Second Quarter Report 10QSB
June 30, 1996
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended June 30, 1996
[_] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________________ to _________________
Commission file number 02-69494
GLOBAL GOLD CORPORATION
(Name of small business issuer in its charter)
Delaware 13-3025550
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
438 West 37th Street, Suite 5-G, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 563-5933
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that 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 |_|
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes |_| No |_|. Not applicable
As of July 31, 1996 there were 22,980,742 shares of the registrant's Common
Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes |_| No |X|.
1
Page 2
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Financial Statement:
Accountants' Compilation Report 4
Balance Sheet - June 30, 1996 and December 31, 1995 ............... 5
Statements of Income and (Loss)
April 1, 1996 through June 30, 1996
January 1, 1996 through June 30, 1996
January 1, 1995 through June 30, 1996 (development stage) ......... 6
Statement of Changes in Stockholders' Equity ...................... 7
January 1, 1995 - June 30, 1996
Statement of Cash Flow for the six months
ended June 30, 1996 and the period January 1, 1995
through June 30, 1996 (development stage) ......................... 8
Notes to Financial Statements ..................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation .......................................... 26
Page 3
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
TABLE OF CONTENTS
JUNE 30, 1996
PAGE
-----------------------
Accountants' Compilation Report 1
EXHIBIT
- -------------------
A Balance Sheets - June 30, 1996 and December
31, 1995 2
B Statements of Income and (Loss) - For the period
April 1, 1996 through June 30, 1996,
January 1, 1996 through June 30, 1996 and for
the development stage period January 1, 1995
through June 30, 1996 3
C Statements of Changes in Stockholders' Equity -
For the period January 1, 1996 through
June 30, 1996 and for the year January 1, 1995
through December 31, 1995 4
D Statements of Cash Flows - For the period
January 1, 1996 through June 30, 1996 and for
the year January 1, 1995 through December 31,
1995 5
Notes to Financial Statements 6-22
Page 4
ACCOUNTANTS' COMPILATION REPORT
To the Board of Directors and Stockholders
of Global Gold Corporation
We have compiled the accompanying balance sheet of Global Gold Corporation (a
development stage company) as of June 30, 1996, and the related statements of
operations, stockholders' equity, and cash flows for the quarter then ended, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
The interim financial statements for the prior fiscal year were not prepared as
if the corporation was a development stage enterprise. Accordingly, such prior
year interim statements are not included herein. For comparative purposes, the
Company is including in these financial statements, its December 31, 1995
Balance Sheet and, its Statement of Changes in Stockholders' Equity and its
Statement of Cash Flows, for the full year then ended. A development stage
entity reports profit and loss information cumulatively, from the inception of
development stage activities, which is January 1, 1995 herein. We audited the
1995 statements and a going concern opinion was rendered.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 4, 8 and 9 to
the financial statements, management must continue to raise significant amounts
of capital in accordance with its contemplated requirements as a joint venture
partner. Management is currently vigorously seeking to raise investment capital.
This matter raises substantial doubt about the Company's ability to continue as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
/s/ Marks Shron and Company
Page 5
Exhibit A
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEETS
ASSETS
JUNE 30, 1996 DECEMBER 31, 1995
(UNAUDITED) (AUDITED)
-------------- -----------
CURRENT ASSETS
Cash $ 606 $ 63,299
-------------- -----------
NONCURRENT ASSET
Notes receivable, net of allowance for bad
debts of $120,000 - Note 11 205,000 205,000
------------ ----------
OTHER ASSETS
Organization costs 9,601 3,200
Investment in certain mining interests - Notes 6, 8 and 1,150,000 1,150,000
10
Deferred costs - Note 14 465,621 260,701
----------- -----------
1,625,222 1,413,901
TOTAL ASSETS $1,830,828 $1,682,200
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Officers' compensation payable - Note 12 $ 200,000 $ 100,000
Accounts payable and accrued expenses - Note 13 423,704 195,614
Notes payable - seller - Note 15 146,506 146,506
Notes payable - officer - Note 15 42,500 -
---------- ----------------
812,710 442,120
---------- -----------
STOCKHOLDERS' EQUITY - Exhibit C
Common stock $.001 par, 100,000,000 shares authorized
22,980,742 shares issued and outstanding - Note 9 20,981 20,981
Paid-in capital - Dormant period 3,228,519 3,228,519
Paid-in capital - Development stage 1,259,573 1,259,573
Retained earnings - Dormant period (2,907,648) (2,907,648)
Retained earnings - Development stage (583,307) (361,345)
------------- ------------
1,018,118 1,240,080
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,830,828 $1,682,200
========== ==========
See the accompanying notes and Accountants' Compilation Report.
Page 6
Exhibit B
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF INCOME AND (LOSS)
JANUARY 1, 1996
APRIL 1, 1996 JANUARY 1, 1996 (DEVELOPMENT
THROUGH THROUGH STAGE)
JUNE 30, 1996 JUNE 30, 1996 THROUGH
(UNAUDITED) (UNAUDITED) JUNE 30, 1996
--------------- -------------- ---------------
REVENUE $ - $ - $
--------------- -------------- ---------------
EXPENSES
Officers compensation - Note 18 50,000 100,000 200,000
Administrative fees 3,015 5,415 16,358
Legal 33,017 47,221 88,233
Accounting and auditing 3,750 15,173 44,775
Transfer agent and securities fees 23 2,360 10,891
Proxy costs 80 191 26,746
Office expense 2,517 2,727 5,432
Travel 9,168 20,762 39,848
Rent - Note 1 9,000 18,000 18,000
Business promotions 1,589 1,589 1,589
-------------- ------------- ------------
112,159 213,438 451,872
-------------- ------------- ------------
OPERATING (LOSS) (112,159) (213,438) (451,872)
-------------- ------------- ------------
OTHER INCOME (EXPENSES)
Interest and royalty income - 4 484
Organization costs - (3,200) (4,800)
Interest expense (2,862) (5,152) (5,915)
Provision for bad debts - Note 11 - - (120,000)
--------------- --------------- -------------
(2,862) (8,348) (130,231)
--------------- --------------- -------------
(LOSS) BEFORE INCOME TAXES (115,021) (221,786) (582,103)
Income taxes - (176) (1,204)
--------------- --------------- ---------------
NET (LOSS) $ (115,021) $ (221,962) $ (583,307)
================ ============ ============
NET (LOSS) PER SHARE (Note 20) $ (.0055) $ (.0106) $ (.0428)
================ ============= =============
See the accompanying notes and Accountants' Compilation Report.
Page 7
Exhibit C
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Paid-in Capital Retained Earnings Retained Earnings
Shares Common Stock (Dormant Period) (Dormant Period) (Development Stage)
------ -------------- ---------------- --------------- -------------------
Stockholders' equity
December 31, 1994 8,980,742 $ 89,807 $ 3,147,693 $ (2,907,648) $ -
Net Loss Jan. 1 - Dec. 31 - - (361,345)
Adjustment re: restatement (80,826) 80,826 - - -
of par value - Note 1
Eyre acquisition - 10,000,000 10,000
Note 6
Proceeds through private
offering - Note 16 2,000,000 2,000 - - -
Stockholders' equity
December 31, 1995 20,980,742 $ 20,981 $ 3,228,519 $ (2,907,648) $ (361,345)
=========== =========== ============= ============ ================
Net Loss - January 1, -
June 30, (Exhibit B) - - - - (221,962)
Stockholders' Equity -
June 30, 1996 20,980,742 $ 20,981 $ 3,228,519 $ (2,907,648) $ (583,307)
=========== =========== ============= ============ ================
Paid-in Capital
(Development Stage) Total
------------------ ----------
Stockholders' equity
December 31, 1994 $ - $ 329,852
Net Loss Jan. 1 - Dec. 31 (361,345)
Adjustment re: restatement -
of par value - Note 1
Eyre acquisition - 840,000 850,000
Note 6
Proceeds through private
offering - Note 16 419,573 421,573
Stockholders' equity
December 31, 1995 $ 1,259,573 $ 1,240,080
============== ===========
Net Loss - January 1, -
June 30, (Exhibit B) - (221,962)
Stockholders' Equity -
June 30, 1996 $ 1,259,573 $ 1,018,118
============== ===========
See the accompanying notes and Accountants' Compilation Report.
Page 8
Exhibit D
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS
JANUARY 1, 1996 JANUARY 1, 1995
THROUGH THROUGH
DECEMBER 31, 1995 JUNE 30, 1996
(AUDITED) (UNAUDITED)
--------- -----------
CASH FLOWS FROM DEVELOPMENT STAGE ACTIVITIES:
Net loss $ (221,962) $ (361,345)
Adjustments to reconcile net loss to net
cash provided by operating activities:
(Increase) decrease in:
Provision for bad debt included in net loss - 120,000
Organization costs (6,401) (3,200)
Increase (decrease) in:
Accounts payable and accrued expenses 328,090 289,114
----------- -----------
Net Cash Provided by Development Stage Activities 99,727 44,569
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in certain mining interests - net of financing - (153,494)
Deferred costs - mining interests (204,920) (260,701)
------------ ------------
Net Cash (Used) by Investing Activities (204,920) (414,195)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from private placement offering - 421,573
Note payable - officer 42,500 -
------------ ----------------
Net Cash Provided by Financing Activities 42,500 421,573
------------ ----------
NET INCREASE (DECREASE) IN CASH (62,693) 51,947
CASH - beginning 63,299 11,352
----------- -----------
CASH - end $ 606 $ 63,299
============ ==========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 990 $ 324
============ ============
See the accompanying notes and Accountants' Compilation Report.
Page 9
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 1: ORGANIZATION (AS A DEVELOPMENT STAGE COMPANY) AND
ACCOUNTING POLICIES
The Company was incorporated in the State of Delaware and as further
described hereafter, had no operating or development stage history
since its inception until January 1, 1995. Accordingly, the Company
has been dormant until 1995. An Australian corporation, Eyre Resources
N.L. and an affiliate (hereafter Eyre) presented to management an
opportunity to develop certain gold and copper mining rights in the
former Soviet Republics of Armenia and Georgia. These Republics, which
recently won their independence, may be prone to political and
economic turmoil which may result in various adverse ramifications.
The Company changed its name during 1995 from Triad Energy Corp. to
Global Gold Corporation, and as part of the plan to acquire the mining
interests and raise venture capital, the Company increased the number
of shares authorized to be issued from ten million to one hundred
million.
The Company has offices in New York City in premises operated by the
Company's President, Mr. Drury Gallagher and is charging rent in the
amount of $3,000 per month to the corporation for use of the premises,
office equipment, facilities, etc. commencing January 1, 1996. The
Company has not paid any employees for services, except Mr. Gallagher
and Mr. Garrison (as hereafter discussed) have been earning salaries.
During 1995, the Company formed certain-wholly owned foreign
subsidiaries. Any reference in these statements to Global (the
Company) may also include one, some, or all of the subsidiaries. All
intercompany transactions were eliminated.
The books and records are maintained on the accrual basis of
accounting.
As a result of ownership changes, the Company will not be able to
benefit from all of its net operating loss carryforwards. (Other
income tax matters - Note 19).
Management has made any necessary interim period accounting
adjustments in order for the statements not to be misleading.
Page 10
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 2: USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
balance sheet date, and also the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
NOTE 3: COMPANY HISTORY AND REPORTS WITH THE SECURITIES AND EXCHANGE
COMMISSION
The Company was incorporated on February 21, 1980, and closed a public
offering of the common stock in January 1981. Several months after the
closing of such offering, the Company withdrew the listing of the
Common Stock for trading on Nasdaq because of the theft of
substantially all of the cash funds of the Company derived from the
proceeds of a public offering by its then president, Samuel McNell in
July, 1981. The case has long since gone through the judicial system
and the McNells are no longer, officers, directors, employees or in
any other fashion doing business with the company. After the
consummation of the public offering, the Company failed to file any
further annual or periodic reports required under the Exchange Act.
The company filed its Form 10-KSB for the calendar year 1994 and 1995,
its Form 10-Q for all quarters in 1995 and thereafter, and also filed
audited financial statements covering the calendar years 1987, 1988,
1989, 1990, 1992 -1995. There can be no assurance that the SEC might
not assert claims against the Company and its present and former
directors and officers, which actions might adversely affect the
future conduct of the Company's business or be detrimental to future
trading of the Company's stock in the public markets.
Page 11
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 4: DEVELOPMENT STAGE COMPANY
The Company never engaged in the active conduct of a trade or
business, and it has not generated any revenues to date, with the
exception of a negligible amount of royalty income from oil leases
and interest income derived from the funds recovered and
subsequently invested by the Company. The Company may encounter;
problems, delays, expenses and difficulties typically encountered
in the development stage, many of which may be outside of the
company's control. These include, without limitation, unanticipated
problems and additional costs relating to development, production,
marketing, and competition. Management must also be successful is
securing, significant additional investor and/or lender financing,
political risk insurance, fully executed joint venture agreements
with the Republic(s), and obtaining the services of an actual mining
operator (which the Company is not). The Company expects to incur
operating losses for the near term future and, in any event, until
such time as it derives substantial revenues from the sale of
concentrates containing gold and copper, if any. Pursuant to the
documents as hereafter summarized, different mining, processing,
purifying, reprocessing and exploration endeavors are contemplated.
Where appropriate, an endeavor will commence only after successful
results of a feasibility study are rendered.
NOTE 5: ORIGINAL CONTEMPLATED TRANSACTION WITH EYRE AND AFFILIATE
The Company originally entered into a definitive asset purchase
agreement with Eyre concerning Armenian, Georgian and Australian
mining projects dated as of June 30, 1995. Under the contemplated
Agreement, the Company agreed to cause the delivery to Eyre of (i)
20,000,000 shares of its Common Stock, (ii) warrants (the
"Acquisition Warrants") to purchase 10,000,000 shares of Common
Stock up to three years after the closing and (iii) $300,000,
payable in cash and notes, and (iv) assume and discharge all
liabilities of Eyre (other than certain items). The Company agreed
to issue options to Autosport (Asia) Pte, LTD (an affiliate of Eyre)
to acquire 2,000,000 shares of common stock.
In exchange, Eyre agreed to sell to the Company (or its designated
subsidiary or subsidiaries) (i) an undivided 20% interest in Eyre's
interest in two Australian exploration licenses in a lead/zinc mining
prospect known as Ediacara; (ii) all of Eyre's potential interest in
the Armenian gold mining project described herein and (iii) all of
Eyre's potential interest in the Georgian gold and copper mining
project, described herein.
Page 12
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 6: RESTRUCTURING AGREEMENT WITH EYRE (DATED DECEMBER 1, 1995)
The contemplated Agreement (Note 5) closed effective as of
December 1, 1995, and pursuant to a Restructuring Agreement
also effective as of December 1, 1995, the acquisition of an
undivided 20% interest in Eyre's interest in two Australian
exploration licenses concerning an Australian lead/zinc mining
prospect known as Ediacara were eliminated.
Pursuant to the December 1, 1995 Restructuring Agreement, the
Company paid Eyre for the Armenian and Georgian interests as follows:
Cash $ 153,494
Note payable (Note 14) 100,000
Note payable (Note 14) 46,506
------------
$ 300,000
The Agreement also provided for the Company to cause the delivery to
Eyre of ten million shares of stock, with an estimated value of
$850,000, and warrants to acquire an additional four million shares
(Note 17). The Autosport options were canceled. The Agreement also
leaves Eyre with two out of five seats on the Board of Directors.
The Company expects the restructured ownership will qualify it to
acquire political risk insurance (covering currency inconvertibility,
expropriation and political violence) as well as obtain potential
financing from the Overseas Private Investment Corporation (OPIC).
OPIC is a U.S. government agency whose purpose is to encourage
American private business investment in developing countries, newly
emerging democracies, and fledgling free market economics.
Page 13
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 6: RESTRUCTURING AGREEMENT WITH EYRE (DATED DECEMBER 1, 1995)
(continued)
The Restructuring Agreement provides as additional consideration to
Eyre a 2% overriding production royalty subject to adjustment in the
event the ownership of the Company were to become less than 50% United
States residents. If such were about to occur, Eyre would have the
right to sell warrants to purchase the company's common stock to U.S.
residents, and, if that did not occur as prescribed, Eyre would
surrender certain of their warrants in return for an increased royalty
potentially totalling another 1%. The initial Armenian tailings
project (Note 8) is excluded from the royalty arrangement. In the
event Global undertakes any additional mineral extraction projects in
the Republics of Armenia or Georgia, Eyre will receive a 1% overriding
production royalty from the Company's revenues, also subject to a
similar adjustment which may total up to another 1/2%. Pursuant to
Article V of the Restructuring Agreement, Global shall pay to Eyre
$8,333 per month to be applied against the royalty arrangement. The
Agreement shall commence with the closing of the funding of the
tailings project of the Armenian Agreement.
The Agreement provides that Eyre may submit to the Company additional
projects, and that the Company shall in good faith consider acquiring
such projects by issuing additional shares of common stock; provided
in no event shall Eyre own or control 50% or more of the outstanding
common stock of the Company.
A trust for the benefit of Kevin Parry and members of his family
purportedly own approximately 35% of Eyre, which has not applied for a
listing on the Australian Stock Exchange. In 1994, Mr. Parry was
criminally convicted of breaching his fiduciary duties under
Australian securities law while serving as a director of two
corporations. In 1995, Mr. Parry was tried in a criminal action in the
Australian courts for allegedly misappropriating property from an
entity, and found innocent. However, management first learned of this
latter action in February, 1996, and had previously failed to disclose
the action in the Company's proxy materials seeking approval of the
Eyre Purchase Agreement.
Page 14
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 7: PATTERSON, BELKNAP, WEBB & TYLER
Global has retained the New York City law firm of Patterson, Belknap,
Webb & Tyler (PBWT) to represent the Company in its dealings with the
Armenian and Georgian Republics. PBWT has an international law
practice involving commercial, non-profit and humanitarian issues and
has offices in Moscow. Mr. Van Z. Krickorian (VZK), of counsel to
PBWT, has been designated to conduct the negotiations with the
Republics. VZK was formerly Armenia's Deputy Permanent Representative
to the United Nations.
In connection with preparation and negotiation of the Armenian Joint
Venture Agreement and associated documents, as well as corporate, tax,
strategic, regulatory, financing, political risk insurance and other
miscellaneous matters, PBWT shall be compensated $930,000 plus
expenses ratably over the period May 1, 1995 through May 1, 1999, with
minimum quarterly payments of $25,000. The retainer arrangement is
predicated on the total value of the deal reaching $100,000,000 (1%),
and is subject to adjustment if it falls short or exceeds that goal.
In the event the contemplated financing is not consummated, PBWT will
reduce its hourly charges by 50%. Management is accruing the base
quarterly fee of $25,000 for financial reporting purposes herein,
which is included in deferred costs.
PBWT will represent the Company in preparation and negotiation with
the Georgian Government of a revised Joint Venture Agreement and
associated documents, and other related matters similar to the
aforementioned Armenian retainer agreement. The contemplated Georgian
fee is $600,000 for the period July 1, 1995 to July 1, 1999, and the
minimum quarterly payment is $10,000. Through the balance sheet date,
PBWT has only billed the Company $40,000, which is included in
deferred costs. The overall fee is subject to adjustment pursuant to
the retainer agreement. PBWT has advised that it has received
information that the subject Georgian property is actively being
offered for investment purposes to other investors. PBWT has requested
from the Republic of Georgia copies of all agreements filed with
regard to the entire "Madneuli" complex. Thereafter, the Company will
pursue a more formal legal arrangement (Note 10).
Page 15
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 8: THE ARMENIAN JOINT VENTURE AGREEMENT
On February 2, 1996, the Company and Armgold, a division of the
Ministry of Industry of the Government of the Republic of Armenia,
initialed a Joint Venture Agreement entitled the Armenian Gold
Recovery Company. The Agreement was modified May 1, 1996. On June 29,
1996, the Republic of Armenia issued a decree authorizing Armgold's
joint venture with the company. Besides its full consent, the decree
provided that the operation could start only after a guarantee of
$250,000 was made to Armenian Government from a "first rate" bank,
with a condition that the Company invest five million dollars into the
projects within eight months after the decree's coming into power (see
Note 9).
Management has obtained "unofficial" estimates through Eyre and
engineers, of tonnage, ore grade, and ore recovery rates. Management
believes that a significant amount of gold has not been mined by the
Armenian Government because of inadequate capital and technologies at
their disposal. After engineering assessments are officially
completed, and if they prove successful, the Company as a joint
venture partner, will be required to provide the capital and
technologies in accordance with the Agreement (see Note 9).
The Venture may at times be required to obtain various approvals,
licenses, permits, etc., on a timely basis. Failure to obtain such
from the Government may materially and adversely affect the Company.
Pursuant to the May 1, 1996 Agreement, Armenia, in general, has agreed
to have the cost of the approval process be borne against their share
of the joint venture's profits.
The Venture is divided into three stages (projects). The Agreement
contemplates that successive stages of the project will be commenced
in earnest after prior stages are running successfully. At each site,
the Agreement calls for the Armenian Government to transfer to the
Venture free and clear title in the mining rights. The Company will be
required to provide administration, training, management, feasibility
studies, technology and business plans, as appropriate.
The initial stage calls for processing of tailings at Ararat. After
completion of feasibility studies and Government approval, the Company
will within one year be required to provide at least 9.5 million
dollars for the purpose of purchasing tailings processing equipment
and providing working capital to the project.
Page 16
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 8: THE ARMENIAN JOINT VENTURE AGREEMENT (CONTINUED)
Thereafter, feasibility studies for a gold mining and tailing
operations at the Zod site will commence. Management believes
capacities at Zod will be significant. Mining at a third site,
Meghradzor, will commence once Zod is operational. Pursuant to the
joint venture agreement, preliminary feasibility studies and planning
are scheduled to commence at the Zod and Megharadzar sites, one month
and six months respectively, after the Armenian Government issues its
decree of approval of the Joint Venture (see Note 9).
The Company itself is not a mining operator. Accordingly, it will seek
to employ the services of a professional mining operator. The Company
may issue stock to the mining Company. In addition, Global will seek
out adequate financing and political risk insurance.
The Agreement does not specify exactly how profits are to be
calculated. Presently, it is not contemplated that the Armenian
Government will be assigned a value for their contribution of the mine
properties and rights to the venture. VZK has advised that profit
computations are still to be resolved. International or other
accounting standards have not been adapted in the joint venture
agreement. For the Ararat tailings project, once profits are
determined, they shall be split 50/50 so long as the Percentage of
Recovery of Metals Per Gram Per Ton is 70% or more. Based upon a
sliding scale, Global's profit share will increase to 66.67% if the
recovery rate declines to 50% or less. Pursuant to the work carried
out on a number of tailings samples by a research laboratory, on April
23, 1996 a consulting engineer has preliminary suggested a separation
process that he believes will economically yield a 50% recovery rate.
The Company has reviewed the Armenian's production records, and
believes that 12 million tons are a fair approximation of the tailings
piles. Management intends to have the piles surveyed shortly. The
preliminary recommendations are being reviewed by the Joint Venture.
Armenia has permitted a tax holiday for the contemplated venture as
follows: for the first two years there shall be a complete exemption
from profits tax. For the third through the tenth year, only 50% of
the taxable income shall be taxable.
Page 17
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 9: GUARANTEES- LONDON AND INTERNATIONAL MERCANTILE LTD. (L.I.M.)
- SUBSEQUENT EVENT
In order to further the company's endeavors, HCL Communication Ltd. (a
non U.S. corporation) arranged two guarantees on behalf of the company
with L.I.M. (also a non-U.S. corporation). Each guarantee is for
$250,000 and each guarantee is collateralized by 1,000,000 shares of
the company's stock and accompanied by warrants to purchase an equal
number of common shares, as follows:
NUMBER OF LATEST POSSIBLE
WARRANTS PRICE/SHARE EXPIRATION DATE
-------- ----------- ---------------
666,667 $3 06/15/97
666,667 $3 12/15/97
666,666 $3 06/15/98
----------
2,000,000
Pursuant to the Agreements, all of the L.I.M. warrants may expire on
the sooner date of 60 days after the receipt by the company of the
feasibility study from Kilborn, reflecting that the gold mine in Zod,
Armenia has proven reserves in excess of $1,000,000,000
Accordingly, L.I.M. holds 2,000,000 common shares and 4,000,000
warrants as collateral. The Agreements do not provide for any partial
release of the collateral if L.I.M. must make a partial payment on
account of the obligation it took on, but such would be governed by
English law. Global paid L.I.M. $11,875 for each guarantee, and as
consideration for its services, HCL received an option to acquire the
above stock (accompanied by the unexercised warrants) from L.I.M. at
$1.50 per share. Management believes it can cause L.I.M. to release to
the Company any monies it receives from the exercise of the options,
which are in excess of any outstanding guarantees. HCL's options have
a term of 61 days, commencing July 18, 1996, which is the date the
Agreements herein were executed. Drury Gallagher and Robert Garrison
have jointly and severally pledged to indemnify L.I.M. to the extent
of L.I.M.'s net out-of-pocket cost after paying the guarantees and
selling off its collateral stock and warrants. In consideration of the
personal pledges, the company granted each of them options to purchase
250,000 shares of the company's common stock at $1/share, until July
18, 1999.
Page 18
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 9: GUARANTEES- LONDON AND INTERNATIONAL MERCANTILE, LTD.
(L.I.M.) - SUBSEQUENT EVENT (CONTINUED)
In the event L.I.M. and/or HCL acquire a certain number of shares
pursuant to the arrangement, the company may be temporarily owned by
more than 50% non-U.S. interests. During such period of time, the
company would not be eligible to purchase political risk insurance
from OPIC (Note 6). However, the company intends to sell additional
common stock to U.S. persons and management has stated that it is in
negotiation with a number of potential U.S. investors. Alternatively,
political risk insurance may also be acquired from agencies of the
World Bank, or the company may seek out private sources.
The company is also planning to list the company's stock on a Nasdaq
(U.S.) exchange, although no date for such has been set.
The first guarantee requires L.I.M. to remit $250,000 to the Republic
of Armenia in the event the company fails to invest five million
dollars within eight months of the decree coming into power (Note 8).
At the time of issuance of this report, VZK (Note 7) has indicated
that Armenia has accepted the L.I.M. guarantee, and that written
acceptance of such from Armenia should be forthcoming shortly. The
company in turn has committed to L.I.M. that it will cause five
million dollars in tailings processing equipment to be delivered to
Armenia by December 31, 1996, and further that it will be in operation
six months after crossing the Armenian border. L.I.M. has the first
right to arrange a lease-purchase of such equipment at competitive
market rates. The guarantee is payable for a period of up to twelve
months. The Agreement contains certain default provisions.
In order for the company to properly estimate the amount of gold and
silver reserves, determine optimal mining and processing methods, and
properly identify equipment, environmental, and infrastructural
concerns at the various Armenian locations, the company has hired the
firm of Kilborn SNC/Lavalin Inc. of Toronto, Canada to do a
feasibility study of these matters. Kilborn estimates it will take
three months to do the study and remit a report. Accordingly, a second
guarantee for $250,000 was undertaken in order to guarantee the
engineers payment for their services. The guarantee lasts for 120 days
or under certain circumstances up to six months.
Page 19
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 10: THE GEORGIAN AGREEMENT (NOT FILED)
The Company also acquired from Eyre, rights under a Foundation
Agreement dated April 22, 1995 (including a Charter for a Joint
Venture Company) with R.C.P.A. "Madneuli", a Georgian state
enterprise, in connection with carrying out certain mining of the
Madneuli deposit. The Company has been advised that the application
for the license required to be filed with the Georgian government has
not been filed, and it has no definitive agreement granting it fixed
rights to mining production or processing in Georgia. The Company
intends to commence discussions with the Government concerning the
above, but has not yet done so.
The current Agreement calls for each partner to advance capital in a
50/50 ratio (Georgia apparently is not contemplating transferring
title of mining rights to the venture). Neither international nor any
other body of accounting standards have been adapted in the joint
venture agreement. Cash flow initially is to be distributed as
follows:
RCPA Madneuli 9.75%
Eyre (now the Company) 9.75%
Panquest .25%* (Georgian resource broker)
Sinking Fund .25%* (Georgia)
Capital Repayments 80.00%
*After recovery of capital costs, these percentages are to increase to
2.5%.
The Agreement calls for the Board of the Joint Venture to annually
decide upon the amount of profit distributions.
The Joint Venture shall not be required to pay Georgian income tax on
the profits obtained within the first two years after all capital and
capital costs have been repaid. In the following two years, taxation
shall be at 50% of the normal rate. Thereafter, the Venture may apply
to the Ministry of Finance for additional taxation privileges.
Reinvested capital will be exempt from taxation.
The Venture may at times be required to obtain various approvals,
licenses, permits, etc., on a timely basis. Failure to obtain such
from the Government could materially and adversely affect the Company.
Page 20
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 11: NOTES RECEIVABLE
The Company holds notes receivable (purchased in prior years), as
follows:
AMOUNT INTEREST RATE DEBTOR
------ ------------- ---------------------------------
300,000 Prime + 2% Jet-Line Environmental Services,
Inc. (Jet-Line)
25,000 (1) Envirotherm, Heating and Cooling
Systems, Inc. (Envirotherm)
(120,000)*
--------
$205,000
========
The Jet-Line note as more fully described in the documents, is
convertible into 15% of Jet Line's common stock, or 20% of Jet-Line's
common stock if the Company agrees to waive all accrued interest owing
it on the note. The note is now due December 31, 1996, as Jet-Line has
informed the Company that it was unable to make payment as of April
21, 1996, as required. Other terms and conditions of the note were
also modified. The note is secured by U.C.C.'s on certain equipment.
Jet-Line has recently suffered recurring operating losses and is in
default of a small business administration loan. Accordingly,
management has not accrued interest on the Note. Jet-Line does own
certain valuable assets.
Envirotherm is engaged in manufacturing and selling geothermal heating
and cooling units, and other products. The Company began shipment of
the products in July, 1995, and is currently experiencing operating
losses. Mr. Gallagher, President of the Company, owns 4% of the common
stock of Envirotherm. The note is in default and the parties are
attempting to renegotiate the terms.
(1) No interest rate is stated. The Note increases incrementally if it
is not paid timely.
*Allowance for Doubtful Accounts (general reserve)
NOTE 12: OFFICERS' COMPENSATION PAYABLE
Officers' compensation payable consists of the following:
Drury Gallagher, President $ 100,000
Robert Garrison, Vice President 100,000
-----------
$ 200,000
===========
Page 21
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 13: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
Legal - General Counsel $ 70,784
Legal - Patterson, Belknap, Webb & Tyler 266,317
Other Miscellaneous 86,603
----------
$423,704
==========
NOTE 14: DEFERRED COSTS
Deferred costs include the following:
Legal - Patterson, Belknap, Webb & Tyler $335,423
(Note 7)
Legal - General Counsel 79,287
Engineering 24,684
Research and Analysis 16,227
Overseas travel 10,000
----------
$465,621
==========
NOTE 15: NOTES PAYABLE
On December 1, 1995, the Company closed the Eyre agreement to purchase
certain mining rights (Note 6). Pursuant to the agreement, the Company
issued two $100,000 promissory notes.
The first note bears interest at 6.36% per annum, and is payable
contingent upon the Company obtaining financing of at least
$2,000,000, whether from equity, debt or a combination of both. After
this condition is met, the note is due within 10 business days.
Page 22
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 15: NOTES PAYABLE (CONTINUED)
The second, with interest at 5.65% per annum, is payable in full no
later than September 30, 1996. An extension on this note had been
granted with the proviso that the Company will promptly prepay the
note if funds become available. As of the balance sheet date, the
Company reduced the outstanding principal to $46,506.
Drury Gallagher is lending the company additional funds at 10% per
annum simple interest, on an unsecured basis. The notes evidencing the
loan are due on or before December 31, 1996, or earlier, out of the
proceeds of any financing obtained by the Company of $2,000,000 or
more. At the balance sheet date, such loans totaled $42,500.
The stated value of the notes is their fair value.
NOTE 16: CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
Pursuant to a Private Placement Offering dated May 17, 1995, as
amended, the Company issued $500,000 of 10% convertible senior notes
due September 30, 1996. Expenses in connection with the offering were
$78,427.
Each $1,000 convertible note entitled the holder to 4000 shares of
common stock, and warrants to purchase 8000 shares of common stock at
an exercise price of $.50 per share at any time before September 30,
1996. The expiration date was subsequently extended to September 30,
1997.
In accordance with the Offering, interest was not payable on the notes
so long as they were converted to equity within a specified time
frame. After the December 1, 1995 Eyre closing, the entire $500,000 of
convertible notes were exchanged for 2,000,000 shares of common stock.
Page 23
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 17: WARRANTS OUTSTANDING
The Company had warrants outstanding as follows:
# Shares Right Price/Share Expiration
Warrant Holder(s) to Purchase (2) Exercisable at Date
----------------- --------------- -------------- ----
Eyre and affiliate (1) 4,000,000 .50 11/30/98
Stockholders through
Note Conversion 4,000,000 .50 09/30/97
Other 40,000 .50 11/30/98
-----------
8,040,000
(1) Eyre and affiliate are restricted from exercising warrants to the
extent that they will gain voting control of the Company. Also see
Note 6.
(2) Also see Note 9.
NOTE 18: OFFICERS' COMPENSATION, INCENTIVE STOCK OPTIONS AND STOCK
APPRECIATION RIGHTS
Management presently consists of Mr. Drury Gallagher and Mr. Robert
Garrison. Mr. Gallagher has been President of the Company and a
stockholder since 1981. Mr. Garrison was hired to oversee mining and
related financing activities.
Mr. Gallagher and Mr. Garrison entered into employment agreements with
the Company effective July 1, 1995. Each is entitled to receive a base
salary of $100,000 per year for 50% of their time for a three year
term. In the case of Mr. Garrison, such amount was increased to
$100,000 from $85,000 under an amendment to such an agreement dated
April 12, 1996. The Agreements call for automatic annual increases as
defined. The Board may award bonuses up to 50% of base compensation.
The compensation package also provides for the following in accordance
with the Company's 1995 Option Plan;
Page 24
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
INCENTIVE STOCK OPTIONS
Option Exercise Exercisable Expiration
# Shares Price Per Share On or After Date
- ------ --------------- ----------- ----
Drury Gallagher 1 450,000 .22 7/21/95 7/20/00
1 550,000 .22 1/21/96 7/20/00
2 81,250 .22 1/21/96 7/20/00
2 81,250 .22 7/21/96 7/20/00
2 81,250 .22 1/21/97 7/20/00
2 81,250 .22 7/21/97 7/20/00
2 81,250 .22 1/21/98 7/20/00
2 81,250 .22 7/21/98 7/20/00
3 12,500 .22 Various 7/20/00
---------
1,500,000
=========
4 250,000 1.00 7/17/96 7/18/99*
=========
Robert Garrison 1 195,000 .20 7/21/95 7/20/05
1 48,750 .20 1/21/96 7/20/05
1 48,750 .20 7/21/96 7/20/05
1 48,750 .20 1/21/97 7/20/05
1 48,750 .20 7/21/97 7/20/05
1 48,750 .20 1/21/98 7/20/05
1 48,750 .20 7/21/98 7/20/05
2 12,500 .20 Various 7/20/01
---------
500,000
=========
4 250,000 1.00 7/19/96 7/18/99*
=========
*See Note 9 to the financial statements
STOCK APPRECIATION RIGHTS
Mr. Gallagher and Mr. Garrison each hold rights for 500,000 units of Common
Stock which were granted at .20 per share and are each entitled to shares
based upon increased appreciation of such units at the formula price under
certain circumstances:
Percentage of units
If the company's market which are utilizable to
capitalization is between acquire shares
------------------------- --------------
$100,000,000 to 199,999,999 50.00%
$200,000,000 to 299,999,999 66.67%
$300,000,000 or more 75.00%
Mr. Gallagher and Mr. Garrison may each potentially acquire up to 375,000
shares of the Company's common stock if they have not already exercised
their rights while the market capitalization was below $300,000,000.
Page 25
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
NOTE 19: NON-UNITED STATES WHOLLY OWNED SUBSIDIARIES/INCOME TAX MATTERS
On November 29, 1995, the Company formed Global Gold Armenia Limited
and Global Gold Georgia Limited, which were respectively assigned the
Armenian and Georgian mining rights from Eyre at the closing on
December 1, 1995 (Note 6). The two subsidiaries are Cayman Island
entities which were granted a twenty year tax exemption from any law
of that jurisdiction which hereafter imposes any tax to be levied on
profits, income, gains or appreciation, commencing December 19, 1995.
The off shore companies were formed in part, as a result of the
concerns of Eyre, the previous Australian owner of the mining rights,
and presently a substantial non-controlling stockholder group of the
Company, that they not be exposed to two layers of corporate taxation,
United States and Australia. The Company will obtain a tax opinion on
the transaction, which will also seek to give greater comfort to
current and future U.S. and non-U.S. shareholders, that the structure
will in fact satisfy realistic income tax goals of all concerned
parties. Inasmuch as management valued the shares of stock distributed
to Eyre in exchange for acquiring the aforementioned mining interests
at $.085 per share (such interests, described herein, were not
substantially perfected at the time of the transaction), it is
management's position that even if the Internal Revenue Service deemed
the transaction to be a taxable event, there would nevertheless be
insignificant income tax consequences. However, there can be no such
assurance. Furthermore, the Company will determine that the structure
will not in any way be a deterrent from obtaining future financing or
political risk insurance. Management will consider future structural
changes to the extent they would serve as a remedy, if necessary.
NOTE 20: NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares outstanding during the period. Common stock equivalents have
not been included since the effect would be antidilutive.
Page 26
GLOBAL GOLD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company is presently engaged in the development of a gold mining
project in Armenia, and a gold and copper mining project in Georgia (both of
which countries are members of Commonwealth of Independent States). The Company
is currently in the pre-development stage and has not received any revenues from
mining activities.
On May 1, 1996, the Company, the Ministry of Industry of Armenia and
Armgold, the Armenian state gold enterprise, executed and delivered the Armenian
Joint Venture Agreement. The Armenian Joint Venture Agreement provides for the
formation of the Armenian Gold Recovery Company which will construct, operate
and market the gold production and provide capital and financing in a multistage
development of the Armenian gold industry. The development will begin with Stage
1 which will involve the processing of an estimated 12 million tonnes of
tailings from the Ararat processing plant averaging 1 gram of gold per tonne
(based on the Company's preliminary analysis of such tailings, although no
independent feasibility study has yet been completed) (the "Tailings Project")
and the completion of a comprehensive feasibility study and business plans for
the development of the Zod mine. Based on business plans to be approved by all
parties, Stage 2 will consist of engineering and building a gold processing
plant at the Zod mine. Stage 3 will consist of engineering and building a gold
processing plant at the Meghradzor mine.
Since the Government of Armenia is not a party to the Armenian Joint
Venture Agreement, the Company requested that the Government issue an executive
decree confirming the right of the joint venture to export gold and the power of
the Ministry of Industry of Armenia and Armgold to make the undertakings set
forth in the Armenian Joint Venture Agreement, including, without limitation,
that such Armenian parties have good title and unencumbered ownership of all
property to be transferred to such joint venture and the power to enter into the
Armenian Agreement. The Armenian Government issued such decree in late June,
1996 requiring the Company to post a $250,000 bond insuring that it orders at
least $5,000,000 of equipment related to Stage 1 of the project. The Company in
fact delivered such bond. Pursuant to such Agreement, the Ministry of Industry
and Armgold are responsible for obtaining all further permits or decrees needed
in connection with the project.
On May 13, 1996, the Company and Jet-Line executed and delivered an
agreement (the "Loan Extension Agreement") with respect to the convertible
promissory note in the principal amount of $300,000 issued by Jet-Line
Environmental Services, Inc. to the Company (the "Jet-Line Note") under which
(a) the parties extended the maturity of the Jet-Line Note until
December 31, 1996, including all unpaid accrued interest, except for the interim
interest payments described in (b) below;
Page 27
(b) Jet-Line agreed to pay $2,000 a month in interest commencing with
June, 1996 through December, 1996 and, in addition, make an additional interest
payment equal to 5% of its earnings before income taxes and without regard to
depreciation and amortization, up to a ceiling amount of $7,500 per month, each
month during the above seven-month period;
(c) the parties recognized that the Jet-Line Note is convertible in
whole or in part at any time, unconditionally into 20% of common stock of
Jet-Line issued and outstanding after such conversion;
(d) Global would have the right to convert the Jet-Line Note into an
additional five percent of the issued and outstanding common stock of Jet-Line
outstanding after its conversion (thereby bringing its interest to 25% of such
stock) upon the payment of $37,500 (instead of $75,000) at the time of such
exercise; and
(e) Global also obtained the right to convert the Jet-Line Note into
an additional five percent of the Jet-Line common stock issued and outstanding
after such conversion (thereby potentially bringing its interest to 30% of such
stock) upon the payment of an additional $100,000 in cash at the time of such
exercise.
However, in June, 1996, Jet Line advised the Company that the Business Loan
Center, which issued a U.S. Small Business Administration guaranteed loan to
Jet-Line, objected to the implementation of any payments required to be made
under the Loan Extension Agreement on the ground that Jet-Line was in default
under its loan. As of June 30, 1996 and as of the date hereof, the parties had
not resolved such issue, and, accordingly, Jet-Line has not made any of the
monthly payments required under the Loan Extension Agreement.
Three months ended June 30, 1996 compared to three months ended June 30, 1995
Revenues: During the three months ended June 30, 1996, the Company's
interest and royalty income was zero, which represented a decrease from the
interest and royalty income of $178 for the same period last year, since more
of the Company's assets were invested on a non-currently interest-paying basis.
Administrative Expenses: The Company's administrative expenses for the
three months ended June 30, 1996 were $115,021, which represented an increase
from the amount of $63,640 paid in same period last year. Such increase was
attributable to the Company's payment of legal and accounting fees and expenses
in connection with its retention of counsel to regularize the Company's
corporate affairs, to implement the Company's transaction with Eyre Resources
N.L. pursuant to the Asset Purchase Agreement between such parties dated as of
June 30, 1995 and to file the Company's 10-QSB for the period ended March 31,
1996.
Six months ended June 30, 1996 compared to six months ended June 30, 1995
Revenues: During the six months ended June 30, 1996, the Company's interest
and
Page 28
royalty income was $4, which represented a decrease from the interest and
royalty interest of $234 for the same period last year, since more of the
Company's assets were invested on a non-currently interest-paying basis.
Administrative Expenses: The Company's administrative expenses for the six
months ended June 30, 1996 were $221,786, which represented an increase from the
amount of $71,789 paid in the same period last year. Such increase was
attributable to the Company's payment of legal and accounting fees and expenses
in connection with its retention of counsel to regularize the Company's
corporate affairs, to implement the Company's transaction with Eyre Resources
N.L. pursuant to the Asset Purchase Agreement between such parties dated as of
June 30, 1995 and to file the Company's 10-QSB for the period ended March 31,
1996.
Liquidity and Capital Resources
As of June 30, 1996, the Company's had total assets of $1,830,828, of which
$606 consisted of cash or cash equivalents.
The Company's plan of operation for calendar year 1996 is
(a) To obtain the execution and delivery by the Ministry of Industry
of the Government of Armenia of the Armenian Joint Venture Agreement initialled
by the Company with respect to the Tailings Project;
(b) To raise up to $12,000,000 to implement the financing of the
Tailings Project in a combination of equity and debt;
(c) To earn the right to mine production and process gold at the Zod
mine in Armenia in accordance with the terms of the Armenian Joint Venture
Agreement and, in preparation therefor, to complete the financing of the
Tailings Project and to commence an engineering feasibility study on the Zod
mine;
(d) To collect payments of accrued interest and principal on and/or
restructure the $300,000 convertible note issued by Jet-Line to the Company; and
(e) To commence the public trading of the Company's Common Stock.
As of June 30, 1996, the Company had liquid assets consisting of cash of
approximately $606. The Company's cash requirement in 1996 in order to meet
its contractual obligations under the Tailings Project is $5,000,000 and its
cash requirement in 1996 to meet its obligations with respect to the Zod mining
project is between $500,000 and $1,000,000. Thus, without additional financing
as described herein, the Company would be unable to meet its obligations under
the Armenian Joint Venture Agreement or meet its monthly administrative expenses
which average approximately $10,000 per month (exclusive of accrued officers'
compensation), plus additional amounts for legal and accounting costs. However,
the Company expects to receive additional financing in 1996 from several sources
and on terms acceptable to it. The Company is
Page 29
listing below its contemplated financing sources:
(i) Pursuant to the Offering of $500,000 principal amount of the
Convertible Notes of the Company pursuant to the private placement transaction
which the Company closed in 1995, the Company issued Warrants to purchase
4,000,000 shares of its Common Stock at an exercise price of $0.50 per share. If
the Warrants were exercised in full, the Company would receive $2,000,000 in
gross proceeds. While the Company does not know with certainty whether the
Warrants will be exercised, it does anticipate that a substantial amount thereof
will be exercised, although there can be no assurance of such result.
(ii) (A) The Company has had discussions with several parties
interested in investing directly or indirectly in the Tailings Project to be
undertaken by the Company. The Company intends to conduct additional discussions
with such parties and others, but there can be no assurance of the outcome
thereof, except as set forth in (ii)(B) below.
(B) On July 18, 1996, the Company, London & International Mercantile
Limited ("LIM"), a financial institution organized under the laws of England and
Wales in 1980, and HCL Communications Ltd. ("HCL"), a newly formed corporation
organized under the laws of England and Wales in 1996, executed and delivered
two agreements with respect to the financing of the Company, which are
summarized below:
(1) Under Agreement 1, LIM issued a guarantee in the amount of
$250,000 in favor of the Ministry of Industry of Armenia guaranteeing the
performance of the Company's obligation with respect to the ordering of
$5,000,000 of equipment with respect to the Tailings Project.
(2) Under Agreement 2, LIM issued a guarantee in the amount of
$250,000 in favor of Kilborn SNC/Lavalin, Inc.("Kilborn") guaranteeing the
payment by the Company of any of its obligations to Kilborn. in connection with
its performance of services related to the Company's implementation of the
Armenian Joint Venture Agreement.
(3) (x) As collateral security for undertaking each such guarantee,
the Company issued to LIM the following security for each guarantee: (a)
1,000,000 shares of the Company's Common Stock and (b) three warrants to
purchase 666,667, 666,667 and 666,666 shares of the Company's Common Stock,
respectively, or a total of 2,000,000 shares, at an exercise price of $3.00 per
share. The first warrant expires on the earlier of (a) June 15, 1997, or (b) 60
days after the receipt by the Company of the feasibility study from Kilborn
reflecting that the Zod mine in Armenia has proven reserves in excess of
$1,000,000,000. The second warrant expires on the earlier of (a) December 15,
1997 or (b) 60 days after the receipt by the Company of the feasibility study
from Kilborn reflecting that the Zod mine in Armenia has proven reserves in
excess of $1,000,000,000. The third warrant expires on the earlier of (a) June
15, 1998 or (b) 60 days after the receipt by the Company of the feasibility
study from Kilborn reflecting that the Zod mine in Armenia has proven
reserves in excess of $1,000,000,000. Thus, the Company issued a total of
2,000,000 shares of its Common Stock and warrants to purchase 4,000,000 shares
of its Common Stock at an exercise price of $3 per share.
Page 30
(y) Under each of the two Agreements, LIM is required to return all of
the shares of Common Stock of the Company and warrants to purchase such stock
issued to it as collateral if no payment is made under the respective guarantees
or, if HCL exercises its option to purchase a portion of such shares and
warrants, the portion of such shares and warrants as to which HCL does not
exercise its option. If LIM makes any payment under it guarantees, the Company
would be liable to pay such amount, and, in the event it failed to do so, LIM
would be entitled to use the collateral security held by it to satisfy the
amount due it. In such circumstances, the number of shares of Common Stock of
the Company and warrants LIM would be entitled to retain or sell to satisfy the
Company's obligations to it would be determined in accordance with applicable
English law.
(z) As a condition to LIM's issuance of its two Company guarantees,
LIM required Drury J. Gallagher, the Company's President, and Robert A.
Garrison, the Company's Vice President to guarantee personally, on a joint and
several basis, the repayment of any amount paid by LIM pursuant to its
guarantees.*
(4) As of the date hereof, the collateral security issued by the
Company with respect to the guarantee issued by LIM in favor of the Ministry of
Industry of Armenia is being held in escrow by an English attorney, subject to
the receipt of the written acceptance by the Ministry of Industry of Armenia of
the guarantee issued by LIM. The Company expects to receive such written
acceptance of such guarantee, and, accordingly, it is anticipated that such
escrow will terminate, and the property held in escrow will be released to LIM,
in the near future.
(5) The Company also paid LIM fees of $23,750 for issuing such
guarantees, and owes LIM $5,657.50 for its legal fees and other expenses related
to the issuance of such guarantees.
(6) LIM, in turn, granted HCL Communications Ltd. an option for 61
days from July 18, 1996 to purchase the 2,000,000 shares of the Company's Common
Stock at $1.50 per share and the warrants to purchase 4,000,000 shares of the
Company's common stock at $3 per share held as collateral security by it. Under
the Agreements by and among the Company, LIM and HCL, any proceeds received by
LIM upon the exercise of such option by HCL will be held by it as additional
collateral security until the release of the guarantees without any payments
being made by LIM thereunder. However, the management of the Company believes
that, during the period that the LIM guarantees remain outstanding, the Company
will be able to negotiate a release of all funds received by LIM in excess of
$500,000, and receive such excess, although there can be no assurance of such
result.**
(7) The Company gave LIM the right to arrange a lease- purchase
rental, borrowing or other facility for the Company to acquire the equipment
needed for
- --------
* In consideration therefor, the Company on July 19, 1996 granted
non-qualified options to each of Messrs. Gallagher and Garrison to purchase
250,000 shares of the Company's Common Stock at an exercise price of $1.00 per
share, which expire on July 18, 1999, under the Company's 1995 Stock Option
Plan.
** In the event LIM and/or HCL Communications Ltd. acquire a certain
number of shares of the Company's Common Stock, more than 50% of the shares of
the Company's Common Stock may be temporarily owned by non-U.S. persons. In
such event, the Company would not be eligible to purchase political risk
insurance from the Overseas Private Investment Corporation. However, management
has stated that such potential problems may be overcome in several ways. First,
the Company is in negotiations to sell shares of its Common Stock to other U.S.
persons. Second, political risk insurance may also be acquired from an agency of
the World Bank or from private sources.
Page 31
the Tailings Project, and the Company undertook to accept such offer if the
terms were commercially competitive both as to the price of such equipment and
the lease terms with respect thereto.
(8) The Company also agreed, among other things, to use its best efforts to
arrange for the commencement of the public trading of its Common Stock on the
NASDAQ electronic bulletin board within 60 days from July 18, 1996 and to seek a
NASDAQ Small Cap listing within 90 days of such date, provided that the Company
meets the NASDAQ equity requirements in the latter case.
(iii) In addition to the above sources, the Company has had discussions
with various other financial and institutional sources with respect to the
financing of the Tailings Project and the Zod mining project. These discussions
have only been preliminary in nature.
Nevertheless, except as set forth above in (ii)(B), there can be no
assurance that any one or more of the financings listed above will be
consummated, or, if so, on terms acceptable to the Company. In the event that no
contemplated financing is consummated, the Company does not have sufficient
financial resources, in management's opinion, to meet its obligations as of June
30, 1996. Accordingly, Mr. Gallagher, the President of the Company, agreed to
loan the Company such additional funds as are needed for the Company's continued
administrative needs, on an unsecured basis, at 10% simple interest per annum
payable on or before December 31, 1996 or earlier out of the proceeds of any
financing by the Company of $2,000,000 or more. Pursuant to such agreement, Mr.
Gallagher loaned the Company an aggregate of $30,000 between January 1, 1996 and
May 13, 1996, which was evidenced by a note for $30,000 dated May 14, 1996.
Since May 13, 1996, the Company requested Mr. Gallagher to loan additional
amounts to it, which he agreed to do, provided that he was repaid in full for
any of his loans made to the Company out of the proceeds of any financing
received by the Company of $500,000 or more occurring prior to December 31,
1996. Pursuant to such understanding, Mr. Gallagher loaned an additional
$72,500 through the date hereof, and the Company issued a new consolidated
note for $102,500 and cancelled the earlier issued $30,000 note.
The Company does not intend to engage in any project research and
development during 1996 and does not expect to purchase or sell any plant or
significant equipment, except as contemplated in connection with the Tailings
Project and as additionally provided in the Armenian Joint Venture Agreement.
The Company does not expect to hire any additional full-time employee in
1996.
PART II
Item 1. Legal Proceedings
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.
Page 32
Item 2. Changes in Securities
Not applicable.
Item 3. Default Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
1. (a) The following documents are filed as part of this report: Financial
Statement of the Company (unaudited), including Compilation Report of
Independent Certified Public Accountants, Balance Sheet, Statement of Income and
Loss, Statement of Changes in Stockholders Equity, Statement of Cash Flows and
Notes to Financial Statement as at and for the period ended
June 30, 1996.
(b) The Exhibits which are listed on the Exhibit Index attached hereto:
Not applicable.
Page 33
2. No reports on Form 8-K were filed by the registrant during the period
covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
GLOBAL GOLD CORPORATION
Dated: August 14, 1996 By: /s/ Drury J. Gallagher
____________________________
Drury J. Gallagher, President
and Treasurer (Principal Executive
and Financial Officer)