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, 2000
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 MARCH 31, 2000
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1: Financial Statements 1
Item 2: Management's Discussion and Analysis
of Financial Condition and Results of Operations 1
PART II - OTHER INFORMATION
Item 1: Legal Proceedings 3
Item 2: Changes in Securities 3
Item 3: Defaults upon Senior Securities 3
Item 4: Submission of Matters to a Vote of Security Holders 4
Item 5: Other Information 4
Item 6: Exhibits and Reports on Form 8-K 4
SIGNATURES
[The balance of this page has been intentionally left blank.]
<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
three-month period ended March 31, 2000 are not necessarily indicative of the
results that may be expected for the full year ending December 31, 2000.
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, 1999
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, 2000.
Three months ended March 31, 2000 compared to the three months ended March 31,
1999.
During the three months ended March 31, 2000, the Company generated no revenue.
General and administrative expenses decreased to $35,583 for the three-month
period ended March 31, 2000 as compared to $144,543 for the three-month period
ended March 31, 1999. The decrease is principally attributed to reduced salary
and insurance expenses. For the three months ended March 31, 2000, the Company
experienced a loss of $42,798 compared to a loss of $140,621, or $0.01 per
share, during the comparable period in the previous year.
First Quarter 2000
During the first quarter 2000, the company's loss amounted to $42,798, which
represents a 70% reduction from the first quarter 1999.
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, 2000, 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.
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 2000 total approximately $11,000.
Due to the Company's lack of revenues and negative working capital, the
Company's independent certified
-1-
public accountants included a paragraph in the Company's 1999 financial
statements relative to a going concern uncertainty. The Company has financed
its obligations during the three months ended March 31, 2000 by selling 200,000
shares of its common stock to certain affiliates of the Company for $0.10 per
share. Five-year options for 400,000 shares at an option price of $0.20 per
share were granted in connection with the purchase of the shares. 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
quoted on the OTC Bulletin Board for the period during which the sales were
made.
The Company's stock continues to trade in the low numbers ($0.10 per share at
March 31, 2000) 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, and in part from the Company
having been delisted from the Nasdaq Small Cap Market.
Although the Company expects to meet its 2000 obligations using borrowed funds
and funds from the sale of shares of common stock, due to the depressed 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 2000 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
$24,333,885 from its inception through March 31, 2000. Unless the Company is
able to borrow or sell shares of its common stock it will continue to experience
a shortage of working capital.
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 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 March 31, 2000 the New York Spot price for gold was $278.40.
In October 1999 the Company entered into a Lease with Option agreement to
purchase 20 claims located in Region III of Atacarna, Chile. The Company had
hoped to attract a major mining company to assume the lease payments under the
agreement and perform exploration activities on the claims. The Company was
unable to negotiate such an arrangement before April 7, 2000, the date the
Company was first obligated to make a payment under the lease, and as a result
the lease has been terminated.
At March 31, 2000, the Company 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.
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
-2-
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 three months ended March 31, 2000 were as follows: During the
three months ended March 31, 2000, the Company's cash position increased $3,467,
to $16,437. During the three-month period, the Company used $16,539 in
operating activities, primarily as a result of the reported $42,798 net loss.
During the period, the Company received $20,000 from the sale of 200,000 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 $0.10 per share in February 2000 pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933 as
amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The registrant has no outstanding senior securities.
-3-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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.
-4-
HANOVER GOLD COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
MARCH 31, 2000 AND DECEMBER 31, 1999
WILLIAMS & WEBSTER PS
CERTIFIED PUBLIC ACCOUNTANTS
SEAFIRST FINANCIAL CENTER
W 601 RIVERSIDE, SUITE 1940
SPOKANE, WA 99201
(509) 838-5111
<PAGE>
HANOVER GOLD COMPANY, INC.
C O N T E N T S
Accountant's Review Report 1
Balance Sheets 2
Statements of Operations 4
Statements of Stockholders' Equity 5
Statements of Cash Flows 12
Notes to the Financial Statements 14
<PAGE>
[LETTERHEAD WILLIAMS & WEBSTER, P.S.]
Certified Public Accountants & Business Consultants
Bank Of America Financial Center
601 W Riverside, Suite 1940 Spokane, WA 99201-0611
509-838-5111 Fax: 509-838-5114 E-mail: [email protected]
The Board of Directors
Hanover Gold Company, Inc.
(A Development Stage Company)
Veradale, Washington
ACCOUNTANT'S REVIEW REPORT
We have reviewed the accompanying balance sheet of Hanover Gold Company, Inc. (a
development stage company) as of March 31, 2000, and the related statements of
operations, stockholders' equity, and cash flows for the three months ended
March 31, 2000, and for the period from May 2, 1990 (inception) through March
31, 2000. These financial statements are the responsibility of the Company's
management.
We conducted out review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements in order for them to be in
conformity with generally accepted accounting principles.
The balance sheet for the year ended December 31, 1999 was audited by us and we
expressed an unqualified opinion on it in our report dated March 16, 2000. We
have not performed any auditing procedures since that date.
The statements of operations and cash flows for the three months ended March 31,
1999 and 1998 were reviewed by another accountant, whose report dated May 14,
1999, stated that they were not aware of any material modifications that should
be made to those statements in order for them to be in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 3, the Company
has been in the development stage since its inception on May 2, 1990.
Realization of a major portion of the assets is dependent upon the Company's
ability to meet its future financing requirements, and the success of future
operations. These factors raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans regarding those matters also
are described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
May 2, 2000
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited)
------------- --------------
A S S E T S
<S> <C> <C>
CURRENT ASSETS
Cash . . . . . . . . . . . . . . . . . . . $ 16,437 $ 12,970
Prepaid expenses and other current assets. 14,694 24,245
------------- --------------
Total Current Assets . . . . . . . . . . 31,131 37,215
------------- --------------
MINERAL PROPERTIES . . . . . . . . . . . . . 2,597,147 2,597,147
------------- --------------
FIXED ASSETS
Furniture and equipment. . . . . . . . . . 152,710 152,710
Less: accumulated depreciation . . . . . . (109,248) (105,038)
------------- --------------
Total Fixed Assets . . . . . . . . . . . 43,462 47,672
------------- --------------
OTHER ASSETS
Deposits . . . . . . . . . . . . . . . . . 32,000 32,000
------------- --------------
TOTAL ASSETS . . . . . . . . . . . . . . . . $ 2,703,740 $ 2,714,034
============= ==============
</TABLE>
See accountant's review report and accompanying notes.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(Unaudited)
---------------- ----------------
L I A B I L I T I E S A N D
S T O C K H O L D E R S ' E Q U I T Y
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable. . . . . . . . . . . . . . . $ 10,815 $ 1,105
Notes payable to shareholders . . . . . . . . 297,000 297,000
Accrued payroll and payroll taxes . . . . . . 1,647 2,141
Other accrued expenses. . . . . . . . . . . . 23,143 19,861
---------------- ----------------
Total Current Liabilities . . . . . . . . . 332,605 320,107
---------------- ----------------
COMMITMENTS AND CONTINGENCIES . . . . . . . . . - -
---------------- ----------------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value; 2,000,000
shares authorized, no shares issued and
outstanding . . . . . . . . . . . . . . . . - -
Common stock, $0.0001 par value; 48,000,000
shares authorized, 11,879,296 and
11,621,276 shares issued and outstanding,
respectively. . . . . . . . . . . . . . . . 1,190 1,164
Additional paid-in capital. . . . . . . . . . 26,706,977 26,686,997
Accumulated deficit during development stage. (24,333,885) (24,291,087)
Treasury stock, at cost (19,668 shares) . . . (3,147) (3,147)
---------------- ----------------
Total Stockholders' Equity. . . . . . . . . 2,371,135 2,393,927
---------------- ----------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY. . . . . . . . . . . . . $ 2,703,740 $ 2,714,034
================ ================
</TABLE>
See accountant's review report and accompanying notes.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Quarter Ended March 31,
-------------------------------------------------------
2000 1999 1998
(Unaudited) (Unaudited) (Unaudited)
---------------- ------------------- -----------------
<S> <C> <C> <C>
REVENUES $ - $ - $ -
COST OF GOODS MINED - - -
---------------- ------------------- -----------------
GROSS PROFIT (LOSS) - - -
---------------- ------------------- -----------------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization 4,209 6,516 8,939
Bad debt expenses - - -
Other general and administrative expenses 31,374 138,027 199,459
---------------- ------------------- -----------------
Total Expenses 35,583 144,543 208,398
---------------- ------------------- -----------------
OPERATING LOSS (35,583) (144,543) (208,398)
---------------- ------------------- -----------------
OTHER INCOME (EXPENSES)
Abandonment of mining interests - - -
Write-down of mineral property - - -
Loss on sale of mineral property - - -
Amortization of guaranty fee - - (242,862)
Interest expense, net (7,215) (8,139) (1,845)
Gain (loss) on sale of equipment - 12,061 -
---------------- ------------------- -----------------
Total Other Income (Expenses) (7,215) 3,922 (244,707)
---------------- ------------------- -----------------
LOSS BEFORE INCOME TAXES (42,798) (140,621) (453,105)
INCOME TAXES - - -
---------------- ------------------- -----------------
NET LOSS $ (42,798) $ (140,621) $ (453,105)
================ =================== =================
BASIC AND DILUTED NET LOSS
PER COMMON SHARE . . . . . . . . . . . . . nil $ (0.01) $ (0.06)
================ =================== =================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 11,788,129 9,443,533 7,397,742
================ =================== =================
Period from
May 2, 1990
(Inception)
through
March 31, 2000
(Unaudited)
------------------
<S> <C>
REVENUES . . . . . . . . . . . . . . . . . . $ 1,151,958
COST OF GOODS MINED. . . . . . . . . . . . . 1,987,483
-------------------
GROSS PROFIT (LOSS). . . . . . . . . . . . . (835,525)
-------------------
GENERAL AND ADMINISTRATIVE EXPENSES
Depreciation and amortization. . . . . . . 189,834
Bad debt expenses. . . . . . . . . . . . . 779,921
Other general and administrative expenses. 6,587,948
-------------------
Total Expenses . . . . . . . . . . . . . 7,557,703
-------------------
OPERATING LOSS . . . . . . . . . . . . . . . (8,393,228)
-------------------
OTHER INCOME (EXPENSES)
Abandonment of mining interests. . . . . . (12,012,050)
Write-down of mineral property . . . . . . (2,300,000)
Loss on sale of mineral property . . . . . (108,187)
Amortization of guaranty fee . . . . . . . (1,457,170)
Interest expense, net. . . . . . . . . . . (36,159)
Gain (loss) on sale of equipment . . . . . (27,091)
-------------------
Total Other Income (Expenses). . . . . . (15,940,657)
-------------------
LOSS BEFORE INCOME TAXES . . . . . . . . . . (24,333,885)
INCOME TAXES . . . . . . . . . . . . . . . . -
-------------------
NET LOSS . . . . . . . . . . . . . . . . . . $ (24,333,885)
===================
BASIC AND DILUTED NET LOSS
PER COMMON SHARE . . . . . . . . . . . . . $ (5.22)
===================
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING . . . . . . . . . . . . 4,663,480
===================
</TABLE>
See accountant's review report and accompanying notes.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
------------ During the Total
Number Additional Development Stockholders'
of Shares Amount Paid in Capital Stage Equity
--------- -------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, May 2, 1990 . . . . . . - $ - $ - $ - $ -
Issuance of common stock for
cash at $2.12 per share. . . . 188,141 19 402,481 - 402,500
Issuance of common stock for
cash at $0.28 per share. . . . 21,562 2 6,016 - 6,018
Cash contributed to capital. . . - - 5,000 - 5,000
Net loss for the year ended
December 31, 1990. . . . . . . - - - (141,114) (141,114)
--------- -------------- ---------------- --------------- --------------
Balance, December 31, 1990 . . . 209,703 21 413,497 (141,114) 272,404
Issuance of common stock to
directors at $0.0004 per share 50,000 5 15 - 20
Issuance of common stock for
claims and engineering costs
at $10.00 per share. . . . . . 57,252 6 572,513 - 572,519
Issuance of common stock for
cash at $0.24 per share. . . . 739,377 74 166,596 - 166,670
--------- -------------- ---------------- --------------- --------------
Balance, carried forward . . . . 1,056,332 $ 106 $ 1,152,621 $ (141,114) $ 1,011,613
--------- -------------- ---------------- --------------- --------------
</TABLE>
See accountant's review report and accompanying notes.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
------------- During the Total
Number Additional Development Stockholders'
of Shares Amount Paid in Capital Stage Equity
--------- ----------- ---------------- --------------- -------------------
<S> <C> <C> <C> <C> <C>
Balance, brought forward. . . 1,056,332 $ 106 $ 1,152,621 $ (141,114) $ 1,011,613
Issuance of common stock for
cash at $1.68 per share . . 67,146 6 113,744 - 113,750
Exercise of stock purchase
warrants at $2.40 per share 18,600 2 44,638 - 44,640
Exercise of stock purchase
warrants at $5.00 per share 27,875 3 139,371 - 139,374
Cash contributed to capital . - - 73,850 - 73,850
Net loss for the year
December 31, 1991 . . . . . - - - (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 at $8.00 per share . . 178,125 18 1,424,982 - 1,425,000
Issuance of common stock for
cash at $0.72 per share . . 54,634 5 39,995 - 40,000
--------- ----------- ---------------- --------------- -------------------
Balance, carried forward. . . 1,402,712 $ 140 $ 2,989,201 $ (320,980) $ 2,668,361
--------- ----------- ---------------- --------------- -------------------
</TABLE>
See accountant's review report and accompanying notes.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the Total
--------------------- Additional Subscription Development Stockholders'
Shares Amount Paid in Capital Receivable Stage Equity
--------- ----------- ---------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, brought forward. . . 1,402,712 $ 140 $ 2,989,201 $ - $ (320,980) $ 2,668,361
Excerise of stock purchase
warrants at $5.00 per share 10,400 1 51,999 - - 52,000
Net loss for the year ended
December 31, 1992 . . . . . - - - - (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 at $6.00 per
share . . . . . . . . . . . 37,500 4 224,996 - - 225,000
Issuance of common stock
to officer at $0.04 per
share . . . . . . . . . . . 31,791 3 747 - - 750
Exercise of stock purchase
warrants at $6.40 per
share . . . . . . . . . . . 765,426 77 4,750,141 (649,360) - 4,100,858
Net loss for the year ended
December 31, 1993 . . . . . - - - - (256,769) (256,769)
--------- ----------- ---------------- ------------ ------------ -------------
Balance, December 31, 1993. . 2,247,829 $ 225 $ 8,017,084 $ (649,360) $ (892,627) $ 6,475,322
--------- ----------- ---------------- ------------ ------------ -------------
</TABLE>
See accountant's review report and accompanying notes.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the Total
--------------------- Additional Subscription Development Stockholders'
Shares Amount Paid in Capital Receivable Stage Equity
---------- ------------ ----------------- ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, brought forward. . . 2,247,829 $ 225 $ 8,017,084 $ (649,360) $ (892,627) $ 6,475,322
Exercise of stock purchase
warrants at $6.40 per
share . . . . . . . . . . . 332,224 33 2,126,202 - - 2,126,235
Cancellation of subscribed
shares at $6.40 per
share . . . . . . . . . . . (62,500) (6) (399,994) 400,000 - -
Cash contributed to capital . - - 98,393 - - 98,393
Net loss for the year ended
December 31, 1994 . . . . . - - - - (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
Issuance of common stock for
cash at $1.40 per share . . 535,714 53 749,947 - - 750,000
Issuance of common stock
for cash at $1.40 per share 178,571 18 249,982 - - 250,000
---------- ------------ ----------------- ------------ ------------- --------------
Balance, carried forward. . . 3,231,838 $ 323 $ 10,841,614 $ (249,360) $ (2,255,581) $ 8,336,996
---------- ------------ ----------------- ------------ ------------- --------------
</TABLE>
See accountant's review report and accompanying notes.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the Total
--------------------- Additional Subscription Development Stockholders'
Shares Amount Paid in Capital Receivable Stage Equity
---------- ------------ ----------------- ----------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, brought forward . . . 3,231,838 $ 323 $ 10,841,614 $ (249,360) $ (2,255,581) $ 8,336,996
Issuance of common stock for
cash at $4.00 per share. . . 300,000 30 1,199,970 - - 1,200,000
Issuance of common stock in
satisfaction of vendor
obligation at prices ranging
from $4.00 to $4.24 per
share. . . . . . . . . . . . 67,420 7 274,089 - - 274,096
Issuance of common stock
to officer at minimum cost . 49,459 5 15 - - 20
Issuance of common stock
pursuant to convertible
debt at $0.83 per share. . . 337,074 34 281,414 - - 281,448
Cash received for subscribed
shares . . . . . . . . . . . - - - 249,360 - 249,360
Repurchase of previously
issued shares at $6.40
per share. . . . . . . . . . (5,750) (1) (36,799) - - (36,800)
Net loss for the year ended
December 31, 1995. . . . . . - - - - (2,329,190) (2,329,190)
---------- ------------ ----------------- ----------------- ------------- --------------
Balance, December 31, 1995 . . 3,980,041 $ 398 $ 12,560,303 $ - $ (4,584,771) $ 7,975,930
---------- ------------ ----------------- ----------------- ------------- --------------
</TABLE>
See accountant's review report and accompanying notes.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Accumulated
------------------- During the Total
Number Additional Development Stockholders'
of Shares Amount Paid-in Capital Stage Equity
--------- ----------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Balance forward . . . . . . . . . . . . . 3,980,041 $ 398 $ 12,560,303 $ (4,584,771) $ 7,975,930
Issuance of common stock for mineral
property rights at prices ranging from
$6.24 to $16.00 per share . . . . . . . 195,000 19 1,459,981 - 1,460,000
Issuance of common stock for cash
at $2.00 per share. . . . . . . . . . . 535,715 54 1,071,375 - 1,071,429
Issuance of common stock for cash
net of issuance cost of $70,000
at $5.00 per share. . . . . . . . . . . 250,000 25 1,179,975 - 1,180,000
Net loss for the year ended
December 31, 1996 . . . . . . . . . . . - - - (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
serivces rendered at $3.80
per share . . . . . . . . . . . . . . . 10,855 1 41,249 - 41,250
Grant of option to director as
compensation for loan
loan guaranty (Note 7) - - 1,457,170 - 1,457,170
----------- ---------------- ---------------- -------------- -----------
Balance, carried forward. . . . . . . . . 4,971,611 $ 497 $ 17,770,053 $ (5,913,098) $ 11,857,452
--------- ----------- ---------------- ---------------- --------------
</TABLE>
See accountant's review report and accompanying notes.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the Total
--------------------- Additional Development Stockholders'
Shares Amount Paid in Capital Stage Equity
--------- ----------- ----------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Balance, brought forward . . . 4,971,611 $ 497 $ 17,770,053 $ (5,913,098) $ 11,857,452
Deferred guaranty fee, subject
to grant exercise. . . . . . - - (688,585) - (688,585)
Issuance of common stock for
cash at prices ranging from
$2.00 to $5.00 per share . . 634,750 64 2,798,686 - 2,798,750
Issuance of common stock
for an acquisition of
Easton-Pacific . . . . . . . 1,750,000 175 4,726,225 - 4,726,400
Issuance of common stock
for mineral property rights. 726 - - - -
Net loss for the year ended
December 31, 1997. . . . . . - - - (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 at
$2.28 per share. . . . . . . 19,668 1 44,999 - 45,000
--------- ----------- ----------------- ------------- --------------
Balance, carried forward . . . 7,376,755 $ 737 $ 24,651,378 $ (7,701,347) $ 16,950,768
--------- ----------- ----------------- ------------- --------------
</TABLE>
See accountant's review report and accompanying notes.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the Total
--------------------- Additional Development Stockholders'
Shares Amount Paid in Capital Stage Equity
---------- ------------ ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, brought forward. . 7,376,755 $ 737 $ 24,651,378 $ (7,701,347) $ 16,950,768
Amortization of deferred
guaranty fee, subject to
grant exercise. . . . - - 688,585 - 688,585
Issuance of common stock at
prices ranging from $0.50
to $2.12 per share. . . . 1,067,847 105 1,336,464 - 1,336,569
Cancellation of common
stock issued for property
rights at $8.00 per share (131,250) (13) (1,049,987) - (1,050,000)
Share adjustment. . . . . . 116 - - - -
Issuance of common stock
and options at prices
ranging from $0.25 to
$0.38 per share . . . . . 866,666 87 274,913 - 275,000
Issuance of common stock
and options for services
rendered at $0.59
per share . . . . . . . . 193,067 19 115,544 - 115,563
---------- ------------ ----------------- --------------- ---------------
Balance, carried forward. . 9,373,201 $ 935 $ 26,016,897 $ (7,701,347) $ 18,316,485
---------- ------------ ----------------- --------------- ---------------
</TABLE>
See accountant's review report and accompanying notes.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the Total
----------------------- Additional Treasury Development Stockholders'
Shares Amount Paid in Capital Stock Stage Equity
----------- ---------- ---------------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balance, brought forward. . 9,373,201 $ 935 $ 26,016,897 $ - $ (7,701,347) $ 18,316,485
Options issued for accounts
payable . . . . . . . . . - - 50,000 - - 50,000
Options issued for services - - 238,668 - - 238,668
Options exchanged for
common stock. . . . . . . (19,668) - 3,147 (3,147) - -
Net loss for the year ended
December 31, 1998 . . . . - - - - (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 at prices
ranging from $0.07 to
$0.25 per share . . . . . 1,435,716 145 194,856 - - 195,001
Issuance of common stock
for debt at $0.12 per
share . . . . . . . . . . 436,827 44 54,560 - - 54,604
----------- ---------- ---------------- ----------- -------------- ---------------
Balance, carried forward. . 11,226,076 $ 1,124 $ 26,558,128 $ (3,147) $ (23,836,187) $ 2,719,918
----------- ---------- ---------------- ----------- -------------- ---------------
</TABLE>
See accountant's review report and accompanying notes.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock During the Total
----------------------- Additional Treasury Development Stockholders'
Shares Amount Paid in Capital Stock Stage Equity
---------- ---------- ---------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, brought forward . . . 11,226,076 $ 1,124 $ 26,558,128 $ (3,147) $ (23,836,187) $ 2,719,918
Issuance of common stock
for accrued interest at
$0.07 per share. . . . . . . 395,200 40 29,600 - - 29,640
Options issued for accounts
payable. . . . . . . . . . . - - 57,160 - - 57,160
Options issued for services. . - - 42,109 - - 42,109
Net loss for the year ended
December 31, 1999. . . . . . - - - - (454,900) (454,900)
---------- ---------- ---------------- ----------- -------------- -------------
Balance, December 31, 1999 . . 11,621,276 1,164 26,686,997 (3,147) (24,291,087) 2,393,927
Warrants exercised for common
stock. . . . . . . . . . . . 58,020 6 - - - 6
Issuance of common stock
and options at $0.10
per share. . . . . . . . . . 200,000 20 19,980 - - 20,000
Net loss for the period ended
March 31, 2000 . . . . . . . - - - - (42,798) (42,798)
---------- ---------- ---------------- ----------- -------------- -------------
Balance, March 31, 2000
(unaudited). . . . . . . . . 11,879,296 $ 1,190 $ 26,706,977 $ (3,147) $ (24,333,885) $ 2,371,135
========== ========== ================ =========== ============== =============
</TABLE>
See accountant's review report and accompanying notes.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
May 2, 1990
For the Three Months Ended March 31, (Inception)
------------------------------------ through
2000 1999 1998 March 31, 2000
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------- -------------- ----------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss . . . . . . . . . . . . . . . . . . . $ (42,798) $ (140,621) $ (453,125) $ (24,333,885)
Adjustments to reconcile net loss to net cash
used in operating actitivities
(Gain) loss on sale of equipment . . . . . - (12,061) - 27,090
Loss on sale of mineral property . . . . . - - - 108,187
Abandonment of mining interests. . . . . . - - - 12,012,050
Write-down of mineral properties . . . . . - - - 2,300,000
Depreciation and depletion . . . . . . . . 4,209 6,516 8,959 189,834
Common stock and options issued. . . . . . -
for services . . . . . . . . . . . . . . - 25,000 45,000 685,776
Common stock issued for interest . . . . . - - - 29,640
Common stock issued for payables . . . . . - - - 57,160
Amortization of deferred guaranty fee. . . - - 242,862 1,457,170
Write-off of note receivable . . . . . . . - - - 779,921
Changes in assets and liabilities
Prepaid expenses . . . . . . . . . . . . . 9,552 29,400 32,675 12,894
Other assets . . . . . . . . . . . . . . . - - - (32,000)
Accounts payable . . . . . . . . . . . . . 9,710 (14,088) (20,192) 82,196
Accrued expenses . . . . . . . . . . . . . 2,788 4,784 (37,663) 109,356
-------------- ----------------- --------------- ------------------
CASH USED IN OPERATING ACTIVITIES. . . . . . . . (16,539) (101,070) (181,484) (6,514,611)
-------------- ----------------- --------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of equipment. . . . . . - 24,400 - 68,826
Advances under notes receivable. . . . . . - - - (1,089,219)
Purchase of furniture and equipment. . . . - - (407) (363,613)
Sales (purchases) of mineral properties. . - - (201,273) (10,358,585)
-------------- ----------------- --------------- ------------------
CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES . . . . . . . . . . . . . - 24,400 (201,680) (11,742,591)
-------------- ----------------- --------------- ------------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from shareholder note payable . . - (6,000) - 73,405
Sale of common stock . . . . . . . . . . . 20,006 75,000 348,500 17,694,552
Proceeds from convertible debt . . . . . . - - - 215,170
Proceeds from long-term debt . . . . . . . - - - 45,000
Payment of long-term debt. . . . . . . . . - (4,510) (35,329) (172,343)
Proceeds (to) from related party . . . . . - - - 31,199
Payment of stock subscriptions receivable. - - - 249,360
Repurchase of common stock . . . . . . . . - - - (39,947)
Capital contributions. . . . . . . . . . . - - - 177,243
-------------- ----------------- --------------- ------------------
CASH PROVIDED BY FINANCING ACTIVITIES. . . . . . 20,006 64,490 313,171 18,273,639
-------------- ----------------- --------------- ------------------
NET INCREASE (DECREASE) IN CASH. . . . . . . . $ 3,467 $ (12,180) $ (69,993) $ 16,437
-------------- ----------------- --------------- ------------------
</TABLE>
See accountant's review report and accompanying notes.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
May 2, 1990
(Inception)
For the Years Ended December 31, through
-------------------------------- March 31, 2000
2000 1999 1998 -------------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------- ------------------ ------------------ -------------------
<S> <C> <C> <C> <C>
NET INCREASE (DECREASE) IN CASH
(Brought forward). . . . . . . . . . . . . . . . $ 3,467 $ (12,180) $ (69,993) $ 16,437
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD. . . . . . . . . . . . . . . 12,970 28,632 180,083 -
-------------- ------------------ ------------------ -------------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD. . . . . . . . . . . . . . . . . . $ 16,437 $ 16,452 $ 110,090 $ 16,437
============== ================== ================== ===================
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Interest expense paid in cash. . . . . . . . . . $ 7,567 $ 1,217 $ 7,936 $ 141,391
============== ================== ================== ===================
Income taxes paid in cash. . . . . . . . . . . . $ - $ - $ - $ -
============== ================== ================== ===================
NON-CASH INVESTING AND
FINANCING ACTIVITIES
Common stock issued for acquisition of
mineral property rights. . . . . . . . . . . . $ - $ - $ - $ 2,257,518
Long-term debt issued for acquisition of
mineral property rights. . . . . . . . . . . . - - - 263,946
Note receivable given in exchange for
mineral property rights. . . . . . . . . . . . - - - 309,298
Fixed assets traded for acquisition of
mineral property rights. . . . . . . . . . . . - - - 66,177
Issuance of common stock for debt. . . . . . . . - - - 104,603
Common stock issued in payment of notes
payable and accrued interest . . . . . . . . . - - - 167,456
Long-term debt issued for acquisition of
equipment. . . . . . . . . . . . . . . . . . . - - - 17,548
Cancellation of common stock issued for
acquisition of mineral property. . . . . . . . - - (1,050,000) (1,050,000)
Mineral property transferred for long-term debt. - - - 143,631
Common stock issued to acquire net assets
of Easton-Pacific. . . . . . . . . . . . . . . - - - 5,268,212
Common stock options issued for payables . . . . - - - 57,160
Common stock options issued for services . . . . - - - 25,000
</TABLE>
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
Hanover Gold Company, Inc. ("Hanover" or the "Company") is a development stage
enterprise principally engaged in acquiring and maintaining gold mining
properties in southwestern Montana for exploration and future development. The
Company, which is the successor company to an entity incorporated in the state
of Delaware in 1984, commenced its operations in May 1990.
The Company is seeking additional capital and management believes its properties
can ultimately be sold or developed to enable the Company to continue its
operations. However, there are inherent uncertainties in mining operations and
management cannot provide assurances that it will be successful in this
endeavor. Furthermore, the Company is in the development stage, as it has not
realized any significant revenues from its planned operations.
Business Combination
- ---------------------
In September 1996, the Company acquired all of the issued and outstanding shares
of common stock of Group S Limited ("Group S") and Hanover Resources, Inc.
("Resources") in exchange for 739,377 and 734,493 shares of the Company's common
stock. In connection with the acquisitions, 906,250 shares of the Company's
common stock held by Resources were canceled. Group S and Resources both held
mining claims and interests contiguous to those of the Company. As certain of
the Company's shareholders, officers, and directors controlled Group S and
Resources, the acquisitions were accounted for as a combination of entities
under common control similar to a pooling of interest. Accordingly, the
financial statements give retroactive effect to these acquisitions, as if the
companies had always operated as a single entity.
On September 30, 1997, the Company acquired all of the outstanding shares of
Easton-Pacific and Riverside Mining Company ("Easton"), an inactive mining
company holding mineral claims contiguous to those of the Company, in exchange
for 1,750,000 shares of the Company's common stock. The acquisition of Easton
has been accounted for using the purchase method of accounting, and accordingly,
the accounts of Easton have been reflected in the financial statements from the
date of acquisition. The purchase price of $4,878,000 (which included
transaction costs of approximately $60,000) has been allocated to the assets
purchased and the liabilities assumed based upon their estimated fair value at
the date of acquisition.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Hanover Gold Company, Inc. is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounting Method
- ------------------
The Company's financial statements are prepared using the accrual method of
accounting.
Cash and Cash Equivalents
- ----------------------------
For the purpose of the balance sheets and statements of cash flows, the Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be a cash equivalent. Financial instruments which
potentially subject the Company to a concentration of credit risk consist of
cash and cash equivalents. Cash and cash equivalents consist of funds deposited
with various high credit quality financial institutions.
Furniture and Equipment
- -------------------------
Furniture and equipment are carried at cost. Depreciation is computed on the
straight-line method over the estimated useful lives of the related assets,
which range from five to seven years. Depreciation amounted to $4,209, $6,516
and $8,939 for the quarters ended March 31, 2000, 1999 and 1998, respectively.
Mineral Properties
- -------------------
Costs of acquiring, exploring and developing mineral properties are capitalized
by project area. Costs to maintain the mineral rights and leases are expensed
as incurred. When a property reaches the production stage, the related
capitalized costs will be amortized, using the units of production method on the
basis of periodic estimates of ore reserves. Mineral properties are
periodically assessed for impairment of value and any losses are charged to
operations at the time of impairment.
Should a property be abandoned, its capitalized costs are charged to operations.
The Company charges to operations the allocable portion of capitalized costs
attributable to properties sold. Capitalized costs are allocated to properties
sold based on the proportion of claims sold to the claims remaining within the
project area.
Net Loss Per Share
- ---------------------
SFAS No. 128 requires dual presentation of basic EPS and diluted EPS on the face
of all income statements issued after December 15, 1997 for all entities with
complex capital structures. Basic EPS is computed as net income divided by the
weighted average number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution that could occur from common shares issuable
through stock options, warrants, and other convertible securities. As the
Company's stock options and warrants are antidilutive for all periods presented,
only basic EPS is presented. At March 31, 2000, 1999 and 1998, outstanding
options and warrants to purchase 8,321,343, 4,718,540, and 3,472,398 shares,
respectively, of the Company's common stock were not included in the computation
of diluted EPS as their effect would be antidilutive.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Provision for Taxes
- ---------------------
At March 31, 2000, the Company has net operating losses of approximately
$24,333,000, which may be offset against future taxable income through 2014. No
tax benefit has been reported in the financial statements, as the Company
believes there is a significant chance the net operating loss carryforwards will
expire unused. Accordingly, the potential tax benefits of the net operating
loss carryforwards are offset by a valuation allowance of the same amount.
Estimates
- ---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the reported amount
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Fair Value of Financial Instruments
- ---------------------------------------
The carrying amounts reported in the balance sheets as of March 31, 2000 and
December 31, 1999 for cash equivalents, accounts payable and accrued expenses
approximate fair value due to the immediate or short-term maturity of these
financial instruments. The fair value of long-term debt approximates its
carrying value as the stated or discounted rates of the debt reflect recent
market conditions. The fair value of notes payable to stockholders approximates
its carrying value.
Stock Based Compensation
- --------------------------
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"), Accounting
for Stock-Based Compensation, encourages, but does not require, companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations and to furnish the pro forma disclosures required under
SFAS No. 123, if material. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
the stock.
Impaired Asset Policy
- -----------------------
The Company reviews its long-lived assets quarterly to determine if any events
or changes in circumstances have transpired which indicate that the carrying
value of its assets may not be recoverable. The Company determines impairment
by comparing the undiscounted future cash flows estimated to be generated by its
assets to their respective carrying amounts. The Company does not believe any
adjustments are needed to the carrying value of its assets at March 31, 2000.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative Instruments
- -----------------------
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This new standard establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
At March 31, 2000, the Company has not engaged in any transactions that would be
considered derivative instruments or hedging activities.
Compensated Absences
- ---------------------
Employees of the Company are entitled to paid vacation, paid sick days and
personal days off depending on job classification, length of service, and other
factors. The Company estimates that the amount of compensation for future
absences is minimal and immaterial at the reporting dates and accordingly, no
liability has been recorded in the accompanying financial statements. The
Company's policy is to recognize the cost of compensated absences when actually
paid to employees.
Interim Financial Statements
- ------------------------------
The interim financial statements as of and for the quarter included herein have
been prepared for the Company, without audit. They reflect all adjustments
which are, in the opinion of management, necessary to present fairly the results
of operations for these periods. All such adjustments are normal recurring
adjustments. The results of operations for the periods presented are not
necessarily indicative of the results to be expected for the full fiscal year.
NOTE 3 - GOING CONCERN
The Company has been in the development stage since its inception. The Company
has no recurring source of revenue, has incurred a net loss of $42,798 for the
quarter ended March 31, 2000 and an accumulated deficit of $24,333,885 since
inception and has negative working capital. Additionally, in response to
continued depressed gold prices and the impact of new legislation in Montana,
during 1998 the Company abandoned a significant portion of its mining interest
in Montana and recognized a write-down in the carrying value of remaining
capitalized mineral properties. These conditions raise substantial doubt as to
the Company's ability to continue as a going concern.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 3 - GOING CONCERN (CONTINUED)
Management of the Company has undertaken certain actions to address these
conditions. These actions include negotiations with the owners of the leased
properties which the Company abandoned to enter into new agreements with terms
more favorable to the Company, searching for joint venture partners to provide
the necessary funding for the Company's projects and reducing corporate
activities and expenses. To the extent additional funds are required, the
Company will attempt to raise these funds through additional borrowing or
extensions on shareholder debt or through future sales of shares of its common
stock. To date, the Company has contracted with consultants to assist it with
various fund raising alternatives. There can be no assurances that the Company
will be successful in executing these actions. The financial statements do not
contain any adjustments, which might be necessary, if the Company is unable to
continue as a going concern.
NOTE 4 - MINERAL PROPERTIES
Montana
- -------
Mineral properties represents amounts paid to acquire property rights and for
services rendered in the exploration, drilling, sampling, engineering, and other
related technical services toward the evaluation and development of the Alder
Gulch group of claims in Montana's Virginia City Mining District.
During the fourth quarter of 1998, primarily in response to the passage of new
legislation in Montana, the Company abandoned its rights to a substantial
portion of its mineral claims. In connection with the abandonment, the Company
wrote-off $11,855,672 of capitalized mining costs pertaining to these claims.
In connection with the abandonment of these mineral properties, the Company
performed an evaluation of the net realizable value of the remaining mineral
properties held by the Company. As a result of the evaluation, the Company
wrote-off $2,300,000 to approximate the remaining estimated carrying value of
this property. Additionally, during the fourth quarter 1998 the Company settled
litigation involving a 1996 conveyance of a mineral interest. In exchange for
the release of its rights to the mineral interest, the Company received and
retired 131,250 shares of its common stock originally issued to acquire the
rights. Finally, during the fourth quarter of 1998, the Company deeded back to
the seller two properties in satisfaction of unpaid notes payable balances of
$143,632.
During 1999, the Company sold three of its claims to an officer of the Company
for $25,000. This transaction resulted in a loss of $108,187.
Chile
- -----
In October 1999, the Company executed an agreement to purchase the La Tranca
silver/gold prospect located in the northern Maricunga belt of Chile.
Subsequent to the date of these financial statements, this agreement has been
cancelled. See Note 9.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 5 - RELATED PARTY TRANSACTIONS
In 1995, the Company entered into an agreement, as amended, (collectively, the
"Stock Purchase Agreement") with a director of the Company and his associates
whereby the Company granted the right to purchase up to 1,500,000 shares of the
Company's common stock and the right to appoint certain officers and directors
of the Company. Shares subject to terms of the Stock Purchase Agreement, of
which 714,475 and 535,525 were purchased in 1995 and 1996, were as follows:
<TABLE>
<CAPTION>
Per Share Total
Shares . . Purchase Price Consideration
- ---------- --------------- --------------
<S> <C> <C>
714,475 $ 1.40 $ 1,000,000
535,525 $ 2.00 $ 1,071,050
250,000 $ 4.00 $ 1,000,000
- ---------- --------------- --------------
1,500,000. $ 3,071,050
========== ==============
</TABLE>
During 1996, the Company paid $65,438 for sampling and assaying services to a
company controlled by a director and purchased equipment for $30,000 from this
same entity. During 1997, the Company paid $3,067 to the same company for
surveying services. During 1998, the Company paid this same company $129,279
and issued 193,067 shares of common stock for drilling and assaying services.
During 1999, the Company issued 436,827 shares of common stock to this same
company to satisfy a 1998 outstanding payable for drilling and assaying
services.
During 1998, the Company received advances of $108,086 from a director. At
March 31, 2000 and December 31, 2999, the Company owed officers and a director
$50,000.
As part of its acquisition of Easton-Pacific in 1997 (Note 1), the Company
assumed a $247,000 note payable to an officer of Easton-Pacific. The note has a
stated interest rate of 12%, is uncollateralized and is due on demand.
During 1999, the Company sold three of its mineral claims to an officer of the
Company resulting in a loss of $108,187. See Note 4.
NOTE 6 - COMMITMENT AND CONTINGENCIES
The Company leases its corporate office space on a month-to-month basis. Rent
expense for the periods ended March 31, 2000, 1999 and 1998 was approximately
$1,200, $1,600 and $5,500, respectively.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 7 - STOCKHOLDERS' EQUITY
Reverse Stock Split
- ---------------------
In May 1998, the Board of Directors authorized a 1 for 4 reverse stock split,
which granted to all stockholders as of the date of record one share of common
stock to replace every four shares of stock currently outstanding. All
references in financial statements referring to the number of shares, share
prices, per share amounts, options and warrants have been adjusted retroactively
for the effect of this reverse stock split.
Common Stock Warrants
- -----------------------
In 1990, the Company issued common stock warrants granting rights to purchase up
to 37,500 shares of the Company's common stock at $2.40 per share through
September 1991. Warrants to purchase 18,600 shares of common stock were
exercised in 1991.
In 1991, the Company issued common stock warrants granting rights to purchase up
to 1,143,125 shares of the Company's common stock at $5.00 per share through
August 1992 and at $6.40 per share from September 1992 through March 1994.
Warrants to purchase 27,875 and 10,400 shares of Company's common stock at $5.00
per share were exercised in 1991 and 1992. Warrants to purchase 765,426 and
332,224 shares of the Company's common stock at $6.40 per share were exercised
in 1993 and 1994.
In March 1997, the Company issued a three-year option to purchase 578,242 shares
of the Company's common stock at $5.00 per share to a shareholder in exchange
for a shareholder's guarantee of the Company's mineral property 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, was
$1,450,000 and was amortized over the guaranty period. During 1997, 225,000
shares of common stock were issued pursuant to the option.
During 1998, the Company issued 25,000 stock warrants to a consultant of the
Company, in exchange for services performed relative to certain mineral property
negotiations. These warrants are exercisable at $2.00 per share and expire in
February 2003.
During 1998, the Company issued 58,020 stock warrants to the outgoing president
of the Company, as payment in full for his salary for the period of service
provided. These warrants were exercised at $0.0001 per share during January
2000.
During 1998, the Company issued 1,600,000 stock warrants in conjunction with the
sale of the Company's common stock. These warrants are exercisable at $0.50 per
share and expire in December 2003. In addition 386,134 stock warrants were
issued as payment for drilling services to a company owned by a director of the
Company. These warrants are exercisable at $0.50 per share and expire in
December 2003.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)
Common Stock
- -------------
During 1998, the Company issued 212,735 shares of its common stock for services
valued at $160,563. The Company also sold 1,934,513 shares of common stock with
options at prices ranging from $0.50 to $2.12 per share. In addition, the
Company issued stock options for accounts payable valued at $50,000 and services
valued at $238,668.
During 1999, the Company issued 436,827 shares of its common stock to a director
of the Company in payment of $54,604 debt and also issued 395,200 shares of
common stock for payment of accrued interest in the amount of $29,640. The
Company also sold 1,435,716 shares of common stock with options at prices
ranging from $0.07 to $0.25 per share. In addition, the Company issued stock
options for accounts payable valued at $57,160 and services valued at $25,000.
During the quarter ended March 31, 2000, the Company sold 200,000 shares of its
common stock with 400,000 options at $0.10 per share. Options were also
exercised for the purchase of 58,020 shares of the Company's common stock at
$0.0001 per share.
Stock Option Plan
- -------------------
The Company has a stock plan ("the 1995 Plan") under which eligible employees
and directors of the Company may be granted stock options, stock appreciate
rights or restricted stock. Pursuant to terms of the 1995 Plan, the total
number of shares of stock subject to issuance may not exceed 1,000,000. Grants
of options, appreciate rights and restricted stock are based solely on the
discretion of the Board of Directors at exercise prices at least equal to the
fair value of the stock on the date of grant. Options granted under the 1995
Plan vest immediately. As options mature, they revert to the 1998 Plan.
During May 1999, the Company adopted its 1998 Equity Incentive Plan ("the 1998
Plan") to aid the Company in maintaining and developing a management team and
attracting qualified officers and employees. A total of 2,395,044 shares of
common stock may be subject to, or issued pursuant to, terms of the plan as of
March 31, 2000.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)
Stock option activity is summarized as follows:
<TABLE>
<CAPTION>
Weighted
Average
Options Share Price
----------- ------------
<S> <C> <C>
Outstanding at December 31, 1997 230,000 $ 5.76
Granted. . . . . . . . . . . . . . 3,242,398 1.19
Exercised or expired . . . . . . . - -
----------- ------------
Outstanding at December 31, 1998 . 3,472,398 1.49
Granted. . . . . . . . . . . . . . 4,598,765 0.22
Exercised or expired . . . . . . . (91,800) 4.68
----------- ------------
Outstanding at December 31, 1999 . 7,979,363 0.71
Granted. . . . . . . . . . . . . . 400,000 0.20
Exercised or expired . . . . . . . ( 411,264) 4.29
----------- ------------
Outstanding at March 31, 2000. . . 7,968,099 $ 0.49
=========== ============
</TABLE>
The number of options outstanding exceeds the options allowable under the 1995
plan and the 1998 plan due to individual issuances of options for services, debt
and stock incentives. Options outstanding under the 1995 Plan as of March 31,
2000 and December 31, 1999 were 900,180 and 958,200, respectively. Options
outstanding under the 1998 Plan as of March 31, 2000 and December 31, 1999 were
1,550,000 and 1,150,000, respectively.
SFAS No. 123 requires the Company to provide pro forma information regarding net
loss and loss per share as if compensation cost for the Company's stock option
plan had been determined in accordance with the fair value based method
prescribed by SFAS No. 123. The Company estimates the fair value of each stock
option at the grant date by using the Black-Scholes option-pricing model with
the following weighted-average assumptions used: dividend yield of zero percent;
expected volatility of thirty five percent; risk-free interest rate of six
percent. The weighted average fair value at date of grant for options granted
to employees in 2000, 1999 and 1998 was $0.20, $0.04 and $0.19 per option,
respectively.
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 7 - STOCKHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options and warrants
outstanding at March 31, 2000:
<TABLE>
<CAPTION>
Weighted Number Options and Warrants
Average Outstanding Outstanding and Exercisable
Exercise and Exercisable Weighted Average Remaining
Prices at 3/31/00 Contractual Life (years)
- --------- --------------- ----------------------------
<S> <C> <C>
0.1250 1,150,000 9.1
0.2000. 1,614,290 2.3
0.2500. 1,888,642 3.9
0.3750. 540,700 8.5
0.5000. 2,331,967 3.9
1.5000. 30,000 7.6
2.0000. 25,000 3.0
2.2500. 187,500 7.0
6.4000. 200,000 0.1
- --------- --------------- ----------------------------
0.4988 7,968,099 5.0
======= ========= ==========
</TABLE>
NOTE 8 - YEAR 2000 ISSUES
Like other companies, Hanover could be adversely affected if the computer
systems it, its suppliers or customers use do not properly process and calculate
date-related information and data from the period surrounding and including
January 1, 2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could impact non-computer systems and devices such as
production equipment, elevators, etc. At this time there have been no known
problems related to the Year 2000 issue.
The Company has reviewed its business and processing systems and believes that
the majority of its systems are already year 2000 compliant or can be made so
with software updates. Based on preliminary assessments, the Company regards
the costs associated with Year 2000 readiness to be immaterial. All costs
associated with the Year 2000 issue will be expensed as incurred.
HANOVER GOLD COMPANY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2000
NOTE 9 - SUBSEQUENT EVENTS
Purchase of Mineral Property
- -------------------------------
In October 1999, the Company executed an agreement to purchase the LaTranca
silver/gold prospect located in the northern Maricunga belt of Chile. The
agreement, which was effectively cancelled in April 2000, called for a total
purchase price of $1,005,000 payable in installments through October 6, 2003
with title passing to the Company upon payment of the final installment. The
agreement also called for a 2% net smelter return royalty on production up to a
maximum of $1,000,000. In compliance with terms of this agreement the Company
forfeited a deposit of $5,000.
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: March 31, 2000
By: Wayne Schoonmaker
-------------------------
Wayne Schoonmaker, its
Principle Accounting Officer
Date: March 31, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 16437
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 31131
<PP&E> 2749857
<DEPRECIATION> 109248
<TOTAL-ASSETS> 2703740
<CURRENT-LIABILITIES> 332605
<BONDS> 0
0
0
<COMMON> 1190
<OTHER-SE> 2369945
<TOTAL-LIABILITY-AND-EQUITY> 2703740
<SALES> 0
<TOTAL-REVENUES> 352
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 35583
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7567
<INCOME-PRETAX> (42798)
<INCOME-TAX> 0
<INCOME-CONTINUING> (42798)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42798)
<EPS-BASIC> .004
<EPS-DILUTED> .004
</TABLE>
