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 June 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)
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 [ ]
HANOVER GOLD COMPANY, INC. QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JUNE 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 4
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.]
<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 six-month period ended June 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 JUNE 30, 1998.
Six months Ended June 30, 1998 Compared to six months Ended June 30, 1997.
During the six months ended June 30, 1998, the Company generated no
revenue. General and administrative expenses decreased to $380,098 for the
six-month period ended June 30, 1998 as compared to $415,224 for the six-
month period ended June 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 six months
ended June 30, 1998, the Company experienced a loss of $895,871, or $0.12
per share, compared to a loss of $686,057, or approximately $0.14 per
share, during the comparable period in the previous year. Included in the
1998 loss was a $485,724 charge representing amortization of the value of
options granted for a guaranty of future company obligations. The
comparable charge in the first six months of 1997 was $242,862.
Second Quarter 1998
During the second quarter 1998, the company's loss amounted to $442,746;
approximately 57% of which resulted from a charge for depreciation of
$9,125 and amortization 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 June 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 June 30, 1998, those
rental and royalty obligations payable in the remainder of 1998 totaled
approximately $ 679,000. 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 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.
-1-
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 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). 800,000 additional
shares of common stock were sold to members of the Degerstrom group for
$1.00/share post recapitalization. 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. Market
prices for the Company's stock declined from $1.25 per share at May 6, 1997
($5.00 post recapitalization) to $0.5625 per share (post recapitalization)
at August 3, 1998, largely as a consequence of the significant drop in
world gold prices.
As was previously reported, Nasdaq implemented new criteria requiring all
Nasdaq SmallCap Market listed stocks to maintain a $1.00 bid price for
their shares. 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 or be issued a delisting letter. 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. Of the 25,381,877 shares that voted in person or by proxy,
19,176,286 voted in favor of the plan. Although the Company has been
notified by Nasdaq that it is deemed to be in compliance with the bid price
requirement, no assurance can be given that the Company will remain
compliant. The highest bid price for the Company's stock post
recapitalization was $1.6875 at May 21, 1998 and the lowest bid price was $
0.5625 at August 3, 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 1998 obligations using existing funds,
funds from the sale of its common stock, and funds available under the
guaranty given by Neal A. Degerstrom. As previously reported $1,125,000 has
been paid under the guaranty to satisfy landowner obligations. 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 $ 8,597,218 from its inception through June 30, 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. As previously reported, the Company completed
the consolidation of the greater Virginia City Mining District in September
1997 when it acquired the Easton-Pacific and Riverside Mining Company
("EPR&M") claims through its merger with EPR&M. In April of 1998 pursuant
to a stipulation of dismissal by the parties, the United States Court for
the Eastern District of the State of Washington effectively rescinded the
Company's purchase agreement with Tabor Resources, the result of which
terminated all of the Company's rights in the Tabor claims. Primarily
because of their location in the district the Company does not believe that
the loss of the Tabor claims will impair the Company's ability to negotiate
a joint venture or other economic arrangement to explore and develop the
Company's properties. Although the Company has been able to conduct
exploration and limited development activities on its 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 is presently conducting exploration
drilling at certain targets identified as a result of having completed an
airborne geophysical survey of the Virginia City district in 1997. N. A.
Degerstrom Inc., owned and operated by Neal A. Degerstrom, an affiliate of
the Company, was awarded the drilling contract, in part due to a
willingness to take shares of the Company's common stock for one half the
cost of the contract. The shares will be valued based on the average
monthly closing market price of the stock for the month for which the
Company is billed. To accelerate the drilling program, the Company intends
to engage an independent drilling contractor to provide an additional
drill. At June 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-
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 only be made if the price for gold increases substantially
and arrangements can be made to significantly 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 July 10, 1998
the price of gold was $290.60/oz. An initiative, I-137, has been introduced
in the state of Montana which, if passed, will prevent companies not
already using cyanide in their operations from using the chemical in open
pit mining.. The initiative will be placed on the state's November ballot.
If the initiative should pass management believes it will be extremely
difficult to negotiate any kind of an agreement with a mining company to
participate in the exploration and development of its properties.
Although the Company's operations are subject to general inflationary
pressures, these pressures have not had a significant effect on operations,
particularly since early 1995 when mining and processing operations were
suspended for lack of funds. If the Company resumes 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 six months ended June 30, 1998 were as follows: During
the six months ended June 30, 1998, the Company's cash position decreased $
23,000, to $ 157,000. During the six-month period, the Company used $
391,000 in operating activities, primarily as a result of the reported $
895,871 net loss. Investing activities used $ 692,000, due to that amount
in expenditures related to the Company's mineral properties. During the
period, the Company received $ 1,111,450 from the sale of 709,347 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. Subsequently the Company cancelled all the shares of its common
stock issued and outstanding in the name of Tabor.
ITEM 2. CHANGES IN SECURITIES.
Neither the constituent instruments defining the rights of the registrant's
securities holders nor the rights evidenced by the registrant's outstanding
common stock have been modified, limited or qualified. Between March 12,
1998 and May 16, 1998 the Company sold 363,333 shares of its common stock
for $0.45/share, 39,000 shares of its common stock for $0.40/share, and
874,056 shares for $0.53/share pre recapitalization (post recapitalization
90,834 shares for $1.80/share, 9,750 shares for $1.60/share, and 218,514
shares for $2.12/share). On May 26, 1998 the Company sold 300,000 shares
of its common stock for $1.00/share post recapitalization. The sales were
made to members of the Degerstrom Group and other affiliate of the Company
in reliance on Section 4(2) of the Securities Act of 1933 as amended.
-3-
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 their annual meeting held May 5, 1998 the shareholders of the Company
approved a plan of recapitalization pursuant to which each issued and
outstanding share of common stock of the Company would be exchanged
automatically, and without any further action on the part of the holder, in
a tax free exchange, for one-fourth share of common stock. Holders of
fractional shares were to receive one whole share for their fractional
interest. The holders of 19,176,286 shares of common stock voted for the
plan, while the holders of 6,190,475 shares voted against the plan and
15,116 abstained from voting. At the same annual meeting the shareholders
approved an amendment to the Company's 1995 Stock Plan removing limitations
on the aggregate number of options that can be granted to directors and on
the number of options that can be granted to any one individual. Holders of
20,288,944 shares voted in favor of the amendment while holders of
5,007,533 shares voted against the amendment and holders of 85,400 shares
abstained from voting. The shareholders elected Neal A. Degerstrom, James
A. Fish, Laurence Steinbaum, Tim Babcock, Robinson Bosworth III, and Karl
E. Elers to continue as directors 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 -
23,759,759 for and 1,398,923 withheld; Mr. Fish - 20,943,587 for and
4,215,095 withheld; Mr. Steinbaum - 21,024,152 for and 4,134,530 withheld;
Mr. Babcock - 23,786,426 for and 1,372,256 withheld; Mr. Bosworth -
23,762,259 for and 1,396,423 withheld; Mr. Elers - 24,287,082 for and
871,600 withheld. The shareholders also voted to appoint BDO Seidman, LLP
to act as the Company's auditors for the year ending December 31, 1998.
Holders of 21,952,345 shares of common stock voted in favor of the
appointment, while holders of 3,014,512 shares voted against the
appointment, and 415,020 shares 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 10.17 Degerstrom Drilling Proposal.
Exhibit 27.0 Financial Data Schedule
REPORTS ON FORM 8-K. A report on Form 8-K disclosing the shareholder's
approval of a plan of recapitalization to split the
Company's common stock one for four was filed by the
registrant on May 7, 1998.
[The balance of this page has been intentionally left blank.]
-4-
HANOVER GOLD COMPANY, INC.
TABLE OF CONTENTS
Page
-----
Condensed Balance Sheets as of June 30, 1998
and December 31, 1997 F/S-2
Condensed Statements of Operations for the six months Ended
June 30, 1998 and 1997, and for the period from inception
(May 2, 1990) to June 30, 1998 F/S-3
Condensed Statements of Changes in Stockholders' Equity
for the period from inception (May 2, 1990)
to June 30, 1998 F/S-4
Condensed Statements of Cash Flow for the six Months Ended
June 30, 1998 and for the period from inception
(May 2, 1990) to June 30, 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
<TABLE>
<CAPTION>
ASSETS
June 30, 1998 December 31,1997
(Unaudited) (Restated-Note 2)
------------ ------------
<S> <C> <C>
Current assets:
Cash $ 157,252 $ 180,083
Prepaid expenses and other current assets 33,082 102,699
--------- ----------
Total current assets 190,334 282,782
--------- ----------
Resource properties and claims:
Exploration, engineering and site
development 2,390,258 2,390,258
Mining properties 14,433,659 14,794,986
---------- ----------
Total resource properties and claims 16,823,917 17,185,244
---------- ----------
Property and equipment, at cost 248,142 244,427
Less accumulated depreciation 128,441 110,358
------- ----------
Net property and plant and equipment 119,701 134,069
------- ----------
Other assets 23,994 23,994
---------- ----------
Total assets $17,157,946 $ 17,626,089
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 11,603 $ 40,887
Notes payable to shareholders 320,160 320,405
Accrued payroll & Payroll taxes 18,376 58,803
Other Accrued expenses 30,176 74,008
Current Portion of long-term debt 74,565 77,703
-------- --------
Total current liabilities 454,880 571,806
Long-term debt, less current portion 100,996 148,515
--------- ---------
Total liabilities $ 555,876 $ 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 795 736
Additional paid-in capital 25,198,493 24,606,379
Deficit accumulated during the
development stage (8,597,218) (7,701,347)
------------ -----------
Total Stockholders equity 16,602,070 16,905,768
------------ ----------
Total liabilities and
stockholders' equity $17,157,946 $ 17,626,089
============ ===========
</TABLE>
F/S-2
<PAGE>
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Date of Inception Quarter Six months Quarter Six months
(May 2, 1990) Ended Ended Ended Ended
through June 30,98 June 30,1998 June 30,98 June 30,97 June 30, 1997
---------------- ----------- ----------- ---------- -----------
<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 144,848 9,125 18,084 7,842 12,611
Provision for bad debt 779,921 0 0 0 0
General and administrative
expenses 5,567,511 180,639 380,098 242,629 415,224
--------- ------- --------- --------- ---------
Total operating expenses 8,479,763 189,764 (398,182) (250,471) (427,835)
- ------------------------ ----------- --------- --------- --------- ---------
OPERATING LOSS (7,327,805) (189,764) (485,724) (242,862) (242,862)
OTHER INCOME (EXPENSE):
Amortization of Guaranty Fee (1,254,309) (242,862) (485,724) (242,862) (242,862)
Interest and other
(expense) net 20,180 (10,120) (11,965) 3,435 (2,912)
Gain (Loss) on disposition
of assets (35,284) 0 0 (4,193) (12,448)
------------ ----------- ----------- ---------- ----------
Total other income (expense) (1,269,413) (252,982) (497,689) (243,620) (258,222)
- ---------------------------- ------------ ----------- ----------- ---------- ----------
Net loss ($8,154,472) (442,746) ($895,871) ($494,091) ($686,057)
===================== ============ =========== =========== ========== ==========
Net loss per share <F1> ($0.06) ($0.12) ($0.10) ($0.14)
Weighted average common
shares outstanding <F1> 7,470,595 7,434,358 4,971,611 4,968,552
____________________
<FN>
<F1> Restated - Note 2
</FN>
</TABLE>
F/S-3
<PAGE>
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
From the Date of Inception (May 2, 1990) through June 30, 1998
Restated - Note 2
<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 ($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
</TABLE>
F/S-4
<PAGE>
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION (MAY 2, 1990) THROUGH JUNE 30, 1998
RESTATED - NOTE 2 (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 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
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 - - - - -
Net loss - - - - (895,871) (895,871)
- ------------------------------ ---------- ---- ----------- -------- ------------ -----------
BALANCE, June 30, 1998 7,954,965 $795 $25,198,494 - $(8,597,218) $16,602,071
</TABLE>
F/S-5
<PAGE>
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Date of Inception Six months Six months
(May 2, 1990) Ended Ended
through June 30, 1998 June 30, 1998 June 30, 1997
--------------------- ------------- ------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (8,597,218) $ (895,871) $ (686,057)
Adjustments to reconcile net
loss to net cash
used in operating activities:
Loss on sale of equipment 36,505 - 12,448
Depreciation and depletion 144,848 18,084 12,611
Common stock issued for
public relations fees 200,000 - -
Amortization of deferred guaranty fee 1,254,309 485,724 242,862
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 (5,497) 69,617 45,044
(Increase) decrease in other assets (23,994) - -
Increase (decrease) in accounts payable 82,984 (29,284) (69,895)
Increase (decrease) in accrued expenses 93,637 (84,261) (41,870)
- --------------------------------------- --------- --------- --------
Net cash used in operating activities (5,948,215) (390,991) (443,607)
- --------------------------------------- ---------- --------- --------
Investing activities:
Proceeds from sale of equipment 27,576 - 300
Repayment (Advances) under notes
receivable (1,089,219) - -
Purchase of furniture and equipment (363,028) (3,715) (27,898)
Additions to mineral properties (10,021,487) (688,673) (889,782)
- --------------------------------------- ---------- --------- --------
Net cash used in investing activities (11,446,158) (692,388) (917,380)
- --------------------------------------- ----------- --------- --------
Financing activities:
Borrowings under note
payable to shareholder 73,160 (245) -
Proceeds from sale of common stock 16,979,425 1,111,450 -
Proceeds from issuance of
convertible debt 215,170 - -
Proceeds from issuance of long term debt 45,000 - -
Repayment of long-term debt (150,933) (50,657) (20,592)
Collection of subscription receivable 249,360 - -
Repurchase and retirement of common stock (36,800) - -
Deposits on common stock - - 1,423,750
Capital contributions 177,243 - -
- --------------------------------------- ------------ ---------- ---------
Net cash provided by financing activities 17,551,625 1,060,548 1,403,158
- --------------------------------------- ------------ ---------- ---------
Net increase (decrease) in cash 157,252 (22,831) 42,171
Cash and cash equivalent, beginning
of period - 180,083 96,353
- --------------------------------------- ------------- ---------- ---------
Cash and cash equivalent, end of period $ 157,252 $ 157,252 $ 138,524
======================================= ============ =========== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 78,183 $ 19,070 $ 8,088
Income taxes - - -
</TABLE>
F/S-6
<PAGE>
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Date of Inception Six months Six months
(May 2, 1990)through Ended Ended
June 30,1998 June 30,1998 June 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
<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 six-month
period ended June 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 June 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 will be amortized to expense
over the guaranty period. The amount of expense recorded in the first
six months of 1998 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, 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
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: August 6, 1998
By: /s/ Wayne Schoonmaker
-------------------------------
Wayne Schoonmaker, its
Principal Accounting Officer
Date: August 6, 1998
F/S-9
EXHIBIT 10.17
CORE DRILLING PROPOSAL
A. ADMINISTRATIVE INFORMATION:
1. HANOVER GOLD CO., hereinafter referred to as the
Company.
2. N. A. Degerstrom, Inc., hereinafter referred to as the
Contractor.
3. Date of Proposal: May 01, 1998.
4. Location State: MONTANA near: VIRGINIA CITY.
5. Project Name: HANOVER GOLD
B. SCHEDULE OF RATES:
1. Mob - De - Mob
a) Total cost of mobilizing one Drill and all support
equipment to a staging area near job site on date agreed
upon by Contractor and Company will be invoiced at the lump
sum of $2,000.00
b) De-Mob of equipment: No charge.
2. CORE DRILLING RATES:
a) Footage rates include bits, core barrels and rods
unless otherwise specified below:
DEPTH HX-HQ NX-NQ
Overburden $20.00 $20.00
0-50 ft.
0-500 ft. $17.55 $16.80
500-1000 ft. $18.65 $17.80
b) Diamond Bit cost in excess of $3.00 per ft.
average will be invoiced to company.
c) Subsistence in the amount of $20.00 per day per man
will be invoiced to company.
3. HOURLY RATES, RIG OPERATING:
a) Time consumed in the following activities will be
invoiced at the rate of $95.00 per hour per two man crew.
a.1) Cementing, drilling out cement, hole
conditioning, and regaining lost circulation.
a.2) Surveying
a.3) Installing and recovering casing
a.4) Reaming and re-entry of per-collared R/C holes.
a.5) Hole abandonment per state regulations.
4. HOURLY RATES NON-OPERATING:
a) Time consumed in the following activities will be
invoiced at the rate of $95.00 per hour per two man crew.
a.1) Moving between holes, setting up and tearing
down including first and last hole.
a.2) Standby time ordered by the company's representative.
a.3) Delays not caused by contractor.
4. a.4) Waiting for cement to set during normal shift hours.
5. TIME AND EQUIPMENT CHARGES:
a) If a third-party survey instrument or a third-party
drilling device is required, contractor will secure same and
invoice the company at list price plus 15%.
b) Supply pump if used will be invoiced at the rate of
$20.00 per day.
6. MATERIALS
a) Casing lost, damaged or left in hole at company's
request; core boxes, cement, drilling mud, mud additives,
lost circulation materials consumed, casing shoes damaged or
left in hole and other supplies consumed or damaged beyond
use due to hole conditions will be invoiced at list price
plus 10%.
C. EQUIPMENT AND WORKING SCHEDULES:
1. Contractor will utilize the following:
Drill Rig: Long Year 34
Vehicles: F-250 pickup
Mack 3 axle water truck
Pumps: as needed
Waterline: as needed
D. CORE RECOVERY CLAUSE
To Drilling Services - N. A. Degerstrom, Inc., Core
recovery and hole completion is our main objective. We
anticipate no core recovery problems on this project,
so to assure company that maximum core recovery is a
top priority.
D. MSHA RESPONSIBILITY CLAUSE
The Contractor, agrees to comply with all of the
requirements set forth in the Federal, Mine Safety and
Health Act (MSHA) as well as all other applicable
Local, State, and Federal laws. Contractor will provide
their own MSHA identification number, which is ATO.
TERMS AND CONDITIONS
E. THE COMPANY AGREES:
1. Location of Work and of Holes and Safekeeping of Core.
To determine the location, depth, and angle of
each drill hole and make provisions for the
safekeeping of all cores and sludge recovered. It
shall be the Company's responsibility to provide
containers for the storage of said samples unless
specific arrangements are made that the Contractor
supply containers.
2. Right of Entry and Removal of Contractor's Property.
To provide at its own expense, all rights of way,
both of ingress and egress, and the peaceable
possession of all real property that may be
required in connection with said work, including
real property upon which all necessary temporary
buildings and other facilities may be erected, or
placed, and so save the Contractor harmless from
any and all damages, claims, costs, or charges of
whatsoever kind or character incident to the
occupation and use of said real property.
3. Roads and Drill Sites.
To construct and maintain drill roads and drill
sites free of cost to the Contractor.
4. Licenses.
That all licenses, land and water use permits,
environmental reports, state reports relating to
hole plugging, etc. shall be the responsibility of
the Company, and that Contractor shall cooperate
with and gibe technical assistance to Company if
requested for compliance with these regulations.
5. Depth of Hole.
That no hole shall exceed the maximum depth set
forth in item B.2. In the event other work or
deeper drilling, other than is provided herein, is
desired by the Company, such other work or
drilling shall be performed under conditions and
at such rates as may be agreed upon in a written
instrument supplemental to this proposal, and such
other work or drilling shall not be performed
until such supplemental agreement is in writing
and executed by both parties.
6. Water Supply.
To arrange for a source of supply of water free of
cost to Contractor.
7. Termination's.
Company may terminate this Agreement at any time,
in whole or in part, by 15 days written notice to
Contractor representative.
F. THE CONTRACTOR AGREES:
1. Services and Materials.
To perform the work and provide the services and
materials as stated in the forgoing.
2. Labor and Machinery.
To supply all necessary equipment, including
diamond drill machinery, labor, and all other
operating expenses, except as herein specifically
provided, at the Contractor's cost and expense.
3. Core Recovery and Care.
To exercise reasonable care and precaution to
recover as high a percentage of core as the
grounds drilled will permit and to deliver all
such core at the drill site to the person or
persons designated by the Company.
4. Completion of Holes.
To complete all holes according to specifications,
but should conditions be encountered of such
nature as to prevent successful completion of any
hole. Contractor does not guarantee to drill to
any certain depth, but shall drill as deep as
practicable and shall be paid for such hole or
holes at the rates specified for all footage
completed.
5. Transportation of Crews and Equipment.
To arrange for land surface transportation to
unrestricted sites for crews and equipment listed
in C.1. and C.2.
6. Insurance.
To be subject to and operate under all applicable
Federal and State Enactment's regarding Employer's
Liability, Workmen's Compensation, Federal Social
Security and Unemployment Compensation Insurance,
expressly agreeing that its employees engaged in
the work covered by this agreement are not and
shall not be treated or considered as the servants
or employees of the Company. To provide third-
party liability insurance during the life of this
contract with an insurance company or companies
authorized to do business in the state where the
work is to be performed and satisfactory to
Company with coverage's of the kind and in the
amounts set forth by the Company. Contractor
shall, if requested to do so by the Company,
secure insurance certificates satisfactory to
Company showing that said insurance is in full
force and effect and that the same shall not be
cancelled or materially changed without thirty
(30) days prior written notice.
7. Force Majeure.
Except for the obligation to make money payments,
neither party shall be responsible for failure of
or delay in performance hereunder if such failure
or delay is caused be reason of "Force Majeure"
shall mean acts of God, strikes, lockouts, wars,
insurrections, earthquakes, storms, fires, arrests
and restrains by any government, civil
disturbances, order, laws, or proclamations of
government authorities and any other causes
whether of the kind enumerated herein or otherwise
which are not reasonably within the control of the
party claiming suspension.
8. Confidentiality.
All confidential information obtained by
Contractor in connection with this agreement
(unless such information is generally available to
the public or is established to be in the general
public domain) shall be held in confidence by
Contractor provided same is clearly identified as
confidential material.
G. The prices in this schedule will remain firm for a
period of thirty days from the date shown in A.3. at which
time, if the Agreement has not been accepted, Contractor
reserves the right to revise any prices or conditions of
this offer.
H. At the end of each month, Contractor will invoice for
all chargeable items in the contract. The terms will be net
30 days. IN THE EVENT PAYMENT IS NOT MADE WITHIN THIS
PERIOD, A LATE PAYMENT CHARGE OF 1 1/2 % PER MONTH, OR THE
MAXIMUM AMOUNT PERMITTED BY LAW, WHICHEVER IS LOWER, WILL BE
CHARGED, TO BE COMPUTED FROM THE DUE DATE TO THE DATE
PAYMENT IS RECEIVED BY CONTRACTOR, TOGETHER WITH ALL COSTS
AND EXPENSES INCURRED IN COLLECTION INCLUDING REASONABLE
ATTORNEY FEES AND COURT COSTS.
This Agreement shall be governed by and construed in
accordance with the laws of the state of the job site
location. If any term, provision or condition contained
herein shall, to any extent, be invalid or
unenforceable, pursuant to state law or otherwise, the
remainder of the terms, provisions and conditions
hereof (or the application of such terms, provisions,
or conditions to persons or circumstances other than
those in respect in which it is invalid or
unenforceable) shall not be affected thereby, and each
term, provision and condition of this Agreement shall
be valid and enforceable to the fullest extent
permitted by law.
To assure mutual agreement on quantities, Company's
representative should confer with Contractor's
representative on a weekly basis, or as often as
feasible. Should Company's representative not be
available Contractor shall invoice from quantities
detailed on Contractor's Daily Driller's Report. Copies
of which are provided Company's representative.
I. Periodic payments to the Contractor shall be made by
paying 50% of the amount billed in cash and 50% in common
stock of the Company. The value of the Company stock will be
computed monthly by taking the average closing price of the
Company stock for the month being billed.
J. Contractor shall be paid for the percussion trac-drill
in the following manner:
For the drill including bits & parts - $75.00 per hr.
Driller Pickup - $20.00 per day.
Labor - Direct costs and burdens plus 10% for
overhead and profit.
Hanover Gold Company, Inc. N. A. Degerstrom Inc.
by /s/ James A. Fish by /s/ Neal A. Degerstrom
- --------------------------- ----------------------------
Company Contractor
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 157,252
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 190,334
<PP&E> 17,072,059<F1>
<DEPRECIATION> 128,441
<TOTAL-ASSETS> 17,157,946
<CURRENT-LIABILITIES> 454,880
<BONDS> 0
0
0
<COMMON> 795
<OTHER-SE> 16,601,275<F2>
<TOTAL-LIABILITY-AND-EQUITY> 17,157,946
<SALES> 0
<TOTAL-REVENUES> 7,066<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 398,182
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 504,794
<INCOME-PRETAX> (895,871)
<INCOME-TAX> 0
<INCOME-CONTINUING> (895,871)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (895,871)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.11)
<FN>
<F1>Consists of $16,823,917 in resource properties and claims, and $248,142 in
property and equipment, at cost.
<F2>Consists of$25,198,493 in additional paid-in capital, less a deficit of
$8,597,218 accumulated during the development stage.
<F3>Consists of $1,778 in interest income and $5,288 in other income.
</FN>
</TABLE>
