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 September 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: 0-23022
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
September 30, 1996 was 19,848,022 shares, which amount includes 1,547,858
shares deemed outstanding pursuant to presently exercisable options and
purchase commitments.
<PAGE>
HANOVER GOLD COMPANY, INC. QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 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 4
Item 5: Other Information 4
Item 6: Exhibits and Reports on Form 8-K 5
SIGNATURES
[The balance of this page has been intentionally left blank.]
<PAGE>
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 nine month period ended September 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 $10,407,678 at September 30, 1996, compared
to $8,310,364 at December 31, 1995. At September 30, 1996, these assets
consisted of $165,579 in current assets, $10,136,896 in resource properties
and claims, $81,779 in property and equipment, net of depreciation, and
$23,424 in other assets. 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 September 30, 1996 is attributable primarily to an increase
in resource properties and claims resulting from the merger of Hanover
Resources, Inc. ("Hanover Resources") and Group S Limited ("Group S"), each
of which was formerly affiliated with the Company, with and into the
Company during the quarter. 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 and Group S with and into the Company.
The Company's current assets at September 30, 1996 consisted of $33,820 in
cash, $29,494 in inventory and $102,265 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 September 30, 1996 were $644,917, compared to
total current liabilities of $358,860 at December 31, 1995. At September
30, 1996, these liabilities consisted of $389,392 in notes payable,
inclusive of $200,000 due to a shareholder of the Company, $208,550 in
accounts payable and $49,675 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.
1
<PAGE>
Revenues for the nine month period ended September 30, 1996 consisted of
$3,511 received from the sale of carbon products. General and
administrative expenses for the 1996 period were $1,064,923, up from
$807,217 during the comparable period in 1995. The increase in general and
administrative expenses is primarily attributable to the Company's
continued evaluation of its Alder Gulch mining properties, and,
secondarily, to increased shareholder relations activity.
During the nine months ended September 30, 1996, the Company experienced a
loss from operations of $1,060,044, or approximately $0.07 per share,
compared to a loss of $1,051,986, or approximately $0.11 per share, during
the comparable period in the previous 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
obligations, 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. As previously reported, the Company has also filed an effective
registration statement under the Securities Act of 1933, as amended,
relating to, among other things, 1,000,000 shares of common stock to be
offering and sold by the Company, at prevailing market prices, during the
eighteen-month period the registration statement is expected to remain in
effect. Funds received from such offering will be used by the Company for
working capital purposes.
The Company has incurred aggregate losses of $5,385,343 from inception
through September 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.
2
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
On October 4, 1996, the Company initiated an action against Tabor Resources
Corporation ("Tabor") and Washington Trust Bank in its capacity as escrow
agent, in United States District Court for the Eastern District of
Washington (Case No. CS-96-663 FVS) for breach of contract and injunctive
relief
As has been previously reported, the Company entered into a purchase
agreement with Tabor, effective March 25, 1996, for the purchase of ten
patented and 120 unpatented mining claims and one mining lease covering
properties located in the Alder Gulch area of the Virginia City Mining
District in southwestern Montana. Such claims and leases are contiguous to
the Company's other mining properties in the area.
The Company issued Tabor 525,000 shares of its 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 as are sufficient to raise the aggregate market value of the shares
then owned by Tabor to $2.00 per share. As part of the transaction, the
Company also agreed to prepare and file a registration statement under the
Securities Act of 1933, as amended, covering the shares issued to Tabor.
Such registration statement was declared effective on September 3, 1996;
the shares of common stock included therein comprise the Tabor shares,
other outstanding shares of common stock offered for resale by other
shareholders of the Company, and up to 1,000,000 newly-issuable shares
offered by the Company for cash at prevailing market prices.
Despite the Company's compliance with all of the terms and conditions of
its agreement with Tabor, Tabor has refused t issue instructions to the
escrow agent of the transaction authorizing the escrow agent to release the
conveyancing documents to the mining claims and lease purchased by the
Company, as well as certificates for 400,000 of the 525,000 shares of
common stock the Company has issued to Tabor as consideration for such
claims and lease. The purpose of the action is to compel the release of
such items from escrow, and to recover money damages from Tabor resulting
from its breach of the purchase and escrow agreements.
As of the date of this report, Tabor has not yet responded to the action.
Nonetheless, the Company has been advised by Tabor that Tabor may assert
various counterclaims against the Company, including claims predicated on
the antifraud provisions of federal securities law. The Company believes
any such counterclaims are unfounded, and that it will prevail in the
action and ultimately obtain title to the mining claims and lease that are
the subject of its purchase agreement with Tabor.
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.
3
<PAGE>
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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.
Holders of 11,744,057 shares of common stock voted in favor of the merger,
holders of 7,390 shares voted against the merger, and no holders abstained
from voting. 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 become effective upon the filing of articles of merger with the
secretaries of state of Delaware, New York and Montana, that last of which
occurred on September 12, 1996.
At the same special meeting, the shareholders of the Company also approved
an amendment to the Company's articles of incorporation increasing the
number of authorized shares of capital stock from 25,000,000 shares to
50,000,000 shares, of which 48,000,000 shares would be designated common
stock, par value $.0001 per share, and 2,000,000 shares would be designated
preferred stock, par value $.001 per share, with such rights, preferences,
limitations and other characteristics as two-thirds of the members of the
Company's board of directors may from time-to-time determine. Holders of
11,731,957 shares of common stock voted in favor of the amendment, holders
of 41,990 shares voted against the amendment, and no holders abstained from
voting.
The Company's shareholders also approved the adoption of the Company's 1995
incentive stock option plan at the meeting, and elected Neal A. Degerstrom,
James A. Fish, Pierre Gousseland, F. D. Owsley, Fred R. Schmid, Laurence
Steinbaum and Nicholas S. Young to continue as directors until the next
annual meeting of shareholders or until their successors are elected and
qualified. Holders of 11,674,627 shares of common stock voted in favor of
the option plan, holders of 113,070 shares voted against the plan, and no
holders abstained from voting. Votes cast for and against the director
nominees are as follows: Mr. Degerstrom - 13,800,449 for and 4,670
against; Mr. Fish - 13,800,449 for and 4,670 against; Mr. Gousseland -
13,800,449 for and 4,670 against; Mr. Owsley - 13,331,949 for and 4,670
against; Mr. Schmid - 13,310,949 for and 492,170 against; Mr. Steinbaum -
13,769,669 for and 35,450 against; and Mr. Young - 13,548,449 for and
254,670 against. Finally, shareholders at the special meeting approved the
appointment of BDO Seidman to act as the Company's auditors for the year
ended December 31, 1996. Holders of 13,797,726 shares of common stock
voted in favor of such appointment, holders of 4,483 shares voted against
the appointment, and no holders abstained from voting.
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, and an additional 1,200,000 shares were purchased on
June 1, 1996. As of the date of this report, the Company has received
proceeds from the sale of the remaining 542,858 shares, but has not yet
issued certificates for such shares; it is anticipated that such
certificates will be issued on or before November 30, 1996. Proceeds
received by the Company from the purchase of these shares have and will
continue to be used to ensure payment of rental and royalty obligations
coming due in 1996.
4
<PAGE>
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.
[The balance of this page has been intentionally left blank.]
5
<PAGE>
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
TABLE OF CONTENTS
Page
----
Condensed Balance Sheet as of September 30, 1996
and December 31, 1995 F/S-2
Condensed Statements of Operations for the Nine
Months Ended September 30, 1996 and 1995 F/S-3
Condensed Statements of Changes in Stockholders' Equity
for the Nine Months Ended September 30, 1996 and the Year
Ended December 31, 1995 F/S-4
Condensed Statements of Cash Flow for the Nine
Months Ended September 30, 1996 and 1995 F/S-5
Notes to Condensed Interim Financial Statements F/S-6
[The balance of this page has been intentionally left blank.]
F/S-1
<PAGE>
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
CONDENSED BALANCE SHEET
ASSETS
September 30, December 31,
1996 1995
(Unaudited) (Audited)
------------ ------------
Current assets:
Cash $ 33,820 $ 723,162
Inventory (Note 3) 29,494 29,494
Accounts receivable 0
Prepaid expenses 102,265 97,586
--------- ---------
Total current assets 165,579 850,242
Resource properties and claims:
Exploration, engineering and
site development 2,235,106 2,225,106
Mining properties
(Notes 5 and 6) 7,901,790 3,922,083
Option 0 90
--------- ---------
Total resource
properties and claims 10,136,896 6,147,279
---------- ---------
Property and equipment, at cost 141,115 150,494
Less accumulated depreciation 59,336 47,675
--------- ---------
Net property and plant
and equipment 81,779 102,819
--------- ---------
Other assets:
Reclamation bonds 23,424 19,924
Note receivable (Note 4) 0 309,296
Due from Group S Limited 0 474,895
Due from Hanover
Resources, Inc. 0 405,909
---------- ----------
Total resource properties
and claims 23,424 1,210,024
---------- ----------
Total assets $10,407,678 $ 8,310,364
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 89,392 $ 48,654
Loans payable-shareholder 200,000 50,000
Accounts payable 208,550 221,756
Accrued expenses 46,975 38,450
---------- ----------
Total current liabilities 644,917 358,860
---------- ----------
Stockholders' equity:
Common Stock, $.0001 par value, authorized
25,000,000 shares; issued and
outstanding 19,848,022 (1)
and 13,649,678 shares
respectively 1,830 1,365
Additional paid-in capital 14,970,274 12,275,438
Advance against stock
purchase obligation 176,000 0
Deficit accumulated during the
development stage ( 5,385,343) ( 4,325,299)
---------- ----------
9,726,761 7,951,504
---------- ----------
Total liabilities and
stockholders' equity $10,407,678 $ 8,310,364
____________________ ========== ==========
(1) Includes 1,547,858 shares issuable pursuant to presently exercisable
options and purchase commitments.
F/S-2
<PAGE>
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF INCOME (LOSS)
(Unaudited)
Nine Months Nine Months
Ended Ended
September 30, 1996 September 30, 1995
------------------ ------------------
Revenue $ 3,511 $ 247,299
Cost of goods mined 0 812,501
--------- ---------
Gross profit (loss) 3,511 (563,202)
General and administrative
expenses 1,064,923 801,217
--------- ---------
Loss from operations (1,060,044) (1,364,419)
Interest and other income 1,368 63,433
Option received 0 250,000
--------- ---------
Net loss ($1,060,044) ($1,051,986)
Net loss per share ($0.07) ($0.11)
Weighted average common
shares outstanding (1) 15,940,953 9,936,240
____________________
(1) As of September 30, 1996, 18,300,164 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
<PAGE>
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
CONDENSED 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 0
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 1,600,000 shares of common
stock to N.A. Degerstrom pursuant to
amendment to Securities Purchase
Agreement dated 06/01/95 ($0.50/share) 1,600,000 160 799,840
Issuance of 2,270,486 shares of common stock
pursuant to the merger of Hanover Resources
and Group S with and into the Company 2,270,486 227 649,574
Net loss (1,060,044)
--------- ----- ---------- ---------
Balance, September 30, 1996 18,300,164 $1,830 $14,970,274 ($5,385,343)
========== ===== ========== =========
</TABLE>
F/S-4
<PAGE>
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
September 30, 1996 September 30, 1995
------------------ ------------------
<S> <C> <C>
Operating activities:
Net loss ($ 1,060,044) ($ 1,051,986)
Adjustments to reconcile net cash and equivalents
provided by operating activities:
depreciation 20,323 18,066
depletion 0 0
Changes in operating assets and liabilities:
(Increase) decrease in subscription receivable 0 647,981
(Increase) decrease in inventory 0 111,549
(Increase) decrease in prepaid expenses (4,679) 80,785
Increase (decrease) in accounts payable (13,206) (130,318)
Increase (decrease) in accrued expenses 8,525 (128,403)
(Increase) decrease in accounts receivable 0 0
Changes in other assets and liabilities:
(Increase) decrease in reclamation bond (3,500) (106)
(Increase) decrease in notes receivable 309,296 22,127
(Increase) decrease in due to Group S Limited 0 118,165
(Increase) decrease in due to Hanover
Resources, Inc. 0 (128,153)
(Increase) decrease in due from Group S Limited 474,895 0
(Increase) decrease in due from Hanover
Resources, Inc. 405,909 0
Increase (decrease) in notes payable 290,738 0
(Decrease) in option payable 0 (250,000)
Increase (decrease) in payroll
taxes and disability 0 15,307
------------ ------------
Net cash used in operating activities 428,257 (674,986)
------------ ------------
Investing activities:
Purchase of property and equipment (34,736) 3,622
Increase in mining properties (3,979,617) (531,790)
Increase in exploration and engineering (10,000) 3,012
------------ -----------
Net cash used in investing activities (4,024,353) (524,328)
------------ -----------
Financing activities:
Disposition of equipment for mining interests 35,453 0
Issuance of common stock for mining interests 1,245,500 0
Proceeds from sale of common stock 976,000 874,146
------------ -----------
Issuance of common stock pursuant to merger of
Group S Limited and Hanover Resources, Inc. 649,801 0
Net cash provided by financing activities 2,906,754 874,146
------------ -----------
Net increase (decrease) in cash (689,342) (325,168)
Cash, beginning of period 723,162 646,141
------------ -----------
Cash, end of period 33,820 320,973
============ ===========
</TABLE>
F/S-5
<PAGE>
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO CONDENSED INTERIM 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:
September 30, 1996 September 30, 1995
------------------ ------------------
Raw materials $ 29,494 $ 69,688
Work in process 0 0
Yard and supplies 0 20,199
Inventory write-down 0 0
------- -------
Total inventory $ 29,494 $ 89,887
F/S-6
<PAGE>
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO CONDENSED INTERIM 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>
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO CONDENSED INTERIM 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.
F/S-8
<PAGE>
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO CONDENSED INTERIM 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 120 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;
400,000 of such shares (and the conveyancing documents relating the claims
and lease purchased by the Company) are held in escrow pursuant to an
agreement between the Company and Tabor which is presently the subject of a
lawsuit initiated by the Company against Tabor on October 4, 1996 (See Part
II, Item 1 of this report.)
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 additional mining claims and interests, obtaining necessary
mining permits and formulation and implementation of its business plan.
Financing for these activities has been obtained from its 1993-1994 public
warrant offering; from Hanover Resources, Inc., an affiliated company which
was merged with and into the Company (along with Group S Limited, another
affiliated company) effective September 12, 1996; and from a group of
investors lead by Neal A. Degerstrom, a director of the Company. In
addition, the Company has filed an effective registration statement under
the Securities Act of 1933, as amended, relating, among other things, to
the sale of 1,000,000 shares of common stock during the eighteen month
period the registration statement will be in effect, at prevailing market
prices. The Company has incurred losses in connection with its operations
through the period ended September 30, 1996 of $5,385,343.
F/S-9
<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: November 8, 1996
By: /s/ Wayne Schoonmaker
--------------------------------
its Principal Accounting Officer
Date: November 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM the
Company's unaudited condensed financial statements for the nine-month period
ended September 30, 1996, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 33,820
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 29,494
<CURRENT-ASSETS> 165,579
<PP&E> 10,278,011<F1>
<DEPRECIATION> 59,336
<TOTAL-ASSETS> 10,407,678
<CURRENT-LIABILITIES> 644,917
<BONDS> 0
0
0
<COMMON> 1,830
<OTHER-SE> 9,584,931<F2>
<TOTAL-LIABILITY-AND-EQUITY> 10,407,678
<SALES> 3,511
<TOTAL-REVENUES> 4,879<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,055,165
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,060,044)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,060,044)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,060,044)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
<FN>
<F1>Consists of $10,136,896 in resource properties and claims, and $141,115 in
property and equipment, at cost.
<F2>Consists of $14,970,274 in additional paid-in capital, less a deficit of
$5,385,343 accumulated during the development stage.
<F3>Consists of $3,511 in revenues from the sale of carbon products and $1,368
in interest income.
</FN>
</TABLE>
