<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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)
424 S. Sullivan Rd., Suite #300
Veradale, Washington 99037
(Address of principal executive offices)
Registrant's telephone number,
including area code: (509) 891-8817
Common Stock The OTC - Bulletin Board
Title of each class Name of each exchange on which
registered
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period as the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
<PAGE>
HANOVER GOLD COMPANY, INC. QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements 1
Item 2: Management's Discussion and Analysis
of Financial Condition and Results
of Operations 1
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 4
Item 2: Changes in Securities 4
Item 3: Defaults upon Senior Securities 4
Item 4: Submission of Matters to a Vote
of Security Holders 4
Item 5: Other Information 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 period
covered by this report are included elsewhere in this report,
beginning at page F/S-1.
The unaudited condensed financial statements have been prepared
by the Company in accordance with generally accepted accounting
principles for interim financial information with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of the
Company's management, all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the nine-month period
ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the full year ending
December 31, 1999.
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, 1998 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, 1999.
Nine months ended September 30, 1999 compared to the nine months
ended September 30, 1998.
During the nine months ended September 30, 1999, the Company
generated no revenue. General and administrative expenses
decreased to $274,826 for the nine-month period ended September
30, 1999 as compared to $583,402 for the nine-month period ended
September 30, 1998. The decrease is principally attributed to
reduced salary, travel, and insurance expenses. For the nine
months ended September 30, 1999, the Company experienced a loss
of $302,843, or $0.03 per share, compared to a loss of
$1,349,006, or $0.18 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. There was no
comparable charge in the first nine months of 1999.
Third Quarter 1999
During the third quarter 1999, the company's loss amounted to
$58,375, which represents an 87% reduction from the third quarter
1998.
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,
1999, 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.
As a result of the termination of three of its leases in
September and October of 1998 and the assignment of a purchase
contract in February 1999, the Company's rental/royalty and
purchase payments were reduced by $1,863,000 to $80,227 in 1999,
and by $3,274,500 to $17,777 in 2000. The Company has taken a
$14,312,000 write down to reflect the loss of its investment in
the claims and asset impairment as of December 31, 1998.
On September 30, 1997 the Company was effectively merged with
Easton-Pacific through the Company's acquisition of all of the
issued and outstanding shares of capital stock of Easton Pacific
in exchange for 1,750,000 shares of its common stock. Allowing
for lock-up periods and absence of sufficient trading volume, the
fair market value of the Company's shares issued to acquire
Easton Pacific, including direct acquisition costs of $60,500,
was determined to be $4,787,000. Easton Pacific's annual rental
obligations for 1999 and 2000 total approximately $22,000.
Due to the Company's lack of revenues and negative working
capital, the Company's independent certified public accountants
included a paragraph in the Company's 1998 financial statements
relative to a going concern uncertainty. The Company has financed
its obligations during 1998 by selling 2,044,264 shares of its
common stock to certain affiliates of the Company for prices
ranging
-1-
between $2.12 and $0.25 per share. Five-year warrants for
1,300,000 shares exercisable at $0.50 per share were granted in
the aggregate to three affiliates of the Company in connection
with the sale of 866,666 shares in 1998. In January and March of
1999 affiliates of the Company collectively loaned $60,000 to the
Company in exchange for demand promissory notes bearing interest
at a rate equal to the prime rate of interest from time to time
offered by Bank of America, NA plus two percent, and five-year
warrants for 480,000 shares of common stock in the aggregate
exercisable at $0.25 per share. An affiliate also purchased
200,000 shares of common stock for $0.25 per share and received a
five-year warrant for 300,000 shares exercisable at $0.50 per
share. 100,000 shares were sold to a non-affiliate of the Company
in February 1999 for $0.25 per share. 600,000 additional shares
have been sold at $0.125 per share to certain affiliates and non-
affiliates through the date of this report. The purchasers of the
shares have been granted five-year options exercisable at $0.25
per share for 1,200,000 shares in the aggregate. In August and
September 1999 the Company sold 250,000 shares at $0.10 per share
and 285,716 shares at $0.07 per share to affiliates and non-
affiliates. In connection with the sales the purchasers received
options for a total of 1,214,290 shares of the Company's common
stock exercisable over 5 years at $0.20 per share. Five-year
options for a combined 120,000 shares of the Company's common
stock exercisable at $0.25 per share were granted in July 1999 to
affiliates of the Company. The declining prices at which the
Company has been able to sell its shares reflects a corresponding
decline in the market value of the Company's common stock as
reported on the Nasdaq SmallCap Market or quoted on the OTC
Bulletin Board for the period during which the sales were made.
In March 1999 N. A. Degerstrom Inc. was granted a five-year
option for 228,642 shares exercisable at $0.25 per share and in
July of 1999 was issued 436,827 shares of common stock to cancel
payables in the aggregate of $111,763. In September the Company
issued 395,200 shares at $0.075 per share to a non-affiliate of
the Company to satisfy interest due on a loan assumed by the
Company in the Easton-Pacific transaction.
The Company's stock continues to trade in the low numbers ($0.100
per share at September 30, 1999,) largely as a consequence of the
continuing depressed price for gold worldwide and the prohibition
against the use of cyanide in new or expanded open pit mining
operations, in the State of Montana.
Although the Company expects to meet its 1999 obligations using
borrowed funds and funds from the sale of shares of common stock,
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 for the
exploration and development of its Virginia City properties, the
Company can give no assurance that it will be able to finance its
obligations for the balance of 1999 and thereafter. Because the
Company has not been financially able to explore and develop its
Virginia City properties to the extent necessary to commence a
commercial mining operation, it has incurred aggregate losses of
$24,139,030 from its inception through September 30, 1999. Unless
the Company is able to borrow or sell shares of its common stock
it will continue to experience a shortage of working capital.
The Company's inability to advance its Virginia City properties
to the commercial production stage is attributable to a number of
factors, including Kennecott's unexpected withdrawal from the
mining venture in 1995, the Company's lack of success through
1995 in consolidating the various claims and interests in the
area, the decline in the price of gold, and the ban against the
use of cyanide in the State of Montana.
Unless there is a significant increase in the price for gold, the
ban against the use of cyanide is lifted and the Company is able
to reacquire the Alder Gulch claims at Virginia City under
reasonable terms, 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 Virginia
City 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 $255.40/oz July 12, 1999. At September 30, 1999
the New York Spot price for gold was $297.70.
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 for the exploration and development
of its Virginia City or Chile property, any inflationary move
could result in an increase in the cost of goods and services
necessary to its mining operations.
Due to the difficulties of operating in the State of Montana, the
Company has been investigating other opportunities in areas more
conducive to mining activity and in October 1999 acquired certain
mining concessions located in the province of Chanaral, Chile.
The Company is seeking to joint venture or finance the
exploration of the concessions through an arrangement with a
financially capable
-2-
mining company. Unless the Company is able to make an arrangement
with a mining company to assume and pay the Company's lease
payments when due, the Company does not believe that it will be
able to maintain the concessions.
At September 30, 1999, Hanover had a net deferred tax asset of
approximately $7,500,000. 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 is aware of the issues associated with the
programming code in computer systems as the millennium (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 and the Company is continuing to address the
issue throughout the year, the year 2000 problem is not
anticipated to have a significant impact on the Company's
operations.
In June 1997, the Financial Accounting Standards Board ("FASB")
issued No. 130 ("SFAS No.130"), Reporting Comprehensive and
Income, and Statement of Financial Accounting Standards No. 131
("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 non-owner sources; and SFAS
No. 131, which supersedes SFAS No. 14, Financial Reporting for
Segments of a Business Enterprise, establishes annual and interim
reporting standards for an enterprise's operating segments and
related disclosures about its products, services, geographic
areas and major customers. SFAS No. 131 defines operating
segments as components of an enterprise about which separate
financial information is available that is evaluated regularly by
the chief operating decision maker in deciding how to allocate
resources and in assessing performance. As the Company operates
within one segment, the adoption of SFAS No. 131 by the Company
in 1998, did not have a significant impact on the Company's
financial position. Both statements are effective for fiscal
years beginning after December 15, 1997, with earlier application
permitted.
In February 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 132 ("SFAS No.
132") Employer's Disclosures about Pensions and other Post-
retirement Benefits, which standardizes the disclosure
requirements for pension and other post-retirement Benefits. The
adoption of SFAS No. 132 did not materially impact the Company's
current disclosures.
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133 ("SFAS No.
133"), Accounting for Derivative Instruments and Hedging
Activities. SFAS No. 133 requires companies to recognize all
derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated
as a hedge, the objective of which is to match the timing of gain
or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged
asset or liability that are attributable to the hedged risk or
(ii) the earnings effect of the hedged forecasted transaction.
For a derivative not designated as a hedging instrument, the gain
or loss is recognized as income in the period of change. SFAS No.
133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Based on its current and planned
future activities relative to derivative instruments, the Company
believes that the adoption of SFAS No. 133 on January 1, 2000
will not have a significant effect on its financial statements.
In October 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 134 ("SFAS No.
134") Accounting for Mortgage-Backed Securities Retained After
the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise, which effectively changes the way mortgage
banking firms account for certain securities and other interests
they retain after securitizing mortgage loans that were held for
sale. The adoption of SFAS No. 134 is not expected to have a
material impact on the Company's financial position.
In February 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 135 ("SFAS No.
135") Rescission of Financial Accounting Standards Board No. 75
("SFAS No. 75") and Technical Corrections. SFAS No. 135 rescinds
SFAS No. 75 and amends Statement of Financial Accounting
Standards Board No. 35. SFAS No. 135 also amends other existing
authorative literature to make various technical corrections,
clarify meanings, or describe applicability under changed
conditions. SFAS No. 135 is effective for financial statements
issued for fiscal years ending after February 15, 1999. The
Company believes that the adoption of SFAS No. 135 will not have
a significant effect on its financial statements.
Cash flows for the nine months ended September 30, 1999 were as
follows: During the nine months ended September 30, 1999, the
Company's cash position increased $1,131, to $29,763. During the
nine-month period, the Company used $174,943 in operating
-3-
activities, primarily as a result of the reported $302,843 net
loss. Investing activities realized proceeds of $40,925 from the
sale of equipment. During the period, the Company received
$195,000 from the sale of 1,435,716 common shares.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS. None
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 300,000 shares of its common stock
for $0.25 per share in January and February 1999 and 600,000
shares of its common stock for $0.125 per share, 285,716 shares
for $0.10 per share and 250,000 shares for $0.07 per share
between April 22 and September 30, 1999. The shares were sold
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
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-
<PAGE>
HANOVER GOLD COMPANY, INC.
TABLE OF CONTENTS
Page
Condensed Balance Sheets as of September 30, 1999
and December 31, 1998 F/S-2
Condensed Statements of Operations for the nine months
Ended September 30, 1999 and 1998, and for the period
from inception (May 2, 1990) to
September 30, 1999 F/S-3
Condensed Statements of Changes in Stockholders' Equity
for the period from inception (May 2, 1990)
to September 30, 1999 F/S-4
Condensed Statements of Cash Flow for the nine months
Ended September 30, 1999 and for the period from
inception (May 2, 1990)to September 30, 1999 F/S-8
Notes to Condensed Interim Financial Statements F/S-10
Signatures F/S-12
[The balance of this page has been intentionally left blank.]
F/S-1
<PAGE>
HANOVER GOLD COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS Sept. 30, December 31,
1999 1998
- -----------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 29,763 $ 28,632
Prepaid expenses and
other current assets 21,554 81,030
- -----------------------------------------------------------------------------
Total current assets 51,317 109,662
FIXED ASSETS:
Furniture and equipment,
net of accumulated
depreciation of $100,267
and $130,510 52,442 97,539
Mineral properties, net 2,705,334 2,730,334
OTHER ASSETS:
Other assets 30,500 37,842
- ----------------------------------------------------------------
TOTAL ASSETS 2,839,593 $2,975,377
==========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 33 $ 37,393
Notes payable to shareholders 297,000 428,491
Accrued payroll and payroll taxes 2,066 13,068
Other accrued expenses 8,120 15,590
Current portion of long-term debt - 10,522
- -------------------------------------------------------------------------
Total current liabilities 307,219 505,064
LONG-TERM DEBT, LESS CURRENT PORTION - -
- ----------------------------------------------------------------
Total liabilities 307,219 505,064
- ----------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value;
shares authorized 2,000,000, no
shares outstanding - -
Common Stock, $0.0001 par value,
shares authorized 48,000,000;
issued and outstanding and 11,671,276
9,353,533 shares respectively 1,167 935
Additional paid-in capital 26,673,385 26,308,712
Deficit accumulated during
the development stage (24,139,031) (23,836,187)
Treasury stock, at cost
(19,668 shares) (3,147) (3,147)
- ----------------------------------------------------------------
Total Stockholders equity 2,532,374 2,470,313
- -----------------------------------------------------------------
$ 2,839,593 $ 2,975,377
==================================================================
</TABLE>
F/S-2
<PAGE>
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Date of Inception Quarter 9 Months Quarter 9 Months
(May 2, 1990) Ended Ended Ended Ended
through Sept. 30,`99 Sept. 30,'99Sept.30,'99 Sept. 30,'98 Sept. 30,'98
-------------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue $ 1,151,958 $ - $ - $ - $ -
Operating expenses:
Cost of goods mined 1,987,483 - - - -
Depreciation and amortization 180,854 5,591 18,095 9,041 27,125
Provision for bad debt 779,921 - - - -
Abandonment of mining
interests (Note 3) 12,012,050 - - - -
Write-down of mineral
property (Note 3) 2,300,000 - - - -
General and administrative
expenses 6,524,598 48,182 274,826 203,304 583,402
--------- ------ ------- ------- -------
Total operating expenses 23,784,906 53,773 292,921 212,345 610,527
- ------------------------ ----------- -------- --------- --------- ---------
Operating loss (22,632,948) (53,773) (292,921) (212,345) (610,527)
Other Income (expense):
Amortization of Guaranty Fee (1,457,170) - - (202,861) (688,585)
Interest and other
(expense) net (21,821) (6,465) (23,846) (37,929) (49,894)
Gain (Loss) on disposition
of assets (27,091) 1,863 13,924 - -
---------- -------- -------- --------- ---------
Total other income (expense) (1,506,082) (4,602) (9,922) (240,790) (738,479)
- --------------------------- ----------- -------- -------- --------- ---------
Net loss ($24,139,030) ($58,375) (302,843) ($453,135)($1,349,006)
================ ============ ======== ======== ========== ===========
Net loss per share <F1>) ($0.01) (0.03) ($0.06) ($0.18)
Weighted average common
shares outstanding <F1> 10,804,924 10,123,636 8,061,008 7,646,314
____________________
<FN>
<F1> Restated - Note 2
</FN>
</TABLE>
F/S-3
<PAGE>
HANOVER GOLD COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From the Date of Inception (May 2, 1990) through September 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Stockholders'
--------------- Paid in Subscription Treasury Development Equity
Shares Amount Capital Receivable Stock Stage Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock for cash
($2.12/share) 188,141 $ 19 $ 402,481 $ - $ - $ - $ 402,500
Issuance of common stock for
cash ($0.28/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/share) 57,252 6 572,513 - - - 572,519
Issuance of common stock for
cash ($0.24/share) 739,377 74 166,596 - - - 166,670
Issuance of common stock for
cash ($1.68/share) 67,146 6 113,744 - - - 113,750
Exercise of stock purchase
warrants ($2.40/share) 18,600 2 44,638 - - - 44,640
Exercise of stock purchase
warrants ($5.00/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
ash ($8.00/share) 178,125 18 1,424,982 - - - 1,425,000
Issuance of common stock for
cash ($0.72/share) 54,634 5 39,995 - - - 40,000
Exercise of stock purchase
warrants ($5.00/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/share) 37,500 4 224,996 - - - 225,000
Issuance of common stock to
officer ($0.04/share) 31,791 3 747 - - - 750
Exercise of stock purchase
warrants ($6.40/share) 765,426 77 4,750,141 (649,360) - - 4,100,858
Net loss - - - - - (256,769) (256,769)
- ---------------------------------------------------------------------------------------------------
Balance, December 31, 1993 2,247,829 225 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/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 2,517,553 $ 252 $9,841,685 $(249,360) $ -$(2,255,581) $7,336,996
To Be Continued Next Page
</TABLE>
F/S - 4
HANOVER GOLD COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From the Date of Inception (May 2, 1990) through September 30, 1999
(continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Stockholders'
---------------- Paid in Subscription Treasury Development Equity
Shares Amount Capital Receivable Stock Stage Total
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 2,517,553 $ 252 $9,841,685$(249,360) $ - $(2,255,581) $7,336,996
Issuance of common stock for
cash ($1.40/share) 535,714 53 749,947 - - - 750,000
Issuance of common stock for
cash ($1.40/share) 178,571 18 249,982 - - - 250,000
Issuance of common stock for
cash ($4.00/share) 50,000 5 199,995 - - - 200,000
Issuance of common stock in
satisfaction of vendor
obligations ($4.24/share) 17,420 2 74,094 - - - 74,096
Issuance of common stock in
satisfaction of vendor
obligations ($4.00/share) 50,000 5 199,995 - - - 200,000
Issuance of common stock for
cash ($4.00/share) 250,000 25 999,975 - - - 1,000,000
Issuance of common stock to
officer at no cost 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/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/share) 1,250 - 20,000 - - - 20,000
Issuance of common stock for mineral
property rights ($8.00/share) 131,250 13 1,049,987 - - - 1,050,000
Issuance of common stock for mineral
property rights ($6.24/share) 62,500 6 389,994 - - - 390,000
Issuance of common stock for
cash ($2.00/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/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/share) 10,855 1 41,249 - - - 41,250
Grant of option to director as
compensation for loan
guaranty (Note 7) - - 1,457,170 - - - 1,457,170
Deferred guaranty fee, subject to grant
exercise (Note 7) - - (688,585) - - - (688,585)
Issuance of common stock for
cash ($5.00/share) 284,750 28 1,423,722 - - - 1,423,750
</TABLE>
To Be Continued Next Page
F/S - 5
HANOVER GOLD COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From the Date of Inception (May 2, 1990) through September 30, 1999
(continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Stockholders'
--------------- Paid in Subscription Treasury Development Equity
Shares Amount Capital Receivable Stock Stage Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
for an acquisition of
Easton-Pacific (Note 2) 1,750,000 175 4,726,225 - - - 4,726,400
Issuance of common stock for
cash ($2.00/share) 125,000 13 249,987 - - - 250,000
Issuance of common stock for
cash ($5.00/share) (Note 7) 225,000 23 1,124,977 - - - 1,125,000
Issuance of common stock
for mineral property rights 726 - - - - - -
Net loss - - - - - (1,788,249)(1,788,249)
- ------------------------------------------------------------------------------------------------------
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/share) 19,668 1 44,999 - - - 45,000
Amortization of deferred guaranty
fee, subject to grant exercise - - 688,585 - - - 688,585
Issuance of common stock for
cash ($2.00/share) 65,000 6 129,993 - - - 129,999
Issuance of common stock for
cash ($1.80/share) 90,833 9 163,491 - - - 163,500
Issuance of common stock for
cash ($1.60/share) 37,500 3 59,997 - - - 60,000
Cancellation of common stock
issued for property
rights ($8.00/share) (131,250) (13)(1,049,987) - - -(1,050,000)
Issuance of common stock for
cash ($2.12/share) 216,014 21 457,929 - - - 457,950
Issuance of common stock for
cash ($1.00/share) 300,000 30 299,970 - - - 300,000
Other 116 - - - - - -
Issuance of common stock for
cash ($0.72/share) 208,500 21 150,099 - - - 150,120
Issuance of common stock for
cash ($0.50/share) 150,000 15 74,985 - - - 75,000
Issuance of common stock and
options for cash ($0.38/share) 466,666 47 174,953 - - - 175,000
Issuance of common stock and
options for cash ($0.25/share) 400,000 40 99,960 - - - 100,000
Issuance of common stock and
options for services
rendered ($0.59/share) 193,067 19 115,544 - - - 115,563
Options issued for accounts payable - - 50,000 - - - 50,000
Options issued for services - - 238,668 - - - 238,668
Options exchanged for shares
of common stock (19,668) - 3,147 - (3,147) - -
Net loss - - - - - (16,134,840)(16,134,840)
- ------------------------------------------------------------------------------------------------------
BALANCE, December 31, 1998 9,353,533 935 26,308,712 - (3,147) (23,836,187) 2,470,313
</TABLE>
To Be Continued Next Page
F/S - 6
HANOVER GOLD COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From the Date of Inception (May 2, 1990) through September 30, 1999
(continued)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional During the Stockholders'
--------------- Paid in Subscription Treasury Development Equity
Shares Amount Capital Receivable Stock Stage Total
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 9,353,533 935 26,308,712 - (3,147) (23,836,187) 2,470,313
Issuance of common stock and
options for cash ($0.25/share) 300,000 30 74,970 - - - 75,000
Options issued for accounts payable - - 57,160 - - - 57,160
Options issued for services - - 25,000 - - - 25,000
Issuance of common stock and options
for cash ($0.125/share) 600,000 60 74,940 - - - 75,000
Issuance of common stock and options
for services ($0.125/share) 436,827 44 54,559 - - - 54,603
Issuance of common stock and options
for cash ($0.07/share) 285,716 29 19,971 - - - 20,000
Issuance of common stock and options
For cash ($0.10/share) 250,000 25 24,975 - - - 25,000
Issuance of common stock
for services ($0.075/share) 395,200 39 29,601 - - - 29,640
Issuance of common stock
for services ($0.07/share) 50,000 5 3,495 - - - 3,500
Net loss - - - - - (302,843) (302,843)
- -----------------------------------------------------------------------------------------------------
BALANCE, September 30, 1999 11,671,276$1,167 $26,673,383 $ - $ (3,147)$ (24,139,030)$2,532,373
- -----------
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
F/S-7
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Date of Inception Nine months Nine months
(May 2,1990)through Ended Ended
Sept. 30,`99 Sept. 30, 1999 Sept. 30, 1998
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (24,139,031) $ (302,843) $ (1,349,006)
Adjustments to reconcile net loss
to net cash
used in operating activities:
Loss (Gain) on sale of equipment 27,090 (13,924) -
Abandonment of mining interests 12,012,050 - -
Write-down of mineral properties 2,300,000 - -
Depreciation and depletion 180,854 18,095 27,125
Common stock and options issued
for services 756,410 112,743 -
Amortization of deferred
guaranty fee 1,457,170 - 688,585
Common stock issued to officers
and directors - - 45,000
Write-off of note receivable 779,921 - -
Changes in operating assets
and liabilities:
(Increase) decrease in
supplies inventory - - -
(Increase) decrease in
prepaid expenses 6,034 59,476 2,489
(Increase) decrease in
other assets (30,500) 7,342 (13,761)
Increase (decrease) in
accounts payable 71,414 (37,360) (30,542)
Increase (decrease) in
accrued expenses 105,275 (18,472) (76,017)
- ------------------------ ---------- -------- --------
Net cash used in operating
activities (6,473,313) (174,943) (706,127)
- ------------------------------------------------ -------- ---------
Investing activities:
Proceeds from sale of equipment 68,826 40,925 -
Repayment (Advances) under
notes receivable (1,089,219) - -
Purchase of furniture and equipment (363,613) - (3,715)
Additions to mineral properties (10,383,585) - (750,095)
- ------------------------------------------------- -------- ---------
Net cash used in investing
activities (11,767,591) 40,925 (753,810)
- ------------------------------------------------- -------- ---------
Financing activities:
Borrowings under note payable
to shareholder (927) (74,331) (245)
Proceeds from sale of
common stock 17,674,545 195,000 1,336,570
Proceeds from issuance of
convertible debt 215,170 - -
Proceeds from issuance of
long term debt 45,000 - 52,228
Repayment of long-term debt (182,863) (10,520) (65,986)
Proceeds from related party 133,086 25,000 -
Collection of subscription
receivable 249,360 - -
Repurchase of common stock (39,947) - -
Capital contributions 177,243 - -
- ----------------------------- -------- -------- -------
Net cash provided by
financing activities 18,270,667 135,149 1,322,567
- ----------------------------- ---------- -------- ---------
Net increase (decrease) in cash 29,763 1,131 (137,370)
Cash and cash equivalent,
beginning of period - 28,632 180,083
- ----------------------- --------- --------- --------
Cash and cash equivalent,
end of period $ 29,763 $ 29,763 $ 42,713
=============================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 126,352 $ 25,171 $ 29,895
Income taxes - - -
</TABLE>
F/S-8
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Date of Inception Nine months Nine months
(May 2,1990)through Ended Ended
Sept. 30,`99 Sept. 30, 1999 Sept. 30, 1998
- -------------------------------------------------------------------------------
<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 $ 306,448 $ 25,000 $ -
</TABLE>
[The balance of this page has been intentionally left blank.]
F/S-9
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, 1999 have been included. Operating results for the nine-month
period ended September 30, 1999 are not necessarily indicative of the results
that may be expected for the full year ending December 31, 1999.
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, 1999, 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-10
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, the leases reverted to the landowner-lessors and the Company took a
write down in the amount of $14,312,050, against its assets in the fourth
quarter of 1998.
[The balance of this page has been intentionally left blank.]
F/S -11
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/ Hobart Teneff
-----------------
Hobart Teneff, its
President
Date: November 12, 1999
By: /s/ Wayne Schoonmaker
---------------------
Wayne Schoonmaker, its
Principal Accounting Officer
Date: November 12, 1999
F/S-12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000778165
<NAME> HANOVER GOLD COMPANY INC
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 29,763
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51,317
<PP&E> 2,858,043<F1>
<DEPRECIATION> 100,267
<TOTAL-ASSETS> 2,839,593
<CURRENT-LIABILITIES> 307,219
<BONDS> 0
0
0
<COMMON> 1,167
<OTHER-SE> 2,531,207<F2>
<TOTAL-LIABILITY-AND-EQUITY> 2,839,593
<SALES> 0
<TOTAL-REVENUES> 1,325<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 274,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 25,171
<INCOME-PRETAX> (302,843)
<INCOME-TAX> 0
<INCOME-CONTINUING> (302,843)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (302,843)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.02)
<FN>
<F1>Consists of $2,705,334 in resource properties and claims, and $152,709 in
property and equipment, at cost.
<F2>Consists of $26,673,385 in additional paid-in capital, less a deficit of
$24,139,031 accumulated during development stage, less $3,147 treasury stock.
<F3>Consists of $1,325 in interest income.
</FN>
</TABLE>
