First Quarter Report 10QSB
March 31, 1998
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GLOBAL GOLD CORPORATION
(A Development Stage Company)
Financial Statements
(Unaudited)
March 31, 1998
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Financial Statements
(Unaudited)
March 31, 1998
Exhibit Page
A Balance Sheet - as of March 31, 1998 1
B Statement of Income and (Loss) - For the three- 2
month periods ended March 31, 1998 and 1997,
and the development stage period January 1, 1995
through March 31, 1998
C Statement of Changes in Stockholders' Equity - For 3a/3b
the period January 1, 1998 through March 31, 1998, and the
development stage period January 1, 1995 through March 31,
1998
D Statement of Cash Flow - For the periods January 1, 4
1998 through March 31, 1998 and January 1, 1997
through March 31, 1997, and the development stage
period January 1, 1995 through March 31, 1998
Notes to Financial Statements 5-18
Page 1
Exhibit A
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Balance Sheet
March 31, 1998
(Unaudited)
CURRENT ASSETS
Cash $ 6,640.
Money Market Investment 1,057.
Accounts Receivable 2,135.
-----------
9,832.
-----------
OTHER ASSETS
Notes receivable - First Dynasty Mines 200,000.
Investment in Global Gold Armenia Limited 1.
-----------
200,001.
-----------
TOTAL ASSETS $ 209,833.
-----------
-----------
CURRENT LIABILITIES
Officers' compensation payable $ 50,000.
Accounts payable and accrued expenses 81,970.
-----------
131,970.
-----------
STOCKHOLDERS' EQUITY - Exhibit C
Common stock $0.001 par, 100,000,000 shares authorized
4,348,114 shares issued and outstanding 4,348.
Paid-in capital - dormant period 3,236,602.
Paid-in capital - development stage 1,493,223.
Retained earnings - dormant period (2,907,648.)
Retained earnings - development stage (1,748,662.)
-----------
77,863.
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 209,833.
-----------
-----------
See Notes to the Financial Statements.
Page 2
Exhibit B
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Statement of Income and (Loss)
(Unaudited)
January 1, 1995
January 1, 1998 January 1, 1997 (development stage)
through through through
March 31, 1998 March 31, 1997 March 31, 1998
-------------- -------------- --------------
REVENUE $ - - - - $ - - - - $ - - - -
----------------- ----------------- --------------
EXPENSES
Officers' compensation - - - - 33,334. 438,334.
Legal 8,077. 32,896. 476,426.
Accounting and auditing 5,000. 20,000. 105,948.
Transfer agent and securities fees - - - - 1,111. 12,446.
Proxy costs - - - - - - - - 26,555.
Office expense 10,545. 9,558. 93,777.
Travel - - - - - - - - 43,142.
Rent 4,500. 9,000. 76,500.
------------ ------------ ----------
OPERATING (LOSS) (28,122.) (105,899.) (1,283,128.)
OTHER INCOME (EXPENSES)
Interest and royalty income 279. - - - - 4,841.
Organization costs - - - - (240.) (4,800.)
Interest expense - - - - (4,800.) (14,821.)
Provision for bad debts - - - - - - - - (325,000.)
Write-off investment in Georgia mining interests - - - - - - - - (135,723.)
Gain on sale of interest in Global Gold Armenia - - - - - - - - 12,875.
------------ ------------ ----------
(LOSS) BEFORE INCOME TAXES (27,843.) (110,939.) (1,745,756.)
Income taxes (150.) (176.) (2,906.)
------------ ------------ ----------
NET (LOSS) $(27,993.) $(111,115.) $(1,748,662.)
------------ ------------ ----------
------------ ------------ ----------
NET (LOSS) PER SHARE $( .006) $( .027)
------------ ------------
------------ ------------
See Notes to the Financial statements.
Page 3a
Exhibit C
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
(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, 1994 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 (88,909.) 88,909. - - - - - - - - - - - - - - - -
Eyre acquisition 1,000,000. 1,000. 849,000. 850,000.
Proceeds through private
offering 200,000. 200. - - - - - - - - - - - - 421,373. 421,573.
---------- --------- ----------- ------------- ------------- ------------ -----------
Stockholders' equity
December 31, 1995 2,098,074. 2,098. 3,236,602. (2,907,648.) (361,345.) 1,270,373. 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. $ 2,098. $3,236,602. $(2,907,648.) $(1,029,922.) $1,270,473. $ 571,603.
---------- --------- ----------- ------------- ------------- ------------ -----------
---------- --------- ----------- ------------- ------------- ------------ -----------
See Notes to the Financial Statements.
Page 3b
Exhibit C
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Statements of Changes in Stockholders' Equity
(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, 1996 2,098,114. $ 2,098. $3,236,602. $(2,907,648.) $(1,029,922.) $1,270,473. 571,603.
Net Loss January 1 -
December 31, 1997 - - - - - - - - - - - - - - - - (690,747.) - - - - (690,747.)
Issuance of Common Stock 2,250,000 2,250. - - - - - - - - - - - - 222,750. 225,000.
--------- -------- ----------- ------------- ------------- ----------- ----------
Shareholders' Equity
December 31, 1997 4,348,114. $ 4,348. $3,236,602. $(2,907,648.) $(1,720,669.) $1,493,223. $105,856.
--------- -------- ----------- ------------- ------------- ----------- ----------
Net Loss January 1, 1998
through March 31, 1998 - - - - - - - - - - - - - - - - $ ( 27,993.) - - - - $( 27,993.)
--------- -------- ----------- ------------- ------------- ----------- ----------
Shareholders' Equity
March 31, 1998 4,348,114 $ 4,348. $3,236,602. $(2,907,648.) $(1,748,662.) $1,493,223. $ 77,863.
--------- -------- ----------- ------------- ------------- ----------- ----------
--------- -------- ----------- ------------- ------------- ----------- ----------
In 1997 the Company issued 2,000,000 common shares in exchange for $200,000 in
accrued salaries. Also, 250,000 common shares were issued as a Finders Fee in
connection with the First Dynasty financing.
See Notes to the Financial Statements.
Page 4
Exhibit D
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Statement of Cash Flow
(Unaudited)
January 1, 1995
January 1, 1998 January 1, 1997 (development stage)
through through through
March 31, 1998 March 31, 1997 March 31, 1998
-------------- -------------- --------------
CASH FLOW FROM DEVELOPMENT
STAGE ACTIVITIES:
Net loss $(27,993.) $(111,115.) $(1,748,662.)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Increase (decrease) in:
Provision for bad debt ---- ---- 325,000
Write-off of mining investment in Georgia ---- ---- 135,723
Organization costs ---- 240. (9,601.)
Gain on sale of Armenia mining interests ---- ---- (12,875.)
Accounts Receivable (2,135.) ---- (2,135.)
Accounts payable, accrued expenses
and miscellaneous (28,519.) (355,158.) 228,419.
--------- --------- ------------
Net cash provided (used) by
Development Stage Activities (58,647.) (466,033.) (1,084,131.)
--------- --------- ------------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of Armenia mining
interests (net of Note Receivable) ---- ---- 1,691,155
Investment in certain mining interests
- net of financing ---- ---- (153,494.)
Deferred costs - mining interests ---- (588,486.) (878,858.)
--------- --------- ------------
Net cash (used) by Investing Activities ---- (588,486.) 658,803.
--------- --------- ------------
CASH FLOW FROM FINANCING ACTIVITIES
Loan from First Dynasty Mines Ltd. ---- 1,071,000. ----
Net proceeds from private placement offering ---- ---- 421,573
Note payable - officer (net) ---- 1,000. ----
Warrants exercised ---- ---- 100
--------- --------- ------------
Net cash (used) provided by Financing Activities ---- 1,072,000. 421,673.
--------- --------- ------------
NET INCREASE (DECREASE) IN CASH (58,647.) 17,481. (3,655.)
CASH - beginning 66,344. 369. 11,352.
--------- --------- ------------
CASH - end $ 7,697. $ 17,850. $ 7,697.
--------- --------- ------------
--------- --------- ------------
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 150. $ 688. $ 1,498.
--------- --------- --------
--------- --------- --------
Interest paid ---- $ 4,800. $ 14,821
--------- --------- --------
--------- --------- --------
NON-CASH INVESTING AND FINANCING ACTIVITIES
In 1995 the Company issued one million shares of common stock for certain
mining interests, with an estimated value of $850,000 (Note 5). In 1997 the
Company issued 2,000,000 common shares in exchange for $200,000 in accrued
salaries and other considerations. Also, 250,000 common shares were issued as
a Finders Fee in connection with the First Dynasty financing.
See Notes to the Financial Statements.
Page 5
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
NOTE 1: ORGANIZATION (AS A DEVELOPMENT STAGE COMPANY) AND ACCOUNTING POLICIES
Global Gold Corporation (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 had been dormant until 1995. During 1995 the
Company changed its name from Triad Energy Corporation 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 was charging rent in the amount of
$3,000 per month to the Company through December 31, 1997 and $1,500
per month thereafter, for use of the premises, office equipment,
facilities, etc., commencing January 1, 1996. The Company has three
employees.
During 1995 the Company formed certain wholly-owned foreign
subsidiaries. Any reference in these statements to 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 - see Note 16.)
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.
Page 6
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
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 its 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, Samual McNell,
in July 1981. The case has long since gone through the judicial
system and Mr. McNell 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,
1996 and 1997, 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, 1996 and 1997. 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.
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 silver. 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.
Page 7
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
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 100,000
Note payable 46,506
---------
$ 300,000
---------
---------
The Agreement also provided for the Company to cause the delivery to
Eyre and the Parry Beaumont Trust, a Singapore Trust, two million
shares of stock, with an estimated value of $850,000, and warrants to
acquire an additional one million shares. The Agreement left Eyre and
the Parry Beaumont Trust with two out of five seats on the Board of
Directors.
As of December 1, 1995, the Company and Eyre and the Parry Beaumont
Trust entered into a Restructuring Agreement pursuant to which Eyre
surrendered 600,000 shares of common stock and acquisition warrants
to purchase 360,000 shares of common stock, the Parry Beaumont Trust
surrendered 400,000 shares of common stock and warrants to purchase
240,000 shares of common stock, and Eyre acquired a 2% overriding
production royalty subject to adjustment in the event the ownership
of the Company were to become less than 50% owned by 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 totalling another 1%. The initial Armenian
tailing project (Note 7) is excluded from the royalty arrangement. In
the event the Company did undertake any additional mineral extraction
projects in the Republics of Armenia or Georgia, Eyre would have
received 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 was to have paid 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 in the
Republic of 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.
Page 8
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
NOTE 5: ACQUISITION OF ARMENIAN MINING INTEREST FROM EYRE (continued)
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 (Note 18) 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,
respectively, of the Company's common stock (a total of 400,000
shares), and surrendered their right to designate two members of the
Board of Directors of the Company. 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 a
2% overriding royalty on the Armenian mining projects (other than the
Tailings Project), the Second Restructuring Agreement referred to the
waiver of an 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.
NOTE 6: PATTERSON, BELKNAP, WEBB & TYLER, L.L.P.
The Company retained the law firm of Patterson, Belknap, Webb &
Tyler, L.L.P. (PBW&T) to represent the Company in its dealings with
the Armenian and Georgian Republics. PBW&T has an international law
practice involving commerical, nonprofit and humanitarian issues, and
has offices in Moscow. Mr. Van Z. Krikorian (VZK), of counsel to
PBW&T, 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, PBW&T 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,
PBW&T will reduce its hourly charges by 50%. The PBW&T arrangement
was terminated on March 1, 1998 when Mr. Krikorian left to join the
law firm of Vedder, Price, Kaufman & Kammholz.
Page 9
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
NOTE 6: PATTERSON, BELKNAP, WEBB & TYLER (continued)
PBW&T also represented 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 was $180,000 for the period July 1, 1995 to July 1, 1999, and the
minimum quarterly payment was $10,000. The quarterly billing was
discontinued as of June 30, 1997, and the accumulated investment
written-off as of December 1997.
As of December 31, 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 the Armenian Gold Recovery
Company ("AGRC"). Global Gold reversed fees accrued of $76,000 as of
that date. Unbilled fees and expenses through March 31, 1998 total
approximately $300,000, which will be finalized with First Dynasty
Mines Ltd.
In addition, PBW&T performs additional legal service for the Company
as requested. Current payables and accruals are approximately
$30,000.
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.
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 gold mining operations at the Zod and
Meghradzor sites. Management believes capacities at Zod will be
significant. 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 wil be required to provide administration,
training, management, feasibility studies, technology and business
plans, as appropriate.
Page 10
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT (continued)
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 the applicable
Armenian law. The registration of the Venture occurred on 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 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.
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. 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 so long as the
percentage of recovery of metals per gram per tonne 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.
The Tailings Project began operations at an official dedication
ceremony on February 25, 1998.
Page 11
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
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 was subsequently 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 original Agreement called 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.
The Company recently learned that the Georgian Government was
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. As of December 31,
1997, the Company wrote-off its investment in the Georgian mining
property resulting in a loss of $135,723.
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)
( 300,000) Allowance for doubtful accounts
----------
- 0 -
----------
The Jet-Line Note, as more fully described in the documents, is
convertible into at least 20% of Jet-Line's common stock. Jet-Line
has defaulted on prior balloon payment obligations and is in default
of its current interest requirements. The Note was understood to be
secured by U.C.C.'s on certain equipment, however, there were no
filings located after an SBA-guaranteed loan was made to Jet-Line.
Jet-Line owns certain valuable assets.
Page 12
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
NOTE 9: NOTES RECEIVABLE (continued)
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 demand letters on April 2, 1997 and November 10, 1997.
The Company believes that the value of the assets held as collateral
is negligible. 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, the Company has been
notified by the Business Loan Center who made a U.S. Small Business
Administration Guaranteed Loan of $550,000 in 1994, that it would
liquidate the Jet-Line assets.
Thus, there can be no assurance that the Company will ultimately be
paid any of the full principal amount and accrued interest on the
Jet-Line Note. Management has not accrued interest on the Note and
has revised its allowance for doubtful accounts to $300,000.
NOTE 10: OFFICERS' COMPENSATION PAYABLE
Officers' compensation payable consists of the following:
March 31, 1998
--------------
Drury J. Gallagher $ 50,000.
--------------
--------------
(see Note 15)
Page 13
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
NOTE 11: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
March 31, 1998
--------------
Legal - General Counsel $ 12,596.
Legal - PBW&T (see Note 6) 29,797.
Rent 22,500.
Other Miscellaneous 17,077.
--------------
$ 81,970.
--------------
--------------
NOTE 12: NOTES PAYABLE
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 13: 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 adjusted exercise price of $.50 per share at any time before
December 31, 1998. The exercise price was subsequently reduced to
$.125 per share to reflect the current market valuation as determined
by management.
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 200,000 shares of
common stock.
Page 14
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
NOTE 14: 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 $ .125 12/31/98
Other 4,000 $5.00 11/30/98
---------
404,000
---------
---------
NOTE 15: OFFICERS' COMPENSATION, INCENTIVE STOCK OPTIONS AND STOCK
APPRECIATION RIGHTS
Management presently consists of Mr. Drury J. Gallagher and Mr.
Robert A. 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. Messrs.
Gallagher and Garrison entered into employment agreements with the
Company effective July 1, 1995. Each was entitled to receive a base
salary of $100,000 per year for 50% of their time for a three-year
term. The agreements called for automatic annual increases as
defined. The Board may award bonuses up to 50% of base compensation.
On February 1, 1997 Mr. Garrison's employment agreement was cancelled
and replaced with the Global Gold Armenia Limited consulting
contract. Mr. Gallagher's base salary was increased to $150,000per
year on July 1, 1997. As of January 1, 1998 Mr. Gallagher agreed to
suspend his salary.
On January 3, 1997, the Board of Directors of the Company approved
the issuance of 1,000,000 shares of its common stock to each of
Messrs. Gallagher and Garrison in exchange for (a)in Mr. Gallagher's
case, the cancellation of $100,000 of accrued salary, 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 37,500 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 through
personal guarantees up to $500,000, and to increase their proprietary
stake in the day-to-day management of the Company. In 1997, Eyre
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.
Page 15
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
NOTE 15: OFFICERS' COMPENSATION, INCENTIVE STOCK OPTIONS AND STOCK
APPRECIATION RIGHTS (continued)
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 and
Director 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 remaining unpaid under
such agreement. Such agreement is in lieu of the above-mentioned
salary.
NOTE 16: 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 years
ended December 31, 1996 and 1997, and the period ended March 31,
1998. 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 offshore 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.
Page 16
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
NOTE 16: NON-UNITED STATES WHOLLY-OWNED SUBSIDIARIES / INCOME TAX
MATTERS (continued)
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 deterrant from obtaining
future financing or political risk insurance. Management will
consider future structural changes, if necessary.
NOTE 17: 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 18: 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 one-tenth
of the number previously held. The Company filed its Certificate of
Amendment to the Certificate of Incorporation 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.
Page 17
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
NOTE 19: 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:
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 GGA 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 GGA.
(b) The next $3,520,000 of debt together with the advance
described above is convertible into 51% of the capital
stock of GGA.
(c) For every additional $.5 million advanced in respect of
the development of the Zod and Meghradzor mines (excluding
the $10,010,000 Tailings Project expenditure) as a loan to
GGA, 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 capital stock of GGA
within 18 months after making such total advances, by issuance of
4,000,000 shares of its common stock, except that such number of
shares would 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 carried out certain initial commitments in February
1997. It loaned GGA $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 oustanding payables.
Page 18
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
March 31, 1998
NOTE 19: FIRST DYNASTY MINES LTD. (continued)
In addition, First Dynasty agreed to pay the Company $400,000 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, 1998. This amount is recorded as a
Note Receivable as of March 31, 1998. Although not reflected in the
FDM Agreement, First Dynasty also paid the Company $141,155 on May
15, 1997 to defray the expenses incurred by GGA during the
three-month period ending March 31, 1997. The total cash and notes
received of $1,891,155 from First Dynasty was offset against the
investment in Armenia mining interests of $944,465, deferred costs of
December 31, 1997 as adjusted of $929,015 and organization costs of
$4,800, resulting in a profit of $12,875.
As of December 31, 1997, First Dynasty had advanced $18,270,874, of
which $17,510,000 of the loans were converted into 66% of the capital
per the Agreement. All such funds were paid into the AGRC Joint
Venture (Note 7). Financial information for the three months ended
March 31, 1998 was not available at the filing date of this report.
Financial information for the 34% owned unconsolidated affiliate
accounted for by the equity method as of December 31, 1997 is as
follows:
Balance Sheet
Deferred mine costs $16,840,758.
Other assets 3,265,202.
------------
$20,105,960.
------------
------------
Liabilities $ 2,595,960.
Equity 17,510,000.
------------
$20,105,960.
------------
------------
The Company is a development stage company and, as such, has no
revenues or expenses.
At present, the Company and GGA, in conjunction with First Dynasty,
negotiated for AGRC to develop the Zod and Meghradzor mines and
concluded the Amended Armenian Joint Venture Agreement on September
30, 1997, subject to the passage of a parliamentary decree approving
it. However, the Armenian government has not passed the parliamentary
decree as of this date. There can be no assurance that any Armenian
parliamentary decree approving the Amended Armenian Joint Venture
Agreement will be passed or, if so, when such decree will be passed.
While the Company is hopeful of achieving such result, there can be
no assurance of such result.
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. at $.10 per share which
approximated fair market value as determined by management.
GLOBAL GOLD CORPORATION
(A Development Stage Company)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
March 31, 1998
(A) GENERAL OVERVIEW
The Company is presently engaged in the development of a gold mining
project in Armenia, a member of the 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
Section 1 (D) entitled "Prior History of the Company" reflected in Form
10-KSB filed by the Company for the period ended December 31, 1997.
(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 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 one 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 at the Zod and
Meghradzor mines, and engineering and building a gold processing
plant at the Zod mine. Stage 3 calls for increased production at the
Zod mine, a feasibility study for a gold refinery, and exploration
activity.
The Company, the Ministry of Armenia and Armgold executed and
delivered the Second Armenian Gold Recovery Company Joint Venture
Agreement dated 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 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 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 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 began on February 25,
1998. 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 three 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 described below:
(a) Upon First Dynasty 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. As of
December 31, 1997, First Dynasty had advanced $17,510,000
for 66% of the common shares.
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 shares 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 wil 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 First Dynasty shares to GGA if it
is feasible to do so in connection with a contemporaneous
public offering of shares of First Dynasty 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 delivery of the FDM Agreement;
(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's rights 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 First Dynasty'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 delivery of the FDM Agreement,
and the balance of $200,000 to 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 Director and
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 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 of 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 First
Dynasty.
(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 the 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
receives a bona fide offer to sell its GGA 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, then 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 FDM Agreement, the 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.
(b) Upon the signing of the $640,000 Tailings Dam
Construction Contract with Armhydro, First Dynasty
funded $96,000 and, thereafter, First Dynasty funded
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 December 31, 1997, First Dynasty claims it had
advanced $20,105,960 in total project costs. Comparable
financing information for March 31, 1998 was not available
at the filing date of this report.
9. 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.
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, 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, machinery and equipment used in
Jet-Line's business, and a Jet-Line owned warehouse and office laboratory
building totalling 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 experienced operating losses and lacked adequate liquid
resources, Jet-Line 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. Jet-Line contested such
revocation and fine in the Massachusetts state courts unsuccessfully.
Jet-Line then attempted to sell its facility in Massachusetts, but could
not do so. As a result, the Massachusetts environmental authorities
ordered the waste treatment facility in Stoughton, Massachusetts to be
closed and assumed the environmental clean-up responsibility at the plant.
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 it holds 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. The Company at such time
subordinated its loan thereto, except with respect to certain automotive
and truck assets and other equipment as to which the Company retained its
first security interest. The Company is currently disputing the Business
Loan Center's position that such creditor has a senior security interest
in the assets being sold. But, there can be no asurance as to the outcome
thereof. Moreover, the Company believes that the value of the assets held
by it as collateral is negligible. 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. Consequently, the Company treated
such loan as worthless
REVENUES: During the three-month period ended March 31, 1998, the
Company's interest and royalty income was $279, 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 March 31, 1998 were $28,272,
which represented a decrease from the amount paid or accrued of $111,115
in the same period last year. Expense reductions were attributable to the
Company's (a)decision not to accrue officers' compensation of $33,334,
(b)reduction in legal fees related to the Armenian project of $24,819
which are now paid by First Dynasty, (c)reduction in accounting costs of
$15,000, and (d)reduction in rent by 50% per month to $1,500 per month.
LIQUIDITY AND CAPITAL RESOURCES: As of March 31, 1998, the Company's total
assets were $209,833, of which $7,697 consisted of cash or cash
equivalents.
The Company's plan of operation for calendar year 1998 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;
(b) To commence the mining of gold pursuant to the Tailings
Project;
(c) To earn the right to mine production and gold processing
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;
and
(d) To collect payments of accrued interest and principal, if
any, on the $300,000 convertible note issued by Jet-Line
to the Company.
As of March 31, 1998, the Company had liquid assets consisting of cash of
approximately $7,697. 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 1998 which average
approximately $5,000 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 1998 to cover the latter types of costs (and for
general corporate purposes), and its contemplated financing source is as
follows:
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 ten 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. On December 12, 1997, the
Company again amended the warrants to reduce the exercise price to $0.125
per share and to extend the expiration date until December 31, 1998. If
the warrants were exercised in full, the Company would receive $50,000 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.
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 December 31, 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 1998 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
1998.
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.
In December 1997 the Company brought an action against Eyre, the
Parry-Beaumont Trust and Kevin Parry, individually, in the United
States District Court for the Southern District of New York, bearing
Docket No. 98 Civ. 0009, seeking damages in excess of $81,000,000
arising out of the alleged fraud committed by the defendants.
The defendants denied such claims and asserted counterclaims against
the Company seeking damages in an undetermined amount against the
Company and seeking a declaratory judgment voiding the Second
Restructuring Agreement (as defined herein in Section 12(A)). In
addition, Eyre and the Parry- Beaumont Trust brought a third-party
complaint against Drury J. Gallagher and Robert A. Garrison,
individually, seeking, among other things, damages in excess of $75,000
and directing Messrs. Gallagher and Garrison to return the 2,000,000
shares of the Company's common stock issued to them by the Company in
January 1997.
The respective parties have served notice to take the deposition of the
other parties in the action and made requests for the production of
documents. At a meeting held with the Court on April 1, 1998, the
parties agreed to a scheduling order in part.
The Company intends to prosecute the litigation to completion and
believes that the defendants' claims asserted against the Company and
Messrs. Gallagher and Garrison are without merit, although there can be
no assurance as to the outcome thereof.
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.
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 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 March 31, 1998.
(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: May 11, 1998 By: /S/ DRURY J. GALLAGHER
------------------------
Drury J. Gallagher, Chairman
and Chief Executive Officer