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, 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 Identification No.)
of incorporation)
15102 E. Indiana Ave.
Spokane, Washington 99216
(Address of principal executive offices)
Registrant's telephone number, including area code: (509) 891-8817
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 [ ]
HANOVER GOLD COMPANY, INC. QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 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 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 4
SIGNATURES
[The balance of this page has been intentionally left blank.]
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 months period ended September 30, 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 SEPTEMBER 30, 1998.
Nine months Ended September 30, 1998 compared to nine months Ended
September 30, 1997.
During the nine months ended September 30, 1998, the Company generated no
revenue. General and administrative expenses decreased to $583,402 for the
nine months period ended September 30, 1998 as compared to $819,537 for the
nine months period ended September 30, 1997. The decrease is principally
attributed to reduction in consulting / accounting fees and insurance costs
partially offset by increased permit, lease, and payroll costs. For the
nine months ended September 30, 1998, the Company experienced a loss of
$1,349,006, or $0.18 per share, compared to a loss of $1,333,597, or
approximately $0.27 per share, during the comparable period in the previous
year. Included in the 1998 loss was a $688,585 charge representing
amortization of the value of options granted for a guaranty of future
company obligations. The comparable charge in the first nine months of
1997 was $485,724.
Third Quarter 1998
During the third quarter 1998, the company's loss amounted to $453,135;
approximately 47% of which resulted from a charge for depreciation of
$9,041 and amortization charge of $202,861 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, 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 September 30, 1998, those
rental and royalty obligations payable in the remainder of 1998 totaled
approximately $ 771,800. 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 sold 2 million of its
common shares in a public offering pursuant to a registration statement
filed effective with the Securities and Exchange Commission August 15,
1997. The Company sold an additional 2,476,392 shares in a private
placement of its common stock (619,098 shares post recapitalization)
between March 12, 1998 and May 16,1998 and 825,166 shares between August 6,
1998 and October 20, 1998.
As previously reported the shares offered to the public were sold at
between $1.25/share and $0.40/share (pre recapitalization). The shares of
restricted stock were sold to affiliates of the Company and members of the
Degerstrom group at $0.40/share (39,000 shares
- 1 -
pre recapitalization; 9,750 shares at $1.60 per share post
recapitalization), $0.45/share (363,333 shares pre recapitalization; 90,834
shares at $1.80 per share post recapitalization), and $0.53/share (874,056
shares pre recapitalization; 218,514 at $2.12 per share post
recapitalization). The Company sold 300,000 shares at $1.00 per share in
May 1998 and 825,166 shares between $0.375 and $0.72 per share to members
of the Degerstrom group and affiliates of the Company from Aug 6 to October
20, 1998. The declining prices at which the Company has been able to sell
its shares has corresponded with the 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. Although market prices for the
Company's stock tend to fluctuate they have overall declined from $1.25 per
share at May 6, 1997 (pre-recapitalization) to $0.375 per share at November
9, 1998, largely as a consequence of the significant drop in world gold
prices.
As was previously reported, Nasdaq implemented new criteria requiring all
companies with shares listed on the Nasdaq SmallCap Market to maintain a
$1.00 bid price. As a result of the implementation the Company was notified
by Nasdaq, February 27, 1998, that it was not in compliance with the new
minimum bid price requirement and that the Company had 90 days in which to
regain compliance. On March 12, 1998, the Board of Directors adopted a plan
of recapitalization to split 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. Although the bid price for
the Company's stock rose above Nasdaq's threshold for a period of time, the
bid price slipped below $1.00 July 10, 1998 and steadily declined
thereafter. The Company has been notified by Nasdaq that it is now deemed
to be non-compliant with the bid price requirement and that it will be
delisted November 25, 1998 subject to the outcome of any appeal the Company
may file. No assurance can be given that the Company will regain
compliance or that the Company will not be delisted from the Nasdaq
SmallCap Market. The highest bid price for the Company's stock post
recapitalization was $1.6875 at May 21, 1998 and the lowest bid price was
$0.375 at October 7, 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 or other
purposes.
The Company expects to meet the balance of its 1998 working capital
obligations using existing funds, and funds from the sale of its common
stock to affiliates and members of the Degerstrom Group. Due to the
declining price for the Company's stock, the expiration of the Degerstrom
guaranty in September 1998, and the Company's inability to acquire a joint
venture partner, the Company can give no assurance that it will be able to
finance its obligations post 1998. 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 $9,050,353 from its inception through September 30,
1998. Unless the Company is able to continue selling shares of its common
stock to members of the Degerstrom Group and affiliates of the Company, it
will continue to experience a shortage of working capital.
As previously reported, nearly all of the Company's Alder Gulch claims are
leased claims coupled with options to purchase. The Company does not own
these claims outright, but instead pays rentals and royalties to the
underlying landowner-lessors for the right to conduct mining activities.
The Company elected not to pay rentals and royalties of $233,800 (September
1, 1998) and $518,000 (October 1, 1998) to three landowner-lessors of the
Alder Gulch mining claims pending the outcome of Montana's initiative 137.
On November 3, 1998 I-137 was passed into law. Its passage bans new or
expanded open pit gold mines from using cyanide in their processes. Since
cyanide is a critical component in the low cost processing of gold ore,
management is of the opinion that the banning of cyanide eliminates the
Company's ability to ever negotiate a joint venture and put it's properties
into production. Having failed to make its rental and royalty payments the
Company received 30 day default notices for each of the payments withheld
under the three Alder Gulch leases. Although the Company was provided, in
each instance, 30 days in which to pay the delinquent rentals and royalties
and thereby cure the defaults, the Company declined to make such payments.
As a result the leases have reverted to the landowner-lessors and the
Company will take a write down, for an amount yet to be determined, against
its assets in the fourth quarter. Despite the loss of the leases the
Company is continuing to negotiate with two of the landowner-lessors of the
Alder Gulch claims to reinstate and restructure the leases on terms more
favorable to the Company. Unless the Company is successful in reacquiring
the Alder Gulch claims it will concentrate its exploration activities on
its Easton Pacific claims. Whether the Company is or is not successful in
reinstating and restructuring the leases, significant additional work must
be undertaken to determine whether the Company's properties will support
commercial mining operations. The Company's 1998 drilling program has been
conducted in part by N. A. Degerstrom Inc., a company owned and operated by
an affiliate of the Company. One half of the cost of the drilling will be
paid for with shares of the Company's common stock valued at the average
monthly closing market price of the stock for the month the Company is
billed. The costs incurred for drilling through October total $405,000.
At September 30, 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.
-2-
Unless there is a significant increase in the price for gold and unless I-
137 is reversed and the Company is able to reacquire the Alder Gulch claims
under more favorable conditions, management does not believe that it will
be able to negotiate a joint venture or other financing to conduct
exploration and development activities on the Company's properties. 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 $276.30/oz August 27, 1998. At November 9, 1998 the price of gold
was $292.40/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 only 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 nine months ended September 30, 1998 were as follows:
During the nine months ended September 30, 1998, the Company's cash
position decreased $ 137,000, to $ 43,000. During the nine-month period,
the Company used $706,000 in operating activities, primarily as a result of
the reported $ 1,349,000 net loss. Investing activities used $ 754,000,
due to that amount in expenditures related to the Company's mineral
properties. During the period, the Company received $ 1,336,570 from the
sale of 1,067,847 common shares (post recapitalization).
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None
As previously reported the US District Court for the Eastern District of
Washington in effect rescinded the Tabor Asset Purchase Agreement by
dismissing the Company's action against Tabor for breach of contract and
injunctive relief and by dismissing Tabor's counter claims against the
Company. As a consequence, all the shares of the Company's common stock
issued to Tabor, as consideration for the purchase, 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. The Company sold
208,500 shares of its common stock for $0.72 per share in August 1998,
150,000 shares at $0.50 per share in September 1998 and 466,666 shares at
$0.375 per share in October 1998 to members of the Degerstrom Group and
other affiliate of the Company pursuant to an exemption from registration
under Section 4(2) of the Securities Act of 1933 as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The registrant has no outstanding senior securities.
-3-
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.
[The balance of this page has been intentionally left blank.]
-4-
HANOVER GOLD COMPANY, INC.
TABLE OF CONTENTS
Page
-----
- -
Condensed Balance Sheets as of September 30, 1998
and December 31, 1997 F/S-2
Condensed Statements of Operations for the nine months Ended
September 30, 1998 and 1997, and for the period from inception
(May 2, 1990) to September 30, 1998 F/S-3
Condensed Statements of Changes in Stockholders' Equity
for the period from inception (May 2, 1990) to September 30,
1998 F/S-4
Condensed Statements of Cash Flow for the nine months Ended
September 30, 1998 and for the period from inception (May 2,
1990) to September 30, 1998 F/S-6
Notes to Condensed Interim Financial Statements F/S-8
Signatures F/S-10
[The balance of this page has been intentionally left blank.]
F/S-1
HANOVER GOLD COMPANY, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
1998 1997
(Unaudited) (Restated-Note 2)
------------ -------------
<S> <C> <C>
Current assets:
Cash $ 42,713 $ 180,083
Prepaid expenses and other current assets 100,210 102,699
------ -------
Total current assets 142,923 282,782
------ -------
Resource properties and claims:
Exploration, engineering and site
development 2,403,696 2,390,258
Mining properties 14,481,643 14,794,986
-------- --------
Total resource properties and claims 16,885,339 17,185,244
--------- ---------
Property and equipment, at cost 248,142 244,427
Less accumulated depreciation 137,483 110,358
------- -------
Net property and plant and equipment 110,659 134,069
------- --------
Other assets 37,755 23,994
-------- --------
Total assets $17,176,676 $ 17,626,089
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,345 $ 40,887
Notes payable to shareholders 320,160 320,405
Accrued payroll & Payroll taxes 19,148 58,803
Other Accrued expenses 37,646 74,008
Current Portion of long-term debt 122,217 77,703
------- -------
Total current liabilities 509,516 571,806
Long-term debt, less current portion 90,243 148,515
------- -------
Total liabilities $ 599,759 $ 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
7,954,965 and 7,357,087
shares respectively 831 736
Additional paid-in capital 25,626,439 24,606,379
Deficit accumulated during the
development stage (9,050,353) (7,701,347)
---------- ----------
Total Stockholders equity 16,576,917 16,905,768
---------- ----------
Total liabilities and
stockholders' equity $17,176,676 $17,626,089
========== ==========
</TABLE>
F/S-2
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF INCOME (LOSS)
(UNAUDITED)
<TABLE>
<CAPTION>
Date of Inception Quarter Nine months Quarter Nine months
(May 2, 1990) Ended Ended Ended Ended
through Sept 30,98 Sept 30,98 Sept 30,98 Sept 30,97 Sept 30,97
----------------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Revenue $ 1,151,958 $ 0 $ 0 $ 0 $ 0
Operating expenses:
Cost of goods mined 1,987,483 0 0 0 0
Depreciation and amortization 153,889 9,041 27,125 6,939 19,550
Provision for bad debt 779,921 0 0 0 0
General and administrative
expenses 5,770,815 203,304 583,402 396,224 819,537
--------- ------- ------- ------- -------
Total operating expenses 8,692,108 212,345 610,527 403,163 839,087
- ----------------------------- --------- ------- ------- ------- -------
Operating loss (7,540,150) (212,345) (610,527) (403,163) (839,087)
Other Income (expense):
Amortization of Guaranty Fee (1,457,170) (202,861) (688,585) (242,862) (485,724)
Interest and other
(expense) net (17,749) (37,929) (49,894) (8,414) (3,338)
Gain (Loss) on disposition
of assets (35,284) 0 0 7,000 (5,448)
--------- -------- -------- -------- --------
Total other income (expense) (1,510,203) (240,790) (738,479) (244,276) (494,510)
---------- -------- -------- -------- --------
Net loss ($9,050,353) (453,135)($1,349,006) ($647,439)($1,333,597)
============ ========= =========== ========= ===========
Net loss per share<F1> ($0.06) ($0.18) ($0.13) ($0.27)
Weighted average common
shares outstanding<F1> 8,061,008 7,646,314 5,047,247 4,995,072
- ------------------------------
<FN>
<F1> Restated - Note 2
</FN>
</TABLE>
F/S-3
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION (MAY 2, 1990) THROUGH SEPTEMBER 30, 1998
Restated - Note 2
<TABLE>
Deficit
Accumulated
Common Stock Additional During the
------------------ Paid in Subscriptn Development
Shares Amount Capital Receivable Stage Total
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for cash ($2.12 per share) 188,141 $ 19 $402,481 $ - $ - $ 402,500
Issuance of common stock
for cash ($0.28 per share) 21,562 2 6,016 - - 6,018
Cash contributed to capital - - 5,000 - - 5,000
Net loss - - - - (141,114) (141,114)
- ------------------------------------------------------------------------------------------------
BALANCE, December 31, 1990 209,703 21 413,497 - (141,114) 272,404
Issuance of common stock to
directors ($0.0004/share) 50,000 5 15 - - 20
Issuance of common stock for claims
and Engineering costs
($10.00 per share) 57,252 6 572,513 - - 572,519
Issuance of common stock
for cash ($0.24 per share) 739,377 74 166,596 - - 166,670
Issuance of common stock
for cash ($1.68 per share) 67,146 6 113,744 - - 113,750
Exercise of stock purchase
warrants ($2.40 per share) 18,600 2 44,638 - - 44,640
Exercise of stock purchase
warrants ($5.00 per share) 27,875 3 139,371 - - 139,374
Cash contributed to capital - - 73,850 - - 73,850
Net loss - - - - (179,866) (179,866)
- ------------------------------------------------------------------------------------------------
BALANCE, December 31, 1991 1,169,953 117 1,524,224 - (320,980) 1,203,361
Issuance of common stock
for cash ($8.00 per share) 178,125 18 1,424,982 - - 1,425,000
Issuance of common stock
for cash ($0.72 per share) 54,634 5 39,995 - - 40,000
Exercise of stock purchase
warrants ($5.00 per share) 10,400 1 51,999 - - 52,000
Net loss - - - - (314,878) (314,878)
- ------------------------------------------------------------------------------------------------
BALANCE, December 31, 1992 1,413,112 141 3,041,200 - (635,858) 2,405,483
Issuance of common stock for
interest in mineral Property
($6.00 per share) 37,500 4 224,996 - - 225,000
Issuance of common stock to
officer ($0.04 per share) 31,791 3 747 - - 750
Exercise of stock purchase
warrants ($6.40 per share) 765,426 77 4,750,141 (649,360) - 4,100,858
Net loss - - - - (256,769) (256,769)
- ------------------------------------------------------------------------------------------------
BALANCE, December 31, 1993 2,247,329 225 8,017,084 (649,360) (892,627) 6,475,322
Exercise of stock purchase
warrants ($6.40/share) 332,224 33 2,126,202 - - 2,126,235
Cancellation of subscribed
shares ($6.40 per share) (62,500) (6) (399,994) 400,000 - -
Cash contributed to capital - - 98,393 - - 98,393
Net loss - - - -(1,362,954)(1,362,954)
- ------------------------------------------------------------------------------------------------
BALANCE, December 31, 1994
(Restated) 2,517,553 $252 $9,841,685 $(249,360)$(2,255,581)$7,336,996
Issuance of common stock
for cash ($1.40 per share) 535,714 53 749,947 - - 750,000
Issuance of common stock
for cash ($1.40 per share) 178,571 18 249,982 - - 250,000
Issuance of common stock
for cash ($4.00 per share) 50,000 5 199,995 - - 200,000
Issuance of common stock in
satisfaction of vendor
obligations ($4.24 per share) 17,420 2 74,094 - - 74,096
Issuance of common stock in
satisfaction of vendor
obligations ($4.00 per share) 50,000 5 199,995 - - 200,000
Issuance of common stock
for cash ($4.00 per share) 250,000 25 999,975 - - 1,000,000
Issuance of common stock to officer 49,459 5 15 - - 20
Issuance of common stock pursuant
to Convertible debt 337,074 34 281,414 - - 281,448
Cash received for subscribed shares - - - 249,360 - 249,360
Repurchase of previously issued
shares ($6.40 per share) (5,750) (1) (36,799) - - (36,800)
Net loss - - - -(2,329,190)(2,329,190)
- ------------------------------------------------------------------------------------------------
BALANCE, December 31, 1995 3,980,041 $398 $12,560,303 $ -$(4,584,771)$7,975,930
Issuance of common stock for mineral
property rights ($16.00 per share) 1,250 - 20,000 - - 20,000
Issuance of common stock for mineral
property rights ($8.00 per share) 131,250 13 1,049,987 - - 1,050,000
Issuance of common stock for mineral
property rights ($6.24 per share) 62,500 6 389,994 - - 390,000
Issuance of common stock for cash
($2.00 per share) 535,715 54 1,071,375 - - 1,071,429
Issuance of common stock for cash
net of issuance costs of $70,000
($5.00 per share) 250,000 25 1,179,975 - - 1,180,000
Net loss - - - -(1,328,327)(1,328,327)
- -------------------------------------------------------------------------------------------------
BALANCE, December 31, 1996 4,960,756 $496 $16,271,634 $ -$(5,913,098)$10,359,032
</TABLE>
F/S-4
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION (MAY 2, 1990) THROUGH SEPTEMBER 30, 1998
RESTATED - NOTE 2 (CONTINUED)
<TABLE>
Deficit
Accumulated
Common Stock Additional During the
------------------ Paid in Subscriptn Development
Shares Amount Capital Receivable Stage Total
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1996 4,960,756 $496 $16,271,634 $ -$(5,913,098)$10,359,032
Issuance of common stock for services
rendered ($3.80 per share) 10,855 1 41,249 - - 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 ($5.00 per share) 284,750 28 1,423,722 - - 1,423,750
Issuance of common stock for
acquisition of Easton-Pacific 1,750,000 175 4,726,225 - - 4,726,400
Issuance of common stock
for cash ($2.00 per share) 125,000 13 249,989 - - 250,000
Issuance of common stock
for cash ($5.00 per share) 225,000 23 1,124,977 - - 1,125,000
Issuance of common stock for
Mineral property rights 726 - - - - -
Net loss - - - -(1,333,597)(1,333,597)
- ------------------------------------------------------------------------------------------------
BALANCE, December 31, 1997 7,357,087 736 24,606,379 -(7,701,347) 16,905,768
Issuance of common stock for services
rendered ($2.28 per share) 19,668 2 44,998 - - 45,000
Amortization of deferred guaranty
fee, subject to grant exercise - - 485,724 - - 485,724
Issuance of common stock
for cash ($2.00 per share) 65,000 6 129,993 - - 130,000
Issuance of common stock
for cash ($1.80 per share) 90,833 9 163,491 - - 163,500
Issuance of common stock
for cash ($1.60 per share) 37,500 4 59,996 - - 60,000
Cancellation of common stock
issued for property rights
($8.00 per share) (131,250) (13) (1,049,987) - -(1,050,000)
Issuance of common stock
for cash ($2.12 per share) 216,014 21 457,929 - - 457,950
Issuance of common stock
for cash ($1.00 per share) 300,000 30 299,970 - - 300,000
Fractional shares issued in
recapitalization 113 - - - - -
Issuance of common stock
for cash ($0.72 per share) 208,500 21 150,099 - - 150,120
Issuance of common stock
for cash ($0.50 per share) 150,000 15 74,985 - - 75,000
Net loss - - - -(1,349,006)(1,349,006)
- -------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30,1998 8,313,465 $831 $25,423,578 -$(9,050,353)$16,374,056
</TABLE>
F/S-5
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
Date of Inception Nine months Nine months
(May 2, 1990) Ended Ended
through Sept 30,98 Sept 30, 1998 Sept 30, 1997
------------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net loss $(9,050,353) $(1,349,006) $(1,333,597)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on sale of equipment 36,505 - 12,586
Depreciation and depletion 153,889 27,125 19,550
Common stock issued for public relations fees 200,000 - -
Amortization of deferred guaranty fee 1,457,170 688,585 485,724
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 - - 2,280
(Increase) decrease in prepaid expenses (72,625) 2,489 (2,392)
(Increase) decrease in other assets (37,755) (13,761) -
Increase (decrease) in accounts payable 81,726 (30,542) (66,294)
Increase (decrease) in accrued expenses 101,881 (76,017) (43,353)
--------------------------------------- ---------- -------- --------
Net cash used in operating activities (6,263,351) (706,127) (884,246)
- ----------------------------------------- ----------- --------- ---------
Investing activities:
Proceeds from sale of equipment 27,576 - 3,082
Repayment (Advances) under notes receivable (1,089,219) - -
Purchase of furniture and equipment (363,028) (3,715) (88,441)
Additions to mineral properties (10,082,909) (750,095) (1,422,540)
--------------------------------------- ----------- -------- ----------
Net cash used in investing activities (11,507,580) (753,810) (1,507,899)
- ----------------------------------------- ------------ --------- -----------
Financing activities:
Borrowings under note payable to shareholder 73,160 (245) -
Proceeds from sale of common stock 17,204,545 1,336,570 1,423,750
Proceeds from issuance of convertible debt 215,170 - -
Proceeds from issuance of long term debt 97,228 52,228 -
Repayment of long-term debt (166,262) (65,986) 309,228
Collection of subscription receivable 249,360 - -
Repurchase and retirement of common stock (36,800) - -
Deposits on common stock - - 750,000
Capital contributions 177,243 - -
Net cash provided by financing activities 17,813,644 1,322,567 2,482,978
- ----------------------------------------- ---------- --------- ---------
Net increase (decrease) in cash 42,713 (137,370) 90,833
Cash and cash equivalent, beginning of period - 180,083 96,353
- --------------------------------------------- --------- -------- -------
Cash and cash equivalent, end of period $ 42,713 $ 42,713 $ 187,186
============================================= ========= ========= ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 89,008 $ 29,895 $ 9,122
Income taxes - - -
</TABLE>
F/S-6
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
(continued)
<TABLE>
Date of Inception Nine months Nine months
(May 2, 1990) Ended Ended
through Sept 30,98 Sept 30, 1998 Sept 30, 1997
------------------- ------------- -------------
<S> <C> <C> <C>
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
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 at September 30, 1998 have been
included. Operating results for the nine-month period ended
September 30, 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 September 30,
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 has been amortized to expense over the
guaranty period. The amount of expense recorded in the first
nine months of 1998 totaled $688,585 and completed amortization
of the total value of the options.
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.
On May 5, 1998 the shareholders of the Company approved a Plan
of Recapitalization to reduce the number of issued and
outstanding shares of the Company's common stock on the basis of
one-fourth share for each share of common stock (a 1-for-4
reverse stock split). As a result of this action, the financial
statements for prior periods have been restated to reflect the
reduced number of shares.
F/S-8
3. Property:
Nearly all of the Company's Alder Gulch claims are leased claims
coupled with options to purchase. The Company does not own these
claims outright, but instead pays rentals and royalties to the
underlying landowner-lessors for the right to conduct mining
activities. The Company elected not to pay rentals and royalties
of $233,800 (September 1, 1998) and $518,000 (October 1, 1998) to
three landowner-lessors of the Alder Gulch mining claims pending
the outcome of Montana's Initiative 137. On November 3, 1998 I-
137 was passed into law. Its passage bans new or expanded open
pit gold mines from using cyanide in their processes. Since
cyanide is a critical component in the low cost processing of
gold ore, management is of the opinion that the banning of
cyanide eliminates the Company's ability to ever negotiate a
joint venture and put it's properties into production. Having
failed to make its rental and royalty payments the Company
received 30 day default notices for each of the payments withheld
under the three Alder Gulch leases. Although the Company was
provided, in each instance, 30 days in which to pay the
delinquent rentals and royalties and thereby cure the defaults,
the Company declined to make such payments. As a result,
subsequent to September 30, 1998, the leases reverted to the
landowner-lessors and the Company will take a write down, the
amount of which is yet to be determined, against its assets in
the fourth quarter.
[The balance of this page has been intentionally left blank.]
F/S - 9
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/ Raymond A. Hanson
----------------------
Raymond A. Hanson, its
President
Date: November 10, 1998
By: /s/ Wayne Schoonmaker
----------------------
Wayne Schoonmaker, its
Principal Accounting Officer
Date: November 10, 1998
F/S-10
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 42,713
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 142,923
<PP&E> 17,133,481<F1>
<DEPRECIATION> 137,483
<TOTAL-ASSETS> 17,176,676
<CURRENT-LIABILITIES> 509,516
<BONDS> 0
0
0
<COMMON> 831
<OTHER-SE> 16,576,081<F2>
<TOTAL-LIABILITY-AND-EQUITY> 17,176,676
<SALES> 0
<TOTAL-REVENUES> 7,901<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 610,527
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 718,480
<INCOME-PRETAX> (1,349,006)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,349,006)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,349,006)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.16)
<FN>
<F1>Consists of $16,885,339 in resource properties and claims, and $248,142
in property and equipment, at cost.
<F2>Consists of $25,626,439 in additional paid-in capital, less a deficit of
$9,050,353 accumulated during the delopment stage.
<F3>Consists of $2,613 in interest income and $5,288 in other income.
</FN>
</TABLE>
