FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number: 2-23022
HANOVER GOLD COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2740461
(State or other jurisdiction (IRS Employer
of incorporation) Identification No.)
1000 Northwest Boulevard, Suite 100
Coeur d'Alene, Idaho 83814
(Address of principal executive offices)
Registrant's telephone number, including area code: (208) 664-4653
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock The Nasdaq SmallCap Market
Title of each class Name of each exchange on
which registered
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period as the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of outstanding shares of the registrant's common stock at August 1,
1996 was 19,848,022 shares, inclusive of 1,547,858 shares deemed outstanding
pursuant to presently exercisable options and purchase commitments.
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HANOVER GOLD COMPANY, INC. QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1996
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements 1
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations 1
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 3
Item 2: Changes in Securities 3
Item 3: Defaults Upon Senior Securities 3
Item 4: Submission of Matters to a Vote of Security Holders 3
Item 5: Other Information 3
Item 6: Exhibits and Reports on Form 8-K 5
SIGNATURES
[The balance of this page has been intentionally left blank.]
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
The unaudited consolidated financial statements of the Company for the periods
covered by this report are included elsewhere in this report, beginning at page
F/S-1.
The unaudited condensed consolidated financial statements have been prepared by
the Company in accordance with generally accepted accounting principles for
interim financial information with the instructions to Form 10-Q and 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
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.
For further information refer to the consolidated financial statements and
footnotes thereto in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996 incorporated by reference herein.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations for the Period Ended June 30, 1996.
The Company had total assets of $9,745,937 at June 30, 1996, compared to
$8,310,364 at December 31, 1995. At June 30, 1996, these assets consisted of
$166,020 in current assets, $8,591,427 in resource properties and claims,
$87,762 in property and equipment, net of depreciation, and $900,728 in other
assets, inclusive of $880,804 in notes receivable from affiliates. This
compares to $6,147,279 in resource properties and claims, $102,819 in property
and equipment, net of depreciation, and $1,210,024 in other assets, inclusive
of $800,804 in notes receivable from affiliates at December 31, 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 consultants, a portion of which was
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 filing of various reports required to be filed under
federal securities law, and the merger of Hanover Resources, Inc. ("Hanover
Resources") and Group S Limited ("Group S") with and into the Company.
The Company's current assets at June 30, 1996 consisted of $91,842 in cash,
$29,494 in inventory and $1,250 in prepaid expenses, compared to $723,162 in
cash, $29,494 in inventory and $97,586 in prepaid expenses at December 31,
1995.
Total current liabilities at June 30, 1996 were $427,705, compared to total
current liabilities of $358,860 at December 31, 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 $48,654 in notes
payable, $221,756 in accounts payable and $38,450 in accrued expenses at
December 31, 1995. The increase in notes payable during the first six months
of 1996 is attributable to additional loans incurred during the period to fund
operations. The decrease in accounts payable during the six months ended June
30, 1996 is due to the accelerated pay down of accounts when operations were
transferred from the Company's former New York office.
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 $783,427, 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 increase in losses is due primarily to increases in general
and administrative expenses during the period, which are themselves
attributable to increased consulting fees incurred in connection with the
continued evaluation of the Company's Alder Gulch mining properties.
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 $5,104,071 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 previously reported, 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.
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.
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PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
Neither the registrant nor any of its mining properties are subject to any
pending legal proceedings.
Item 2. CHANGES IN SECURITIES.
Neither the constituent instruments defining the rights of the registrant's
securities holders nor the rights evidenced by the registrant's outstanding
common stock have been modified, limited or qualified.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
The registrant has no outstanding senior securities.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the registrant's security holders during
the period covered by this report.
Item 5. OTHER INFORMATION.
PURCHASE BY DEGERSTROM OF ADDITIONAL SHARES OF COMMON STOCK. As previously
reported, pursuant to a third amendment dated March 3, 1996 to a securities
purchase agreement between the registrant and N. A. Degerstrom, Mr. Degerstrom
firmly committed to purchase 2,142,858 shares of the registrant's common stock
represented by options previously granted to Mr. Degerstrom and subsequently
canceled. 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; an additional 1,200,000 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.
APPROVAL OF MERGER OF HANOVER RESOURCES AND GROUP S INTO THE COMPANY. At a
special meeting held on July 31, 1996, the shareholders of the Company approved
the merger of Hanover Resources and Group S into the Company. Hanover
Resources and Group S were formerly affiliated with the Company and controlled
significant mining claims and interests in the Alder Gulch area contiguous to
those of 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. 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 of the Company on
April 18, 1995. The merger will become effective upon the filing of articles
of merger with the Secretary of State of Delaware, which is expected to occur
on or before August 15, 1996.
STATUS OF DISCUSSIONS REGARDING POSSIBLE MERGER WITH EASTON-PACIFIC. As
previously reported, 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 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 report, 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 previously reported Tabor and Moen transactions 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.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
Exhibits. The following exhibit is filed as part of this report:
Exhibit 27.0 Financial Data Schedule
Reports on Form 8-K. No reports on Form 8-K were filed by the registrant
during the period covered by this report.
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HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
TABLE OF CONTENTS
Page
Consolidated Balance Sheet as of June 30, 1996
and December 31, 1995 F/S-2
Consolidated Statements of Operations for the Six
Months Ended June 30, 1996 and 1995 F/S-3
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months Ended June 30, 1996 and the Year
Ended December 31, 1995 F/S-4
Consolidated Statements of Cash Flow for the Six
Months Ended June 30, 1996 and 1995 F/S-5
Notes to Interim Consolidated Financial Statements F/S-6
[The balance of this page has been intentionally left blank.]
F/S-1
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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.
F/S-2
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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 20, 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.
F/S-3
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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>
F/S-4
<PAGE>
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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:
Net loss $(778,772) $(687,030)
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 notes payable 6,346 -
(Decrease) in option payable - (250,000)
Increase (decrease) in payroll taxes
and 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>
F/S-5
<PAGE>
<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
F/S-6
<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.
F/S-7
<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, 1991 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.
F/S-8
<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.
F/S-9
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANOVER GOLD COMPANY, INC.
By: /s/ James A. Fish
---------------------------------
its President
Date: August 8, 1996
By: /s/ Wayne Schoonmaker
---------------------------------
its Principal Accounting Officer
Date: August 8, 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>
