<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 March 31, 1998
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
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 MARCH 31, 1998
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 4
Item 3: Defaults upon Senior Securities 4
Item 4: Submission of Matters to a Vote of Security Holders4
Item 5: Other Information 4
Item 6: Exhibits and Reports on Form 8-K 4
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 three-month period
ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the full year ending
December 31, 1998.
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, 1997 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 MARCH 31, 1998.
Three months Ended March 31, 1998 Compared to three months Ended
March 31, 1997.
During the three months ended March 31, 1998, the Company
generated no revenue. General and administrative expenses
increased to $199,459 for the three-month period ended March 31,
1998 as compared to $180,683 for the three-month period ended
March 31, 1997. The increase is principally attributed to
increased expenses in 1998 for payroll costs, taxes, and fees,
which were largely offset by decreased consulting, insurance,
legal and accounting costs. For the three months ended March 31,
1998, the Company experienced a loss of $453,125, or $0.02 per
share, compared to a loss of $191,966, or approximately $0.01 per
share, during the comparable period in the previous year.
Included in the 1998 loss was a $242,862 interest charge
representing amortization of the value of options granted for a
guaranty of future company obligations. This charge did not
occur in the first quarter of 1997.
FIRST QUARTER 1998
During the first quarter 1998, the company's loss amounted
to $453,125; approximately 56% of which resulted from a charge
for depreciation of $8,959 and an interest charge of $242,862 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 March 31,
1998, 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 claims.
At March 31, 1998, those rental and royalty obligations payable
in 1998 totaled approximately $ 1,121,000. The Company assumed a
further obligation to pay $36,000 in 1998 to the landowners of
certain claims acquired by the Company through the Easton-Pacific
& Riverside Mining merger September 1997.
Due to the foregoing conditions, the Company's independent
certified public accountants included a paragraph in the
Company's 1997 financial statements relative to a going concern
uncertainty. To finance its rental and royalty obligations and
add to working capital the Company raised $1,843,000 from the
sale of 2,000,000 shares of common stock pursuant to a
registration statement filed effective with the Securities and
Exchange Commission August 15, 1997. 1,139,000 of the shares were
sold at $1.25 per share and 861,000 shares were sold at between
$0.50 and $0.40 per share through February 17, 1998. The Company
sold an additional 402,333 shares of its unregistered stock, at
$0.45 and $0.40 per share in March 1998. The declining prices
received for the Company's shares reflects a corresponding
decline in the market value of the Company's common stock as
reported on the Nasdaq SmallCap Market during the period the
shares were offered for sale. Market prices declined from $1.25
per share at May 6, 1997 to $0.4063 per share at May 5, 1998,
largely as a consequence of the significant drop in world gold
prices.
In August 1997, the SEC 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 the Nasdaq Stock Market, all Nasdaq SmallCap
Market listed stocks must maintain a bid price of at least $1.00
without exception beginning February 23, 1998. The Company has
been notified by Nasdaq that it is deemed to be non-compliant for
having failed to maintain a $1.00 bid price. If the Company is to
regain compliance the bid price for its stock must trade at or
above $1.00 for 10 consecutive days by May 22, 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 seriously effect
the Company's ability to raise funds for working capital and to
meet landowner payments. March 12, 1998, the Board of Directors
adopted a plan of recapitalization to subdivide the Company's
common stock, one for four, to allow the trading price of the
stock to increase in value to a level at or above that required
for the Company to maintain its Nasdaq listing. The plan was
approved by the shareholders of the Company May 5, at the duly
convened 1998 annual meeting of shareholders. Of the 25,381,877
shares that voted in person or by proxy, 19,176,286 voted in
favor of the plan. On May 8, 1998, the first day of trading on
Nasdaq post recapitalization, the closing price for the Company's
common stock was $1.06 per share. No assurance can be given that
the market price for the shares will at any time rise in
proportion to the reduction in the number of outstanding shares
resulting from the recapitalization or that if it does it will
remain at such level.
The Company expects to meet its 1998 obligations using
existing funds and funds available under the guaranty given by
Neal A. Degerstrom. $1,125,000 has been paid under the guaranty
to satisfy landowner obligations. 900,000 of the 2,312,968 share
options given for the guaranty have been exercised at $1.25 by
Mr. Degerstrom and the non-affiliates to whom he assigned two
thirds of the guaranty. Because the Company has not been
financially able to explore and develop its properties to the
extent necessary to commence a commercial mining operation, it
has incurred aggregate losses of $8,154,000 from its inception
through March 31, 1998. 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 Virginia
City Mining properties, it may continue to experience a shortage
of working capital.
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. The
Company has budgeted approximately $400,000 for a drilling
program to commence the later part of May 1998. The program will
be funded through the sale of the Company's common stock.
At March 31, 1998, Hanover had a net deferred tax asset of
approximately $2,523,000. 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.
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 or arrangements can be made to reduce or
defer landowner payments. 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 $278.15/oz January 12, 1998. At May
7, 1998 the price of gold was $298.50/oz.
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, any inflationary move could result in an
increase in the cost of goods and services necessary to its
mining operations.
The Company is aware of the issues associated with the
programming code in existing computer systems as the millenium
(year 2000) approaches. The "year 2000" problem is pervasive and
complex as virtually every computer operation will be affected in
some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that
do not properly recognize such information could generate
erroneous data or cause a system to fail. As the company's
hardware and software consist of recently purchased year 2000
compliant products, the year 2000 problem is not anticipated to
have a significant impact on the Company's operations.
In June 1997, the FASB issued SFAS No. 130, REPORTING
COMPREHENSIVE INCOME, and SFAS No. 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS No. 130
requires that an enterprise report, by major components and as a
single total, the change in its net assets during the period from
nonowner sources; and SFAS No. 131 establishes annual and interim
reporting standards for an enterprise's operating segments and
related disclosures about its products, services, geographic
areas and major customers. Adoption of these statements will not
impact the Company's financial position, results of operations or
cash flows and any effect will be limited to the form and content
of its disclosures. Both statements are effective for fiscal
years beginning after December 15, 1997, with earlier application
permitted.
Cash flows for the three months ended March 31, 1998 were as
follows: During the three months ended March 31, 1998, the
Company's cash position decreased $70,000, to $110,000. During
the three-month period, the Company used $181,000 in operating
activities, primarily as a result of the reported $453,000 net
loss. Investing activities used $202,000, due to that amount in
expenditures related to the Company's mineral properties. During
the period, the Company received $349,000 from 3 individuals from
the sale of 763,333 common shares, 361,000 shares which were sold
pursuant to the Company's public offering.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Effective March 25, 1996, the Company entered into an asset
purchase agreement with Tabor Resources Corporation, a Minnesota
corporation, for the purchase of ten patented mining claims, 120
unpatented mining claims and one state mining lease covering
properties located in the Alder Gulch area. The Company issued
Tabor 525,000 shares of common stock in the transaction and also
agreed that, if, during the two year period commencing with the
effective date of the agreement, the average bid price of the
common stock did not exceed $2.00 per share for a consecutive 30-
day period prior to April 19 of 1998, it would issue Tabor such
number of additional shares as was necessary to raise the
aggregate market value of the shares then owned by Tabor to
$2.00.
As part of the transaction, the Company also agreed to
prepare and file a registration statement under the Securities
Act covering the shares issued to Tabor, cause such registration
statement to be declared effective within six months of the
effective date of the agreement, and thereafter maintain the
registration statement in effect for a period of eighteen months
to enable Tabor to resell the shares (and to enable other selling
stockholders to sell additional shares of common stock also
covered by the registration statement) should it so choose. In
addition, the Company granted Tabor certain piggy-back
registration rights under the Securities Act, the effect of which
is to enable Tabor to include any shares remaining unsold
following the termination of effectiveness of the registration
statement described above in any registration statement
subsequently filed by the Company relating to securities to be
sold for the account of the Company or for the accounts of any of
its affiliates.
The agreement between the Company and Tabor further provided
that, pending effectiveness of the registration statement,
conveyancing documents covering the claims sold to the Company
and certificates evidencing 400,000 of the 525,000 shares issued
to Tabor were to be held in escrow. The agreement further
provided that, in the event the registration statement was not
declared effective within six months of closing, such documents
and certificates, at Tabor's election, would be returned to the
respective parties and the transaction would be deemed to have
been rescinded.
The registration statement required to be filed by the
Company was declared effective by the SEC on September 3, 1996.
Shortly following the effective date, and despite the Company's
compliance with all of the terms and conditions of its agreement
with Tabor, Tabor informed the Company that it was withholding
authorization to release the conveyancing documents and the share
certificates from escrow. As a consequence, the Company
initiated an action against Tabor in United States District Court
for the Eastern District of Washington (Case No. CS-96-663-FVS)
on October 4, 1996 for breach of contract and injunctive relief.
Subsequently, Tabor filed counterclaims against the Company
alleging violations of the registration and antifraud provisions
of federal securities law.
The Company deposed the principal witnesses in this matter
in mid-1997 and expected to file motions thereafter seeking
summary judgment in its favor on its breach of contract claims
against Tabor, specific performance of Tabor's obligations, and
dismissal of Tabor's counterclaims. Subsequent to these
depositions, however, and in the wake of declining world gold
prices and a commensurate decrease in the market price of the
Company's common stock which would have required the Company to
issue Tabor significantly more shares of common stock under the
agreement had it not been breached, Tabor recanted its position
and sought to compel the Company to proceed with the transaction
according to the original terms of the agreement. The Company,
in turn, filed a motion seeking to rescind the agreement in its
entirety.
Tabor's brief in response to the Company's motion offered no
opposing argument to a rescission of the agreement and as a
result the Court dismissed the action brought by the Company and
Tabor's counterclaims. Subsequent to the dismissal 525,000 shares
issued to and outstanding in the name of Tabor were cancelled.
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. On March 12, 1998 the Company sold 402,333
shares of its unregistered common stock for an aggregate price of
$179,100. The sale was made in reliance on Section 4(2) of the
Securities Act of 1933 as amended.
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.
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. No reports on Form 8-K were filed by the
registrant during the period covered by this
report.
- Page 4 -
<PAGE>
HANOVER GOLD COMPANY, INC.
TABLE OF CONTENTS
Page
Condensed Balance Sheets as of March 31, 1998
and December 31, 1997 F/S-2
Condensed Statements of Operations for the three months Ended
March 31, 1998 and 1997, and for the period from inception
(May 2, 1990) to March 31, 1998 F/S-3
Condensed Statements of Changes in Stockholders' Equity
for the period from inception (May 2, 1990)
to March 31, 1998 F/S-4
Condensed Statements of Cash Flow for the three
Months Ended March 31, 1998 and 1997, and for the period
from inception (May 2, 1990) to March 31, 1998 F/S-6
Notes to Condensed Interim Financial Statements F/S-8
Signatures F/S-9
[The balance of this page has been intentionally left blank.]
F/S-1
<PAGE> HANOVER GOLD COMPANY, INC.
CONDENSED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31,1998 December 31,1997
(Unaudited) (Audited)
----------------- ----------------
<S> <C> <C>
Current assets:
Cash $ 110,090 $ 180,083
Prepaid expenses and other current assets 70,024 102,699
----------- -----------
Total current assets 180,114 282,782
----------- -----------
Resource properties and claims:
Exploration, engineering and site
development 2,390,258 2,390,258
Mining properties 13,946,259 14,794,986
----------- -----------
Total resource properties and claims 16,336,517 17,185,244
----------- -----------
Property and equipment, at cost 244,834 244,427
Less accumulated depreciation 119,317 110,358
----------- ----------
Net property and plant and equipment 125,517 134,069
----------- ------------
Other assets 23,994 23,994
----------- ------------
Total assets $16,666,142 $ 17,626,089
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 20,940 $ 40,887
Notes payable to shareholders 320,160 320,405
Accrued payroll & Payroll taxes 19,863 58,803
Other Accrued expenses 75,285 74,008
Current Portion of long-term debt 76,134 77,703
----------- ----------
Total current liabilities 512,382 571,806
Long-term debt, less current portion 114,755 148,515
----------- ----------
Total liabilities $ 627,137 $ 720,321
----------- ----------
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
29,745,352 and 29,428,348 shares
respectively 2,975 2,943
Additional paid-in capital 24,190,502 24,604,172
Deficit accumulated during the
development stage ( 8,154,472) ( 7,701,347)
---------------- ----------------
Total Stockholders equity 16,039,005 16,905,768
--------------- ---------------
Total liabilities and stockholders'
equity $16,666,142 $ 17,626,089
========== ==========
</TABLE>
F/S-2
<PAGE> HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Date of Inception Quarter Quarter
(May 2, 1990) Ended Ended
through March 31,98 March 31,98 March 31,97
------------------- ----------- -----------
<S> <C> <C> <C>
Revenue $ 1,151,958 $ 0 $ 0
-------------- ----------- ----------
Operating expenses:
Cost of goods mined 1,987,483 0 0
Depreciation and amortization 135,723 8,959 4,769
Provision for bad debt 779,921 0 0
General and administrative
expenses 5,386,872 199,459 180,683
-------------- ----------- -----------
Total operating expenses 8,289,999 208,418 185,452
- ---------------------------------------------- ----------- -----------
Operating loss (7,138,041) (208,418) (185,452)
Other Income (expense):
Amortization of Guaranty Fee (1,011,447) (242,862) 0
Interest and other income
(expense) net 30,300 (1,845) 1,741
Gain (Loss) on disposition
of assets (35,284) 0 (8,255)
-------------- ----------- -----------
Total other income (expense) (1,016,431) (244,707) (6,514)
- ---------------------------------------------- ----------- -----------
Net loss $(8,154,472) $(453,125) $(191,966)
===================== ================ =========== ===========
Net loss per share ($0.02) ($0.01)
Weighted average common
shares outstanding 29,590,968 19,861,838
- --------------------------------------
</TABLE>
F/S-3
<PAGE> HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
From the Date of Inception (May 2, 1990) through March 31, 1998
<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>
<PAGE> HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
From the Date of Inception (May 2, 1990) through March 31, 1998
(continued)
<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>
Balance, December 31, 1993 8,991,316 $ 899 $8,016,410 $(649,360) $(892,627) $6,475,322
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, Dec.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
obligations ($1.06 per share) 69,679 7 74,089 - - 74,096
Issuance of common stock in
satisfaction of vendor
obligations ($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
</TABLE>
[The balance of this page has been intentionally left blank.]
F/S -4
<PAGE> HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
From the Date of Inception (May 2, 1990) through March 31, 1998
(continued)
<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>
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
Issuance of common stock for
services rendered ($0.95/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) - - (688,585) - - (688,585)
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
acquisition of Easton-Pacific 7,000,000 700 4,725,700 - - 4,726,400
Issuance of common stock
for cash ($0.50 per share) 500,000 50 249,950 - - 250,000
Issuance of common stock
for cash ($1.25 per share) 900,000 90 1,124,910 - - 1,125,000
Issuance of common stock for
Mineral property rights 2,905 - - - - -
Net loss - - - - (1,333,597) (1,333,597)
- ---------------------------------------------------------------------------------------------------
Balance, December 31, 1997 29,428,348 2,943 24,604,172 - (7,701,347) 16,905,768
</TABLE>
<PAGE> HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
From the Date of Inception (May 2, 1990) through March 31, 1998
(continued)
<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>
Balance, December 31, 1997 29,428,348 $2,943 $24,604,172 $ - $(7,701,347) $16,905,768
Issuance of common stock for
services rendered ($0.57/share) 78,671 8 44,992 - - 45,000
Amortization of deferred guaranty
fee, subject to grant exercise - - 242,862 - - 242,862
Issuance of common stock
for cash ($0.50 per share) 250,000 25 124,975 - - 125,000
Issuance of common stock
for cash ($0.45 per share) 363,333 36 163,464 - - 163,500
Issuance of common stock
for cash ($0.40 per share) 150,000 15 59,985 - - 60,000
Cancellation of common stock
issued for property rights
($2.00 per share) (525,000) (52) (1,049,948) - - (1,050,000)
Net loss - - - - (453,125) (453,125)
- ------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 29,745,352 $2,975 $24,190,502 - $(8,154,472) $16,039,005
</TABLE>
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F/S-5
<PAGE> HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Date of Inception Three months Three months
(May 2, 1990) Ended Ended
through March31,98 March 31,98 March 31,1997
------------------ ------------ --------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (8,154,472) $ (453,125) $ (191,966)
Adjustments to reconcile net loss to net
cash used in operating activities:
Loss on sale of equipment 36,505 - 8,255
Depreciation and depletion 135,723 8,959 4,769
Common stock issued for
public relations fees 200,000 - -
Amortization of deferred guaranty fee 1,011,447 242,862 -
Common stock issued to officers
and directors 86,290 45,000 41,250
Write-off of note receivable 779,921 - -
Changes in operating assets and liabilities:
(Increase) decrease in supplies inventory - - -
(Increase) decrease in prepaid expenses (42,439) 32,675 24,837
(Increase) decrease in other assets (23,994) - -
Increase (decrease) in accounts payable 92,076 (20,192) (49,820)
Increase (decrease) in accrued expenses 140,235 (37,663) (50,939)
--------------------------------------- --------- --------- --------
Net cash used in operating activities (5,738,708) (181,484) (213,614)
- -------------------------------------- ------------ --------- --------
Investing activities:
Proceeds from sale of equipment 27,576 - -
Repayment (Advances) under
notes receivable (1,089,219) - -
Purchase of furniture and equipment (359,720) (407) (10,401)
Additions to mineral properties (9,534,087) (201,273) (235,528)
----------------------------------- -------------- --------- ---------
Net cash used in investing activities (10,955,450) (201,680) (245,929)
- ------------------------------------ --------------- --------- --------
Financing activities:
Borrowings under note payable
to shareholder 73,405 - -
Proceeds from sale of common stock 16,216,475 348,500 -
Proceeds from issuance
of convertible debt 215,170 - -
Proceeds from issuance of long term debt 45,000 - -
Repayment of long-term debt (135,605) (35,329) -
Collection of subscription receivable 249,360 - -
Repurchase and retirement of common stock (36,800) - -
Deposits on common stock - - 1,298,750
Capital contributions 177,243 - -
------------------------------------- ------------ -------- ---------
Net cash provided by financing
activities 16,804,248 313,171 1,298,750
- -------------------------------------- ------------- -------- ---------
Net increase (decrease) in cash 110,090 (69,993) 839,207
Cash and cash equivalent, beginning
of period - 180,083 96,353
- -------------------------------------- ------------- --------- ---------
Cash and cash equivalent, end of period $ 110,090 $ 110,090 $ 935,560
====================================== ============= ========= =========
</TABLE>
F/S-6
<PAGE>
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Date of Inception Three months Three months
(May 2, 1990) Ended Ended
through March 31,98 March 31,1998 March 31,1997
------------------- ------------- -------------
<S> <C> <C> <C>
Supplemental disclosure of
cash flow information:
Cash paid during the year for:
Interest $ 67,049 $ 7,936 $3,623
Income taxes - - -
Supplemental schedule of non-cash
investing and financing activities
Mineral property rights acquired
in exchange for:
Issuance of common stock $ 1,460,000 $ - $ -
Issuance of long-term debt 263,946 - -
Notes receivables 309,298 - -
Fixed assets 66,177 - -
Mineral rights relinquished upon
cancellation of shares issued (1,050,000) (1,050,000) -
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 three-month period ended March 31,
1998 are not necessarily indicative of the results that may be expected for the
full year ending December 31, 1998.
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 March 31, 1998, 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 three months of 1998 totaled $242,862.
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, which was followed by
the merger of Easton-Pacific & Riverside Mining Company into Hanover. The
transaction became effective September 1997. The fair value of the issued
shares of Hanover reflected 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
was accounted for as a purchase, with total cost determined at $4,787,000,
which represented the fair value of the shares of common stock of Hanover plus
direct acquisition costs of $60,612.
[The balance of this page has been intentionally left blank.]
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: May 14, 1998
By: /s/ Wayne Schoonmaker
-------------------
Wayne Schoonmaker, its
Principal Accounting Officer
Date: May 14, 1998
F/S-9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 110,090
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 180,114
<PP&E> 16,581,351<F1>
<DEPRECIATION> 119,317
<TOTAL-ASSETS> 16,666,142
<CURRENT-LIABILITIES> 512,382
<BONDS> 0
0
0
<COMMON> 2,975
<OTHER-SE> 16,036,030<F2>
<TOTAL-LIABILITY-AND-EQUITY> 16,666,142
<SALES> 0
<TOTAL-REVENUES> 6,092<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 208,418
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 250,798
<INCOME-PRETAX> (453,125)
<INCOME-TAX> 0
<INCOME-CONTINUING> (453,125)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (453,125)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
<FN>
<F1>Consists of $16,336,517 in resource properties and claims, and $244,834 in
property and equipment, at cost.
<F2>Consists of 24,190,502 in additional paid-in capital, less a deficit of
$8,154,472 accumulated during the development stage.
<F3>Consists of $804 in interest income and $5,288 in other income.
</FN>
</TABLE>
