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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 81-0266636
(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:
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 May 15,
1996 was 14,429,678 shares.
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HANOVER GOLD COMPANY, INC. QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 1996
TABLE OF CONTENTS
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Page
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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 4
</TABLE>
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 three
month period ended March 31, 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 incorporated by reference in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSES OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 1996 COMPARED TO THE PERIOD
ENDED MARCH 31, 1995.
The Company had total assets of $8,946,598 at March 31, 1996, compared to
$8,310,364 for the year ended December 31, 1995. At March 31, 1995, these
assets consisted of $370,738 in current assets, $7,585,027 in resource
properties and claims, $137,270 in property and equipment, net of depreciation,
and $900,728 in reclamation bonds and other assets, which includes $880,804 in
notes receivable from affiliates. This compares to $6,147,279 in resource
properties and claims, $150,494 in property and equipment, $1,210,024 in
reclamation bonds and other assets, inclusive of the $880,804 in notes
receivable from affiliates, at December 31, 1995. The increase in total assets
at March 31, 1995 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 March 31, 1996 consisted of $265,001 in cash,
$29,494 in inventory and $76,243 in prepaid expenses, compared to $723,162 in
cash, $29,494 in inventory and $97,586 in prepaid expenses at December 31, 1995.
Total liabilities at March 31, 1996 were $8,695,178, compared to total
liabilities of $7,951,504 at December 31, 1995. At March 31, 1996, these
liabilities consisted of $14,982 in notes payable, $225,179 in accounts payable
and $11,259 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 decrease in notes payable is attributable to the payment during the
quarter 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 three months
ended March 31, 1996 is primarily due to increased activities involving the
acquisition of additional mining claims and interests in the Alder Gulch area.
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Revenues for the three month period ended March 31, 1996 consisted of $3,511
received from the sale of carbon to ASARCO. General and administrative
expenses for the 1996 period were $303,733, down from $413,088 during the
comparable period in 1995. The decrease in general and administrative expenses
is primarily attributable to the fact that the Company was not engaged in
mining activities during the first quarter of 1996, and, secondarily, to a
decrease in the amounts payable to executive officers during the period.
During the three months ended March 31, 1996, the Company experienced a loss
from operations of $299,326, or approximately $0.02 per share, compared to a
loss of $627,743, 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 period ended March 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES.
As previously reported, 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 under the June 1995 securities purchase
agreement and amendments. Mr. Degerstrom and such persons are obligated to
purchase an additional 2,142,858 shares of common stock at various times during
the seven month period ending October 16, 1996, which will result in proceeds to
the Company of approximately $1 million. Mr. Degerstrom purchased 400,000 of
such shares on April 15, 1996. 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 $4,624,625 from inception through
March 31, 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 the second quarter of 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 will be purchased on April 15, 1996; an additional 1,200,000 shares will
be 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. Mr. Degerstrom purchased 400,000
of such shares on April 15, 1996.
CONSUMMATION OF MOEN TRANSACTION. As previously reported, the registrant'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. The
amendment 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 would 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, Group S
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. In
consideration of the agreed reductions in Group S's rental and royalty
obligations to Moen, the Company has agreed to issue 250,000 shares of common
stock to Moen, and grant him three-year options, exercisable at the price of
$2.00 per share, to acquire an additional 200,000 shares. As further
consideration for the agreed reductions, the Company will forgive approximately
$92,000 in indebtedness which Moen and a related entity incurred in 1993 in
connection
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with purchase of equipment and the customizing of a mill facility near Virginia
City. The Company will also transfer two mine trucks to Moen, having a book
value at December 31, 1995 of $43,183, and will cause 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 was disclosed in the registrant's annual report on
Form 10-K for the year ended December 31, 1995 and in Note 5 to the consolidated
financial statements included therein, 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, has agreed to transfer to Moen
certain equipment maintained at a Degerstrom-operated milling facility near
Soda Springs, Idaho.
The transactions evidenced by the amendment between Group S and Moen were
consummated in April of 1996.
AMENDMENT TO TABOR TRANSACTION AND CLOSING IN ESCROW. As previously reported,
effective March 25, 1996 the registrant 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 registrant agreed to issue
Tabor 400,000 shares of common stock and three-year options exercisable at the
price of $2.00 per share for the purchase of an additional 300,000 shares in the
transaction. The registrant 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 would issue Tabor such number of additional
shares sufficient to raise the aggregate market value of the shares then
owned by Tabor to $2.00.
The asset purchase agreement was amended effective as of April 19, 1996 to
delete those provisions pertaining to the issuance of options to Tabor and to
substitute, in their stead, new provisions providing for the issuance of an
additional 125,000 shares of the registrant's common stock to Tabor as further
consideration. Certificates for the 125,000 additional shares were issued to
Tabor as of such date. The remaining 400,000 shares of common stock issuable by
the registrant pursuant to the agreement, together with conveyancing documents
covering the mining claims and leases owned by Tabor, were deposited into an
escrow account as of such date as well. As previously reported,
the registrant has agreed to prepare and file a registration statement under
the Securities Act covering the 400,000 shares issued to Tabor, and to cause
such registration statement to be declared effective within six months of the
effective date of the agreement, as amended (or on or before October 16, 1996).
The registrant also has agreed to thereafter maintain the registration statement
in effect for a period of eighteen months to enable Tabor to resell the shares
should it so choose. Pending effectiveness of the registration statement,
conveyancing documents covering the claims and certificates for the 400,000
shares are to be held in escrow. In the event the registration statement is not
declared effective within six months of closing, such documents and certificates
may at Tabor's election be returned to the respective parties, in which event
the transaction will be deemed to have been rescinded.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS. The following exhibit is filed as part of this report:
10.12 Amendment to Asset Purchase Agreement dated as of April 19,
1996 between the registrant and Tabor Resources Corporation.
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
<TABLE>
<S> <C>
Condensed Consolidated Balance Sheet F/S-1
Condensed Consolidated Statements of Income (Loss) F/S-2
Condensed Consolidated Statement of Stockholders' Equity F/S-3
Condensed Consolidated Statements of Cash Flow F/S-4
Notes to Condensed Consolidated Financial Statements F/S-5
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HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
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<CAPTION>
March 31, December 31,
1996 1995
(Unaudited) (Audited)
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Current Assets:
Cash $ 265,001 $ 723,162
Inventory (Note 3) 29,494 29,494
Prepaid expenses 76,243 97,586
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Total current assets 370,738 850,242
Resource properties and claims:
Exploration, engineering and site
development 2,225,106 2,225,106
Mining properties (Notes 5 and 6) 5,359,831 3,922,083
Option 90 90
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Total resource properties and claims 7,585,027 6,147,279
Property and equipment, at cost 137,270 150,494
Less accumulated depreciation 47,165 47,675
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Net property and plant and equipment 90,105 102,819
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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
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Total resource properties and claims 900,728 1,210,024
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Total assets $8,946,598 $8,310,364
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LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(Unaudited) (Audited)
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<S> <C> <C>
Current Liabilities:
Note Payable $ 14,982 $ 48,654
Loans payable-shareholder 50,000
Accounts Payable 225,179 221,756
Accrued Expenses 11,259 38,450
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Total current liabilities 251,420 358,860
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Stockholders' equity:
Common stock, $.0001 par value,
authorized 25,000,000 shares; issued
and outstanding 13,649,678 and 14,304,678
shares respectively 1,430 1,365
Additional paid-in capital 13,318,373 12,275,438
Deficit accumulated during the
development stage ( 4,624,625) ( 4,325,299)
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8,695,178 7,951,504
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Total liabilities & stockholders'
equity $ 8,946,598 $ 8,310,364
========= =========
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HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Three Month Three Months
Ended Ended
March 31, 1996 March 31, 1995
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<S> <C> <C>
Revenue $ 3,511 $ 180,948
Cost of goods mined 669,488
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Gross profit (loss) 3,511 (488,540)
General and administrative expenses 303,733 413,088
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Loss from operations (300,222) (901,628)
Interest and Other Income 896 23,885
Option Received 250,000
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Net Loss ($299,326) (627,743)
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Net Loss per share ($0.02) ($0.07)
========== ==========
Weighted average
common shares outstanding 13,692,205 9,095,857
=========== ==========
</TABLE>
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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. 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 ($0.35/share) 2,141,856 214 749,786
Issuance of 714,286 shares of common stock
to N.A.Degerstrom as per Securities Purchase
Agreement dated 06/01/95 ($0.35/share) 714,286 71 249,929
Issuance of 200,000 shares of restricted common
stockpursuant to a private placement
($1.00/share) 200,000 20 199,980
Issuance of remaining 250,000 shares of common
stock to Hanover Resources, Inc. as per
Modification Agreementdated 12/31/90
($.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 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)
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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
</TABLE>
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<TABLE>
<CAPTION> (Deficit)
Accumulated
Additional During the
Common Common Paid In Development
Shares Shares Capital Stage
------ ------ ------- ------------
<S> <C> <C> <C> <C>
Issuance of 400,000 shares of common
stock to Tabor Resources Corporation pursuant
to Asset Purchase Agreement dated March 25,
1996 ($1.62/share) 400,000 40 647,960
Issuance of 250,000 shares of common stock
to Roy A. Moen pursuant to Agreement and
Amendment to Mining Lease & Option to
Purchase dated March 26, 1996
($1.56/share) 250,000 25 389,975
Net loss (299,326)
------------
Balance, March 31, 1996 14,304,678 $1,430 $13,318,373 ($4,624,625)
</TABLE>
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HANOVER GOLD COMPANY, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1996 March 31, 1995
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<S> <C> <C>
Operating Activities:
Net loss (299,326) (627,743)
Adjustments to reconcile net cash and equivalents
provided by operating activities:
Depreciation 8,152 7,566
Depletion 5,068
Changes in operating assets & liabilities:
(Increase) decrease in subscription receivable 558,621
(Increase) decrease in inventory 42,639
(Increase) decrease in prepaid expenses 21,343 29,045
Increase (decrease) in accounts payable 3,423 (34,450)
Increase (decrease) in accrued expenses (21,409) (52,231)
Changes in other assets and liabilities:
(Increase) decrease in reclamation bond (53)
(Increase) decrease in notes receivable 309,296 (77,700)
(Increase) decrease in due to Group S, Ltd. 118,165
(Increase) decrease in due to Hanover Resources, Inc. 105,207
Increase (decrease) in note payable (83,672)
(Decrease) in option payable (250,000)
Increase (decrease) in Payroll Taxes
& Disability (5,783) 41,062
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Net cash used in operating activities (67,975) (134,804)
------- -------
Investing Activities:
Purchase of property and equipment (30,891) (11,496)
Increase in mining properties (1,437,748)
---------
Net cash used in investing activities (1,468,639) (11,496)
--------- -------
Financing Activities:
Disposition of equipment for mining interests 35,453
Issuance of common stock for mining interests 1,043,000 (399,975)
---------- -------
Net cash provided by financing activities 1,078,453 (399,975)
---------- -------
Net increase (decrease) in cash (458,161) (546,275)
Cash, beginning of period 732,162 646,141
-------- -------
Cash, end of period 265,001 99,866
======= ======
</TABLE>
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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 three month period ended March 31,
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 incorporated by reference in the Company's Annual Report on
Form 10-K for the year ended 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 the Hanover Resources, Inc. As of December 1990 the company reverse split
the stock 1 for 20.
3. Inventories:
Inventories consist of:
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
<S> <C> <C>
Raw materials $ 29,494 $ 29,494
Work in process 0 126,581
Yard and Supplies 0 46,199
Inventory write-down 0 (103,869)
------- -------
Total Inventory $ 29,494 $ 138,599
======= ========
</TABLE>
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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 part 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:
<TABLE>
<S> <C>
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
=========
</TABLE>
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:
<TABLE>
<S> <C>
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
=========
</TABLE>
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:
<TABLE>
<S> <C>
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
=========
</TABLE>
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 agreed
to issue Tabor 400,000 shares of common stock and three-year options exercisable
at the price of $2.00 per share for the purchase of an additional 300,000
shares 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 this
business plan. From May 2, 1990 through the period ending March 31, 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 form the public offering of the
Company's warrants. The Company has incurred losses in connection with its
operations through the period ended March 31, 1996 of $4,624,625.
<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
----------------------------
James A. Fish, its President
Date: May 14, 1996
By: /s/ Wayne Schoonmaker
----------------------------
Wayne Schoonmaker, its Principal
Accounting Officer
Date: May 14, 1996
