement the Company conveyed
to Hanover Gold its interest in 28 claims, subject to a reserved 70% interest
in all precious metals mined from the claims, and a management fee of $15,000
per month, commencing January 1, 1996. The commencement date for payment of
the management fee has been extended until January 1, 1997 for no additional
consideration. Under the various agreements Hanover Gold is obligated to pay
the underlying landowner's royalty payments on the 34 claims.
As of December 31, 1995, the payment obligations to two landowners on the
claims are as follows:
First Landowner:
June 1, 1996 $ 600,000
June 1, 1997 $ 600,000
June 1, 1998 $ 600,000
June 1, 1999 $2,735,000
---------
$4,535,000
The obligation to the second landowner consist of monthly payments of
$8,760 through April 1999. As of December 31, 1995, the total remaining
payments are $346,565.
If Hanover Gold does not make these payments, then the 34 claims revert
back to the Company and it becomes the obligation of the Company to pay.
Failure of the Company to pay these monthly and annual payments to the
landowners would trigger a default and the claims would then revert back to
the landowners.
Under a Modification Agreement dated December 3, 1990 the Company agreed
to assume $3.0 million of Hanover Gold's obligation to the first landowner.
In exchange for this assumption by the Company, Hanover Gold issued 1,500,000
shares of its common stock to the Company. In accordance to the terms of the
agreement, the Company received an additional 500,000 shares of Hanover Gold
stock based on the fair market value of Hanover Gold common stock on
December 31, 1991.
5. Investment in Hanover Gold Company, Inc.
As of December 31, 1995 the Company owned 3,625,000 shares of Hanover
Gold common stock that it accounts for on the equity method. The shares were
acquired in exchange for various mining rights (see Note 4) and the assumption
of Hanover Gold's liability to the first landowner by the Company. Hanover
Gold's condensed balance sheet and condensed income statement at December 31,
1995 are as follows:
ASSETS
Total current assets $ 850,242
Resource property and claims 6,147,279
Property and equipment 102,819
Other assets 1,210,024
Total assets $ 8,310,364
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 358,860
Other liabilities 0
Stockholders' equity 7,951,504
Total liabilities and
stockholders' equity $ 8,310,364
Gross revenues $ 499,299
Cost of goods mined $ 830,197
General and administrative
expenses $ 1,934,655
Loss from operations $(2,265,553)
As specified in Regulation S-X, summarized financial information has been
presented for the investment in Hanover Gold. The investment account of the
Company in Hanover Gold Company, Inc. is as follows:
Investments in Hanover Gold
Company, Inc. $255,913
Losses recognized in prior years 255,913
Net investment at
December 31, 1995 $ 0
See notes to financial statements.
As required by ABP 18 paragraph 19(i) the cumulative losses on the
investment in Hanover Gold Company, Inc. as of December 31, 1995 amounted to
$1,651,553. The Company has discontinued applying the equity method as of
December 31, 1992 since the investment has been reduced to zero. The Company
will resume applying the equity method once its share of the net income equals
the share of net losses not recognized during the period the equity method was
suspended.
6. Loans Receivable Shareholders
The Company has advanced funds to several shareholders who have been
active in the management of the Company's affairs. The loans are fully
secured, non-interest bearing, and are due on demand.
7. Accrued Expenses
The balance of $92,536, as of December 31, 1995, includes salaries,
payroll taxes payable and accrued professional fees of approximately $38,803,
$11,213 and 42,520, respectively.
8. Notes Payable and Accrued Interest
In 1991, the Company borrowed $215,170 by issuing preferred, convertible
notes, bearing simple interest at 10% per annum, to shareholders of the
Company. During 1995, these note holders elected to convert their notes and
accrued interest into 574,076 shares of the Company's common stock.
9. Founder's Package
In December 1993, the Company's Board approved, with Fred R. Schmid not
voting, a Founders Stock Package ("Package") granting shares of the Company's
common stock to Fred R. Schmid. Pursuant to the Package, Fred R. Schmid
purchased 75,000 shares for $750, and was granted 116,680 shares of the
Company's common stock at no cost, which was approved by the shareholders.
Subject to approval of the merger of the Company with Hanover Gold, by the
Hanover Gold shareholders, Fred R. Schmid would receive a total of 325,000
shares of Hanover Gold's common stock, in exchange for Fred R. Schmid's
191,680 shares of the Company's common stock.
10. Increase in Capital Stock
The shareholders have approved an increase in the Company's authorized
shares of common stock from 2,000,000 shares to 2,150,000 shares and the
Company has filed the necessary documents with the State of New York.
11. Development Stage Company
The Company's operations have been centered around its organization,
evaluation of the mining industry, start-up financing of its operations,
including acquisition of the mining properties, evaluation of engineering
data, obtaining necessary mining permits and formulation and implementation of
its business plan. From April 21, 1990 through the period ending
December 31, 1995 the Company has required financing form shareholders and
affiliated companies to fund the development and rental payments of the mining
properties. The Company has incurred losses in connection with its operations
during period from inception to December 31, 1995 of $264,382.
12. Related Parties
The inter-company balances represent payments to and advances from
affiliated companies in the normal course of business. The balances are
non-interest bearing and are due on demand.
As of December 31, 1994 and 1995 the Company had receivables and payables
with affiliated companies as follows:
1994 1995
---- ----
$ 505,030 $ 534,038
(438,049) (438,049)
-------- --------
Due from Group S Limited $ 66,981 $ 95,989
Due to Hanover Gold
Company, Inc. $(227,172) $(405,809)
Certain of the officers and directors of the Company are also officers
and directors of the affiliated companies, namely, Group S Limited, and
Hanover Gold Company, Inc. Additionally, certain of the principal
shareholders of the affiliated companies are also shareholders in the Company.
Furthermore, at December 31, 1994, and at December 31, 1995, the Company owned
3,625,000 shares (41% and 27%, respectively), of the outstanding common stock
of Hanover Gold Company, Inc.
<PAGE>
GROUP S LIMITED
INTERIM MANAGEMENT REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1995, AND
FOR THE PERIODS
JANUARY 1, TO
JUNE 30, 1995, AND 1996, AND
SEPTEMBER 9, 1991 (INCEPTION) TO JUNE 30, 1996
<PAGE>
GROUP S LIMITED
(A Development Stage Company)
BALANCE SHEET
ASSETS
December 31 December 31
1995 1996
(audited) (unaudited)
----------- ------------
Current assets
Cash $ 9,642 $ 782
Total current assets $ 9,642 $ 782
Other assets:
Patented (deeded) and unpatented claims
(Note 4) 292,838 292,838
Due from affiliates (Note 11) 438,049 0
Due from shareholder (Note 5) 62,715 0
Investment in Hanover Resources, Inc.
(Note 6) 485,038 485,038
Total other assets $1,278,640 $777,876
Total assets $1,288,282 $778,658
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,215 $ 1,500
Total current liabilities $ 9,215 $ 1,500
Long-term liabilities
Due to Hanover Gold Company, Inc.
(Note 11) 474,895 474,895
Due to Hanover Resources, Inc.
(Note 11) 534,038 33,274
Option payment (Note 7) 125,000 125,000
Total long-term liabilities $1,133,933 $634,669
Total liabilities $1,143,148 $642,384
Stockholders' equity:
Common stock, (Notes 1, 9, & 10)
Authorized:
December 31, 1994 - 50,000 shares no par value
December 31, 1995 - 160,000 shares no par value
Issued and outstanding
December 31, 1994 - 50,000 shares
December 31, 1995 - 124,000 shares 166,670 166,670
(Deficit) accumulated during the
development stage (21,536) (22,681)
Total stockholders' equity $ 145,134 $143,989
Total liabilities and stockholder's
equity $1,288,282 $778,658
See notes to financial statements.
<PAGE>
<PAGE>
GROUP S LIMITED
(A Development Stage Company)
STATEMENTS OF INCOME (LOSS) AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Sept. 9, 1991
January 1 to January 1 to (Inception) to
June 30, 1995 June 30, 1996 June 30, 1996
------------ ------------ ---------------
<S> <C> <C> <C>
REVENUES
Revenues $ 0 $ 0 $ 0
EXPENSES
Administrative and office expenses 425 1,267 17,218
Professional fees 3,221 0 9,215
Total expenses $3,646 $ 1,267 $ 26,433
Income (loss) from operations $ (3,646) $ (1,267) $(26,433)
Other income (expense)
Interest income $ 216 $ 122 $ 4,201
Interest expense 0 0 (449)
Total other income (expense) $ 216 $ 122 $ 3,752
Net income (loss) (3,430) (1,145) (22,681)
Accumulated deficit at
beginning of period (7,164) (21,536) -
End of period $(10,594) $(22,681) $(22,681)
See notes to financial statements.
</TABLE>
<PAGE>
GROUP S LIMITED
(A Development Stage Company)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Sept. 9, 1991
January 1, to January 1, to (Inception) to
June 30, 1995 April 30, 1996 June 30, 1996
------------- -------------- -------------
<S> <C> <C> <C>
Operating Activities:
Net income (loss) from operations $(3,646) $ (1,145) $ (22,681)
Changes in operating assets and liabilities
(Increase) decrease in patented
(deeded) claims (292,838)
Increase in accounts payable 9,215
(Increase) decrease in due from
affiliates 438,049 0
Increase (decrease) in due to Hanover Gold
Company, Inc. 474,895
Increase in option payment 125,000
(Increase) decrease in due from
shareholder 62,715 0
Increase (decrease) in due to
affiliates (500,764) 33,274
Net cash provided by (used in)
operating activities: $(3,646) $ (1,145) $ 319,150
Investing Activities:
(Increase) in investment in Hanover
Resources, Inc. $(485,038)
Net cash used in investing activities $ 0 $ 0 $(485,038)
Financing Activities:
Proceeds from sale of common stock 208,670
Cost of common stock acquired (42,000)
Net cash provided by financing activities $ 0 $ 0 $ 166,670
Net increase (decrease) in cash (3,646) (1,145) 782
Cash, beginning of period 36,385 9,642 -
Cash, end of period $32,739 $ 782 $ 782
See notes to financial statements.
</TABLE>
<PAGE>
GROUP S LIMITED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1995
January 1, 1996 to June 30, 1996, and
September 9, 1991 (Inception) to June 30, 1996
1. Organization and Nature of Business
Group S Limited (the "Company") was incorporated in Montana on
September 9, 1991. The objectives of the Company are to invest in precious
metals claims, namely gold and silver deposits having economic and mining
potential, and related activities in the precious metals and mining
industries.
On October 16, 1991, the Company entered into a Mining Lease and Option
to Purchase Agreement to acquire 216 claims. On May 19, 1992 the Company
entered into a Mining Venture Agreement with Kennecott Exploration Company for
the purpose of exploring, and if warranted, developing and mining the claims.
2. Summary of Significant Accounting Policies
The unaudited financial statements have been prepared by the Company in
accordance with generally accepted accounting principals for interim financial
information as required by Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of the Company's management, all adjustments (consisting of only
normal recurring accruals) considered necessary of a fair presentation have
been included. Operating results for the six month period ended June 30, 1996
are not necessarily indicative of the results that may be expected for the
full year ending December 31, 1996.
For further information refer to the financial statements, and footnotes
thereto, for the year ended December 31, 1995, incorporated elsewhere herein.
Revenue recognition:
The Company maintains its books and records on the accrual basis of
accounting, recognizing revenue when goods are shipped and expenses when they
are incurred.
Depletion:
The Company depletes the cost of resource properties by an estimate of
the amount of natural resources to be extracted in tons of material, which is
the estimated recoverable units, divided into the total cost to arrive at the
rate per unit. The rate is multiplied by the number of units extracted to
determine the annual depletion expense.
Patented (Deeded) Claims and Resource Properties:
The Company accounts for resource properties and claims at the actual
cost incurred for exploration, engineering and site development and for the
purchases of mining properties and the options to purchase additional claims.
The Company capitalizes lease payments which are to be allocated to the
acquisition cost of the mining claims upon completion of the term of the
lease. The provisions of the lease call for termination of the lease for any
default in payments and allow for the acquisition of the claims at the end of
the lease for the total rental payments made.
The Company amortizes the acquisition costs of mining claims as the
claims are put in service based on the allocated cost of the claim divided by
the estimated recoverable units of ore multiplied by the units of ore
extracted.
The Company writes off to operating expense the unamortized cost of the
resource property when it determines that the carrying amount of the property
may not be recoverable and the asset value is impaired.
Earnings per share:
Earnings per share has been computed based on the weighted average number
of shares of common stock outstanding during each period. There would have
been no material diluting effect on net loss per share for any outstanding
stock warrants.
Investments:
The Company accounts for investments in affiliated companies, which
constitute 20% to 50% of the equity of the invested company, by the equity
method.
Effect of Recently Issued Accounting Standards:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for Impaired of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of." SFAS No. 121 requires
that Long-Lived Assets and certain identifiable intangibles to be held and
used by the Company be reviewed for impairment whenever events indicated that
the carrying amount of an assets may not be recoverable. The Company reviews
the cost of Mining Properties for impairment when events indicate that the
carrying value of the asset may not be recoverable.
Additionally, The Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation." The effective date of SFAS No. 123 is for fiscal years
beginning after December 15, 1995, and establishes a method of accounting for
stock compensation plans based on fair value. The Company does not believe
the SFAS No. 123 will have an impact on its financial statements.
3. Nature of Operations, Risks and Uncertainties
The Company has had no significant operating history and must be
considered a development stage enterprise. As such, the Company is subject to
all of the risks inherent in a new mining operation and business enterprise,
including the absence of an operating history, established banking relations
and community and industry recognition.
4. Patented (Deeded) and Unpatented Claims
The Company acquired the mining rights to 22 patented and 194 unpatented
claims (Note 1). The agreement gives the Company the right to explore,
develop and mine all minerals by any method whatsoever. Pursuant to an
amendment dated March 26, 1996, the lessor has agreed to reduce the Company's
rental obligations under the agreement from $6,400,000 to $3,400,000 for
various considerations provided by the Company and other entities. The revised
schedule of payments, as of April 30, 1996, is as follows:
October 16, 1996 $ 350,000
March 1, 1997 200,000
September 16, 1997 200,000
March 1, 1998 225,000
September 1, 1998 225,000
March 1, 1999 250,000
September 1, 1999 250,000
March 1, 2000 250,000
September 1, 2000 250,000
March 1, 2001 300,000
September 1, 2001 300,000
March 1, 2002 300,000
September 1, 2002 300,000
---------
$3,400,000
In 1991, the Company issued 2,500 shares of its common stock to a third
party, in connection with the negotiations leading up to the Mining Venture
Agreement with Kennecott Exploration Company. The fair market value of the
services rendered were $16,670 and have been capitalized as part of the
Patented (Deeded) and Unpatented Claim account.
5. Due from Shareholder
The balance represents advances to a majority stockholder and is payable
on demand.
6. Investment in Hanover Resources, Inc.
Prior to the merger of Hanover Group, Inc. ("Group") with the Company,
Group was a major stockholder of Hanover Resources, Inc. ("Resources"). As a
result of the merger of Group into the Company, the Company acquired the
investment that Group previously owned in Resources and thereby the Company
became a shareholder in Resources.
When the Company acquired 100% of the outstanding common stock of Group,
it issued 103,875 shares of its common stock which has been recorded on its
books at no value. In accordance with Generally Accepted Accounting
Principals' rules for accounting for assets of related companies, the assets
have been valued at cost. Group's cost for 833,734 shares of Resources common
stock transferred to the Company as a result of the merger (see note 8) is
$485,038.
7. Option Payment
The Company received $125,000 from Hanover Gold as an option payment
granting Hanover Gold the right to acquire additional claims owned by the
Company for a period expiring in 2003, at a price equal to the fair market
value of the claims at the time of exercise.
8. Merger with Hanover Group, Inc.
On November 29, 1995 the Board of Directors of the Company and the
Hanover Group, agreed to an exchange of the Company's shares of common stock
for the shares of common stock of Group pursuant to the acquisition of Group
by the Company under the purchase method of accounting. Under the terms of
the acquisition, the Company issued 103,875 shares of common stock of the
Company in exchange for the outstanding common stock of Group. Among the
assets acquired are 29,875 shares of the Company's common stock which have
been canceled. The Company's outstanding capital stock has been reduced by
Group's cost of $42,000. The Company acquired all of the assets of Hanover
Group, Inc. by assumption of $534,038 of Hanover Group Inc.'s liabilities.
The acquisition of Group's shares by the Company will have no material effect
on the proposed merger between the Company and Hanover Gold, and Company's
shareholders. The acquisition of Group by the Company will have no effect on
the number of shares of Hanover Gold common stock that the Company's
shareholder will receive upon the merger of the Company into Hanover Gold.
The acquisition of Group by the Company is not material to the operations of
the Company since Group has been largely inactive, incurring insignificant
general and administrative expenses which have been funded by its
stockholders.
9. Increase in Capital Stock
The shareholders have approved an increase in the Company's authorized
shares of common stock from 50,000 shares to 160,000 shares, and the Company
has filed the necessary documents with the State of Montana.
10. Development Stage Company
The Company's operations have been centered around its organization,
evaluation of the mining industry, start-up financing of its operations,
including acquisition of the mining properties, evaluation of engineering
data, obtaining necessary mining permits and formulation and implementation of
its business plan. From September 1991 through the period ending December 31,
1995 the Company has obtained required financing from shareholders and
affiliated companies to fund the development and rental payments of the mining
properties. The Company has incurred losses in connection with its operations
during the period from inception to June 30, 1996 of $22,681.
11. Related Parties
The inter-company balances represent advances from affiliated companies
in the normal course of business. The balances are non-interest bearing and
due on demand.
As of December 31, 1995, and April 30, 1996, the Company had receivables
and payables with affiliated companies as follows:
December 31, June 30,
1995 1996
---- ----
Due from Hanover Group, Inc. $ 0 $ 0
438,049
(534,038)
-------
Due to Hanover Resources, Inc. (95,989) (33,274)
Due to Hanover Gold Company, Inc. (474,895) (474,895)
Certain of the officers and directors of the Company are also officers
and directors of the affiliated companies, namely, Hanover Group, Inc.,
Hanover Resources, Inc., and Hanover Gold, Inc. Additionally, certain of the
principal shareholders of the affiliated companies are also shareholders in
the Company. Furthermore, at December 31, 1995, and at June 30, 1996, the
Company owned 833,734 shares (39%) of the outstanding common stock of Hanover
Resources, Inc. At December 31, 1994, the Company did not own any of the
affiliates common stock.
11. Related Parties (Continued)
Furthermore, at December 31, 1995, and at June 30, 1996, the Company
owned 833,734 shares (39%) of the outstanding common stock of Hanover
Resources, Inc. At December 31, 1994, the Company did not own any of the
affiliates common stock. <PAGE>
<PAGE>
GROUP S LIMITED
AUDITED REPORT
FOR THE YEARS ENDED
DECEMBER 31, 1994, AND 1995,
AND FOR THE PERIOD
SEPTEMBER 9, 1991 (INCEPTION) TO DECEMBER 31, 1995
<PAGE>
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Group S Limited
Roslyn, New York
We have audited the accompanying balance sheet of Group S Limited as of
December 31, 1995 and December 31, 1994 and the related statements of income
(loss) and accumulated deficit and cash flows for the years then ended, and
for the period September 9, 1991 (inception) to December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on
our audit.
We conducted our audit 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 also 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Group S Limited as
of December 31, 1995 and 1994, and the results of its operations and cash
flows for each of the years then ended, and September 9, 1991 (inception) to
December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 10, the Company has been in the development stage
since September 9, 1991.
Grossman, Tuchman & Shah LLP
May 16, 1996
New York, New York
<PAGE>
<PAGE>
GROUP S LIMITED
(A Development Stage Company)
BALANCE SHEET
ASSETS
December 31 December 31
1994 1995
----------- ------------
Current assets
Cash $ 36,385 $ 9,642
------- ---------
Total current assets $ 36,385 $ 9,642
------- ---------
Other assets
Patented (deeded) and unpatented claims
(Note 4) 92,838 292,838
Due from affiliates (Note 11) 494,049 438,049
Due from shareholder (Note 5) 0 62,715
Investment in Hanover Resources, Inc.
(Note 6) 0 485,038
------- ---------
Total other assets $586,887 $1,278,640
------- ---------
Total assets $623,272 $1,288,282
======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 0 $ 9,215
------- ---------
Total current liabilities $ 0 $ 9,215
------- ---------
Long term liabilities
Due to Hanover Gold Company, Inc.
(Note 11) 300,695 474,895
Due to Hanover Resources, Inc.
(Note 11) 0 534,038
Option payment (Note 7) 125,000 125,000
------- ---------
Total long term liabilities $425,695 $1,133,933
------- ---------
Total liabilities $425,695 $1,143,148
------- ---------
Stockholders' equity
Common stock, (Notes 1, 9 & 10)
Authorized:
December 31, 1994 - 50,000 shares no par value
December 31, 1995 - 160,000 shares no par value
Issued and outstanding:
December 31, 1994 - 50,000 shares 208,670
December 31, 1995 - 124,000 shares 166,670
(Deficit) accumulated during the
development stage (Note 10) (11,093) (21,536)
------ ---------
Total stockholders' equity $197,577 $ 145,134
------- ---------
Total liabilities and
stockholders' equity $623,272 $1,288,282
========= =========
See notes to financial statements.
<PAGE>
<PAGE>
GROUP S LIMITED
(A Development Stage Company)
STATEMENTS OF INCOME (LOSS) AND ACCUMULATED DEFICIT
<TABLE>
<CAPTION>
Year Ended Sept. 9, 1991
Year Ended December 31, (Inception) to
Dec. 31, 1994 1995 Dec. 31, 1995
------------- ------------ ---------------
<S> <C> <C> <C>
REVENUES
Revenues $ 0 $ 0 $ 0
------- ------- -------
EXPENSES
Administrative and office expenses 6,011 1,817 15,951
Professional fees 0 9,215 9,215
------- ------- -------
Total expenses $ 6,011 $ 11,032 $ 25,166
------- ------- -------
Income (loss) from operations $ (6,011) $(11,032) $(25,166)
------- ------- -------
Other income (expense)
Interest income $ 2,082 $ 589 $ 4,079
Interest expense 0 0 (449)
------- ------- -------
Total other income (expense) $ 2,082 $ 589 $ 3,630
------- ------- -------
Net income (loss) (3,929) (10,443) (21,536)
Accumulated deficit at
beginning of period (7,164) (11,093) -
------- ------- -------
End of period $(11,093) $(21,536) $(21,536)
======= ======= =======
See notes to financial statements.
</TABLE>
<PAGE>
<PAGE>
GROUP S LIMITED
(A Development Stage Company)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
Year Ended Sept. 9, 1991
Year Ended December 31, (Inception) to
December 31, 1994 1995 Dec. 31, 1995
------------------ ----------- -------------
<S> <C> <C> <C>
Operating Activities
Net income (loss) from operations $ (3,929) $ (10,443) $ (21,536)
Changes in operating assets and liabilities
(Increase) decrease in patented
(deeded) claims 163,925 (300,000) (292,838)
Increase in accounts payable 9,215 9,215
(Increase) decrease in due from
affiliates (278,443) 56,000 (438,049)
Increase (decrease) in due to Hanover Gold
Company, Inc. 132,500 174,200 474,895
Increase in option payment 125,000
(Increase) decrease in due from shareholder (62,715) (62,715)
Increase in due to affiliates 534,038 534,038
-------- -------- --------
Net cash provided by (used in)
operating activities: $ 14,053 $ 500,295 $ 328,010
-------- -------- --------
Investing Activities:
(Increase) in investment in Hanover
Resources, Inc. (485,038) (485,038)
-------- -------- ---------
Net cash used in investing activities: $ 0 $(485,038) $(485,038)
-------- -------- --------
Financing Activities:
Proceeds from sale of
common stock 208,670
Cost of common stock acquired (42,000) (42,000)
-------- -------- --------
Net cash provided by financing activities $ 0 $ (42,000) $166,670
-------- -------- --------
Net increase (decrease) in cash 14,053 (26,743) 9,642
Cash, beginning of period 22,332 36,385 -
-------- -------- --------
Cash, end of period $ 36,385 $ 9,642 $ 9,642
======== ======== ========
See notes to financial statements.
</TABLE>
<PAGE>
<PAGE>
GROUP S LIMITED
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1994 and 1995 and
September 9, 1991 (inception) to December 31, 1995
1. Organization and Nature of Business
Group S Limited (the "Company") was incorporated in Montana on
September 9, 1991. The objectives of the Company are to invest in precious
metals claims, namely gold and silver deposits having economic and mining
potential, and related activities in the precious metals and mining
industries.
On October 16, 1991, the Company entered into a Mining Lease and Option
to Purchase Agreement to acquire 216 claims. On May 19, 1992 the Company
entered into a Mining Venture Agreement with Kennecott Exploration Company for
the purpose of exploring, and if warranted, developing and mining the claims.
2. Summary of significant accounting policies
Revenue recognition:
The Company maintains its books and records on the accrual basis of
accounting, recognizing revenue when goods are shipped and expenses when they
are incurred.
Depletion:
The Company depletes the cost of resource properties by an estimate of
the amount of natural resources to be extracted in tons of material, which is
the estimated recoverable units, divided into the total cost to arrive at the
rate per unit. The rate is multiplied by the number of units extracted to
determine the annual depletion expense.
Patented (Deeded) Claims and Resource Properties:
The Company accounts for resource properties and claims at the actual
cost incurred for exploration, engineering and site development and for the
purchases of mining properties and the options to purchase additional claims.
The Company capitalizes lease payments which are to be allocated to the
acquisition cost of the mining claims upon completion of the term of the
lease. The provisions of the lease call for termination of the lease for any
default in payments and allow for the acquisition of the claims at the end of
the lease for the total rental payments made.
The Company amortizes the acquisition costs of mining claims as the
claims are put in service based on the allocated cost of the claim divided by
the estimated recoverable units of ore multiplied by the units of ore
extracted.
The Company writes off to operating expense the unamortized cost of the
resource property when it determines that the carrying amount of the property
may not be recoverable and the asset value is impaired.
Earnings per share:
Earnings per share has been computed based on the weighted average number
of shares of common stock outstanding during each period. There would have
been no material diluting effect on net loss per share for any outstanding
stock warrants.
Investments:
The Company accounts for investments in affiliated companies, which
constitute 20% to 50% of the equity of the investee company, by the equity
method.
Effect of Recently Issued Accounting Standards:
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impaired of
Long-Lived Assets and for Long-Lived Assets to Be Disposed of." SFAS No. 121
requires that Long-Lived Assets and certain identifiable intangibles to be
held and used by the Company be reviewed for impairment whenever events
indicated that the carrying amount of an asset may not be recoverable. The
Company reviews the cost of Mining Properties for impairment when events
indicate that the carrying value of the asset may not be recoverable.
Additionally, The Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation." The effective date of SFAS No. 123 is for fiscal years
beginning after December 15, 1995, and establishes a method of accounting for
stock compensation plans based on fair value. The Company does not believe
the SFAS No. 123 will have an impact on its financial statements.
3. Nature of operations, risks and uncertainties
The Company has had no significant operating history and must be
considered a development stage enterprise. As such, the Company is subject to
all of the risks inherent in a new mining operation and business enterprise,
including the absence of an operating history, established banking relations
and community and industry recognition.
4. Patented (Deeded) and Unpatented Claims
The Company acquired the mining rights to 22 patented and 194 unpatented
claims (Note 1). The agreement gives the Company the right to explore,
develop and mine all minerals by any method whatsoever. As of December 31,
1995, payment obligations of $6,400,000 remain on the claims as follows:
October 16, 1996 $ 350,000
October 16, 1997 400,000
October 16, 1998 450,000
October 16, 1999 500,000
October 16, 2000 550,000
October 16, 2001 1,100,000
October 16, 2002 1,350,000
October 16, 2003 1,700,000
---------
$6,400,000
Pursuant to an amendment dated March 26, 1996, the lessor has agreed to
reduce the Company's rental obligations under the agreement from $6,400,000 to
$3,400,000 for various considerations provided by the Company and other
entities.
In 1991, the Company issued 2,500 shares of its common stock, to a third
party, in connection with the negotiations leading up to the Mining Venture
Agreement with Kennecott Exploration Company. The fair market value of the
services rendered were $16,670 and have been capitalized as part of the
Patented (Deeded) and Unpatented Claim account.
5. Due From Shareholder
The balance represents unsecured advances to a majority stockholder and
is payable on demand.
6. Investment in Hanover Resources, Inc.
Prior to the merger of Hanover Group, Inc. ("Group") with the Company,
Group was a major stockholder of Hanover Resources, Inc. ("Resources"). As a
result of the merger of Group into the Company, the Company acquired the
investment that Group previously owned in Resources and thereby the Company
became a shareholder in Resources.
When the Company acquired 100% of the outstanding common stock of Group,
it issued 103,875 shares of its common stock which has been recorded on its
books at no value. In accordance with Generally Accepted Accounting
Principals' rules for accounting for assets of related companies, the assets
have been valued at cost. Group's cost for 833,734 shares of Resources common
stock transferred to the Company as a result of the merger (see note 8) is
$485,038.
7. Option Payment
The Company received $125,000 from Hanover Gold as an option payment
granting Hanover Gold the right to acquire additional claims owned by the
Company for a period expiring in 2003, at a price equal to the fair market
value of the claims at the time of exercise.
8. Merger with Hanover Group, Inc.
On November 29, 1995 the Board of Directors of the Company and the
Hanover Group, agreed to an exchange of the Company's shares of common stock
for the shares of common stock of Group pursuant to the acquisition of Group
by the Company under the purchase method of accounting. Under the terms of
the acquisition, the Company issued 103,875 shares of common stock of the
Company in exchange for the outstanding common stock of Group. Among the
assets acquired are 29,875 shares of the Company's common stock which have
been canceled. The Company's outstanding capital stock has been reduced by
Group's cost of $42,000. The Company acquired all of the assets of Hanover
Group, Inc. by assumption of $534,038 of Hanover Group Inc.'s liabilities.
The acquisition of Group's shares by the Company will have no material effect
on the proposed merger between the Company and Hanover Gold, and Company's
shareholders. The acquisition of Group by the Company will have no effect on
the number of shares of Hanover Gold common stock that the Company's
shareholders will receive upon the merger of the Company into Hanover Gold.
The acquisition of Group by the Company is not material to the operations of
the Company since Group has been largely inactive, incurring insignificant
general and administrative expenses which have been funded by its
stockholders.
9. Increase in Capital Stock
The shareholders have approved an increase in the Company's authorized
shares of common stock from 50,000 shares to 160,000 shares, and the Company
has filed the necessary documents with the State of Montana.
10. Development Stage Company
The Company's operations have been centered around its organization,
evaluation of the mining industry, start-up financing of its operations,
including acquisition of the mining properties, evaluation of engineering
data, obtaining necessary mining permits and formulation and implementation of
its business plan. From September 9, 1991 through the period ending
December 31, 1995 the Company has required financing from shareholders and
affiliated companies to fund the development and rental payments of the mining
properties. The Company has incurred losses in connection with its operations
during the period from inception to December 31, 1995 of $21,536.
11. Related Parties
The inter-company balances represent advances to and from affiliated
companies in the normal course of business. The balances are non-interest
bearing and due on demand.
As of December 31, 1995 and 1994 the Company had receivables and payables
with affiliated companies as follows:
1994 1995
---- ----
Due from (to) Hanover Group, Inc. $ 56,000 $ 0
438,049
(534,039)
---------
Due from (to) Hanover Resources, Inc. 438,049 (95,989)
Due to Hanover Gold Company, Inc. (300,695) (474,895)
Certain of the officers and directors of the Company are also officers
and directors of the affiliated companies, namely, Hanover Group, Inc.,
Hanover Resources, Inc., and Hanover Gold Company, Inc. Additionally, certain
of the principal shareholders of the affiliated companies are also
shareholders in the Company. Furthermore, at December 31, 1995, the Company
owns 833,734 shares (39%) of the outstanding common stock of Hanover
Resources, Inc. At December 31, 1994, the Company did not own any of the
affiliates common stock.
[The balance of this page has been intentionally left blank.]
<PAGE>
===================================== ======================================
NO DEALER, SALESMAN OR OTHER 12,552,307 Previously Issued Shares,
PERSON IS AUTHORIZED TO GIVE ANY 205,000 Shares Issuable Upon
INFORMATION OR TO MAKE ANY the Exercise of Previously Issued
REPRESENTATIONS NOT CONTAINED IN Options and 1,000,000 Newly
THIS PROSPECTUS. ANY INFORMATION Issuable Shares
OR REPRESENTATION NOT CONTAINED
HEREIN, IF GIVEN OR MADE, MUST NOT HANOVER GOLD COMPANY, INC.
BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, BY
ANY SELLING SHAREHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES Common Stock
NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY
ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS DOES NOT CONSTITUTE --------------------------
AN OFFER TO SELL OR SOLICITATION OF PROSPECTUS
AN OFFER TO BUY ANY SECURITIES IN --------------------------
ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY August ____, 1996
OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED
OR INCORPORATED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
TABLE OF CONTENTS
------------------------
Page
Available Information 2
Prospectus Summary 3
Risk Factors 5
The Company 8
Market for Capital Stock 9
Dividends 9
Capitalization 10
Selected Financial Information 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Business 18
Management 28
Principal Stockholders 34
Certain Transactions 36
Selling Stockholders 38
Plan of Distribution 40
Description of Capital Stock 41
Legal Matters 42
Experts 42
Additional Information 43
Supplemental Actual and Proforma Combined
Financial Information of the Company,
Hanover Resources and Group S 43
Index to Consolidated Financial Statements F/S-1
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
SEC registration fee $ 5,665
NASD filing fee 0
Blue Sky fees 10,000 *
Printing costs 5,000 *
Legal fees and expenses 40,000 *
Accounting fees 7,500 *
Listing expenses 0
Miscellaneous 2,500 *
------
Total $70,665 *
____________________
* Estimated.
Item 14. Indemnification of Directors and Officers
The only statutes, charter provisions, by-laws, contracts or other
arrangements under which a controlling person, director or officer of the
Company is insured or indemnified in any manner against liability which he may
incur in his capacity as such are Sections 145 of the Delaware General
Corporation Law and the Company's Bylaws. Taken together, these statutory and
bylaw provisions generally allow the Company to indemnify its directors and
officers against liability, and to advance the costs of defending any such
person against liability, provided (i) the director or officer was acting on
behalf of the Company in his official capacity as a director or officer and
(ii) such director or officer conducted himself in good faith and believed his
conduct was in, or not opposed to, the best interests of the Company (or in
the case of any criminal proceeding, that he had no reasonable cause to
believe his conduct was unlawful. The Company may not indemnify a director or
officer, however, if such director or officer is adjudged liable to the
Company, or if the director or officer is adjudged to have derived an improper
personal benefit.
Indemnification permitted by these provisions is limited to reasonable
expenses incurred in connection with the proceeding upon which liability is
predicated, which includes the amount of any such liability actually imposed.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF
1933 MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS CONTROLLING THE
COMPANY PURSUANT TO THE FOREGOING PROVISIONS, OR OTHERWISE, THE COMPANY HAS
BEEN INFORMED THAT IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION
SUCH INDEMNIFICATION IS AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS
THEREFORE UNENFORCEABLE IN THE EVENT THAT A CLAIM FOR INDEMNIFICATION AGAINST
SUCH LIABILITIES (OTHER THAN THE PAYMENT BY THE COMPANY OF EXPENSES INCURRED
OR PAID BY A DIRECTOR, OFFICER OR CONTROLLING PERSON OF THE COMPANY IN THE
SUCCESSFUL DEFENSE OF ANY ACTION, SUIT OR PROCEEDING) IS ASSERTED BY SUCH
DIRECTOR, OFFICER OR CONTROLLING PERSON IN CONNECTION WITH THE SECURITIES
BEING REGISTERED, THE COMPANY WILL, UNLESS IN THE OPINION OF ITS COUNSEL THE
MATTER HAS BEEN SETTLED BY CONTROLLING PRECEDENT, SUBMIT TO A COURT OF
APPROPRIATE JURISDICTION THE QUESTION WHETHER SUCH INDEMNIFICATION BY IT IS
AGAINST PUBLIC POLICY AS EXPRESSED IN THE ACT AND WILL BE GOVERNED BY THE
FINAL ADJUDICATION OF SUCH ISSUE.
<PAGE>
<PAGE>
Item 15. Recent Sales of Unregistered Securities
During the year past three years the Company sold an aggregate of
9,627,307 shares of Common Stock and options to acquire an additional
205,000 shares of Common Stock in transactions which were not registered under
the Securities Act. These transactions consisted of:
1. The sale during the period from June 1, 1995 through June 30, 1996 of
an aggregate of 5,457,142 shares to Neal A. Degerstrom and associated persons
at prices ranging from $0.35 per share to $0.050 per share;
2. The sale on July 27, 1995 of 150,000 shares to United Reef Petroleums
Ltd. as consideration for the assignment of a group of mining claims;
3. The sale on August 8, 1995 of 500,000 shares to Hanover Resources as
partial consideration for the assignment of a mining claim;
4. The sale on September 25, 1995 of 200,000 shares to Mayotte Holdings
Ltd. at the price of $1.00 per share;
5. The sale on October 17, 1995 of 22,679 shares to Mrs. William Marston
as consideration for mining engineering services rendered by William Marston;
6. The sale on October 17, 1995 of 200,000 shares to Hippocampus
Corporate Development AG as consideration for corporate public relations
services rendered;
7. The sale on December 5, 1995 of 47,000 shares to Patrick Harrison
Constructors, Inc. as consideration for mining services rendered;
8. The sale on February 16, 1996 of 5,000 shares and options to purchase
an additional 5,000 shares to William W. Goodridge as consideration for the
assignment of a royalty interest in certain mining claims.
9. The sale on April 16, 1996 of 525,000 shares to Tabor Resources
Corporation as consideration for mining claims and leases.
10. The sale on April 27, 1996 of 250,000 shares to Roy A. Moen
(182,500 shares) and Moen Builders, Inc. (67,500), and options to purchase an
additional 200,000 shares, as partial consideration for a reduction in rental
and royalty obligations otherwise payable by the Company with respect to
certain mining claims.
11. The sale on August __, 1996 of an aggregate of 2,270,486 shares to
the stockholders of Hanover Resources and Group S in connection with the
merger of Hanover Resources and Group S with and into the Company.
All such sales were made in reliance on the exemption from the
registration requirements of Section 5 of the Securities Act afforded by
Section 4(2) thereof.
All such sales were made in reliance on the exemption from the
registration requirements of Section 5 of the Securities Act afforded by
Section 4(2) thereof.
Item 16. Exhibits
An Index to Exhibits appears at page E-1.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sale are being made, a
post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in the volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high and of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more
than 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee": table in the
effective registration statement; and
(iii) to include any material information with respect to the plan
of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
[The balance of this page has been intentionally left blank.]
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-1 and has duly caused this
registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Coeur d'Alene, State of Idaho, on
July 20, 1996.
HANOVER GOLD COMPANY, INC.
By: /s/ James A. Fish
---------------------------------------
Chairman and President
Dated: July 20, 1996
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints James
A. Fish and Douglas J. Siddoway, and each of them, his attorneys-in-fact, with
the power of substitution, for him in any and all capacities, to sign any
amendments to this registration statement, and to file the same with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that said attorneys-
in-fact or their substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ Neal A. Degerstrom By: /s/ Laurence Steinbaum
_________________________ _________________________
a Director a Director
Date: July 20, 1996 Date: July 20, 1996
By: /s/ Pierre Gousseland By: /s/ Wayne Schoonmaker
_________________________ _________________________
a Director its Principal
Financial and Accounting Officer
Date: July 20, 1996
Date: July 20, 1996
By: /s/ F. D. Owsley By: /s/ Nicholas S. Young
_________________________ __________________________
a Director a Director
Date: July 20, 1996 Date: July 20, 1996
By: /s/ Fred R. Schmid
_________________________
a Director
Date: July 20, 1996
<PAGE>
<PAGE>
INDEX TO EXHIBITS
The following exhibits are filed as part of this amendment to
registration statement. Exhibits previously filed are incorporated by
reference, as noted. Exhibits filed herewith appear beginning at page E-4.
Exhibit Page Number
Number Exhibit in this Amendment
1.0 *
2.0 *
3.1 Articles of Incorporation of the registrant.
Filed as an exhibit to the registrant's registration
statement on Form S-1 (Commission File
No. 33-38745) and incorporated by reference herein.
3.2 Bylaws of registrant. Filed as an exhibit to the
registrant's registration statement on Form S-1
(Commission File No. 33-38745) and incorporated by
reference herein.
4.0 *
5.1 Opinion of Randall & Danskin, P.S. regarding
legality of securities offered. Filed herewith. E-4
6.0 *
7.0 *
8.0 *
9.0 *
10.1 Claim Option Agreement dated December 20, 1990
between the registrant and Hanover Resources, Inc.
Filed as an exhibit to the registrant's registration
statement on Form S-1 (Commission File No. 33-38745)
and incorporated by reference herein.
10.2 Mineral Sublease Agreement dated August 31,
1993 between the registrant and Group S Limited.
Filed as an exhibit to the registrant's annual
report on Form 10-K for the year ended December
31, 1993, and incorporated by reference herein.
10.3 Assignment of Lease and Option to Purchase dated
November 15, 1993 between the registrant and John
Mangus. Filed as an Exhibit to the registrant's
annual report on Form 10-K for the year ended
December 31, 1993, and incorporated by reference
herein.
10.4 Amendment No. 1, dated December 3, 1993, to Claim
Option Agreement dated December 20, 1990 between
the registrant and Hanover Resources, Inc. Filed
as an exhibit to the registrant's annual report on
Form 10-K for the year ended December 31, 1993, and
incorporated by reference herein.
10.5 Amendment No. 1, dated December 3, 1993, to
Assignment and Mineral Sublease Agreement dated
February 20, 1992 between the registrant and Hanover
Resources, Inc. Filed as an exhibit to the
registrant's annual report on Form 10-K for
the year ended December 31, 1993, and incorporated
by reference herein.
10.6 Assignment Agreement between the registrant and
Hanover Resources, Inc. Filed as an exhibit to
the registrant's registration statement on Form
S-1 (Commission File No. 33-38745) and
incorporated by reference herein.
10.7 Securities Purchase Agreement dated June 1,
1995, as amended, between the registrant and
Neal A. Degerstrom. Filed as Exhibit 10.7 to the
registrant's annual report on Form 10-K for the
year ended December 31, 1995 and incorporated
by reference herein.
10.8 Consulting Agreement dated as of January 29,
1996 between the registrant and Fred R. Schmid.
Filed as Exhibit 10.8 to the registrant's annual
report on Form 10-K for the year ended December 31,
1995 and incorporated by reference herein.
10.9 Consulting Agreement dated as of January 29,
1996 between the registrant and Stephen J.
Schmid. Filed as Exhibit 10.9 to the registrant's
annual report on Form 10-K for the year ended
December 31, 1995 and incorporated by reference
herein.
10.10 Asset Purchase Agreement dated March 25, 1996
between the registrant and Tabor Resources Corporation.
Filed as Exhibit 10.10 to the registrant's annual
report on Form 10-K for the year ended December 31,
1995 and incorporated by reference herein.
10.11 Agreement and Amendment to Mining Lease and Option
to Purchase dated March 26, 1996 between the registrant
and Roy A. and Marlene Moen and Moen Builders, Inc.
Filed as Exhibit 10.11 to the registrant's annual
report on Form 10-K for the year ended December 31,
1995 and incorporated by reference herein.
10.12 Amendment to Asset Purchase Agreement dated
April 19, 1996 between the registrant and Tabor
Resources Corporation. Filed as Exhibit 10.12 to
the registrant's quarterly report on Form 10-Q for
the three month period ended March 31, 1996 and
incorporated by reference herein.
11.0 *
12.0 *
13.0 *
14.0 *
15.0 *
16.0 *
21.0 *
23.1 Consent of Zeller Weiss & Kahn. Filed
herewith. E-6
23.2 Consent of Grossman, Tuchman & Shah, LLP. Filed
herewith. E-7
23.3 Consent of Randall & Danskin, P.S. Included
in its opinion filed herewith as Exhibit 5.1.
24.1 Powers of attorney. Included in the signature
page to this registration statement.
25.0 *
26.0 *
27.1 Financial Data Schedules. Filed herewith. E-8
28.0 *
____________________
* Items denoted by an asterisk have either been omitted or are not applicable.
Exhibit 5.1 to
Form S-1 Registration Statement
RANDALL & DANSKIN, P.S.
1500 Seafirst Financial Center
West 601 Riverside Avenue
Spokane, Washington 99201
Telephone: (509) 747-2052
July 22, 1996
Hanover Gold Company, Inc.
1000 Northwest Boulevard, Suite 100
Coeur d'Alene, Idaho 83814
Re: Hanover Gold Company, Inc.
Amended Registration Statement on Form S-1
Our File No. 40160
Gentlemen:
We have acted as counsel for Hanover Gold Company, Inc. (the "Company"), a
Delaware corporation, in connection with the preparation of an amended
registration statement on Form S-1 under the Securities Act of 1933, as
amended (the "Registration Statement"), for the registration of (i) 11,552,628
previously issued shares of the Company's common stock, par value $.0001 per
share (the "Common Stock") and (ii) 205,000 shares of Common Stock to be
issued upon the exercise of previously granted options, all of which are to be
offered and sold by the selling stockholders identified therein; and (iii)
1,000,000 newly-issuable shares of Common Stock to be offered and sold by the
Company.
As counsel to the Company, we are familiar with the corporate proceedings
taken by the Company to authorize the filing of the Registration Statement.
We have examined originals or copies otherwise certified or identified to our
satisfaction of such documents, corporate records and other instruments as we
have deemed necessary or appropriate for this opinion. In making such
examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals and the conformity
to original documents of all documents submitted to us as certified or
photostatic copies. As to questions of fact material to this opinion, where
such facts have not been independently established, we have relied to the
extent we deem reasonably appropriate upon the representations and warranties
of the Company and upon certificates or representations of corporate officers
of the Company. We have also considered those questions of law that we deemed
relevant.
<PAGE>
<PAGE>
Hanover Gold Company, Inc.
July 22, 1996
Page 2
In rendering this opinion, we call to your attention the fact that we are
admitted to practice in the State of Washington and do not purport to be
experts in the laws of any jurisdiction other than the laws of such state and
the federal laws of the United States. Although we are not admitted to
practice in the State of Delaware, we are generally familiar with the
corporate laws of such state and have relied upon standard compilations of
such laws in expressing this opinion.
Based upon the foregoing, it is our opinion that all of the shares of Common
Stock registered pursuant to the Registration Statement are validly issued,
fully paid and non-assessable.
We consent to the inclusion of this opinion in the Registration Statement as
an exhibit.
Very truly yours,
RANDALL & DANSKIN, P.S.
/s/ Douglas J. Siddoway
Douglas J. Siddoway
Exhibit 23.1 to
Form S-1 Registration Statement
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
report dated March 29, 1996 (except for Note 24, as to which the date is May
28, 1996) on our audits of the financial statements of Hanover Gold Company,
Inc. We also consent to the reference to our firm under the caption "Experts".
Zeller Weiss & Kahn
Mountainside, New Jersey
July 22, 1996
Exhibit 23.2 to
Form S-1 Registration Statement
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our
reports, each dated May 16, 1996, on our audits of the financial statements of
Hanover Resources, Inc. and Group S Limited. We also consent to the reference
to our firm under the caption "Experts".
Grossman, Tuchman & Shah LLP
New York, New York
July 22, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTH PERIOD
ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 93,092<F1>
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 29,494
<CURRENT-ASSETS> 166,020
<PP&E> 8,731,751<F2>
<DEPRECIATION> 56,562
<TOTAL-ASSETS> 9,745,937
<CURRENT-LIABILITIES> 427,705
<BONDS> 0
0
0
<COMMON> 1,603
<OTHER-SE> 9,216,629<F3>
<TOTAL-LIABILITY-AND-EQUITY> 9,745,937
<SALES> 3,511
<TOTAL-REVENUES> 4,655<F4>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 783,427
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (778,772)
<INCOME-TAX> 0
<INCOME-CONTINUING> (778,772)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (778,772)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
<FN>
<F1>Includes prepaid expenses of $1,250.
<F2>Consists of $8,591,427 in resource properties and claims, and $141,324 in
property and equipment, at cost.
<F3>Consists of $14,320,700 of additional paid-in capital, less a deficit of
$5,104,071 accumulated during the development stage.
<F4>Consists of $3,511 in revenues from the sale of carbon products and $1,144
in interest income.
</FN>
</TABLE>
