Third Quarter Report 10QSB
September 30, 1997
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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 SEPTEMBER 30, 1997
[ ] 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 September 30, 1997, there were 4,348,114 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:
Balance Sheet - September 30, 1997 ...................................3
Statement of Income and (Loss) - for the period July 1, 1997
through September 30, 1997, July 1, 1996 through September 30, 1996...4
Statement of Income and (Loss) - for the period January 1, 1997
through September 30, 1997, January 1, 1996 through September
30, 1996 and for the development stage period January 1, 1995
through September 30, 1997 ...........................................5
Statement of Changes in Stockholders Equity - for the period
January 1, 1995 through September 30, 1997 and for the year
January 1, 1997 through December 31, 1997 ............................6
Statement of Cash Flow - for the period January 1, 1997
through September 30, 1997 and for the year January 1, 1996
through September 30, 1996 and for the development stage period
January 1, 1995 through September 30, 1997............................8
Notes to Financial Statement (unaudited) .............................9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operation.........................................................26
2
GLOBAL GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET
ASSETS
September 30, December 31
1997 1996
(Unaudited) (Audited)
----------- -----------
CURRENT ASSETS
Cash $ 27,830 $ 369
MoneyMarket Investment 150,000 --
--------- ---------
Noncurrent Asset
Notes receivable - net of allowance for
bad debts of $150,000 Note 9 150,000 150,000
--------- ---------
OTHER ASSETS
Organization Costs 8,881 9,601
Investment in certain mining interests
- Notes 6 and 8 1,003,494 1,003,494
Deferred costs - Note 12 9,662,313 878,858
--------- ---------
$10,674,688 $ 1,891,953
----------- -----------
----------- -----------
TOTAL ASSETS $11,002,518 $ 2,042,322
----------- -----------
----------- -----------
CURRENT LIABILITIES
Note Payable - First Dynasty Mines, Ltd. - Note 20 $10,257,124 $ --
Note Payable - Officer -- 191,000
Officer's compensation payable - Notes 10 and 16 120,834 300,000
Accounts payable and accrued expenses - Note 11 136,883 979,719
----------- -----------
10,514,841 1,470,719
----------- -----------
STOCKHOLDERS EQUITY - EXHIBIT C
Common Stock $.001 par 100,000,000 shares
authorized 4,348,114 shares issued and outstanding 23,231 20,981
Paid-in capital - Dormant period 3,228,519 3,228,519
Paid-in capital - Development stage 1,482,423 1,259,673
Retained earnings - Dormant period (2,907,648) (2,907,648)
Retained earnings - Development stage (1,338,848) (1,029,922)
----------- -----------
487,677 571,603
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $11,002,518 $ 2,042,322
----------- -----------
----------- -----------
See the accompanying notes
3
GLOBAL GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
January 1, January 1,
July 1, 1997 1997 1995
through through Development
September 30, 1997 September 30, 1997 Stage
------------------ ------------------ through
(UNAUDITED) (UNAUDITED) September 30, 1997
------------------ ------------------ ------------------
Revenue $ -- $ -- $ --
Expenses
Officers Compensation 37,500 95,834 395,834
Administrative Fees 2,436 12,839 33,997
Legal 16,080 113,665 436,994
Accounting & Auditing 5,200 30,100 100,948
Transfer Agent 71 1,534 12,446
Proxy Costs -- -- 26,555
Office Expense 10,998 19,653 29,106
Travel 171 171 43,120
Rent - Note 7 9,000 27,000 63,000
-------- -------- ----------
OPERATING LOSS (81,456) (300,796) (1,142,000)
-------- -------- ----------
-------- -------- ----------
(OTHER INCOME (EXPENSES))
Interest and royalty income 208 208 1,077
Organization costs (240) (720) (5,520)
Interest expense -- (7,090) (14,821)
Provision for bad debts
- Note 9 -- -- (175,000)
-------- -------- ----------
(36) (7,602) (194,264)
-------- -------- ----------
(Loss) Before Income Taxes (81,488) (308,398) (1,336,264)
Income Taxes (176) (528) (2,584)
-------- -------- ----------
Net (Loss) $ (81,664) $ 308,926 $ (1,338,848)
---------- ---------- ------------
---------- ---------- ------------
NET (LOSS) PER SHARE
(Note 18) $ (.0188) $ (.0710) $ (.3079)
---------- ---------- ------------
---------- ---------- ------------
4
Exhibit C
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Statements of Changes in Stockholders' Equity - Note 19
(Unaudited)
PAID-IN RETAINED RETAINED PAID-IN
ISSUED AND CAPITAL EARNINGS EARNINGS CAPITAL
OUTSTANDING COMMON (DORMANT (DORMANT (DEVELOPMENT (DEVELOPMENT
SHARES STOCK PERIOD) PERIOD) STAGE) STAGE) TOTAL
--------- ------- ---------- ----------- --------- ---------- ----------
Stockholders' Equity
January 1, 1995 898,074 $89,807 $3,147,693 $(2,907,648) $ -- $ -- $329,852
Net Loss-January 1,-
December 31, 1995 -- -- -- -- (361,345) -- (361,345)
Adjustment re:restatement
of par value-Note 1 -- (80,826) 80,826 -- -- -- --
Eyre acquisition-
Note 5 1,000,000 10,000 -- -- -- 840,000 850,000
Proceeds through
private offering-Note 14 200,000 2,000 -- -- -- 419,573 421,573
--------- ------- ---------- ----------- --------- ---------- ----------
Stockholders' equity
December 31, 1995 2,098,074 $20,981 $3,228,519 $(2,907,648) $(361,345) $1,259,573 $1,240,080
========= ======= ========== =========== ========= ========== ==========
See the accompanying notes and Accountants' Compilation Report.
5
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Statements of Changes in Stockholders' Equity - Note 19
(Unaudited)
PAID-IN RETAINED RETAINED PAID-IN
ISSUED AND CAPITAL EARNINGS EARNINGS CAPITAL
OUTSTANDING COMMON (DORMANT (DORMANT (DEVELOPMENT (DEVELOPMENT
SHARES STOCK PERIOD) PERIOD) STAGE) STAGE) TOTAL
------ ----- ------- ------- ------ ------ -----
Stockholders' Equity
December 31, 1995 2,098,074 $20,981 $3,228,519 $(2,907,648) $(361,345) $1,259,573 $1,240,080
Net Loss-January 1,-
December 31, 1996 -- -- -- -- (668,577) -- (668,577)
Warrants exercised 40 -- -- -- -- 100 100
Stockholders' equity
December 31, 1996 2,098,114 $20,981 $3,228,519 $(2,907,648) $(1,029,922) $1,259,573 571,603
Net Loss-January 1-September
30, 1997 (308,926) (308,926)
Issuance of Common
Stock-Note 16 2,000,000 2,000 198,000 200,000
Note 20 250,000 250 24,750 25,000
Shareholders' Equity
September 30, 1997 4,318,114 $23,231 $3,228,519 $(2,907,648) $(1,338,848) $1,482,423 $487,677
In 1996, 200,000 shares were issued to collateralize two guarantees by London
International Merchantile Ltd. The guarantees were rescinded and, therefore,
such shares were returned to the Company in 1997 and have not been reflected on
this statement.
See the accompanying notes
6
(GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF CASH FLOWS (UNAUDITED)
JANUARY 1, JANUARY 1,
1997 1996
THROUGH THROUGH
SEPTEMBER 30, 1997 DECEMBER 31, 1996
(UNAUDITED) (AUDITED)
------------------ -----------------
CASH FLOWS FROM DEVELOPMENT STAGE ACTIVITIES
NET LOSS - EXHIBIT B $ (308,926) $(668,577)
ADJUSTMENTS TO RECONCILE NET
LOSS TO NET CASH PROVIDED
BY OPERATING ACTIVITIES:
NON-CASH ITEMS INCLUDED IN LOSS
AMORTIZATION -- --
PROVISION FOR BAD DEBT -- 55,000
CHANGE IN ASSETS AND LIABILITIES:
ORGANIZATION COSTS 720 (6,401)
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (1,022,002) 984,105
----------- --------
NET CASH PROVIDED (USED) BY DEVELOPMENT
STAGE ACTIVITIES (1,330,208) 364,127
CASH FLOWS FROM INVESTMENT ACTIVITIES
INVESTMENT IN SHORT TERM SECURITIES (150,000) --
INVESTMENT IN CERTAIN MINING INTERESTS -- --
DEFERRED COSTS - MINING INTERESTS (8,758,455) (618,157)
----------- ---------
NET CASH (USED) BY INVESTING ACTIVITIES (8,908,455) 618,157
CASH FLOWS FROM FINANCING ACTIVITIES
PROCEEDS FROM FIRST DYNASTY MINES LTD. 10,257,124 --
NET PROCEEDS FROM PRIVATE PLACEMENT 200,000 --
NOTES PAYABLE OFFICER (191,000) 191,000
WARRANTS EXERCISED -- 100
----------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 10,266,124 191,100
NET INCREASE (DECREASE) IN CASH 27,461 62,930
CASH - BEGINNING 369 63,299
CASH - END 27,830 369
SUPPLEMENTAL CASH FLOW INFORMATION
INCOME TAXES PAID $ 528 $ 324
7
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
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 from
its inception until January 1, 1995. Accordingly, the Company has been
dormant until 1995. During 1995, the Company changed its name from Triad
Energy Corp. to Global Gold Corporation. 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. 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. These Republics, which recently won their
independence, may be prone to political and economic turmoil which may
result in various adverse ramifications.
The Company has offices in New York City which it leases from Penn Med
Consultants, Inc., which is charging rent in the amount of $3,000 per
month to the Company 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.
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.
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 17)
Management has made any necessary interim period accounting adjustments
in order for the statements not to be misleading.
8
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
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 McNeil in July, 1981. The case
has long since gone through the judicial system and Mr. McNeil is no
longer, an officer, director, employee 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, 1995 and 1996, 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,
1993, 1994, 1995 and 1996. 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.
9
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
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 and political risk insurance. The Company expects to incur
operating losses for the near term 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
Pursuant to the Asset Purchase Agreement dated June, 1995, (the
"Agreement"), the Company acquired from Eyre, an Australian corporation,
all of its potential interest in its Armenian gold mining project and
all of Eyre's potential interest in its Georgia gold and copper mining
project (Note 8) . The Agreement closed April, 1996.
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 one million shares of stock, with an estimated value of
$850,000, and warrants to acquire an additional four hundred thousand
shares (Note 15) . The Agreement left Eyre with two out of five seats on
the Board of Directors.
10
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 5: ACQUISITION OF ARMENIAN MINING INTEREST FROM EYRE (continued)
As of December 1, 1995, the Company and Eyre entered into a
Restructuring Agreement pursuant to which Eyre surrendered 1,000,000
shares of common stock and acquisition warrants to purchase 600,000
shares of common stock and acquired a 2% overriding production royalty
subject to adjustment in the event the ownership of the Company were to
become owned by 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 by 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 totaling another 1%. The initial
Armenian tailings project (Note 7) is excluded from the royalty
arrangement. In the event the Company 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%.
The Company 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 Restructuring Agreement provided 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.
Various prospective investment banking firms and potential investors who
expressed an interest in providing funding for the Company's projects in
the fall of 1996 requested that the Company undertake a reverse split of
its Common Stock (see Note 19) to decrease the number of shares
outstanding and to reduce the equity stake of certain shareholders who
received shares pursuant to the Agreement essentially in their capacity
as finders in order to facilitate possible future financings. In
response thereto, by letter dated December 4, 1996, Eyre and the
Parry--Beaumont Trust surrendered their Acquisition Warrants to purchase
240,000 and 160,000 shares of the Company's Common Stock (a total of
400,000 shares), surrendered their right to designate two members of the
Board of Directors of the Company and in addition, Eyre agreed to waive
its overriding royalties in the Armenian projects and to waive the
approximately $146,000 due it under the promissory notes received at the
closing (the "Second Restructuring Agreement"). While Eyre had 2%
overriding royalty on the Armenian mining projects (other than the
Tailings Project), the Second Restructuring Agreement referred to the
waiver of a overriding royalty of 1.5% on the Armenian projects in
reliance on Eyre's earlier agreement to reduce such royalty to 1.5% by
virtue of its failure to secure financing from a designated mining
company in November, 1996. Accordingly, the Company believes that all
overriding royalties on the Armenian mining projects have been validly
waived.
11
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 6: PATTERSON, BELKNAP, WEBB & TYLER LLP
Global has retained the law firm of Patterson, Belknap, Webb & Tyler LLP
(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. Krikorian (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 $93 million (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%.
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 $180,000 for the period July 1, 1995 to July 1, 1999, and the
minimum quarterly payment is $10,000. The quarterly billing was
discontinued as of June 30, 1997.
As of June 30, 1997 unbilled contingent project charges in excess of the
minimum $25,000 per quarter were assumed by First Dynasty Mines Ltd.
payable upon receipt of an executed agreement assigning the rights to
the Zod Mine to AGRC. Unbilled fees and expenses through September 30,
1997 total approximately $300,000,
In addition PBWT performs additional legal service for the Company as
requested. Current payables and accruals are $99,000.
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
"Venture"). 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.
12
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT (continued)
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 its share of
joint venture profits.
The initial stage calls for processing tailings at the Ararat site and
for various studies for a gold mining 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.
Pursuant to the Joint Venture Agreement, the Company has the following
obligations:
Investment
Endeavor Requirement
------------------------------- -----------
Delivery of tailings processing
Operation equipment to Ararat $5,000,000
Zod Complex prefeasibility study
and commencement of full
feasibility study on Zod Complex $ 500,000
Operation of Tailings processing $2,250,000
Complete full feasibility study
and business plan on Zod Complex $ 500,000
Tailings processing operations
at Ararat $2,250,000
13
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT (continued)
The parties have begun to implement the Tailings Project. On October 7,
1996, the Armenian Government issued a license for a five-year period of
implementation of the development plan at Ararat, effective after the
registration of the Venture with the appropriate Armenian governmental
authorities, in accordance with applicable Armenian law. The
registration of the Venture occurred en November 8, 1996. In addition,
the mining engineering firm retained in connection with the Armenian
Project obtained bulk ore samples from the tailings site for testing in
Canada. An independent laboratory, which analyzed such samples, advised
the Company, in its written report in February, 1997, that the test
results showed that approximately one and one tenth gram of gold could
be obtained from each metric tonne of ore with a 50% recovery at the
site covered by the Tailings Project, although there can be no assurance
thereof.
Pursuant to the decree issued in connection with the Armenian Joint
Venture Agreement, GGA was required to invest $5,000,000 in the Tailings
Project on or before February 1, 1997. Such requirement was deemed
satisfied by the parties.
Pursuant to the Armenian Joint Venture Agreement, the Venture is now
engaged in the final engineering and initial construction for the
Tailings Project. The Venture entered into a Tailings Dam Construction
Contract with Armhydro for $640,000 on January 31, 1997. AGRC also
retained a Canadian engineering firm, under a contract for Engineering,
Procurement and Construction Management Services dated January 31, 1997,
under which the compensation payable to the contractor under Phase I of
the project is $4,500,000.
While the Company has been advised that proven reserves exist in the
Tailings Project and that the mining thereof can be done on a profitable
basis, there can be no assurance of such result.
14
GLOBAL GOLD CORPORATION
(A Development stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT (continued)
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 adopted in the Agreement. For the Ararat tailings project, once
profits are determined, they shall be split 50/50 50 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.
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.
Deterred Project Costs Through September 30, 1997 Total $9,592,244
NOTE 8: THE GEORGIAN AGREEMENT
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 tiled, and it has no
definitive agreement granting it fixed rights to mining production or
processing in Georgia.
The current Agreement calls for each partner to advance capital in a
50/50 ratio. 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%
15
GLOBAL COLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 8: THE GEORGIAN AGREEMENT (continued)
After recovery of capital, the net profit were to be distributed as
follows:
a) RCPA - according to shareholdings (i.e. share of the Foundation
Fund, which shares could be changed only by unanimous vote of the
participants), less 2.5% to the Sinking Fund, and
b) The Company (or its wholly-owned subsidiary) -- according to
shareholdings less 2.5% to Panquest.
The Agreement calls for the Board of the Joint Venture Company to
annually decide upon the amount of profit distributions.
The Joint Venture Company will not be required to pay Georgian income
tax on the profits obtained within the Company for 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
Joint Venture Company may apply to the Ministry of Finance for
additional taxation privileges. Reinvested capital will be exempt from
taxation.
The Joint Venture Company 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.
The Company recently learned that the Georgian Government is planning to
privatize the development of the Madneuli mine through a public bidding
process which was slated to end on April 15, 1997. Since the structure
of the Madneuli mining project under the public tender differs markedly
from that contemplated under the Asset Purchase Agreement between the
Company and Eyre dated as of June 30, 1995, the Company has decided not
to submit a bid for the development of the Madneuli mining project.
Accordingly, there can be no assurance that the Company will be
successful in acquiring any rights or concluding any definitive
agreements with respect to the Madneuli mining project, or, if so, on
terms acceptable to it. Furthermore, if the Company does acquire any
rights to the Madneuli mining project, there can be no assurance that it
will be able to obtain financing for the acquisition or development
thereof, or, if so, on terms acceptable to the Company.
16
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 9: NOTES RECEIVABLE
The Company holds a note receivable as follows:
Amount Interest Rate Debtor
--------- ---------- ---------------------------------
$ 300,000 Prime + 2% Jet--Line Environmental Services,
Inc. (Jet-Line)
(150,000) Allowance for doubtful accounts
---------
$ 150,000
=========
The Jet-Line note as more fully described in the documents, is
convertible into at least 20% of Jet-Line's common stock and up to 30%
under certain circumstances. Jet--Line has defaulted on prior balloon
payment obligations and is in default of its current interest
requirements. The note is secured by U.C.C.'s on certain equipment.
Jet-Line owns certain valuable assets. The Company pledged the
Jet-Line notes as collateral for loans to the Company from
Drury Gallagher, which loan has now been repaid in full.
Jet-Line advised the Company in early March, 1997 that it received a
notice of the revocation of its license to do business in Massachusetts
and a fine of $100,000 from the Massachusetts environmental authorities.
Jet-Line contested such revocation and fine in the Massachusetts state
courts unsuccessfully. As a result, Jet--Line has been requested by such
authorities to sell its facility in Massachusetts, and Jet--Line is now
engaged in negotiations with a potential buyer with respect to such
sale. The Company sent Jet-Line a written notice of default and demand
for payment on March 14, 1997, and further demands letters on April 2,
1997, April 15, 1997 and November 11, 1997 and November 10, 1997 and is
now is attempting to sell the assets in which it holds a first security
interest. The Company has also requested Jet-Line to seek additional
financing and to use part of the proceeds therefrom to satisfy the
Jet--Line Note in full. However, there can be no assurance that
Jet-Line will be able to consummate such sale or obtain such financing.
Thus, there can be no assurance that the Company will ultimately be
paid the full principal amount of, and accrued interest on, the
Jet-Line note. Management has not accrued interest on the note and
revised its allowance for doubtful accounts to $150,000.
17
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 10: OFFICERS' COMPENSATION PAYABLE
Officers' compensation payable consists of the following:
September 30, 1997
------------------
Drury Gallagher $ 87,500
Robert Garrison 33,334
---------
$ 120,834
=========
(See Note 16)
NOTE 11: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
September 30, 1997
------------------
Legal-- General Counsel $ 2,009
Legal -- Patterson, Belkap, Webb
& Tyler LLP (Note 6) 99,110
Affiliates 9,000
Other Miscellaneous 26,764
---------
$ 136,883
=========
NOTE 12: DEFERRED COSTS
Deferred costs include the following:
September 30, 1997
------------------
Legal -- Patterson, Belknap, Webb
& Tyler LLP(Note 6) $ 709,260
Legal-- General Counsel 81,747
Engineering 5, 130,501
Research and Analysis 82,042
Overseas travel 73,897
Construction 556,504
Other 3,028,362
-----------
$ 9,662,313
===========
NOTE 13: NOTES PAYABLE
On December 1, 1995, the Company closed the Eyre agreement to purchase
certain mining rights (Note 5). Pursuant to the agreement, the
18
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 13: NOTES PAYABLE (continued)
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 December 31, 1996. Pursuant to the Second Restructuring
Agreement (Note 5) dated December 4, 1996 both promissory notes were
cancelled.
Drury Gallagher loaned the Company $192,000. The note evidencing the
loan bears interest at 10% per annum and was due on or before June 30,
1997 together with accrued and unpaid interest. The Note was repaid in
full together with interest thereon.
NOTE 14: 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 December
31, 1996. Expenses in connection with the offering were $78,427.
Each $1,000 convertible note entitled the holder to 400 shares of common
stock, and warrants to purchase 800 shares of common stock at an
exercise price of $.50 per share at any time before December 31, 1996.
The expiration date was subsequently extended to December 31, 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 Lyre closing, the entire $500,000 of
convertible notes were exchanged for 200,000 shares of common stock.
NOTE 15: WARRANTS OUTSTANDING
The Company had warrants outstanding as follows;
# Shares Right Price/Share Expiration
Warrant Holder(s) to Purchase Exercisable at Date
----------------- ----------- -------------- ----------
Stockholders through
Note Conversion --
Note 5 400,000 $1.00 12/31/97
Other 4,000 $5.00 11/30/98
-------
404,000
=======
19
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 16: OFFICERS' COMPENSATION, INCENTIVE STOCK OPTIONS AND STOCK APPRECIATION
RIGHTS
Management presently consists of Mr. Drury Gallagher and Mr. Robert
Garrison. Mr. Gallagher had been President of the Company and a
stockholder since 1981, he is currently Chairman of the Company. Mr.
Garrison was subsequently hired to oversee mining and related financing
activities and is currently President. 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.
On January 3, 1997, the Board of Directors of the Company approved the
issuance of 1,000,030 shares of its Common Stock to each of Messrs.
Gallagher and Garrison in exchange for, (a) in Mr. Gallagher's case, the
cancellation of $100,003 of accrued salary, and the cancellations of his
options to acquire 175,000 shares of the Common Stock of the company and
the cancellation of his stock appreciation rights (the "SARs") which,
under certain circumstances, could have resulted in the issuance to him
of up to 371500 shares of the Company's Common Stock and (b) in Mr.
Garrison's case, the cancellation of $100,000 of accrued salary, the
cancellation of his options to buy 75,000 shares of the Company's Common
Stock and the cancellation of his SARs. The Company made such transfer
to reward each of them for their efforts to secure financing for the
Company and/or the Armenian mining project, for maintaining the
Company's existence in the face of the Company's potential insolvency,
and to increase their proprietary stake of the day-to-day management of
the Company. In 1997, Lyre questioned the validity of the issuance by
the Company of 1,000,000 shares of its common stock to each of Messrs.
Gallagher and Garrison.
Global Gold Armenia Limited ("GGA") agreed to retain Robert A. Garrison
as a consultant for a three-year period commencing February 1, 1997 for
$150,000 per annum pursuant to the terms of the consulting agreement
entered into between such parties. Under such agreement, Mr. Garrison
will serve as a Senior Vice President of GSA, will assist it in
furtherance of its business interests under the supervision of the board
of directors of GGA and provide ongoing management as the board of
directors of GSA reasonably requests of him from time to time. Mr.
Garrison agreed to devote 50% of his time and attention to the
performance of his services under such agreement, in his capacity as an
independent contractor. Such agreement is terminable by the consultant
upon 90 days prior written notice to GGA (or lesser notice if GGA agrees
to such shorter period) or for cause (as defined therein) or without
cause, which, in such latter case, would require GGA to pay Mr. Garrison
the amount of his consulting fees remaining unpaid under such agreement.
Such agreement is in lieu of the above mentioned salary.
20
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 17: 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 Company experienced net operating losses for each of the two years
ended December 31, 1996. The Company has elected to carryforward such
losses for Federal income tax purposes and offset future taxable
earnings. However, since the Company is a development stage company and
its ability to obtain future earnings is uncertain, no deferred tax
asset has been recorded.
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, if necessary.
21
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 18: 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.
NOTE 19: REVERSE STOCK SPLIT
Various prospective investment banking firms and potential investors who
expressed an interest in providing funding for the Company's projects in
1996 requested that the Company undertake a reverse split of its Common
Stock to decrease the number of shares outstanding and thereby
facilitate possible future financings. Accordingly, the Company effected
a 1 for 10 reverse split of its common stock effective as of December
31, 1996. Such step was taken by the written consent of the holders of a
majority of the Company's issued and outstanding shares of Common Stock.
By virtue of the reverse split, each stockholder's number of shares of
Common Stock became 1/10th of the number previously held. The Company
filed its Certificate of Amendment to the Certificate of Corporation
with respect to the reverse split with the Delaware Secretary of State
on December 31, 1996.
All share and per share data in this report have been restated to
reflect the reverse stock split, unless otherwise noted.
NOTE 20: FIRST DYNASTY MINES LTD.
The Company, GGA and First Dynasty Mines Ltd. ("First Dynasty"), a
Canadian public company, entered into a preliminary agreement dated
January 27, 1997 whereby First Dynasty agreed to advance funds in stages
necessary for the development of the Armenian mining projects.
The Company and First Dynasty entered into a definitive agreement dated
May 13, 1997 reflecting the final agreement of the parties with respect
to the Armenian mining projects (the "FDM Agreement"). The principal
terms of the FDM Agreement are outlined as follows:
22
GLOBAL GOLD CORPORATION
(A Development Stags Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 20: FIRST DYNASTY MINES LTD. (continued)
First Dynasty agreed to advance a maximum of $24,510,000 under the FDM
agreement. All funds advanced by First Dynasty will be advanced to GSA
as debt, which is convertible into stock of GGA at First Dynasty's
option or is automatically converted into such stock under certain
circumstances, as follows:
A. The first $6,490,000 of debt is convertible into 25% of the capital
stock of GSA.
B. The next $3,520,000 of debt together with the advance described
above is convertible into 51% of the capital stock of GSA.
C. For every additional $.5 million advanced in respect of the
development of the Zod and Meghradzor mines (excluding the $10
million Tailings Project expenditure) as a loan to GSA, such debt is
convertible into an additional 1% of the capital stock of GGA, up to
a maximum of 80% of the issued and outstanding shares of capital
stock of GGA.
Upon obtaining 80% of the capital stock of GGA, or upon making aggregate
advances of $24,510,000, First Dynasty would be entitled to acquire the
remaining 20% of the outstanding of capital stock of GGA, within 18
months after raking such total advances, by issuance of 4,000,000 of its
common stock, except that such number of shares will be increased
proportionately to the extent that the mineable reserves at the Zod and
Meghradzor mines,(which are established at the end of such 18 month
period), exceed five million ounces.
First Dynasty will be entitled to appoint three of the five directors of
GGA until First Dynasty shall acquire 80% of the issued and outstanding
common stock of GSA.
First Dynasty carried out certain initial commitments in February, 1997.
They loaned GSA $675,000 to pay outstanding payables, agreed to fund the
$640,000 Tailings Dam Construction contract and agreed to guarantee or
co-sign up to $3,500,000 of the equipment purchase contract and up to
$1,000,000 of the engineering, procurement, construction management
agreement between the Venture and a Canadian engineering firm. First
Dynasty further agreed to loan the Company an additional $675,000 to
cover the balance of the outstanding payables. First Dynasty made direct
payments of $7,151,807 on the Tailings contact and engineering agreement
and an additional $1,414,162 in legal and administrative expenses in the
first nine months of 1997.
23
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
September 30, 1997
NOTE 20: FIRST DYNASTY MINES LTD. (continued)
In addition, First Dynasty agreed to pay the Company $400,000 for use,
at its option, to defray its expenses in participating in the
negotiation of the second Armenian joint venture agreement, of which
$200,000 was paid upon the execution and the delivery of the FDM
Agreement and the balance of $200,000 will be paid on June 30, 1996.
Although not reflected in the FDM Agreement, First Dynasty also paid the
Company $141,155.02 on May 15, 1997 to defray the expenses incurred by
GGA during the three-month period ending March 31, 1997.
In connection with the First Dynasty financing the Company paid a
finders fee of 125,000 shares of its common stock to each of Walker
Investments Ltd. and Alpine Holdings Ltd.
24
GLOBAL GOLD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(A) GENERAL OVERVIEW
The Company is presently engaged in the development of a gold mining
project in Armenia, and is currently considering pursuing 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. Prior thereto, the
Company did not engage in any substantial business activities, except as
described in the section 1(D) entitled "Prior History of the Company" reflected
in the Form 10-KSB filed by the Company for the period ended December 31, 1996.
(B) ARMENIAN MINING PROJECT
(a) ARMENIAN JOINT VENTURE AGREEMENT
The Company, the Ministry of Industry of Armenia and Armgold, S.E., the
Armenian state gold enterprise ("Armgold"), executed and delivered the Armenian
Joint Venture Agreement, dated as of May 1, 1996. The Company thereafter
assigned its rights and obligations thereunder to Global Gold Armenia Limited,
its wholly-owned Cayman Islands subsidiary ("GGA"). The Armenian Joint Venture
Agreement formed the Armenian Gold Recovery Joint Venture
Co., LLC, a limited liability company under Armenian law ("AGRC"), 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 of
the Armenian Joint Venture Agreement involves the processing of an estimated 12
million tonnes of tailings from the Ararat processing plant, which the Company
believes average 1 gram of gold per tonne (based on the independent
metallurgical study obtained by the Company) (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 plans to be approved by all
parties, Stage 2 calls for the rehabilitation of the Ararat Gold Processing
Plant and for mine development and operation as well as engineering and building
a gold processing plant at the Zod mine, and Stage 3 calls for mine development
and operation at the Meghradzor mine, a feasibility study for a gold refinery,
and exploration activity. GGA is currently negotiating a new agreement with the
Armenian authorities to expedite and modify stages 2 and 3.
The Company, the Ministry of Armenia and Armgold executed and delivered
the Second Armenian Gold Recovery Company Joint Venture Agreement, dated as
of September 30, 1997, which, among other things, provides for the right of
new joint venture companies to mine and process gold at Zod and Meghradzor
mines and which also eliminated certain specific exploration sites from the
original agreement, while still recognizing AGRC's right to participate in
exploration activity at a future date. However, such
25
amendatory agreement does not become operative until passage of an Armenian
government decree approving such agreement. The parties anticipate that such
decree will be issued within the next several months, although there can be
no assurance of such result.
(b) TAILINGS PROJECT
The parties have begun to implement the Tailings Project. As of February
1, 1997, GGA had a definitive agreement authorized by an Armenian government
decree granting it fixed rights to process tailings from the Ararat site as well
as a license and environmental approval for construction.
Pursuant to the Armenian Joint Venture Agreement, AGRC is now engaged in
the construction of the Tailings Project. AGRC entered into a Tailings Dam
Construction Contract with Armhydro for $640,000 on January 31, 1997. AGRC
also retained a Canadian engineering firm, under a contract for Engineering,
Procurement and Construction Management Services Agreement dated January 31,
1997, under which the compensation payable to the contractor under Phase I of
the project is $4,500,000, which was later increased to up to $10,000,000
Operation of the tailings processing plant is now planned for December, 1997,
although construction and other contingencies exist which may delay meeting
such target date. In addition, independent engineering firms are now
engaged in preparing a feasibility report with respect to the reserves at the
Zod and Meghradzor, mines which the Company anticipates will be completed
within the next six months, although there can be no assurance of such
result.
While the Company has been advised that proven reserves exist in the
Tailings Project and that the mining thereof can be done on a profitable basis,
there can be no assurance of such result.
(c) FINANCING OF THE ARMENIAN MINING PROJECT - FIRST DYNASTY MINES LTD.
Throughout 1996 and into January, 1997, the Company had discussions with
many unrelated parties in connection with arranging for the financing of the
Tailings Project. As of January 31, 1997, the Company and GGA reached an
agreement with First Dynasty Mines Ltd. ("First Dynasty"), a Canadian public
company whose shares are traded on the Toronto Stock Exchange and on NASDAQ.
Under such preliminary agreement, First Dynasty acquired the right, subject to
certain conditions, to advance funds in stages necessary for the implementation
of the Tailings Project and the preparation of engineering and business plan
materials for the remaining Armenian mining projects.
The Company, GGA and First Dynasty entered into a definitive agreement
dated May 13, 1997 reflecting the final agreement of the parties with respect to
the above projects (the FDM Agreement"). The principal terms of the FDM
Agreement are set forth below:
1. First Dynasty agreed to advance a maximum of $24,510,000 to GGA under
the FDM Agreement, which amounts will be advanced as debt, which is convertible
into stock of GGA, at First Dynasty's option, or is automatically converted into
such stock under certain circumstances, as
26
described below:
(a) Upon First Dynasty's making advances of $6,490,000, such amount
will then be automatically converted into 25% of the capital stock of GGA
(which occurred in October, 1997).
(b) The next $3,520,000 of debt, together with the advance described
in 1(a) above, is convertible into 51% of the capital stock of GGA, at
First Dynasty's option.
(c) For every additional $.5 million invested for expenditures
advanced in respect of the development of the Zod and Meghradzor mines
(excluding the $10 million Tailings Project expenditure) as a loan to GGA,
such debt is convertible, at First Dynasty's option, into an additional 1%
of the capital stock of GGA, up to a maximum of 80% of the issued and
outstanding shares of capital stock of GGA. Thus, upon advancing a total
of $24,510,000 in the Armenian mining projects, First Dynasty would be
entitled to acquire 80% of the shares of GGA, if First Dynasty elects to
convert all of its debt into equity.
2. (a) Upon obtaining 80% of the capital stock of GGA or upon making
aggregate advances of $24,510,000, First Dynasty would be required to acquire
the remaining 20% of the outstanding of capital stock of GGA, within 18 months
after making such total of advances, by issuance of 4,000,000 shares of its
common stock except that such number of shares will be increased proportionately
to the extent that the mineable reserves at the Zod and Meghradzor mines (which
are established at the end of such 18-month period) exceed five million ounces.
(b) First Dynasty further agreed to use its best efforts to issue
freely tradeable FDM shares to GGA if it is feasible to do so in connection with
a contemporaneous public offering of shares of FDM stock or, alternatively,
special warrants to acquire shares of common stock of First Dynasty without
payment therefor (each of which would be exercisable into one share of First
Dynasty common stock) in a form and substance satisfactory to all parties,
pursuant to a prospectus filed with the applicable Canadian securities
regulatory authorities.
(c) In the event of a violation of First Dynasty's obligations to pay
the Company 4,000,000 shares of its Common Stock or greater amount or to arrange
for the issuance of freely tradeable shares pursuant to the mechanisms
contemplated in the FDM Agreement, the Company would be able to require First
Dynasty to specifically perform its obligations pursuant to the grant of an
injunction or other appropriate decree of specific performance by any court
having equity jurisdiction over the parties.
3. (a) First Dynasty's agreement to continue funding under the FDM
Agreement is subject to the following conditions:
(i) all of the representations and warranties of GGA were true
as of the date of the execution and the delivery of the FDM Agreement;
27
(ii) neither the Company nor GGA (prior to the actual
implementation of the appointment of First Dynasty's designees as
three directors of GGA) will have breached in any material respects
any of its covenants under the FDM Agreement, and
(iii) with respect to any advances in excess of $10,000,000
or the issuance of any shares of First Dynasty stock, First Dynasty
will have obtained the approval of The Toronto Stock Exchange.
(b) First Dynasty right's under the FDM Agreement remain exclusive
for so long as First Dynasty continues to fulfill its obligations under the FDM
Agreement and GGA continues to fulfill its obligations under any joint venture
agreement in Armenia, except that FDM's rights will cease to be exclusive if (I)
the Company notifies First Dynasty in writing that First Dynasty is in default
under the FDM Agreement or that GGA is in default under any Armenian joint
venture agreement and (ii) First Dynasty fails to cure such default within 45
days thereafter, but, in any event, prior to the expiration of any cure period
to which GGA is subject if First Dynasty's default results in a default by GGA
under any joint venture agreement.
4. (a) First Dynasty agreed to pay the Company $400,000 for use, at its
option, to defray its expenses in participating in the negotiation of the second
Armenian joint venture agreement, which is now occurring, of which $200,000 was
paid upon the execution and the delivery of the FDM Agreement and the balance of
$200,000 will be paid on June 30, 1998.
(b) Although not reflected in the FDM Agreement, First Dynasty also
agreed to pay up to $150,000 to defray the expenses incurred by GGA during the
three-month period ending March 31, 1997. Such reimbursement in the amount of
$141,155 occurred in June, 1997.
5. Upon the formation of AGRC Exploration, a limited liability company to
be formed under the laws of Armenia, and ending on December 31, 2009, the
Company will be entitled to elect to participate with GGA in any exploration
projects undertaken by AGRC Exploration up to a level of 20% of GGA's rights in
any exploration project. GGA and the Company also agreed to enter into a
mutually acceptable participation agreement in respect of any exploration
project.
6. GGA agreed to retain Robert A. Garrison as a consultant for a
three-year period commencing February 1, 1997 pursuant to the terms of the
consulting agreement entered into between such parties. Under such agreement,
Mr. Garrison will serve as a Senior Vice President of GGA, will assist it in
furtherance of its business interests under the supervision of the board of
directors of GGA and provide ongoing management as the board of directors of GGA
reasonably requests of him from time to time. Mr. Garrison agreed to devote 50%
of his time and attention to the performance of his services under such
agreement, in his capacity as an independent contractor. Such agreement is
terminable by the consultant upon 90 days prior written notice to GGA (or lesser
notice if GGA agrees to such shorter period) or for cause (as defined therein)
or without cause, which, in such latter case, would require GGA to pay Mr.
Garrison the amount of his consulting fees
28
remaining unpaid under such agreement.
7. The parties also entered into a shareholders agreement providing for,
among other things, the following:
(a) From the inception of the agreement and until First Dynasty shall
acquire 80% of the issued and outstanding common stock of GGA, First
Dynasty's designees serve as three of the five directors of GGA, including
Marcus Randolph, the President of First Dynasty, and Drury J. Gallagher and
Robert A. Garrison, the Company's Chairman and Chief Executive Officer and
the President and Chief Operating Officer, respectively, serve as the
Company's designees. If the size of the board is increased thereafter,
each party will have the right to designate such number of its designees as
members as the board of directors as shall be proportionate to the number
of designees established under such agreement. As a result of this
provision, First Dynasty now controls the board of directors of GGA.
(b) The board of directors of GGA will act by the vote of majority of
its members, except that the unanimous vote of the board is required to
take action on the following matters:
(i) the sale, lease or any disposition of substantially all of
the assets of GGA;
(ii) the sale or assignment of any interest of GGA in any joint
venture company in which GGA is a shareholder or equity participant or
has provided financing in excess of $250,000 or
(iii) the financing of any of the projects contemplated under
the FDM Agreement other than when such financing is provided solely by
FDM.
(c) In the event that the FDM Agreement becomes non-exclusive
pursuant to the provisions thereof, then First Dynasty shall have the right
to designate only one director of GGA, the Company shall have right to
designate one director of GGA and the party or parties who provide
financing required under the then applicable provisions of the contemplated
second Armenian joint venture agreement will have the right to appoint
three designees to the board of directors of GGA, simultaneously with the
execution and delivery of any financing agreement relating thereto or upon
the payment of the first funding thereunder (and the Company will have the
right to participate in the financing described in such provision).
(d) Each party cannot sell, transfer or pledge its shares of
ordinary shares of GGA, except that each party may transfer its interest to
a corporation, partnership or limited liability which is wholly owned by
the transferring party. During the period that First Dynasty rights under
the FDM Agreement remain exclusive, neither shareholder has any right to
sell or transfer the shares of GGA stock owned by it. Furthermore, if a
stockholder
29
receives a bona fide offer to sell its GGA's shares, GGA and thereafter the
non-selling stockholder has the right to purchase the stock in question at
the offered price, each for successive 30-day periods. If such right of
first refusal is exercised, the purchaser is required to pay the full
purchase price in immediately available funds or by wire transfer.
Alternatively, the non-selling shareholder may exercise so-called tag along
rights and participate on a pro rata basis in the sale of shares of GGA of
both the recipient of the offer and the non-selling shareholder to the
offeror. If such right of first refusal or tag along right is not
exercised, than the seller may sell its shares of GGA to the offeror on the
terms described in the offer within 120 days after receipt of such offer
and provided further that such third party signs an instrument in writing
agreeing to be bound by all of the terms and conditions of the stockholders
agreement.
The Company, GGA and First Dynasty amended the shareholders agreement, as
of May 13, 1997, to provide, among other things, that it will be governed by
the New York (instead of Cayman Islands) law.
8. Each party is entitled to engage in any other activities or business
or mining or other investments outside of Armenia and will not be required to
account to any other party for any profits derived from such permitted
activities, businesses or investments.
Pursuant to the First Dynasty Agreement, First Dynasty carried out certain
initial commitments described below:
a. First Dynasty loaned $1,350,000 to GGA in two installments of
$675,000 each to repay such amount of payables attributable to GGA and such
amounts were disbursed according to the agreement (or are being disbursed
in the case of the second installment).
b. Upon the signing of the $640,000 Tailings Dams construction
contract with Armhydro, First Dynasty funded $96,000, and, thereafter,
First Dynasty has agreed to fund the balance.
c. First Dynasty agreed to guarantee or co-sign for up to $3,500,000
of the equipment purchase contract and up to $1,000,000 of the engineering,
procurement, construction management agreement between AGRC and a Canadian
engineering firm. Also, First Dynasty agreed to advance funding for
expenditures thereunder as jointly agreed by the Company and First Dynasty
from time to time, subject to certain cancellation provisions agreed to by
First Dynasty.
d. First Dynasty created a credit facility of up to $1,000,000 for
Armgold.
As of September 30, 1997, First Dynasty claims it had advanced
$10,257,124 in total project costs.
30
(d) MINING PLANS
GGA, in conjunction with First Dynasty, negotiated with the Armenian
Government to obtain for new joint venture companies the rights to mine and
process gold at the Zod and Meghradzor mines on a schedule which is faster
than anticipated by the May 1, 1996 Joint Venture Agreement, subject to the
prior approval thereof by an Armenian parliamentary decree. In addition,
GGA engaged independent engineering firms to conduct a feasibility report
with respect to the reserves at such mines.
(C) JET-LINE ENVIRONMENTAL SERVICES, INC.
Jet-Line Environmental Services, Inc. ("Jet-Line") is a privately-held
Delaware corporation organized in 1970, and is engaged in providing various
environmental clean-up services for a variety of customers, including fuel
service, laboratory services, disposable services, transportation and safety and
compliance services. A copy of Jet-Line's compiled and unaudited financial
statement for the calendar year ended December 31, 1996 showed a loss of
approximately $377,000 for such year.
On April 21, 1993, the Company loaned $300,000 to Jet-Line, which is
evidenced by Jet-Line's promissory note that is convertible into 20% of
Jet-Line's common stock, and 25% of its common stock upon the payment (upon
conversion) to Jet-Line of $37,500, at the option of the Company, and 30% of its
common stock upon the payment (upon conversion) to Jet-Line of $100,000, at the
Company's option, as provided therein (the "Jet-Line Note"). The Jet-Line Note,
which matured on April 21, 1996 and which was restructured on May 13, 1996, is
secured by a pledge of transportation equipment and machinery and equipment
used in Jet-Line's business and a Jet-Line owned warehouse and office laboratory
building totaling 22,500 square feet located on one acre of land. The total
appraisal value of the assets when made in part in December, 1992 and in part in
early 1993 was in excess of a total of $1,500,000, but the Company does not know
the appraised value of such collateral at present since no updated appraisal of
such assets has been made. Prior to such transaction, Jet-Line had no
affiliation of any kind with the Company or its stockholders.
Since Jet-Line has been experiencing operating losses, and lacks adequate
liquid resources, it is highly unlikely that Jet-Line will be able to pay the
full amount of the principal and accrued interest on the Jet-Line Note, and
defaulted under the May 13, 1996 loan extension agreement between the
parties. In addition, Jet-Line advised the Company in early March, 1997 that
it received a notice of the revocation of its license to operate its business
in Massachusetts, and of a $100,000 fine, from the Massachusetts
environmental authorities, and Jet-Line contested such revocation and fine in
the Massachusetts state courts unsuccessfully. As a result, Jet-Line has
been requested by such authorities to sell its facility in Massachusetts, and
Jet-Line is now engaged in negotiations with a potential buyer with respect
to such sale. The Company sent Jet-Line a written notice of default and
demand for payment on March 14, 1997, sent further demand letters on April 2,
1997, April 15, 1997 and November 11, 1997, had many telephonic discussions
with the President of Jet-Line with respect to the payment of the Jet-Line
Note, and is now attempting to sell the assets in which it holds
31
a first security interest. The Company has also requested Jet-Line to seek an
additional financing and to use part of the proceeds therefrom to satisfy the
Jet-Line Note in full. However, there can be no assurance that Jet-Line will be
able to consummate such sale or obtain such financing, or that the Company will
be able to realize proceeds from any sale of Jet-Line' assets sufficient for the
payment of the principal and accrued interest on Jet-Line.
In addition, the Company also learned that the Business Loan Center,
another creditor of Jet Line, is also attempting to sell assets of Jet-Line
in which its hold a security interest. The Business Loan Center made a U.S.
Small Business Administration guaranteed loan of approximately $550,000 to
Jet-Line in 1994 and obtained a first lien on certain enumerated assets of
Jet-Line, and the Company at such time subordinated its loan thereto, except
with respect to certain automotive and trucks assets and other equipment as
to which the Company retained its first security interest.
Thus, there can be no assurance that the Company will ultimately be paid
the full principal amount of, and accrued interest on, the Jet-Line Note.
THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1996
REVENUES: During the three month period ended September 30, 1997, the
Company's interest and royalty income was $208, which was approximately the
same amount for the same period last year.
ADMINISTRATIVE AND OTHER EXPENSES: The Company's administrative and
other expenses for the three-month period ended September 30, 1997 were
$81,872, which represented a decree from the amount paid or accrued of
$116,342 in the same period last year. Expenses were 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 implement the Company's transaction with First
Dynasty pursuant to the agreement between such parties dated as of May 13,
1997 in connection with the financing of the Tailings Project and the
additional projects contemplated in Armenia (subject to miscellaneous
contingencies), and to file the Company's 10-QSB for the periods ended March
31, 1997 and June 30, 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1996
REVENUES: During the nine months ended September 30, 1997, the Company's
interest and royalty income was $208, which represented an increase from the
interest and royalty interest of $183 for the same period last year, since
more of the Company's assets were invested on an interest-paying basis.
ADMINISTRATIVE EXPENSES: The Company's administrative expenses for the
nine months ended September 30, 1997 were $309,109, which represented a
decrease from the amount paid of $338,308 in the same period last year.
Expenses were attributable to the Company's (a) accrual of officers'
compensation and (b) the accrual and/or payment of legal and accounting fees
32
and expenses in connection with its retention of counsel to implement the
Company's transaction with First Dynasty pursuant to the agreement between
such parties dated as of May 13, 1997 in connection with the financing of the
Tailings Project and the additional projects contemplated in Armenia (subject
to miscellaneous contingencies), and to file the Company's 10-QSB for the
periods ended March 31, 1997 and June 30, 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997, the Company's total assets were $11,002,578,
of which $177,830 consisted of cash or cash equivalents.
The Company's plan of operation for calendar year 1997 is:
(a) To oversee the implementation of its definitive agreement with
First Dynasty with respect to all of the Armenian mining projects
contemplated under the Armenian Joint Venture Agreement, including, without
limitation, completing any financing needed for the Tailings Project.
(b) To commence the mining of gold pursuant to the Tailings Project;
(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 or to negotiate obtaining such rights and, in preparation
therefor, conclude 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 September 30, 1997, the Company had liquid assets consisting of
cash of approximately $177,830. It is anticipated that First Dynasty will
provide or arrange for all of the financing needed in connection with the
Tailings Project and such initial financing as is needed in connection with
the development of the Zod and Meghradzor mines, although there can be no
assurance of such result. In addition, if the Company earmarks a portion of
the $200,000 payment from First Dynasty under the FDM Agreement to cover
administrative and professional costs, the Company should be able to meet its
monthly administrative expenses during 1997 which average approximately
$10,000 per month (exclusive of accrued officers' compensation), plus
additional amounts for legal and accounting costs, although there can be no
assurance that the Company will use all of such funds for such purpose.
However, the Company may receive further additional financing in 1997 from
several sources to cover the latter types of costs (and for general corporate
purposes) and its contemplated financing sources are as follows:
33
(i) Pursuant to the Offering of $500,000 principal amount of the
Convertible Notes of the Company, the Company issued Warrants to purchase
4,000,000 shares of its Common Stock at an exercise price of $0.50 per
share. By virtue of the one for 10 reverse split of the Company's Common
Stock effective as of December 31, 1996, the Warrants were converted into
Warrants to purchase 400,000 shares of the Company's Common Stock at an
exercise price of $5 per share. On January 23, 1997, the Company amended
the Warrants to reduce the exercise price to $1 per share and to extend the
expiration date until December 31, 1997. If the Warrants were exercised
in full, the Company would receive $400,000 in gross proceeds. The
Company does not know whether any of the Warrants will be exercised, and,
accordingly, there can be no assurance of such result.
(ii) The Company anticipates that it will receive some payments of
principal and interest on the Jet-Line Note, although there can be no
assurance of such result.
Nevertheless, there can be no assurance that any one or more of the above
financings will be provided, or, if so, on terms acceptable to the Company. In
the event that no contemplated financing is consummated, the Company believes
that it has sufficient financial resources to meet its obligations through April
30, 1998.
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 discharged its loan of $192,000
from Mr. Gallagher in full on May 19, 1997 by paying him such sum plus interest
thereon of $14,058.49 on such date. The Company has no existing agreement with
Mr. Gallagher with respect to any financing of the Company's future operations.
The Company does not intend to engage in any project research and
development during 1997 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 employees in
1997.
PART II
Item 1. LEGAL PROCEEDINGS
Except as noted below, there is no material pending legal proceeding to
which the Company is a party or to which any of its properties is subject.
Eyre and the Parry-Beaumont Trust have questioned, in writing in February,
March and
34
April, 1997, the validity of the Second Restructuring Agreement (as defined in
Item 12(B) of the Form 10-KSB filed by the Company for the year ended December
31, 1996) and the validity of the issuance by the Company of 1,000,000 shares of
its Common Stock to each of Messrs. Gallagher and Garrison. The Company
believes that the Second Restructuring Agreement is valid and that Eyre and the
Parry-Beaumont have waived the rights covered thereby. The Company further
believes that the Company properly issued the shares of its Common Stock to
Messrs. Gallagher and Garrison in exchange for valuable consideration and that
the claim of invalidity of such action has no merit. For a further description
of the Second Restructuring Agreement and such transfers, see Item 12(B) as
described above.
The Company has also received requests from Panquest Lte. and from Eyre
relating to amounts alleged to be due to Panquest Lte. relating to the Company's
acquisition of rights from Eyre relating to the Armenian and Georgian projects.
No evidence has yet been supplied to the Company in this regard.
In addition, the United States Attorney for the Eastern District of
Pennsylvania commenced an investigation of various nursing homes in
Pennsylvania managed by PennMed Consultants, Inc. ("PennMed"), a corporation
owned by Drury J. Gallagher, the Company's President, and John Hayman and
Frank Hayman, who are also major stockholders of the Company, as to whether
or not such nursing homes and their managers and affiliates engaged in
potential violations of Federal health laws. In the course of the execution
of a search warrant, all documents relating to PennMed were seized on August
6, 1997, as well as the books and records of other possible businesses
located at such address, including all of the Company's books and records
which were located at such address. In addition, the United States Attorney
served a subpoena on the Company on such date to obtain additional
information initially by August 29, 1997 and now on or before November 14,
1997. At this time, the Department of Justice has informed the Company that it
is not a target of such investigation.
The Company is attempting to have itself removed completely from such
proceeding. In addition, management is not aware of the basis of any potential
liability in such proceeding. Although the Company believes that any claim of
the nature described above will not be asserted against it, or, if made, will
not be asserted successfully, there can be no assurance of such result.
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
35
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 Balance Sheet,
Statement of Income and Loss, Statement of Changes in Stockholders Equity,
Statement of Cash Flow and Notes to Financial Statement as at and for the period
ended September 30, 1997.
(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.
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 13, 1997 By: /S/ DRURY J. GALLAGHER
----------------------------
Drury J. Gallagher, Chairman
and Chief Executive Officer
(Principal Executive and
Financial Officer)