UNITED STATES
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 (fee required)
For the quarterly period ended September 30, 2000
[ ] TRANISITON REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (no fee required)
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, $.0001 par value The OTC-Bulletin Board
Title of each class Name and exchange on which registered
Indicate by check mark whether the registrant (1) has filed all reports
required to be file 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
filing requirements for the past 90 days.
Yes [X] No [ ]
At October 24, 2000, 12,474,496 shares of the registrant's common stock were
outstanding.
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HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 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...................................6
PART II - OTHER INFORMATION
Item 1: Legal Proceedings.......................................8
Item 2: Changes in Securities...................................8
Item 3: Defaults among Senior Securities........................8
Item 4: Submission of Matters to a Vote of Security Holders.....8
Item 5: Other Information.......................................8
Item 6: Exhibits and Reports on Form 8-K........................8
SIGNATURES
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PART I-FINANCIAL INFORMATION
Item 1. Financial Statements
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<S> <C> <C>
(Unaudited)
September 30, December 31,
2000 1999
ASSETS
Current assets:
Cash $ 16,202 $ 12,970
Prepaid expenses and other current assets 11,030 24,245
____________ ____________
Total current assets 27,232 37,215
Fixed assets:
Furniture and equipment, net of accumulated
depreciation of $114,690 and $105,038 11,769 47,672
Mineral properties, net 2,530,553 2,597,147
Other assets:
Other assets: 27,000 32,000
____________ ___________
Total assets $ 2,596,554 $ 2,714,034
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 75 $ 1,105
Notes payable to stockholders 297,000 297,000
Accrued payroll and payroll taxes 64 2,141
Other accrued expenses 4,954 19,861
____________ ___________
Total current liabilities 302,093 320,107
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000
shares authorized; no shares outstanding
Common stock, $0.0001 par value; 48,000,000 shares
authorized; 12,474,496 and 11,621,276 shares
issued and outstanding 1,249 1,164
Additional paid-in capital 26,756,557 26,686,997
Deficit accumulated during the development stage (24,460,198) (24,291,087)
Treasury stock, at cost (19,668 shares) (3,147) (3,147)
____________ ____________
Total stockholders' equity 2,294,461 2,393,927
____________ ____________
Total liabilities and stockholders' equity $ 2,596,554 $ 2,714,034
============ ============
</TABLE>
See Accompanying Notes to Financial Statements
1
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HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Date of Inception Three Months Three Months Nine Months Nine Months
(May 2, 1990) Ended Ended Ended Ended
Through September 30, September 30, September 30, September 30, September 30,
2000 2000 1999 2000 1999
Revenues $ 1,151,958
Cost of goods mined 1,987,483
Gross loss (835,525)
Operating expenses:
Depreciation and amortization 195,277 $ 2,261 $ 5,591 $ 9,652 $ 18,095
Bad debt expense 779,921
General and administrative expenses 6,641,387 7,945 48,182 84,813 274,826
____________ ___________ ___________ __________ ____________
7,616,585 10,206 53,773 94,465 292,921
____________ ___________ ___________ __________ ____________
Operating loss (8,452,110) (10,206) (53,773) (94,465) (292,921)
Other income (expense):
Abandonment of mineral
Interests (12,017,050) (5,000)
Properties (2,300,000)
Loss on sale of mineral properties (162,684) (54,497)
Amortization of guaranty fee (1,457,170)
Interest expense, net (50,093) (6,891) (6,465) (21,149) (23,846)
Gain (loss) on sale
of equipment (21,091) 6,000 1,863 6,000 13,924
____________ ___________ ___________ __________ ____________
(16,008,088) (891) (4,602) (74,646) (9,922)
____________ ___________ ___________ __________ ____________
Net loss $(24,460,198) $ (11,097) $ (58,375) $ (169,111) $ (302,843)
============ =========== =========== ========== ============
Net loss per share-basic $ (5.39) Nil $ (0.01) $ (0.01) $ (0.03)
============ =========== =========== ========== ============
Weighted average common
shares outstanding-basic 4,538,146 11,963,488 10,804,924 11,877,116 10,123,636
============ =========== =========== ========== ============
</TABLE>
See Accompanying Notes to Financial Statements
2
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HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<S> <C> <C> <C>
Date of Inception Nine Months Nine Months
(May 2, 1990) Ended Ended
Through September 30, September 30, September 30,
2000 2000 1999
Cash flows from operating activities:
Net loss $ (24,460,198) $ (169,111) $ (302,843)
Adjustments to reconcile net loss to net cash
used in operating activities:
Loss on sale of mineral property 162,684 54,497
Equipment transferred for consulting services 26,251 26,251
Loss (gain) on sale of equipment 21,090 (6,000) (13,924)
Abandonment of mineral interests 12,017,050 5,000
Write-down of mineral properties 2,300,000
Depreciation and amortization 195,277 9,652 18,095
Common stock and options issued for services 685,776 112,743
Common stock issued for interest 59,280 29,640
Common stock issued for accounts payable 57,160
Amortization of deferred guaranty fee 1,457,170
Write-off of note receivable 779,921
Change in:
Prepaid expenses 16,557 13,215 59,476
Other assets (32,000) 7,342
Accounts payable 71,456 (1,030) (37,360)
Accrued payroll and payroll taxes (2,077) (2,077)
Other accrued expenses 91,660 (14,908) (18,472)
___________ ___________ __________
Net cash used by operating activities (6,552,943) (54,871) (174,943)
___________ ___________ __________
Cash flows from investing activities:
Proceeds from sale of mineral property 37,097 12,097 40,925
Proceeds from sale of equipment 74,826 6,000
Advances under notes receivable (1,089,219)
Purchases of furniture and equipment (363,613)
Additions to mineral properties (10,383,585)
___________ ___________ __________
Net cash provided (used) by
investing activities (11,724,494) 18,097 40,925
___________ ___________ __________
Cash flows from financing activities:
Borrowings under note payable to stockholder 73,405 (74,331)
Proceeds from sale of common stock 17,714,552 40,006 195,000
Proceeds from issuance of convertible debt 215,170
Proceeds from issuance of long-term debt 45,000
Repayment of long-term debt (172,343) (10,520)
Proceeds from related party 31,199 25,000
Collection of stock subscription receivable 249,360
Repurchase of common stock (39,947)
Capital contributions 177,243
___________ ___________ ___________
Net cash provided by financing activities 18,293,639 40,006 135,149
___________ ___________ ___________
Net change in cash 16,202 3,232 1,131
Cash, beginning of period 0 12,970 28,632
___________ ___________ ___________
Cash, end of period $ 16,202 $ 16,202 $ 29,763
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 133,824 $ 0 $ 25,171
=========== =========== ===========
</TABLE>
See Accompanying Notes to Financial Statements
3
<PAGE>
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS, Continued:
(Unaudited)
<TABLE>
<S> <C> <C> <C>
Date of Inception Nine Months Nine Months
(May 2, 1990) Ended Ended
Through September 30, September 30, September 30,
2000 2000 1999
Supplemental schedule of non-cash investing and
financing activities:
Mineral property rights acquired in exchange for:
Issuance of common stock $ 2,257,518
Issuance of long-term debt 263,946
Notes receivable 309,298
Fixed assets 66,177
Common stock issued for:
Satisfaction of long-term debt 104,630
Payment of note payable
and accrued interest 197,096 $ 29,640
Acquisition of Easton-Pacific
net assets 5,268,212
Payment of payables and accrued expenses 57,160
Payment for services 25,000
Cancellation of common stock issued
for mineral property rights (1,050,000)
Long-term debt issued for acquisition
of equipment 17,548
Mineral property transferred in satisfaction of
long-term debt 143,631
Equipment transferred for consulting
services $ 26,251 $ 26,251
</TABLE>
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See Accompanying Notes to Financial Statements
4
<PAGE>
HANOVER GOLD COMPANY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation:
The unaudited financial statements have been prepared by the Company in
accordance with generally accepted accounting principles for interim financial
information, as well as the instructions to Form 10-Q and Article 10 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 of the interim financial statements have
been included. Operating results for the nine-month period ended September 30,
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.
2. 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,
as well as related activities in the precious metals and mining industries.
The Company has been in the development stage since its inception. The
Company has no recurring source of revenue, has incurred operating losses
since inception and, at September 30, 2000, has negative working capital.
These conditions raise substantial doubt about 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 sales of the
Company's common stock, negotiating amendments to obligations with respect to
the Company's mineral properties and debts, and decreasing expenses. The
interim financial statements do not contain any adjustments, which might be
necessary if the Company is unable to continue as a going concern.
3. Related Party Transactions:
In the third quarter of 2000, the Company sold certain fully depreciated
equipment to a company controlled by a director for $6,000 cash. In
connection with the sale, the Registrant recorded a gain of $6,000. In
September of 2000, the Company sold 200,000 shares of its unregistered common
stock and 400,000 common stock options exercisable at $0.20 per share to
certain directors and shareholders of the Company for $20,000 cash.
During the second quarter of 2000, the Company's Board of Directors resolved
to transfer certain equipment to a consultant of the Company as compensation
for consulting services provided to the Company during the preceding year.
Included in general and administrative expenses during the second quarter of
2000 are $26,251 of compensation expense relating to the transfer. The expense
recorded equaled the net book value of the equipment transferred, which also
approximated the equipment's fair value at the time of transfer. During the
first quarter of 2000, the Company sold 200,000 shares of its unregistered
common stock and 400,000 common stock options exercisable at $0.20 per share
to existing stockholders of the Company, for a total of $20,000. Also in the
first quarter of 2000, an officer of the Company exercised options to purchase
58,020 shares of the Company's common stock at $0.0001 per share, for a total
of $6. The options had been awarded to the officer as compensation for
services in previous periods.
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5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
This report contains both historical and prospective statements concerning the
Company and its operations. Prospective statements (known as "forward-looking
statements") may or may not prove true with the passage of time because of
future risks and uncertainties. The Company cannot predict what factors might
cause actual results to differ materially from those indicated by prospective
statements.
The Company is a development stage mining company and holds various mining
properties in southwestern Montana. The Company had engaged in exploration and
limited development activities on these properties, primarily in the Alder
Gulch area of Montana, more or less continuously from 1992 to 1998. In
September and October 1998 the Company made the decision to terminate its
leases with three of its landowner-lessors primarily due to the passage of a
Montana initiative, I-137, banning the use of cyanide in the process of
extracting gold and silver, and the high carrying costs of the leases. As a
result,the Company curtailed the majority of its exploration and development
activities,and began investigating mining opportunities in offshore
properties. To date, the Company has not established proven or probable
reserves on any of its properties, and is currently not pursuing exploration
or development activities. The Company's management has determined that until
precious metal prices improve or until the Montana initiative is repealed,
their business strategy is to decrease expenses, conserve remaining assets,
and preserve the Company's form and existence. Accordingly, while management
intends to keep aware of other mining opportunities that may be more suitable
for the Company, no expenditures other than general and administrative costs
are planned in the near-term until one or more of the aforementioned
conditions change or another opportunity becomes available.
Results of Operations
For the nine-month period ended September 30, 2000 compared to the nine-month
period ended September 30, 1999
For the nine months ended September 30, 2000, the Company experienced a net
loss of $169,111 or $0.01 per share compared to a net loss of $302,843, or
$0.03 per share, during the comparable period in the previous year. The
decrease in net loss from 1999 to 2000 was due to management's decision to
curtail its mining property development and exploration activities until more
favorable conditions exist.
During the nine-month periods ended September 30, 2000 and 1999, the Company
generated no revenue. Depreciation and amortization decreased from $18,095
during the nine-month period ended September 30, 1999 to $9,652 during the
comparable period of 2000. The decrease in depreciation and amortization
related to a corresponding decrease in depreciable assets, and
depreciable assets nearing the end of their useful lives.
General and administrative expenses decreased to $84,813 for the nine-month
period ended September 30, 2000, as compared to $274,826 for the nine-month
period ended September 30, 1999. The decrease in general and administrative
expenses for the nine-month period ended September 30, 2000 is primarily
attributable to reduced salaries, rent, and accounting expenses.
In May 2000, the Company abandoned its interest in a lease with an option to
purchase 20 mining claims located in Region III of Atacarna, Chile. In
connection with the abandonment, the Company wrote off its deposit of $5,000
securing the leasehold interest. No similar abandonments or write-offs took
place during the nine-month period ended September 30, 1999.
Net interest expense during the nine-month period ended September 30, 2000,
was $21,149 compared to $23,846 during the comparable period in 1999. The
decrease in net interest expense was due to a corresponding decrease in debt
obligations accruing interest from 1999 to 2000.
In April 2000, the Company sold an undivided interest in certain mining
properties (claims) in Montana. In connection with the sale the Company
realized a net loss of $54,497. In September 2000, the Company realized a
gain of $6,000 from the sale of depreciated equipment to a company controlled
by a director. During the nine-month period ended September 30, 1999, the
Company realized a gain of $13,924 from the sale of mining equipment.
In both periods, proceeds from the sale of assets were used to fund the
Company's operations.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations, Continued:
Results of Operations, Continued:
For the three-month period ended September 30, 2000 compared to the
three-month period ended September 30, 1999
For the three months ended September 30, 2000, the Company experienced a loss
of $11,097 compared to a net loss of $58,375 during the comparable period in
1999. The decrease in the third quarter loss in 2000 as compared to the same
quarter of 1999 is due to the corresponding decrease in depreciation and
amortization, general and administrative expenses and net interest expense.
Depreciation and amortization decreased from $5,591 during the third quarter
of 1999 to $2,261 during the comparable quarter of 2000. The decrease in
depreciation and amortization related to a corresponding decrease in
depreciable assets, and depreciable assets nearing the end of their useful
lives.
General and administrative expenses decreased from $48,182 during the third
quarter of 1999 to $7,945 during the comparable quarter of 2000. The decrease
was primarily due to decreased salaries, rent, and accounting expenses during
the third quarter of 2000 compared to the similar quarter of 1999.
Net interest was $6,465 during the third quarter of 1999 and comparable to
$6,891 during the same quarter of 2000.
During the third quarter of 2000, the Company realized a gain of $6,000 on the
sale of fully depreciated equipment. During the comparable quarter of 1999 a
gain of $1,863 was realized on the sale of equipment.
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 on May 2, 1990. At September 30, 2000, it had no recurring sources
of revenue and negative working capital. The Company has incurred losses and
experienced negative cash flows from operations every year since its
inception.
During the nine-month period ended September 30, 2000, the Company used
$54,871 of cash in operating activities. During the nine months ended
September 30, 2000 sales of mining properties and equipment generated cash of
$18,097, and sales of common stock and options to directors and existing
stockholders provided $40,006 of cash.
During the third quarter ended September 30, 2000, the Company issued 395,200
shares of its unregistered common stock to satisfy $29,640 of accrued interest
payable on a note payable to a stockholder. The fair value of the stock issued
approximated the accrued interest payable at the time of issue.
Due to the Company's lack of revenues and negative working capital, the
Company's independent accountants included a paragraph in the Company's 1999
financial statements relating to a going concern uncertainty. To continue as a
going concern the Company must continue to acquire additional capital resources
through the sale of its assets or its securities. Although the Company expects
to meet its 2000 obligations using funds from the sale of shares of common
stock and assets, due to the currently depressed price of the Company's stock
there can be no assurance that it will be able to finance its obligations in
subsequent periods.
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7
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 filers nor the rights evidenced by the registrant's outstanding
common stock have been modified, limited or qualified. During 2000, the
Company sold 400,000 shares of its common stock for $0.10 per share and issued
395,200 shares of its common stock in satisfaction of accrued interest payable
of $29,640 pursuant to an exemption from registration under Section 4(2) of
the Securities Act of 1933 as amended.
Item 3. DEFAULTS UPON SENIOR SECURITIES
The registrant has no outstanding senior securities.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits. The following exhibit is filed as part of this report:
Exhibit 27.0 Financial Data Schedule
Reports on Form 8-K.
Form 8-K filed on July 14th, 2000. Item 4. Changes in the Registrant's
Certifying Accountants
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9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANOVER GOLD COMPANY, INC.
By: /s/ Hobart Teneff
Hobart Teneff, its
President
Date: October 31, 2000
By: /s/ Wayne Schoonmaker
Wayne Schoonmaker, its
Principal Accounting Officer
Date: October 31, 2000
10
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