<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
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 Identification No.)
of incorporation)
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
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 [ ]
<PAGE>
HANOVER GOLD COMPANY, INC. QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1997
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 ............................. 4
Item 2:Changes in Securities ......................... 4
Item 3:Defaults upon Senior Securities................ 4
Item 4:Submission of Matters to a Vote of
Security Holders .............................. 4
Item 5:Other Information ............................. 5
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 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 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, 1997 are not necessarily indicative of the
results that may be expected for the full year ending
December 31, 1997.
For further information refer to the 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 SEPTEMBER 30, 1997.
Nine months Ended September 30, 1997 Compared to Nine months
Ended September 30, 1996.
During the nine months ended September 30, 1997, the Company
generated no revenue. Approximately $3,500 in revenues was
realized during the nine-month period ended September 30, 1996
resulting from the sale of carbon product stockpiled at the
Company's inactive mine. General and administrative expenses
decreased to $820,000 for the nine-month period ended September
30, 1997 as compared to $1,045,000 for the nine-month period
ended September 30, 1996. The decrease is principally attributed
to expenses incurred in 1996 related to the Company relocating
its headquarters from New York to Idaho. For the nine months
ended September 30, 1997, the Company experienced a loss of
$1,334,000, or $0.07 per share, compared to a loss of $1,060,000,
or approximately $0.06 per share, during the comparable period in
the previous year. Included in the 1997 loss was a $486,000
interest charge representing amortization of the value of options
granted for a guaranty of future company obligations.
Third Quarter 1997
During the third quarter 1997, the company's loss amounted to
$647,000; approximately 40% of which resulted from a charge for
depreciation of $7,000 and an interest charge of $243,000 as
noted in the above paragraph.
LIQUIDITY AND CAPITAL RESOURCES.
The Company is an exploration stage mining company and for
financial reporting purposes has been categorized as a
development stage company since its inception. At September 30,
1997, it had no recurring sources of revenue and negative working
capital. The Company has incurred losses and experienced
negative cash flows from operations in every year since its
inception. Additionally, as a consequence of Kennecott's
withdrawal from the mining venture in March of 1995, the Company
assumed full responsibility for certain landowner rental and
royalty obligations pertaining to its Alder Gulch mining
1
<PAGE>
claims. At September 30, 1997, those rental and royalty
obligations payable
in 1997 and 1998 were approximately $ 338,000 and $1,590,000.
As was previously reported, on April 30, 1997 the Company entered
into a reorganization agreement with Easton-Pacific and Riverside
Mining Company to acquire all of the issued and outstanding
shares of the capital stock of Easton-Pacific and Riverside
Mining Company in exchange for 7,000,000 shares of the Company's
common stock. On September 30, 1997 Easton-Pacific and Riverside
Mining Company was effectively merged into the Company pursuant
to the shareholders of both companies approving the merger and
the filing of Articles of Merger with the secretaries of state of
Delaware and Montana. Allowing for lock-up periods and trading
volume, the fair market value of the Company's shares issued to
acquire the Easton-Pacific and Riverside Mining Company's shares,
including direct acquisition costs of $60,612, was determined at
$4,787,000. Easton-Pacific & Riverside Mining Company's annual
rental obligations for 1997 and 1998 total approximately $
40,000.
The foregoing conditions give rise to substantial doubt about the
Company's ability to continue as a going concern. Accordingly,
the Company's independent certified public accountants modified
their March 7,1997 report accompanying the Company's December
31,1996 financial statements to include an explanatory paragraph
relative to a going concern uncertainty. To raise additional
funds to help meet its 1997 obligations, the Company filed a Form
S-1 Registration Statement with the Securities and Exchange
Commission ("SEC") to, in part, register 2,000,000 of its common
shares for sale to the public. The Statement was declared
effective August 15, 1997 and pursuant thereto 1,139,000 new
shares of the Company's common stock were issued against an
advance of $ 1,424,000 for the shares. Due to the current
depressed price for its stock the Company may experience
difficulty in selling the remaining 861,000 registered shares.
Listed on the NASDAQ SmallCap Market tier, the Company's shares
fluctuated between $0.781 and $1.094 for the period June 30, 1997
to September 30, 1997. On October 27, 1997 the closing price for
the Company's stock was $0.625 per share.
The SEC recently approved NASDAQ's proposed maintenance standards
for companies wishing to remain listed on the SmallCap Market.
Under the new criteria which has been implemented by NASDAQ, all
SmallCap stocks must maintain a bid price of at least $1.00
without exception. If the Company is to maintain its SmallCap
listing it must be in compliance with the bid price requirement
by February 20, 1998. Should the Company be delisted it will be
extremely difficult for it to achieve the requirements necessary
for readmittance onto the NASDAQ SmallCap market and the Company
may lose the support of many of its broker/dealers. A delisting
could have a significant impact on the Company's ability to raise
funds for working capital and to meet landowner-lessor payments.
The Company expects to meet its 1997 obligations using existing
funds, the funds derived from the public sale of 1,139,000
additional shares of common stock and funds contributed under the
guaranty given by an affiliate and others. As was previously
reported, the affiliate and others guaranteed the Company's
payments to the landowner-lessors of the Company's mining claims
through 1997 and for the first nine months of 1998. At October
30, 1997 $1,125,000 had been paid under the guaranty to satisfy
landowner-lessor obligations, entitling the affiliate and others
to exercise 900,000 of the 2,312,968 share options that had been
given for the guaranty. Because the Company has not been
financially able to explore and develop its land holding to the
extent necessary to commence a commercial mining operation, it
has incurred aggregate losses of $7,247,000 from its inception
through September 30, 1997. 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 properties, it may continue to experience a shortage
of working capital.
2
<PAGE>
The Company's inability to advance its properties to the
commercial production stage is attributable to a number of
factors, including Kennecott's unexpected withdrawal from the
mining venture in 1995 and the Company's lack of success through
1995 in consolidating the various claims and interests in the
area. Although the Company has been able to conduct exploration
and limited development activities on the properties, primarily
as the result of its former arrangement with Kennecott and, to a
lesser extent, as the result of exploration and evaluation work
it performed itself in 1995, 1996 and 1997, significant
additional work must be undertaken to determine whether the
properties will support commercial mining operations. While the
Company believes the acquisition of the Easton-Pacific &
Riverside Mining Company's
claims will attract the interest of other North American Mining
companies, it
has increased the Company's landowner-lessor obligations by
$2,000 for 1997 and $102,000 over the next three years.
The Company continues to receive expressions of interest from
North American mining companies regarding a joint venture or
other economic arrangement to explore and develop the properties,
but as yet has been unable to conclude such an arrangement.
Management believes that such an arrangement can be made if the
price for gold increases. Due to numerous factors beyond the
control of the Company, such as global and regional demand,
political, economical conditions of major gold producing
countries, the strength of world currencies, and inflation, the
price of gold has steadily declined from a high of $414.80/oz in
February of 1996 to a low of $311.40/oz in October 1997.
As was previously reported, the Company restructured its
management in 1995 and early 1996 and took a number of
significant steps to consolidate the Alder Gulch mining
properties concluding with the acquisition of Easton-Pacific &
Riverside Mining Company's claims. In addition, it has completed
a compilation of geologic and other technical data generated from
its and Kennecott's prior exploration activities. Management
believes the information garnered from these activities will
assist the Company in its efforts to negotiate a joint venture or
other participating arrangement with a major mining company to
explore and, if warranted, develop its properties.
At September 30, 1997, Hanover had a deferred tax asset of
approximately $2,070,000. A valuation allowance equal to this
amount has been established. Management cannot determine that
more likely than not the Company will realize the benefits from
these deferred tax assets.
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 extensive exploration and
development activities, which can be expected to occur if it is
successful in negotiating a joint venture or other agreement with
a major mining company, inflation could result in an increase in
the cost of goods and services necessary to its mining
operations.
As was previously reported, if during the a year period,
commencing with the effective date of the agreement with Tabor
Resources Corporation, the average bid price of the Company's
common stock does not exceed $2.00 per share for a consecutive 30-
day period prior to April of 1998, the Company will issue Tabor
such number of additional shares as are necessary to raise the
aggregate market value of the shares then owned by Tabor to $2.00
per share. At October 27, 1997, the closing sales price of the
Company's common stock, as reported on the Nasdaq SmallCap
Market, was $0.6251/share. Were this price to remain constant,
the Company would be obligated to issue Tabor an additional
1,155,000 shares of its common stock pursuant to the agreement.
As was previously reported, the Company entered into an agreement
in November 1995 with W. W. Goodridge to acquire a 0.5 % gross
overriding royalty interest
3
<PAGE>
burdening certain of the Company's claims. Pursuant to terms of
that agreement, if the market price of the Company's common stock
did not equal or exceed $4.00 per share prior to November 1,
1997, the Company would issue additional shares of common stock
to raise the aggregate market value of the shares held by the
seller to $20,000. Utilizing the highest market price of $2.53
per share for its stock, from the date of the agreement to
November 1, 1997, the Company issued 2,905 additional new shares
to supplement up to $20,000, the value of the shares held by the
seller. If in addition to the shares issued under the Goodridge
agreement 1,155,000 shares are issued to Tabor, it will have the
effect of reducing Hanover's per share stockholders' equity from
approximately $0.59 to approximately $0.57, based on the
company's unaudited financial statements as of September 30,
1997, and may make it more
difficult for the Company to raise additional funds from the sale
of its common stock in the future.
Cash flows for the nine months ended September 30, 1997 were as
follows: During the nine months ended September 30, 1997, the
Company's cash position increased $91,000, to $187,000. During
the nine-month period, the Company used $884,000 in operating
activities, primarily as a result of the reported $1,334,000 net
loss. Investing activities used $1,204,000, primarily due to
$1,119,000 in expenditures related to the Company's mineral
properties. During the period, the Company received $1,424,000
from six individuals as a deposit on 1,139,000 common shares
which were sold pursuant to the Company's public offering. This
stock (1,139,000 Shares) has since been issued.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As was previously reported, on October 4, 1996, the Company
initiated an action against Tabor Resources Corporation 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. Thereafter the Company filed a motion for summary
judgement on certain issues relating to counterclaims filed by
Tabor, but withdrew the motion in order to conduct discovery when
certain matters were disputed by Tabor. Discovery has been
substantially completed and the Company expects to renew its
motion for summary judgement.
The Company continues to believe that the terms and conditions of
its asset purchase agreement with Tabor are clear and unambiguous
and that Tabor cannot establish any securities law claim since it
was provided access to all material information concerning the
Company and acknowledged such access in closing the transaction.
It is the Company's firm belief that Tabor cannot demonstrate
that its alleged damages are causally related to any acts or
omissions of the Company or its agents and that the Company will
prevail upon the merit of its claims.
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.
At the September 17, 1997 annual meeting the shareholders of the
Company
4
<PAGE>
approved the merger of Easton-Pacific & Riverside Mining Company
into the Company. Holders of 13,240,465 shares of common stock
voted in favor of the merger with no votes opposed. Shareholders
of Easton-Pacific & Riverside Mining Company had approved the
merger at their annual meeting held September 15, 1997, with no
shareholders exercising dissenters rights. Articles of Merger
were filed effective with the secretaries of state of Delaware
and Montana respectively on September 25, 1997 and September 30,
1997. As consideration for the merger the Company issued
7,000,000 new shares of common stock to the shareholders of
Easton-Pacific & Riverside Mining Company. The shares were
registered with the SEC when the Company's Form S-1 Registration
Statement was declared effective August 15, 1997. The merger
added a contiguous claim block of 151 unpatented, 42 patented and
2 state leases,
which lies adjacent to the west side of the Company's property in
the Alder Gulch area of the Virginia City Mining District.
The Company also acquired 35 patented and 58 unpatented claims
near Pony, Montana and 4 patented and 7 unpatented claims near
Norris, Montana. Having fulfilled its objective to control what
substantially constitutes the greater part of the Virginia City
Mining District, the Company believes that it will be easier to
attract a major mining partner with resources to finance
additional exploration activities and, if commercial development
is warranted, the costs and expenses associated with building and
operating a large scale mine.
At the same annual meeting the Company's shareholders elected
Neal A. Degerstrom, James A. Fish, Pierre Gousseland, F. D.
Owsley, and Laurence Steinbaum to continue as directors and newly
elected Robinson Bosworth III a director until the next annual
meeting of shareholders or until their successors are elected and
qualified. Votes cast for and against the director nominees are
as follows: Mr. Degerstrom - 12,342,383 for and 3,289,750
withheld; Mr. Fish - 12,336,383 for and 3,152,950 withheld; Mr.
Gousseland - 11,960,946 for and 3,289,750 withheld; Mr. Owsley -
12,326,483 for and 3,299,750 withheld; Mr. Steinbaum - 12,741,379
for and 2,884,754 withheld; and Mr. Bosworth - 12,336,383 for and
3,289,750 withheld. Mr. Gousseland subsequently resigned as a
director due to an arising conflict of interest and Mr. Owsley
likewise resigned but for health reasons. Mr. Tim Babcock, Ex-
Governor of the State of Montana, and Mr. Karl Elers, Chairman of
the Board of Directors of Battle Mountain Gold, Co. were
appointed to fill the vacancies on the Company's Board of
Directors. The shareholders also voted to appoint BDO Seidman to
act as the Company's auditors for the year ended December 31,
1997. Holders of 15,621,733 shares of common stock voted in favor
of the appointment, holders of 95,150 shares voted against the
appointment, and no shareholders abstained from voting.
ITEM 5. OTHER INFORMATION.
None.
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. None.
5
<PAGE>
HANOVER GOLD COMPANY, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Condensed Balance Sheets as of September 30, 1997
and December 31, 1996 F/S-2
Condensed Statements of Operations for the Nine months
Ended September 30, 1997 and 1996, and for the period
from inception(May 2, 1990) to September 30, 1997 F/S-3
Condensed Statements of Changes in Stockholders' Equity
for the period from inception (May 2, 1990) to September 30, 1997 F/S-4
Condensed Statements of Cash Flow for the Six
Months Ended September 30, 1997 and for the period from
inception (May 2, 1990) to September 30, 1997 F/S-6
Notes to Condensed Interim Financial Statements F/S-8
</TABLE>
[The balance of this page has been intentionally left blank.]
F/S-1
<PAGE> HANOVER GOLD COMPANY, INC.
CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION> SEPT. 30, DECEMBER 31,
1997 1996
(UNAUDITED) (AUDITED)
----------- ------------
<S> <C> <C>
Current assets:
Cash $ 187,186 $ 96,353
Supplies Inventory 7,720 10,000
Prepaid expenses and other current assets 99,761 97,369
---------- ----------
Total current assets 294,667 203,722
---------- ----------
Resource properties and claims:
Exploration, engineering and site
development 2,382,611 2,288,508
Mining properties 14,356,507 8,202,314
---------- ----------
Total resource properties and claims 16,724,888 10,490,822
---------- ----------
Property and equipment, at cost 248,797 151,258
Less accumulated depreciation 107,392 63,076
--------- ---------
Net property and plant and equipment 141,405 88,182
---------- ----------
Other assets 23,424 23,424
---------- ----------
Total assets $17,184,384 $ 10,806,150
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,842 $ 70,136
Notes payable 285,400
Note payable-shareholder 73,405 73,405
Accrued expenses 42,506 85,859
Current Portion of long-term debt 61,314 23,653
Total current liabilities 466,467 253,053
--------- ---------
Long-term debt, less current portion 180,232 194,065
--------- ---------
Total liabilities $ 646,699 $ 447,118
--------- ---------
Stockholders' equity:
Preferred stock, $0.001 par value; shares authorized
2,000,000, no shares outstanding - -
Common Stock, $0.0001 par value, authorized
48,000,000 shares; issued and outstanding
28,025,443 and 19,843,022 shares respectively 2,803 1,984
Additional paid-in capital 23,031,577 16,270,146
Deposits on Common Stock 750,000 -
Deficit accumulated during the development stage (7,246,695)
(5,913,098)
----------- -----------
Total Stockholders equity 16,537,685 10,359,032
----------- -----------
Total liabilities and stockholders' equity $17,184,384 $ 10,806,150
=========== ============
</TABLE> F/S-2
<PAGE> HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
DATE OF INCEPTION QUARTER NINE MONTHS QUARTER NINE MONTHS
(MAY 2, 1990) TO ENDED ENDED ENDED ENDED
SEPT. 30, 1997 SEPT.30,'97 SEPT. 30,'97 SEP.30,'96 SEP. 30,'96
----------------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Revenue $ 1,151,958 $ 0 $ 0 $ 0 $ 3,511
Cost of goods mined 1,987,483 0 0 0 0
----------- --------- ---------- ---------- ----------
Gross profit (loss) (835,525) 0 0 0 3,511
Depreciation and
Amortization 117,831 6,939 19,550 6,774 20,323
Provision for bad debt 779,921 0 0 0 0
General and admini
strative expenses 5,046,331 396,224 819,537 274,222 1,044,600
----------- --------- --------- --------- -----------
Loss from operations(6,779,608) (403,163) (839,087) (281,496) (1,061,412)
Interest (expense) and
other income (Note2)(430,251) (251,276) (489,062) 224 1,368
Gain (Loss) on dis-
position of assets (36,736) 7,000 (5,448) 0 0
----------- --------- ----------- --------- ------------
Net loss ($7,246,595) (647,439) ($1,333,597) (281,272) ($1,060,044)
============ ========== ============ ========= ============
Net loss per share ($0.03) ($0.07) ($0.02) ($0.06)
Weighted average common
shares outstanding (1) 20,188,986 19,980,287 18,300,164 17,262,948
</TABLE>
____________________
(1) As of September 30, 1997, 28,025,443 shares of common stock were
outstanding and an additional 3,317,968 shares were deemed outstanding
pursuant to presently outstanding options.
F/S-3
<PAGE> HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION (MAY 2, 1990) THROUGH SEPTEMBER 30, 1997
<TABLE>
<CAPTION> Deficit
Accumulated
Common Stock Additional During the
--------------- Paid in Subscription Development
Shares Amount Capital Receivable Stage Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock for
cash ($0.53 per share) 752,562 $ 75$ 402,425 $ - $ - $ 402,500
Issuance of common stock for
cash ($0.07 per share) 86,250 9 6,009 - - 6,018
Cash contributed to capital - - 5,000 - - 5,000
Net loss - - - - (141,114) (141,114)
- ------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1990 838,812 84 413,434 - (141,114) 272,404
Issuance of common stock to
directors ($0.0001/share) 200,000 20 - - - 20
Issuance of common stock for
claims and Engineering costs
($2.50 per share) 229,007 23 572,496 - - 572,519
Issuance of common stock for
cash ($0.06 per share) 2,957,506 296 166,374 - - 166,670
Issuance of common stock for
cash ($0.42 per share) 268,586 27 113,723 - - 113,750
Exercise of stock purchase
warrants ($0.60 per share) 74,400 7 44,633 - - 44,640
Exercise of stock purchase
warrants ($1.25 per share) 111,500 11 139,363 - - 139,374
Cash contributed to capital - - 73,850 - - 73,850
Net loss - - - - (179,866) (179,866)
- ------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1991 4,679,811 468 1,523,873 - (320,980) 1,203,361
Issuance of common stock for
cash ($2.00 per share) 712,500 71 1,424,929 - - 1,425,000
Issuance of common stock for
cash ($0.18 per share) 218,537 22 39,978 - - 40,000
Exercise of stock purchase
warrants ($1.25 per share) 41,600 4 51,996 - - 52,000
Net loss - - - - (314,878) (314,878)
- ------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1992 5,652,448 565 3,040,776 - (635,858) 2,405,483
Issuance of common stock for interest in
mineral Property ($1.50 per share) 150,000 15 224,985 - - 225,000
Issuance of common stock to officer
($0.01 per share) 127,165 13 737 - - 750
Exercise of stock purchase warrants
($1.60 per share) 3,061,703 306 4,749,912 (649,360) - 4,100,858
Net loss - - - - (256,769) (256,769)
- ------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1993 8,991,316 899 8,016,410 (649,360) (892,627) 6,475,322
</TABLE> F/S-4
<PAGE> HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION (MAY 2, 1990) THROUGH SEPTEMBER 30, 1997
(CONTINUED)
<TABLE>
<CAPTION> Deficit
Accumulated
Additional During the
Common Stock Paid in Subscription Development
Shares Amount Capital Receivable Stage Total
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1992 5,652,448 $ 565 $3,040,776 $ - $ (635,858) $ 2,405,483
Exercise of stock purchase
warrants ($1.60/share) 1,328,897 133 2,126,102 - - 2,126,235
Cancellation of subscribed
shares ($1.60 per share) (250,000) (25) (399,975) 400,000 - -
Cash contributed to capital - - 98,393 - - 98,393
Net loss - - - - (1,362,954) (1,362,954)
- -------------------------------------------------------------------------------------------------------
BALANCE, December 31,
1994 (Restated) 10,070,213 $ 1,007 $9,840,930 $(249,360) $(2,255,581) $7,336,996
Issuance of common stock for
cash ($0.35 per share) 2,142,856 214 749,786 - - 750,000
Issuance of common stock for
cash ($0.35 per share) 714,286 71 249,929 - - 250,000
Issuance of common stock for
cash ($1.00 per share) 200,000 20 199,980 - - 200,000
Issuance of common stock in
satisfaction of vendor obli-
gations ($1.06 per share) 69,679 7 74,089 - - 74,096
Issuance of common stock in
satisfaction of vendor obli-
gations ($1.00 per share) 200,000 20 199,980 - - 200,000
Issuance of common stock for
cash ($1.00 per share) 1,000,000 100 999,900 - - 1,000,000
Issuance of common stock to officer 197,835 20 - - - 20
Issuance of common stock pursuant to
Convertible debt 1,348,295 135 281,313 - - 281,448
Cash received for subscribed shares - - - 249,360 - 249,360
Repurchase of previously issued shares
($1.60 per share) (23,000) (2) (36,798) - - (36,800)
Net loss - - - - (2,329,190) (2,329,190)
- -------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 15,920,164 $1,592$12,559,109 $ - $(4,584,771) $7,975,930
Issuance of common stock for mineral
property rights ($4.00 per share) 5,000 1 19,999 - - 20,000
Issuance of common stock for mineral
property rights ($2.00 per share) 525,000 52 1,049,948 - - 1,050,000
Issuance of common stock for mineral
property rights ($1.56 per share) 250,000 25 389,975 - - 390,000
Issuance of common stock for cash
($0.50 per share) 2,142,858 214 1,071,215 - - 1,071,429
Issuance of common stock for cash
net of issuance costs of
$70,000($1.25 per share) 1,000,000 100 1,179,900 - - 1,180,000
Net loss - - - - (1,328,327) (1,328,327)
- -------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 19,843,022 1,984 16,270,146 - (5,913,098) 10,359,032
</TABLE> F/S-5
<PAGE> HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION (MAY 2, 1990) THROUGH SEPTEMBER 30, 1997
(CONTINUED)
<TABLE>
<CAPTION> Deficit
Accumulated
Additional During the
Common Stock Paid in Subscription Development
Shares Amount Capital Receivable Stage Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 19,843,022 $ 1,984 $16,270,146 $ - $(5,913,098) $10,359,032
Issuance of common stock for services
rendered ($0.95 per share) 43,421 5 41,245 - - 41,250
Grant of option to director as compensation
for loan guaranty (Note 2) 1,457,170 - - 1,457,170
Deferred guaranty Fee, subject to grant
exercise (Note 2) - - (971,446) - - (971,446)
Deposits received on Common Stock - - - 2,173,750 - 2,173,750
Issuance of common stock
for cash ($1.25 per share) 1,139,000 114 1,423,636 (1,423,750) - -
Issuance of common stock
For purchase of Easton-Pacific
Net assets 7,000,000 700 4,810,826 - - 4,811,526
Net loss - - - - (1,333,597) (1,333,597)
- --------------------------------------------------------------------------------------------------------
BALANCE, September 30, 1997 $28,025,443 $2,803 $23,031,577 $750,000 $(7,246,695) $16,537,685
</TABLE>
<PAGE> HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION> Date of Inception Nine months Nine months
(May 2, 1990) Ended Ended
through Sep.30,'97 Sep.30,1997 Sept.30, 1996
------------------ ------------ --------------
<S> <C> <C> <C>
Operating activities: Net loss ($ 7,246,695) ($ 1,333,597) ($ 1,060,044)
Adjustments to reconcile net loss to cash
used in operating activities:
Depreciation, depletion, + amortization 603,505 505,274 20,323
Issuance of common stock for services 41,250 41,250 -
Loss on disposition of assets 45,095 12,586 -
Common stock issued for public relations fees 200,000 - -
Common stock issued to officers and directors 40 - -
Write-off of note receivable 779,921 - -
Changes in operating assets and liabilities:
(Increase) decrease in supplies inventory (7,720) 2,280 -
(Increase) decrease in prepaid expenses (99,761) (2,392) (4,679)
Increase (decrease) in accounts payable 77,938 (66,294) (13,206)
Increase (decrease) in accrued expenses 108,784 (43,353) 8,525
(Increase) decrease in other assets (23,424) - (3,500)
------------ ----------- -----------
Net cash used in operating activities (5,521,067) (884,246) (1,052,581)
------------ ----------- -----------
Investing activities:
Proceeds from sale of equipment 18,408 3,082 -
Repayment (Advances) under notes receivable (1,089,219) - 309,296
Purchase of furniture and equipment (374,636) (88,441) (34,736)
Additions to mining properties (13,842,179) (6,234,066) (1,178,059)
------------ ----------- -----------
Net cash used in investing activities (15,287,626) (6,319,425) (903,499)
------------ ----------- -----------
Financing activities:
Repurchase and retirement of common stock (36,800) - -
Proceeds from issuance of convertible debt 215,170 - -
Capital contributions 177,243 - -
Deposits on common stock 750,000 750,000
Borrowings under note payable to shareholder 73,405 - -
Collection of subscription receivable 249,360 - -
Proceeds from sale of common stock 14,492,975 1,423,750 976,000
Increase in Notes Payable 263,000 309,228 290,738
Common stock issued for property 4,811,526 4,811,526 -
----------- ---------- ----------
Net cash provided by financing activities 20,995,879 7,294,504 1,266,738
----------- ---------- ----------
Net increase (decrease) in cash 187,186 90,833 (689,342)
Cash, beginning of period - 96,353 723,162
----------- ---------- -----------
Cash, end of period $ 187,186 $ 187,186 $ 33,820
=========== ========== ===========
</TABLE> F/S-6
<PAGE> HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
(continued)
<TABLE>
<CAPTION> Date of Inception Nine months Nine months
(May 2, 1990) Ended Ended
through Sep.30,'97 Sep.30, 1997 Sep.30, 1996
------------------ ------------- ---------------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $36,790 $9,122 $3,623
Income taxes - - -
Supplemental schedule of non-cash investing and
Financing activities
Mineral property rights acquired in exchange for:
Issuance of common stock 6,837,250 5,115,460 1,460,000
Issuance of long-term debt - - -
Notes receivables 309,298 - 309,298
Fixed assets 66,177 - 35,453
Issuance of shares of common stock in satisfaction
of vendor obligations 74,096 - -
Conversion of notes payable and accrued interest to
Common stock $281,448 $ - $ -
</TABLE>
[The balance of this page has been intentionally left blank.]
F/S-7
<PAGE> HANOVER GOLD COMPANY, INC.
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 interim 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 nine-month period ended September 30, 1997 are
not necessarily indicative of the results that may be expected
for the full year ending December 31, 1997.
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.
The Company has been in the development stage since its
inception. The Company has no recurring source of revenue, has
incurred operating losses since inception and, at September 30,
1997, has negative working capital. These conditions raise
substantial doubt as to the Company's ability to continue as a
going concern. Management of the Company has undertaken certain
actions to address these conditions. These actions include
proposed public and private offerings of the Company's common
stock, negotiating amendments to obligations on the Company's
mineral properties, and an active search for a joint venture
partner to provide the funding necessary to bring the mineral
properties into production. The financial statements do not
contain any adjustments which might be necessary if the Company
is unable to continue as a going concern.
2. COMMON STOCK:
In March 1997, the Company issued a three-year option to
purchase 2,312,968 shares of the Company's common stock at $1.25
per share to a shareholder in exchange for the shareholder's
guaranty of the Company's obligations for an eighteen months
period ending in September 1998. The fair value of these
options, as determined using the Black-Scholes option pricing
model, is $1,450,000 and will be amortized to expense over the
guaranty period. The amount of expense recorded in the first
nine months of 1997 totaled $485,724.
On April 30, 1997, Hanover entered into a reorganization
agreement with Easton-Pacific & Riverside Mining Company to
acquire all of the issued and outstanding shares of the capital
stock of Easton-Pacific & Riverside Mining Company in exchange
for 7,000,000 shares of common stock of Hanover, to be followed
by the merger of Easton-Pacific & Riverside Mining Company into
Hanover. The transaction became effective September, 1997 and is
reflected in the third quarter financial statements. The fair
value of the issued shares of Hanover reflects the quoted price
for the common stock as of the date of the shareholder approval,
discounted to reflect lock-up periods and trading volume. The
acquisition of Easton-Pacific & Riverside Mining Company is
accounted for as a purchase, with total cost determined at
$4,787,000, which represents the fair value of the shares of
common stock of Hanover plus direct acquisition costs of $60,612.
F/S-8
<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: November 12,1997
By: /s/ Wayne Schoonmaker
---------------------------
Wayne Schoonmaker, its
Principal Accounting
Officer
Date: November 12,1997
F/S-9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 187,186
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 7,720
<CURRENT-ASSETS> 294,667
<PP&E> 16,973,685<F1>
<DEPRECIATION> 107,392
<TOTAL-ASSETS> 17,184,384
<CURRENT-LIABILITIES> 466,467
<BONDS> 0
0
0
<COMMON> 2,803
<OTHER-SE> 16,534,882<F2>
<TOTAL-LIABILITY-AND-EQUITY> 17,184,384
<SALES> 0
<TOTAL-REVENUES> 5,783<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 844,535
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 494,845
<INCOME-PRETAX> (1,333,597)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,333,597)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,333,597)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
<FN>
<F1>Consists of $16,724,888 in resource properties and claims, and $248,797 in
property and equipment, at cost.
<F2>Consists of $23,031,577 in additional paid-in capital and $750,000 in deposits
on common stock, less a deficit of $7,246,695 accumulated during the
development stage.
<F3>Consists of $5,783 in interest income.
</FN>
</TABLE>
