Third Quarter Report 10QSB
September 30, 1996
WARNING
This filing is best viewed using a larger screen resolution (greater than 580px). Viewing this page at a lower resolution will be difficult.
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 September 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.)
38 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 October 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
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Financial Statement:
Accountants' Compilation Report ..................................... 4
Balance Sheets - September 30, 1996 and December 31, 1995 ........... 5
Statements of Income and (Loss) July 1, 1996 through September
30, 1996 January 1, 1996 through September 30, 1996
January 1, 1995 through September 30, 1996 (development stage) ...... 6
Statement of Changes in Stockholders' Equity ........................ 7
January 1, 1995 - September 30, 1996
Statement of Cash Flow for the nine months ended September 30,
1996 and the period January 1, 1995
through September 30, 1996 (development stage) ...................... 8
Notes to Financial Statements ....................................... 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation ............................................ 24
2
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Table of Contents
September 30, 1996
Page
----
Accountants' Compilation Report 1
Exhibit
- -------
A Balance Sheets - September 30, 1996 and
December 31, 1995 2
B Statements of Income and (Loss) - For the period July
1, 1996 through September 30, 1996, January 1, 1996
through September 30, 1996 and for the development
stage period January 1, 1995
through September 30, 1996 3
C Statements of Changes in Stockholders' Equity For the
period January 1, 1996 through September 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 September 30, 1996 and for the year
January 1, 1995 through
December 31, 1995 5
Notes to Financial Statements 6-20
3
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 September 30, 1996, and the related statements
of operations, stockholders' equity, and cash flows for the periods 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, 7 and 8 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 & Company LLP
-----------------------------
November 12, 1996
Page 2
Exhibit A
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Balance Sheets
ASSETS
September 30,
1996 December 31, 1995
(Unaudited) (Audited)
------------- -----------------
CURRENT ASSETS
Cash $ 9,186 $ 63,299
Prepaid expenses 6,000 --
----------- -----------
15,186 63,299
----------- -----------
NONCURRENT ASSET
Notes receivable, net of allowance for bad
debts of $120,000 - Note 10 205,000 205,000
----------- -----------
OTHER ASSETS
Organization costs 9,601 3,200
Investment in certain mining interests -
Notes 5, 7 and 9 1,150,000 1,150,000
Deferred costs - Note 13 681,133 260,701
Investment in joint venture - Note 7 5,000 --
----------- -----------
1,845,734 1,413,901
----------- -----------
TOTAL ASSETS $ 2,065,920 $ 1,682,200
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Officers' compensation payable - Note 11 $ 250,000 $ 100,000
Accounts payable and accrued expenses
- Note 12 622,459 195,614
Notes payable - seller - Note 14 146,506 146,506
Notes payable - officer - Note 14 145,000 --
----------- -----------
1,163,965 442,120
----------- -----------
STOCKHOLDERS' EQUITY - Exhibit C
Common stock $.001 par, 100,000,000 shares
authorized 22,980,742 shares issued and
outstanding - Note 8 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 (699,470) (361,345)
----------- -----------
901,955 1,240,080
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,065,920 $ 1,682,200
=========== ===========
See the accompanying notes and Accountants' Compilation Report.
5
Page 3
Exhibit B
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Statements of Income and (Loss)
January 1, 1995
July 1, 1996 January 1, 1996 (development
through through stage)
September 30, 1996 September 30, 1996 through
(Unaudited ) (Unaudited) September 30, 1996
------------------ ------------------ ------------------
REVENUE $ -- $ -- $ --
--------- --------- ---------
EXPENSES
Officers compensation - Note 17 50,000 150,000 250,000
Administrative fees 2,400 7,815 18,758
Legal 37,917 85,138 126,151
Accounting and auditing 9,882 25,055 54,656
Transfer agent and securities fees 14 2,374 10,905
Proxy costs -- 191 26,947
Office expense 1,222 3,949 6,453
Travel 1,514 22,276 41,362
Rent - Note 1 9,000 27,000 27,000
Business promotions -- 1,589 1,589
--------- --------- ---------
111,949 325,387 563,821
--------- --------- ---------
OPERATING (LOSS) (111,949) (325,387) (563,821)
--------- --------- ---------
OTHER INCOME (EXPENSES)
Interest and royalty income 180 183 663
Organization costs -- (3,200) (4,800)
Interest expense (4,393) (9,545) (10,308)
Provision for bad debts - Note 10 -- -- (120,000)
--------- --------- ---------
(4,213) (12,562) (134,445)
--------- --------- ---------
(LOSS) BEFORE INCOME TAXES (116,162) (337,949) (698,266)
Income taxes -- (176) (1,204)
--------- --------- ---------
NET (LOSS) $(116,162) $(338,125) $(699,470)
========= ========= =========
NET (LOSS) PER SHARE (Note 19) $ (.0055) $ (.0161) $ (.0476)
========= ========= =========
See the accompanying notes and Accountants' Compilation Report.
6
Page 4
Exhibit C
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Statements of Changes in Stockholders' Equity
Issued and
Outstanding 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
of par value - Note 1 -- (80,826) 80,826 -- --
Eyre acquisition - Note 5 10,000,000 10,000 -- -- --
Collateral securities -
Note 8 2,000,000 -- -- -- --
Proceeds through private
offering - Note 15 2,000,000 2,000 -- -- --
----------- ------- ----------- ----------- ---------
Stockholders' equity
December 31, 1995 22,980,742 $20,981 $ 3,228,519 $(2,907,648) $(361,345)
=========== ======= =========== =========== =========
Net Loss - January 1, -
September 30, 1996
(Exhibit B) -- -- -- -- (338,125)
----------- ------- ----------- ----------- ---------
Stockholders' Equity -
September 30, 1996 22,980,742 $20,981 $ 3,228,519 $(2,907,648) $(699,470)
=========== ======= =========== =========== =========
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 - Note 5 840,000 850,000
Collateral securities -
Note 8 -- --
Proceeds through private
offering - Note 15 419,573 421,573
---------- -----------
Stockholders' equity
December 31, 1995 $1,259,573 $ 1,240,080
========== ===========
Net Loss - January 1, -
September 30, 1996
(Exhibit B) -- (338,125)
---------- -----------
Stockholders' Equity -
September 30, 1996 $1,259,573 $ 901,955
========== ===========
See the accompanying notes and Accountants' Compilation Report.
7
Page 5
Exhibit D
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Statements of Cash Flows
January 1, 1996
January 1, 1996
through January 1, 1995
September 30, through
1996 December 31, 1995
(Unaudited) (Audited)
---------------- -----------------
CASH FLOWS FROM DEVELOPMENT STAGE ACTIVITIES:
Net loss $(338,125) $(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, accrued expenses and miscellaneous 570,845 289,114
--------- ---------
Net Cash Provided by Development Stage Activities 226,319 44,569
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in certain mining interests - net of financing -- (153,494)
Deferred costs - mining interests (420,432) (260,701)
Investment in joint venture (5,000) --
--------- ---------
Net Cash (Used) by Investing Activities (425,432) (414,195)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from private placement offering -- 421,573
Note payable - officer 145,000 --
--------- ---------
Net Cash Provided by Financing Activities 145,000 421,573
--------- ---------
NET INCREASE (DECREASE) IN CASH (54,113) 51,947
CASH - beginning 63,299 11,352
--------- ---------
CASH - end $ 9,186 $ 63,299
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 990 $ 324
========= =========
See the accompanying notes and Accountants' Compilation Report.
8
Page 6
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 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. (Income tax
matters - Note 18).
Management has made any necessary interim period accounting adjustments
in order for the statements not to be misleading.
9
Page 7
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 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 years 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.
10
Page 8
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1996
NOTE 4: DEVELOPMENT STAGE 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 in securing; significant additional investor and/or lender
financing, political risk insurance, 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. 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: ACQUISITION OF ARMENIAN MINING INTEREST FROM EYRE - DATED
DECEMBER 1, 1995
The Company acquired from Eyre Resources N.L. (Eyre), an Australian
Corporation, all of its potential interest in the Armenian gold mining
project and all of Eyre's potential interest in the Georgia gold and
copper mining project (Note 9). The Agreement closed April, 1996.
Pursuant to a December 1, 1995 restructured Agreement, the Company paid
Eyre for the Armenian and Georgian interests as follows:
Cash $ 153,494
Note payable (Note 13) 100,000
Note payable (Note 13) 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 16). The Agreement left Eyre with two out of five seats on the
Board of Directors.
11
Page 9
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1996
NOTE 5: ACQUISITION OF ARMENIAN MINING INTEREST FROM EYRE
DATED DECEMBER 1, 1995 (continued)
The 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 7) 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%. Global shall pay to Eyre $8,333 per month to
be applied against the royalty arrangement commencing with the closing
of the funding of the tailings project at Ararat, Armenia (Note 7).
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.
NOTE 6: 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.
12
Page 10
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1996
NOTE 6: PATERSON, BELKNAP, WEBB & TYLER (continued)
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 also 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.
NOTE 7: 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.
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 initial stage calls for processing tailings at the Ararat site and
for various studies for a gold mining and tailing operations at the Zod
site. Management believes capacities at Zod will be significant. Mining
at a third site, Meghradzor, will commence once Zod is operational. 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.
13
Page 11
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1996
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT (continued)
Pursuant to the joint venture agreement, the Company has the following
obligations:
Investment
Endeavor Requirement By Approximately:
-------------------------------- ----------- -----------------
Delivery of tailings processing
operation equipment to Ararat $5,000,000 See Note 8
Zod Complex prefeasibility study
and commencement of full December 31, 1996 (A)
feasibility study on Zod Complex $ 500,000 (also see Note 8)
Operation of Tailings processing $2,250,000 May 1, 1997 (A)
Complete full feasibility study
and business plan on Zod Complex $ 500,000 May 1, 1997 (A)
Tailings processing operations
at Ararat $2,250,000 November 1, 1997 (A)
(A) These dates are set out from a reference in the Joint Venture
Agreement (with the Armenian Ministry) dated May 1, 1996 that states
(in the English version) "..... months from the final execution of this
Agreement". However, the Governmnent of Armenia's decree was dated June
29, 1996. Further, on August 7, 1996, Armenia notified VZK that
L.I.M.'s guarantee (Note 8) was acceptable. Subsequent to the balance
sheet date, on October 7, 1996, the Ministry of Economy of the Republic
of Armenia issued the Joint Venture a license to process tailings at
Ararat". On November 8, 1996 VZK was notified that the joint venture
agreement was properly registered. As of the date of issuance of this
report, no formal execution date (a reference date) was officially set
out with the Government of Armenia. Accordingly, the schedule dates are
for general information purposes only, and should not be relied upon.
As of the issuance date of this report, engineers are completing a
prefeasibility study for the Zod mine and the Ararat tailings
processing facilities. Additionally, the engineers are finalizing a
report for the Ararat tailings operation regarding; reclamation and
gold recovery from existing tailings, disposal of reprocessed tailings,
and determining appropriate tailing equipment specifications. The
tailings piles were surveyed after the balance sheet date. The results
will be available after the calculations are completed.
14
Page 12
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1996
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT (continued)
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.
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.
NOTE 8: GUARANTEES- LONDON AND INTERNATIONAL MERCANTILE LTD. (L.I.M.)
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
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
15
Page 13
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1996
NOTE 8: GUARANTEES - LONDON AND INTERNATIONAL MERCANTILE, LTD (L.I.M.)
(continued)
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. The Agreements
do not provide for any partial release of the collateral (which is
still held in escrow by an English attorney pursuant to the Agreements)
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. 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. 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
$.50/share, until July 18, 1999. The options were previously stated at
$1.00/share. Subsequent to the balance sheet date, they were modified
after L.I.M. unexpectedly declined to provide financing for the
tailings equipment.
The first guarantee agreement 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 7). L.I.M.'s actual guarantee expires February 7, 1997. 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. 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 certain
studies of these matters. Accordingly, a second guarantee for $250,000
was undertaken in order to guarantee the engineers payment for their
services. This guarantee as issued by L.I.M. expired in error on
October 27, 1996. As of the issuance of this report, the engineers have
not been paid any progress payments on account of this matter, and
management has decided to have L.I.M. return their collateral security
for this guarantee immediately. The Canadian engineers have expressed
the possibility of taking on an equity and/or construction mining
management interest, but such has not been finalized as of the issuance
of this report.
16
Page 14
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1996
NOTE 9: 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 after it raises capital.
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.
17
Page 15
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1996
NOTE 10: NOTES RECEIVABLE
The Company holds notes receivable (purchased prior to 1995), as
follows:
Amount Interest Rate Debtor
------ ------------- -------------------------------------
300,000 Prime + 2% Jet-Line Environmental Services, Inc.
25,000 (1) (Jet-Line) Envirotherm, Heating and
Cooling Systems, Inc. (Envirotherm)
(120,000)*
--------
$205,000
The notes are stated at their fair value.
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. Jet-Line and the company have recently rescheduled
payment terms as Jet-Line has defaulted on prior balloon payment
obligations. The revised note is now due December 31, 1996, and
Jet-Line is in default of its current interest requirements. At the
balance sheet date, Jet-Line was in negotiation with one of its large
creditors. The outcome management anticipates would cause a significant
amount of Jet-Line's debt to be converted to equity. Management has not
accrued interest on the note or revised the general reserve, pending
the successful outcome of the negotiations and an updated evaluation of
Jet-Line's financial circumstances. The note is secured by U.C.C.'s on
certain equipment. Jet-Line also does own certain valuable assets.
Subsequent to the balance sheet date, Global pledged the Jet-Line notes
as collateral for loans to the Company from Drury Gallagher.
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)
18
Page 16
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1996
NOTE 11: OFFICERS' COMPENSATION PAYABLE
Officers' compensation payable consists of the following:
September 30, 1996 December 31, 1995
------------------ -----------------
Drury Gallagher, President $ 125,000 $ 50,000
Robert Garrison, Vice President 125,000 50,000
--------- ---------
$ 250,000 $100,000
========= ========
NOTE 12: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
September 30, 1996 December 31, 1995
------------------ -----------------
Legal - General Counsel $ 91,161 $ 39,383
Legal - Patterson, Belkap, Webb
& Tyler 329,164 94,785
Engineering - Kilborn 105,774 18,737
Drury Gallagher and Affiliates 52,242 -
Other Miscellaneous 44,118 42,709
--------- ---------
$ 622,459 $195,614
========= =========
NOTE 13: DEFERRED COSTS
Deferred costs include the following:
September 30, 1996 December 31, 1995
------------------ -----------------
Legal - Patterson, Belknap, Webb
& Tyler (Note 6) $ 398,275 $ 163,896
Legal - General Counsel 81,747 62,849
Engineering 145,171 18,737
Research and Analysis 16,227 5,219
Overseas travel 25,000 10,000
Equipment 14,713 -
--------- ---------
$ 681,133 $ 260,701
========= =========
19
Page 17
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1996
NOTE 14: NOTES PAYABLE
On December 1, 1995, the Company closed the Eyre agreement to purchase
certain mining rights (Note 5). 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.
The second, with interest at 5.65% per annum, is payable in full no
later than September 30, 1996. As of the balance sheet date, the
Company reduced the outstanding principal to $46,506. As of the
issuance date of this report, the note has not been paid and is in
default.
Drury Gallagher is lending the Company additional funds at 10% per
annum simple interest (see Note 10). 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 $145,000.
The stated value of the notes is their fair value.
NOTE 15: 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.
20
Page 18
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1996
NOTE 16: WARRANTS OUTSTANDING
The Company had warrants outstanding as follows:
# Shares Right to Price/Share Expiration
Warrant Holder(s) 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 5.
(2) Also see Note 8.
NOTE 17: 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. 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;
21
Page 19
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 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 .50 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 .50 7/19/96 7/18/99*
========
*See Note 8 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.
22
Page 20
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1996
NOTE 18: 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 5). 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 19: 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.
23
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. In addition, the Company has an interest in a gold and
copper mining project in Georgia. 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. Stage 1 involves 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 the business plan 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 on June 29, 1996
requiring the Company to post a $250,000 guaranty insuring that it invests at
least $5,000,000 into the project within eight months of such date, and the
Company delivered such guaranty, which the Armenian Government advised counsel
to the Company orally was acceptable to it. 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.
The parties have begun to implement the Tailings Project. On October 7,
1996, the Armenian Government issued a license for a five-year period in
implementation of the development plan at Ararat, effective after the
registration of the joint venture entity, Armenian Gold Recovery Joint Venture
Co. Ltd., with the appropriate Armenian governmental authorities in accordance
with applicable Armenian law. The registration of such entity occurred on
November 8, 1996. In addition, the mining engineering firm retained in
connection with the Armenian Project has obtained bulk ore samples from the
tailings site for testing in Canada; however, definitive test results with
respect to the rate of recovery of gold therefrom have not been yet been
obtained as of the date hereof.
On May 13, 1996, the Company and Jet-Line Environmental Services Inc.
("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 to the
24
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;
(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 September 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 September 30, 1996 compared to three months ended September
30, 1995
Revenues: During the three months ended September 30, 1996, the Company's
interest and royalty income was zero, which represented a decrease from the
interest and royalty income of $5 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 accrual ended September 30, 1996 were $116,162, which represented
an increase from the amount of $68,784 paid in the same period last year. Such
increase was attributable to the Company's (a) accrual of officers' compensation
and (b) the accrual and/or payment of legal and accounting fees and expenses in
connection with its retention of counsel to regularize the Company's corporate
affairs, to file the Company's 10-QSB for the period ended June 30, 1996
25
and to obtain financing pursuant to various agreements from different parties,
and travel expenses incurred with respect to the Tailings Project and the
possible financing thereof.
Nine months ended September 30, 1996 compared to nine months ended September 30,
1995
Revenues: During the nine months ended September 30, 1996, the Company's
interest and royalty income was zero, which represented a decrease from the
interest and royalty interest of $239 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 nine
months ended September 30, 1996 were $337,949, which represented an increase
from the amount paid of $140,573 in the same period last year. Such increase was
attributable to the Company's (a) accrual of officers' compensation and (b) the
accrual and/or 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, to file
the Company's 10-QSB for the periods ended March 31, 1996 and June 30, 1996 and
to obtain financing pursuant to various agreement from different parties and
travel expenses incurred in connection with the Tailings Projects and the
possible financing thereof.
Liquidity and Capital Resources
As of September 30, 1996, the Company's had total assets of $2,065,920, of
which $9,186 consisted of cash or cash equivalents.
The Company's plan of operation for the balance of the calendar year 1996
is
(a) To raise up to $12,000,000 to implement the financing of the Tailings
Project in a combination of equity and debt;
(b) 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;
(c) 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
(d) To commence the public trading of the Company's Common Stock.
As of September 30, 1996, the Company had liquid assets consisting of cash
of approximately $9,186. 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,
26
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 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
27
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.
(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 its 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, which is solely a condition between LIM and the
Company. Since there has been no such written acceptance of such guarantee, such
property is still held in escrow, although the Tailings Project is being
implemented by the Armenian Government as discussed previously and oral
acceptance of such guarantee was given.
(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
- ----------
* 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. On November 4, 1996, the Company amended such exercise price to $0.50 per
share because of the Company's failure to obtain the anticipated financing of
the Tailings Project from LIM by such date.
28
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 guaranty remains outstanding, the Company will be able to negotiate a
release of all funds received by LIM in excess of $250,000, 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 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. As of
the date hereof, the Company has not met such NASDAQ equity requirements, and,
accordingly, has not sought to have its stock traded on NASDAQ.
LIM advised the Company in October, 1996 that HCL would not exercise the
option described herein, that LIM had no intention to purchase any of the
Company's Common Stock or warrants to purchase such stock and that LIM did not
intend to arrange any financing or lease for the equipment needed in the
Tailings Project. Moreover, LIM's guaranty to Kilborn expired in error on
October 27, 1996. The Company decided not to implement the corrected extension
thereof for an additional three months, and instead sought the return, pursuant
to the applicable provisions of Agreement 2, of the 1,000,000 shares of the
Company's Common Stock and warrants to purchase 2,000,000 shares of its Common
Stock held as collateral security for such guaranty by LIM.
(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.
- ----------
** 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 ("OPIC"). However, management
has stated that such potential problems may be overcome in several ways. First,
the Company is attempting, 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.
After the initial rejection by OPIC by letter dated October 28, 1996 of
the Company's application for OPIC coverage of the Tailings Project, the Company
has determined preliminarily to seek political risk coverage from the World Bank
agency, and requested OPIC to reconsider its application.
29
Nevertheless, 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 September 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 August 14, 1996, and the Company issued a new consolidated note for
$102,500 and cancelled the earlier issued $30,000 note.
Based on the Company's needs for additional financing of its operations,
Mr. Gallagher agreed to continue to advance funds to the Company for such
purpose through June 30, 1997 if he was paid in full by such date or earlier out
of the proceeds of any financing received by the Company in excess of $500,000
and provided that the Company also secured his loan with the Jet-Line Note,
which the Company agreed to do. The Company also issued a new consolidated note
to Mr. Gallagher dated November 12, 1996 evidencing his aggregate loans to the
Company of $185,739.02 as of October 28, 1996 and cancelled the earlier
consolidated note of $102,500 dated August 14, 1996.
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
30
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.
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 September 30, 1996.
(b) The Exhibits which are listed on the Exhibit Index attached
hereto: Not applicable.
2. No reports on Form 8-K were filed by the registrant during the period
covered by this report.
31
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: November ___, 1996 By:
------------------------------------
Drury J. Gallagher, President
and Treasurer (Principal Executive
and Financial Officer)
32