SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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
of incorporation) Identification No.)
15102 E. Indiana Ave.
Spokane, Washington 99216
(Address of principal executive offices)
Registrant's telephone number,
including area code: (509) 891-8817
Common Stock The 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 [ ]
HANOVER GOLD COMPANY, INC. QUARTERLY REPORT
ON FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED MARCH 31, 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.]
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 three-month period ended March 31, 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 March 31, 1999.
Three months Ended March 31, 1999 compared to the three months Ended March
31, 1998.
During the three months ended March 31, 1999, the Company generated no
revenue. General and administrative expenses decreased to $138,027 for the
three-month period ended March 31, 1999 as compared to $199,459 for the
three-month period ended March 31, 1998. The decrease is principally
attributed to reductions in lease expenses and accounting fees, and gain on
the disposition of equipment. For the three months ended March 31, 1999,
the Company experienced a loss of $140,621, or $0.01 per share, compared
to a loss of $453,125, or approximately $0.06 per share, during the
comparable period in the previous year. Included in the 1998 loss was a
$242,862 charge representing amortization of the value of options granted
for a guaranty of future company obligations. There was no comparable
charge in the first three months of 1999.
First Quarter 1999
During the first quarter 1999, the company's loss amounted to $140,621;
approximately 45% of which were payroll-related costs exclusive of the
value of options due the company's President for compensation and rent.
Liquidity and Capital Resources.
The Company is an exploration stage mining company and for financial
reporting purposes has been categorized as a development stage company
since its inception. At March 31, 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 $469,300 to $1,122,310 in 1998, 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.
-1-
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. 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 as quoted on the OTC Bulletin
Board for the period during which the sales were made. 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 1999 three of the affiliates
collectively loaned $45,000 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 360,000 shares of common stock in the aggregate
exercisable at $0.25 per share. Also in January, one of the affiliates
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. The Company does not know how long it will be able to
borrow from or sell equity to its affiliates or others and can give no
assurance that it will be able to finance its obligations for the balance
of 1999 and thereafter.
Although market prices for the Company's stock tend to fluctuate they have
overall declined from $1.25 per share at May 6, 1997 ($5.00 post
recapitalization) to $0.125 per share at March 31, 1999, largely as a
consequence of the significant drop in world gold prices and the passage of
I-137, which prohibits the use of cyanide in new or expanded open pit
mining operations, in the State of Montana.
As previously reported the Company was unable to meet Nasdaq's enhanced
requirements to maintain a $1.00 bid price for its shares and on December
4, 1998 the Company was delisted from the Nasdaq SmallCap Market and its
shares commenced to be quoted on the OTC Bulletin Board. Since being
delisted the market price for the Company's stock has declined 44% to
$0.125 per share at March 31, 1999.
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 $23,976,808 from its
inception through March 31, 1998. Unless the Company is able to borrow or
sell shares of its common stock it will continue to experience a shortage
of working capital.
In order to reduce costs, in October 1998 the Company relocated its offices
from Coeur d'Alene, Idaho to the Spokane, Washington offices of the
Company's President, Raymond A. Hanson. Mr. Hanson's annual compensation of
$90,000 is payable in options for 200,000 shares of common stock and the
Company's annual rent is payable in options for 20,000 shares of the
Company's common stock. The terms of the options, which are granted
quarterly, are for five years and are exercisable at $0.50 per share. 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 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.
Because of the depressed price for gold, mining companies in general have
curtailed exploration activities in favor of pursuing properties with known
reserves or production in areas conducive to mining activity. Consequently
the Company has been unable to negotiate a joint financing arrangement with
another company. The Company believes that it will only be successful in
negotiating a joint venture or other financing arrangement if the price of
gold increases, the ban against the use of cyanide is lifted, and the
Company is able to reconsolidate the district by renegotiating leases with
the landowners of the Alder Gulch claims on more reasonable terms.
At March 31, 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.
-2-
Unless there is a significant increase in the price for gold and unless I-
137 is reversed and the Company is able to reacquire the Alder Gulch claims
under more favorable conditions, management does not believe that it will
be able to negotiate a joint venture or other financing to conduct
exploration and development activities on the Company's properties. Due to
numerous factors beyond the control of the Company, such as global and
regional demand, political, economical conditions of major gold producing
countries, the strength of world currencies, and inflation, the price of
gold has steadily declined from a high of $414.80/oz in February of 1996 to
a low of $276.30/oz August 27, 1998. At March 31, 1999 the price of gold
was $279.90/oz.
Although the Company's operations are subject to general inflationary
pressures, these pressures have not had a significant effect on operations,
particularly since early 1995 when mining and processing operations were
suspended for lack of funds. If the Company resumes extensive exploration
and development activities, which can be expected to occur only if it is
successful in negotiating a joint venture or other agreement with a major
mining company, any inflationary move could result in an increase in the
cost of goods and services necessary to its mining operations.
Due to the difficulties of operating in the State of Montana, the Company
is investigating other opportunities in areas more conductive to mining
activity. In March 1999 the Company signed a letter of intent to acquire
certain mining claims located in Chile for 100,000 shares of the Company's
common stock and $17,000 cash.
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.
-3-
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 three months ended March 31, 1999 were as follows:
During the three months ended March 31, 1999, the Company's cash position
decreased $12,000, to $16,000. During the three-month period, the Company
used $101,000 in operating activities, primarily as a result of the
reported $141,000 net loss. Investing activities realized proceeds of
$24,000 from the sale of equipment. During the period, the Company
received $75,000 from the sale of 300,000 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
200,000 shares of its common stock for $0.25 per share to an affiliate in
January 1999 and 100,000 shares of its common stock for $0.25 per share in
February 1999, 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.
No matters were submitted to a vote of the registrant's security holders
during the period covered by this report.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits. The following exhibit is filed as part of this report:
Exhibit 27.0 Financial Data Schedule
Reports on Form 8-K. No reports on Form 8-K were filed by the
registrant during the period covered by this report.
-4-
HANOVER GOLD COMPANY, INC.
TABLE OF CONTENTS
Page
Condensed Balance Sheets as of March 31, 1999
and December 31, 1998 F/S-2
Condensed Statements of Operations for the three
months Ended March 31, 1999 and 1998, and for
the period from inception (May 2, 1990)
to March 31, 1999 F/S-3
Condensed Statements of Changes in Stockholders'
Equity for the period from inception (May 2, 1990)
to March 31, 1999 F/S-4
Condensed Statements of Cash Flow for the three
months Ended March 31, 1999 and for the period
from inception (May 2, 1990)
to March 31, 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
HANOVER GOLD COMPANY, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS March 31,1999 December 31,1998
- ------------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash $ 16,452 $ 28,632
Prepaid expenses and
other current assets 51,630 81,030
- ------------------------------------------------------------------------------
Total current assets 68,082 109,662
Fixed Assets:
Furniture and equipment,
net of accumulated depreciation
of $101,477 and $130,510 78,684 97,539
Mineral properties, net 2,730,334 2,730,334
Other Assets:
Other assets 37,842 37,842
- ------------------------------------------------------------------------------
Total Assets 2,914,942 $2,975,377
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,305 $ 37,393
Notes payable to shareholders 365,331 428,491
Accrued payroll and payroll taxes 10,543 13,068
Other accrued expenses 22,899 15,590
Current portion of long-term debt 6,012 10,522
- ------------------------------------------------------------------------------
Total current liabilities 428,090 505,064
Long-term debt, less current portion - -
- ------------------------------------------------------------------------------
Total liabilities 428,090 505,064
- ------------------------------------------------------------------------------
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 9,653,533
and 9,353,533 shares respectively 965 935
Additional paid-in capital 26,465,842 26,308,712
Deficit accumulated during the
development stage (23,976,808) (23,836,187)
Treasury stock, at cost (19,668 shares) (3,147) (3,147)
- ------------------------------------------------------------------------------
Total Stockholders equity 2,486,852 2,470,313
- ------------------------------------------------------------------------------
$ 2,914,942 $ 2,975,377
</TABLE>
F/S-2
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF INCOME (LOSS)
(Unaudited)
<TABLE>
<CAPTION>
Date of Inception Quarter Quarter Quarter
(May 2, 1990) Ended Ended Ended
through March 31,`99 March 31,'99 March 31,'98 March 1,'97
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 1,151,958 $ 0 $ 0 $ 0
Operating expenses:
Cost of goods mined 1,987,483 0 0 0
Depreciation and amortization 169,275 6,516 8,939 4,769
Provision for bad debt 779,921 0 0 0
Abandonment of mining
interests (Note 3) 12,012,050 - - -
Write-down of mineral
property (Note 3) 2,300,000 - - -
General and administrative
expenses 6,387,799 138,027 199,459 180,683
---------- -------- -------- --------
Total operating expenses 24,788,486 144,543 208,418 185,452
- -----------------------------------------------------------------------------------------
Operating loss (23,636,528) (144,543) (208,418) (185,452)
Other Income (expense):
Amortization of Guaranty Fee (1,457,170) 0 (242,862) 0
Interest and other
(expense) net (6,114) (8,139) (1,845) 1,741
Gain (Loss) on disposition
of assets (28,954) 12,061 0 (8,255)
---------- ---------- --------- -------
Total other income (expense) (1,492,238) 3,922 (244,707) (6,514)
- -----------------------------------------------------------------------------------------
Net loss ($23,976,808) ($140,621) ($453,125) ($191,966)
=========================================================================================
Net loss per share (F1) ($0.01) ($0.06) ($0.04)
Weighted average common
shares outstanding (F1) 9,443,533 7,397,742 4,965,460
____________________
<FN>
<F1> Restated - Note 2
</FN>
</TABLE>
F/S-3
HANOVER GOLD COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From the Date of Inception (May 2, 1990) through March 31, 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 cash ($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
</TABLE>
To Be Continued Next Page
F/S - 4
HANOVER GOLD COMPANY, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
From the Date of Inception (May 2, 1990) through March 31, 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
</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 March 31, 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 31,1996 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
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)(Note7) 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
</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 March 31, 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
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
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
Net loss - - - - - (140,621) (140,621)
- -------------------------------------------------------------------------------------------------------
Balance, March 31,1999 9,653,533 $965 $26,465,842 $ - $(3,147)$(23,976,808) $2,486,852
</TABLE>
-------------------------------------------------
See accompanying summary of accounting policies and notes to
financial statements.
F/S-7
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Date of Inception Three months Three months
(May 2, 1990) Ended Ended
through March 31,`99 March 31, 1999 March 31, 1998
-------------------- -------------- --------------
<S> <C> <C> <C>
Operating activities:
Net loss $ (23,976,808) $ (140,621) $ (453,125)
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 169,275 6,516 8,959
Common stock and options issued
for services 668,667 25,000 -
Amortization of deferred
guaranty fee 1,457,170 - 242,862
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 (24,043) 29,400 (32,675)
(Increase)decrease in
other assets (37,842) - -
Increase(decrease) in
accounts payable 94,686 (14,088) (20,192)
Increase (decrease) in
accrued expenses 128,530 4,784 (37,663)
----------------------- -------- ---------- ---------
Net cash used in operating activities (6,399,441) (101,070) (181,484)
- -------------------------------------------------------------------------------
Investing activities:
Proceeds from sale of equipment 52,301 24,400 -
Repayment (Advances) under
notes receivable (1,089,219) - -
Purchase of furniture & equipment (363,613) - (407)
Additions to mineral properties (10,383,585) (201,273)
----------------------- ------------ ------- ---------
Net cash used in
investing activities (11,784,116) 24,400 (201,680)
- ------------------------------------------------------------------------------
Financing activities:
Borrowings under note payable
to shareholder 67,405 (6,000) -
Proceeds from sale of common stock 17,554,545 75,000 348,500
Proceeds from issuance of
convertible debt 215,170 - -
Proceeds from issuance of
long term debt 45,000 - -
Repayment of long-term debt (176,853) (4,510) (35,329)
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 18,200,009 64,490 313,171
- -------------------------------------------------------------------------------
Net increase (decrease) in cash (16,452) (12,180) (69,993)
Cash and cash equivalent,
beginning of period - 28,632 180,083
------------------------- --------- -------- ----------
Cash and cash equivalent,
end of period $ (16,452) $ 16,452 $ 110,090
===============================================================================
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 102,398 $ 1,217 $ 7,936
Income taxes - - -
</TABLE>
F/S-8
HANOVER GOLD COMPANY, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Date of Inception Three months Three months
(May 2, 1990) Ended Ended
through March 31,`99 March 31, 1999 March 31, 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 $ - $ -
</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 March 31, 1999 have been included. Operating results for
the three- month period ended March 31, 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 March 31, 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 three 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/ Raymond A. Hanson
----------------------
Raymond A. Hanson, its
President
Date: May 14, 1999
By: /s/ Wayne Schoonmaker
----------------------
Wayne Schoonmaker, its
Principal Accounting Officer
Date: May 14, 1999
F/S-12
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000778165
<NAME> HANOVER GOLD COMPANY, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 16,452
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,082
<PP&E> 2,910,495<F1>
<DEPRECIATION> 101,477
<TOTAL-ASSETS> 2,914,942
<CURRENT-LIABILITIES> 428,090
<BONDS> 0
0
0
<COMMON> 965
<OTHER-SE> 2,485,887<F2>
<TOTAL-LIABILITY-AND-EQUITY> 2,914,942
<SALES> 0
<TOTAL-REVENUES> 387<F3>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 144,543
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,139
<INCOME-PRETAX> (140,621)
<INCOME-TAX> 0
<INCOME-CONTINUING> (140,621)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (140,621)
<EPS-PRIMARY> (0.01)
<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 $26,465,842 IN ADDITIONAL PAID-IN CAPITAL, LESS A DEFICIT OF
$23,976,808 ACCUMULATED DURING DEVELOPMENT STAGE, LESS $3,147 TREASURY STOCK.
<F3>CONSISTS OF $387 IN INTEREST INCOME.
</FN>
</TABLE>
