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, 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
of incorporation) No.)
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 JUNE 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 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 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 six-month period ended June 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 JUNE 30, 1999.
Six months ended June 30, 1999 compared to the six months ended June 30,
1998.
During the three months ended June 30, 1999, the Company generated no
revenue. General and administrative expenses decreased to $226,644 for the
six-month period ended June 30, 1999 as compared to $380,098 for the six-
month period ended June 30, 1998. The decrease is principally attributed
to reduced salary, rent, and accounting expenses. For the six months ended
June 30, 1999, the Company experienced a loss of $244,468, or $0.03 per
share, compared to a loss of $895,871, or $0.12 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. There was no comparable
charge in the first six months of 1999.
Second Quarter 1999
During the second quarter 1999, the company's loss amounted to $103,847,
which represents a 76% reduction from the second 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 June 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
<PAGE>
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 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
-Page 1-
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. 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. The option was granted to
cancel a payable to Degerstrom Inc. in the amount of $57,160.
The Company's stock continues to trade in the low numbers ($0.100 per share
at June 30, 1999,) largely as a consequence of the continuing decline in
world gold prices and the prohibition against the use of cyanide in new or
expanded open pit mining operations, in the State of Montana.
<PAGE>
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, 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
properties to the extent necessary to commence a commercial mining
operation, it has incurred aggregate losses of $24,080,655 from its
inception through June 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 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 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 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.
Although the Company's operations are subject to general inflationary
pressures, these pressures have not had a significant effect on operations,
particularly since early 1995 when mining and processing operations were
suspended for lack of funds. If the Company resumes extensive exploration
and development activities, which can be expected to occur only if it is
successful in negotiating a joint venture or other agreement with a major
mining company, any inflationary move could result in an increase in the
cost of goods and services necessary to its mining operations.
Due to the difficulties of operating in the State of Montana, the Company
is investigating other opportunities in areas more conducive to mining
activity. In March 1999 the Company signed a letter of intent to acquire
the rights to certain mining claims located in Chile for 100,000 shares of
the Company's common stock and $17,000 cash. The Company believes it will
be successful in acquiring these rights.
At June 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.
<PAGE>
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
-Page 2-
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
<PAGE>
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 six months ended June 30, 1999 were as follows: During
the six months ended June 30, 1999, the Company's cash position decreased
$6,098, to $22,534. During the six-month period, the Company used $146,751
in operating activities, primarily as a result of the reported $244,468 net
loss. Investing activities realized proceeds of $24,400 from the sale of
equipment. During the period, the Company received $150,000 from the sale
of 900,000 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
between April 22 and June 30, 1999, pursuant to an exemption from
registration under Section 4(2) of the Securities Act of 1933 as amended.
-Page 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 27, 1999 the shareholders of the Company
approved the Company's 1998 Equity Incentive Plan. Holders of 5,993,238
shares voted in favor of the plan while holders of 586,275 shares voted
against or abstained from voting. The shareholders elected Neal A.
Degerstrom, James A. Fish, Tim Babcock, 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 director
nominees are as follows: Mr. Degerstrom - 7,204,449 for and 383,567
<PAGE>
withheld; Mr. Fish - 7,204,449 for and 383,567withheld; Mr. Babcock -
7,202,059 for and 385,957 withheld; Mr. Elers - 7,204,329 for and 383,687
withheld. The shareholders also voted to appoint BDO Seidman, LLP to act as
the Company's auditors for the year ending December 31, 1999. Holders of
7,218,869 shares of common stock voted in favor of the appointment, while
holders of 369,147shares voted against or abstained from voting for the
appointment.
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.]
-Page 4-
<PAGE>
HANOVER GOLD COMPANY, INC.
TABLE OF CONTENTS
Page
Condensed Balance Sheets as of June 30, 1999
and December 31, 1998 F/S-2
Condensed Statements of Operations for the six months
Ended June 30, 1999 and 1998, and for the period
from inception (May 2, 1990) to June 30, 1999 F/S-3
Condensed Statements of Changes in Stockholders' Equity
for the period from inception (May 2, 1990)
to June 30, 1999 F/S-4
Condensed Statements of Cash Flow for the six months
Ended June 30, 1999 and for the period from inception
(May 2, 1990)to June 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
June 30,1999 December 31,1998
- --------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 22,534 $ 28,632
Prepaid expenses and other current assets 23,664 81,030
- --------------------------------------------------------------------------------
Total current assets 46,198 109,662
FIXED ASSETS:
Furniture and equipment, net of accumulated
depreciation of $107,465 and $130,510 72,696 97,539
Mineral properties, net 2,730,334 2,730,334
OTHER ASSETS:
Other assets 37,842 37,842
- --------------------------------------------------------------------------------
TOTAL ASSETS 2,887,070 $2,975,377
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 22,822 $ 37,393
Notes payable to shareholders 346,603 428,491
Accrued payroll and payroll taxes 2,847 13,068
Other accrued expenses 55,289 15,590
Current portion of long-term debt 1,503 10,522
- --------------------------------------------------------------------------------
Total current liabilities 429,064 505,064
LONG-TERM DEBT, LESS CURRENT PORTION - -
- --------------------------------------------------------------------------------
Total liabilities 429,064 505,064
- --------------------------------------------------------------------------------
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
10,253,533 and 9,353,533 shares respectively 1,025 935
Additional paid-in capital 26,540,783 26,308,712
Deficit accumulated during the
development stage (24,080,655) (23,836,187)
Treasury stock, at cost (19,668 shares) (3,147) (3,147)
- --------------------------------------------------------------------------------
Total Stockholders equity 2,458,006 2,470,313
- --------------------------------------------------------------------------------
$ 2,887,070 $ 2,975,377
=====================================================
</TABLE>
F/S-2
<PAGE>
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Date of Inception Quarter 6 Months Quarter 6 Months
(May 2, 1990) Ended Ended Ended Ended
through June 30,`99 June 30,'99 June 30,'99 June 30,'98 June 30,'98
------------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenue $ 1,151,958 $ - $ - $ - $ -
OPERATING EXPENSES:
Cost of goods mined 1,987,483 - - - -
Depreciation and amortization 175,263 5,988 12,504 9,125 18,084
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 6,476,416 88,617 226,644 180,639 380,098
----------- -------- ------- ------- -------
Total operating expenses 23,731,133 94,605 239,148 189,764 398,182
- ------------------------ ----------- -------- ------- ------- -------
OPERATING LOSS (22,579,175) (94,605) (239,148) (189,764) (398,182)
OTHER INCOME (EXPENSE):
Amortization of Guaranty (1,457,170) - - (242,862) (485,724)
Interest and other
Fee (expense) net (15,356) (9,242) (17,381) (10,120) (11,965)
Gain (Loss) on disposition
of assets (28,954) - 12,061 - -
---------- -------- -------- -------- --------
Total other income (expense) (1,501,480) (9,242) (5,320) (252,982) (497,689)
- --------------------------- ---------- -------- -------- -------- --------
Net loss ($24,080,655) ($103,847) (244,468) ($442,746) ($895,871)
======== ============= ========== ========= ========== ==========
Net loss per share <F1> ($0.01) (0.03) ($0.06) ($0.12)
Weighted average common
shares outstanding <F1> 9,969,533 9,775,422 7,470,595 7,434,358
- ---------------------------
<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 JUNE 30, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated Stock-
Common Stock Additional During the holders'
--------------- 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 $ - $ - $ - $402500
Issuance of common stock
for cash ($0.28/share) 21,562 2 6,016 - - - 6018
Cash contributed
to capital - - 5,000 - - - 5000
Net loss - - - - - (141,114) (141114)
- ----------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1990 209,703 21 413,497 - - (141,114) 272404
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 - - - 572519
Issuance of common stock
for cash ($0.24/share) 739,377 74 166,596 - - - 166670
Issuance of common stock
for cash ($1.68/share) 67,146 6 113,744 - - - 113750
Exercise of stock purchase
warrants ($2.40/share) 18,600 2 44,638 - - - 44640
Exercise of stock purchase
warrants ($5.00/share) 27,875 3 139,371 - - - 139374
Cash contributed to capital - - 73,850 - - - 73850
Net loss - - - - - (179,866) (179866)
- ---------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1991 1,169,953 117 1,524,224 - - (320,980) 1203361
<PAGE>
HANOVER GOLD COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION (MAY 2, 1990) THROUGH JUNE 30, 1999
(continued)
</TABLE>
<TABLE>
<CAPTION>
Deficit
Accumulated Stock-
Common Stock Additional During the holders'
--------------- Paid in Subscription Treasury Development Equity
Shares Amount Capital Receivable Stock Stage Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1991 1,169,953 117 1,524,224 - - (320,980) 1203361
Issuance of common stock
for cash ($8.00/share) 178,125 18 1,424,982 - - - 1425000
Issuance of common stock
for cash ($0.72/share) 54,634 5 39,995 - - - 40000
Exercise of stock purchase
warrants ($5.00/share) 10,400 1 51,999 - - - 52000
Net loss - - - - - (314,878) (314878)
- ---------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1992 1,413,112 141 3,041,200 - - (635,858) 2405483
Issuance of common stock
for interest in mineral
property ($6.00/share) 37,500 4 224,996 - - - 225000
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) - - 4100858
Net loss - - - - - (256,769) (256769)
- ---------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1993 2,247,829 225 8,017,084 (649,360) - (892,627) 6475322
Exercise of stock purchase
warrants ($6.40/share) 332,224 33 2,126,202 - - - 2126235
Cancellation of subscribed
shares ($6.40/share) (62,500) (6) (399,994) 400,000 - - -
Cash contributed to capital - - 98,393 - - - 98393
Net loss - - - - -(1,362,954) (1362954)
- ----------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1994 2,517,553 $252 $9,841,685 $(249,360) $ -$(2,255,581) $7336996
</TABLE>
To Be Continued Next Page F/S - 4
<PAGE>
HANOVER GOLD COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION (MAY 2, 1990) THROUGH JUNE 30, 1999
(continued)
<TABLE>
<CAPTION>
Deficit
Accumulated Stock-
Common Stock Additional During the holders'
--------------- 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) $7336996
Issuance of common stock
for cash ($1.40/share) 535,714 53 749,947 - - - 750000
Issuance of common stock
for cash ($1.40/share) 178,571 18 249,982 - - - 250000
Issuance of common stock
for cash ($4.00/share) 50,000 5 199,995 - - - 200000
Issuance of common stock
in satisfaction of vendor
obligations ($4.24/share) 17,420 2 74,094 - - - 74096
Issuance of common stock
in satisfaction of vendor
obligations ($4.00/share) 50,000 5 199,995 - - - 200000
Issuance of common stock
for cash ($4.00/share) 250,000 25 999,975 - - - 1000000
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 - - - 281448
Cash received for
subscribed shares - - - 249,360 - - 249360
Repurchase of previously
issued shares ($6.40/share) (5,750) (1) (36,799) - - - (36800)
Net loss - - - - -(2,329,190) (2329190)
- ----------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1995 3,980,041 398 12,560,303 - -(4,584,771) 7975930
</TABLE>
<PAGE>
HANOVER GOLD COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION (MAY 2, 1990) THROUGH JUNE 30, 1999
(continued)
<TABLE>
<CAPTION>
Deficit
Accumulated Stock-
Common Stock Additional During the holders'
--------------- Paid in Subscription Treasury Development Equity
Shares Amount Capital Receivable Stock Stage Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1995 3,980,041 398 12,560,303 - -(4,584,771) 7975930
Issuance of common stock
for mineral property
rights ($16.00/share) 1,250 - 20,000 - - - 20000
Issuance of common stock
for mineral property
rights ($8.00/share) 131,250 13 1,049,987 - - - 1050000
Issuance of common stock
for mineral property
rights ($6.24/share) 62,500 6 389,994 - - - 390000
Issuance of common stock
for cash ($2.00/share) 535,715 54 1,071,375 - - - 1071429
Issuance of common stock
for cash net of issuance
costs of $70,000
($5.00/share) 250,000 25 1,179,975 - - - 1180000
Net loss - - - - -(1,328,327) (1328327)
- ----------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1996 4,960,756 $496 $16,271,634 $ - $ -$(5,913,098)$10359032
To Be Continued Next Page F/S - 5
</TABLE>
<PAGE>
HANOVER GOLD COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION (MAY 2, 1990) THROUGH JUNE 30, 1999
(continued)
<TABLE>
<CAPTION>
Deficit
Accumulated Stock-
Common Stock Additional During the holders'
--------------- Paid in Subscription Treasury Development Equity
Shares Amount Capital Receivable Stock Stage Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1996 4,960,756 $496 $16,271,634 $ - $ - $(5,913,098)$10359032
Issuance of common stock
for services
rendered ($3.80/share) 10,855 1 41,249 - - - 41250
Grant of option to
director as compensation
for loan guaranty (Note 7) - - 1,457,170 - - - 1457170
Deferred guaranty fee,
subject to grant
exercise (Note 7) - - (688,585) - - - (688585)
Issuance of common stock
for cash ($5.00/share) 284,750 28 1,423,722 - - - 1423750
Issuance of common stock
for an acquisition of
Easton-Pacific (Note 2) 1,750,000 175 4,726,225 - - - 4726400
Issuance of common stock
for cash ($2.00/share) 125,000 13 249,987 - - - 250000
Issuance of common stock for
cash($5.00/share)(Note7) 225,000 23 1,124,977 - - - 1125000
Issuance of common stock
for mineral property rights 726 - - - - - -
Net loss - - - - -(1,788,249) (1788249)
- ----------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1997 7,357,087 736 24,606,379 - -(7,701,347) 16905768
</TABLE>
<PAGE>
HANOVER GOLD COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION (MAY 2, 1990) THROUGH JUNE 30, 1999
(continued)
<TABLE>
<CAPTION>
Deficit
Accumulated Stock-
Common Stock Additional During the holders'
--------------- Paid in Subscription Treasury Development Equity
Shares Amount Capital Receivable Stock Stage Total
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1997 7,357,087 736 24,606,379 - -(7,701,347) 16905768
Issuance of common stock
for services rendered
($2.28/share) 19,668 1 44,999 - - - 45000
Amortization of deferred
guaranty fee, subject to
grant exercise - - 688,585 - - - 688585
Issuance of common stock
for cash ($2.00/share) 65,000 6 129,993 - - - 129999
Issuance of common stock
for cash ($1.80/share) 90,833 9 163,491 - - - 163500
Issuance of common stock
for cash ($1.60/share) 37,500 3 59,997 - - - 60000
Cancellation of common
stock issued for property
rights ($8.00/share) (131,250) (13) (1,049,987) - - - (1050000)
Issuance of common stock
for cash ($2.12/share) 216,014 21 457,929 - - - 457950
Issuance of common stock
for cash ($1.00/share) 300,000 30 299,970 - - - 300000
Other 116 - - - - - -
Issuance of common stock
for cash ($0.72/share) 208,500 21 150,099 - - - 150120
Issuance of common stock
for cash ($0.50/share) 150,000 $15 $74,985 $ - $ - $ - $75000
To Be Continued Next Page F/S - 6
</TABLE>
<PAGE>
HANOVER GOLD COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FROM THE DATE OF INCEPTION (MAY 2, 1990) THROUGH JUNE 30, 1999
(continued)
<TABLE>
<CAPTION>
Deficit
Accumulated Stock-
Common Stock Additional During the holders'
--------------- 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
and options
for cash ($0.38/share) 466,666 $47 $174,953 $ - $ - $ - $175000
Issuance of common stock
and options for
cash ($0.25/share) 400,000 40 99,960 - - - 100000
Issuance of common stock
and options for services
rendered ($0.59/share) 193,067 19 115,544 - - - 115563
Options issued for
accounts payable - - 50,000 - - - 50000
Options issued for services - - 238,668 - - - 238668
Options exchanged for
shares of common stock (19,668) - 3,147 - (3,147) - -
Net loss - - - - -(16,134,840)(16134840)
- ---------------------------------------------------------------------------------------------------
BALANCE,
December 31, 1998 9,353,533 935 26,308,712 - (3,147)(23,836,187) 2470313
Issuance of common stock
and options
for cash ($0.25/share) 300,000 30 74,970 - - - 75000
Options issued for
accounts payable - - 57,160 - - - 57160
Options issued for services - - 25,000 - - - 25000
Issuance of common
stock and options
for cash ($0.125/share) 600,000 60 74,940 - - - 75000
Net loss - - - - - (244,468) (244468)
- ----------------------------------------------------------------------------------------------------
BALANCE, June 30, 1999 10,253,533$1025 $26,540,782 $ - $(3,147)$(24,080,655)$2458005
- -------------------------------
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
F/S-7
<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,`99 June 30, 1999 June 30, 1998
------------------- ------------- -------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (24,080,655) $ (244,468) $ (895,871)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss (Gain) on sale of equipment 28,953 (12,061) -
Abandonment of mining interests 12,012,050 - -
Write-down of mineral properties 2,300,000 - -
Depreciation and depletion 175,263 12,504 18,084
Common stock and options issued for services 668,667 25,000 -
Amortization of deferred guaranty fee 1,457,170 - 485,724
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 3,924 57,366 69,617
(Increase) decrease in other assets (37,842) - -
Increase (decrease) in accounts payable 94,203 (14,571) (29,284)
Increase (decrease) in accrued expenses 153,226 29,479 (84,261)
- ----------------------------------------- ----------- --------- ---------
Net cash used in operating activities (6,445,120) (146,751) (390,991)
- ----------------------------------------- ----------- --------- ---------
Investing activities:
Proceeds from sale of equipment 52,301 24,400 -
Repayment (Advances) under notes receivable (1,089,219) - -
Purchase of furniture and equipment (363,613) - (3,715)
Additions to mineral properties (10,383,585) 24,400 (688,673)
- ----------------------------------------- ------------ --------- ---------
Net cash used in investing activities (11,784,116) 24,400 (692,388)
- ----------------------------------------- ------------ --------- ---------
</TABLE>
<PAGE>
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)(continued)
<TABLE>
<CAPTION>
Date of Inception Six months Six months
(May 2, 1990) Ended Ended
through June 30,`99 June 30, 1999 June 30, 1998
------------------- ------------- -------------
<S> <C> <C> <C>
Financing activities:
Borrowings under note payable to shareholder 48,677 (24,728) (245)
Proceeds from sale of common stock 17,629,545 150,000 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 (181,362) (9,019) (50,657)
Proceeds from related party 108,086 - -
Collection of subscription receivable 249,360 - -
Repurchase of common stock (39,947) - -
Capital contributions 177,243 - -
---------------------- ---------- -------- ---------
Net cash provided by financing activities 18,251,772 116,253 1,060,548
- ----------------------------------------- ---------- -------- ---------
Net increase (decrease) in cash 22,534 (6,098) (22,831)
Cash and cash equivalent, beginning of period - 28,632 180,083
- --------------------------------------------- ---------- -------- ---------
Cash and cash equivalent, end of period $ 22,534 $ $ 157,252
============================================= ========== ======== =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 103,864 $ 2,683 $ 19,070
Income taxes - - -
</TABLE>
F/S-8
<PAGE>
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)(continued)
<TABLE>
<CAPTION>
Date of Inception Six months Six months
(May 2, 1990) Ended Ended
through June 30,`99 June 30, 1999 June 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 $ 281,448 $ - $ -
[The balance of this page has been intentionally left blank.]
</TABLE>
F/S-9
<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 at June 30, 1999 have been
included. Operating results for the six-month period ended June
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 June 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
six months of 1998 totaled $688,585 and completed amortization of
the total value of the options.
<PAGE>
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
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
HANOVER GOLD COMPANY, INC.
By: /s/ Hobart Teneff
---------------------
Hobart Teneff, its
President
Date: August 13, 1999
By: /s/ Wayne Schoonmaker
----------------------
Wayne Schoonmaker, its
Principal Accounting
Officer
Date: August 13, 1999
F/S-12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000778165
<NAME> HANOVER GOLD COMPANY INC
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 22,534
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 46,198
<PP&E> 2,910,495<F1>
<DEPRECIATION> 107,465
<TOTAL-ASSETS> 2,887,070
<CURRENT-LIABILITIES> 429,064
<BONDS> 0
0
0
<COMMON> 1,025
<OTHER-SE> 2,456,981<F2>
<TOTAL-LIABILITY-AND-EQUITY> 2,887,070
<SALES> 0
<TOTAL-REVENUES> 753<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 226,644
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,381
<INCOME-PRETAX> (244,468)
<INCOME-TAX> 0
<INCOME-CONTINUING> (244,468)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (244,468)
<EPS-BASIC> (0.03)
<EPS-DILUTED> (0.01)
<FN>
<F1>Consists of $2,730,334 in resource properties and claims, and $180,161 in
property and equipment, at cost.
<F2>Consists of $26,540,783 in additional paid-in capital, less a deficit of
$24,080,655 accumulated during development stage, less $3,147 treasury stock.
<F3>Consists of $753 in iterest income.
</FN>
</TABLE>
