Second Quarter Report 10QSB
June 30, 1998
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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF
THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM TO
------------ ----------------
COMMISSION FILE NUMBER 02-69494
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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 June 30, 1998, there were 4,348,114 shares of the registrant's
common stock issued and 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 - as of June 30, 1998 and December 31, 1997 ...........4
Statement of Income and (Loss) - for the three- and six-month periods
ended June 30, 1998 and for the development stage period January 1,
1995 through June 30, 1998 ..........................................5
Statement of Changes in Stockholders Equity - for the period
January 1, 1998 through June 30, 1998 and for the development stage
period January 1, 1995 through June 30, 1998 ........................6
Statement of Cash Flow - for the periods January 1, 1998 through
June 30, 1998 and January 1, 1997 through June 30, 1997 and the
development stage period January 1, 1995 through June 30, 1998.......8
Notes to Financial Statement (unaudited) ............................9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operation.........................................................24
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Financial Statements
(Unaudited)
June 30, 1998
Exhibit Page
- ------- ------
A Balance Sheets - as of June 30, 1998 1
and December 31, 1997
B Statements of Income and (Loss) - For the three- and 2
six-month periods ended June 30, 1998, and the
development stage period January 1, 1995 through
June 30, 1998
C Statement of Changes in Stockholders' Equity - For the 3a/3b
period January 1, 1998 through June 30, 1998, and the
development stage period January 1, 1995 through June 30, 1998
D Statements of Cash Flow - For the periods January 1, 4
1998 through June 30, 1998 and January 1, 1997
through June 30, 1997, and the development stage
period January 1, 1995 through June 30, 1998
Notes to Financial Statements 5-19
Page 1
Exhibit A
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Balance Sheets
ASSETS
June 30, 1998 December 31, 1997
(unaudited) (audited)
------------- -----------------
CURRENT ASSETS
Cash $ 4,704. $ 13,067.
Money Market Investment 1,074. 53,277.
------------ ----------
5,778. 66,344.
------------ ----------
OTHER ASSETS
Notes receivable - First Dynasty Mines Ltd. 200,000. 200,000.
Investment in Global Gold Armenia Limited 1. 1.
------------ -----------
200,001. 200,001.
------------ -----------
TOTAL ASSETS $ 205,779. $ 266,345.
------------ -----------
------------ -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Officers' compensation payable $ 125,000. $ 60,734.
Accounts payable and accrued expenses 113,788. 99,755.
Loans payable - officers 20,000. - - - -
---------- ------------
258,788. 160,489.
---------- ------------
STOCKHOLDERS' EQUITY - Exhibit C
Common stock $0.001 par, 100,000,000 shares authorized
4,348,114 shares issued and outstanding 4,348. 4,348.
Paid-in capital - dormant period 3,236,602. 3,236,602.
Paid-in capital - development stage 1,493,223. 1,493,223.
Retained earnings - dormant period (2,907,648.) (2,907,648.)
Retained earnings - development stage (1,879,534.) (1,720,669.)
------------ ------------
(53,009.) 105,856.
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 205,779. $ 266,345.
------------ ------------
------------ ------------
See Notes to the Financial Statements.
Page 2
Exhibit B
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Statements of Income and (Loss)
(Unaudited)
January 1, 1995
April 1, 1998 January 1, 1998 (development stage)
through through through
June 30, 1998 June 30, 1998 June 30, 1998
--------------- --------------- -------------
REVENUE $ - - - - $ - - - - $ - - - -
--------------- --------------- -------------
EXPENSES
Officers' compensation 37,500. 75,000. 513,334.
Legal 35,103. 43,180. 511,529.
Accounting and auditing 17,500. 22,500. 123,448.
Transfer agent and securities fees - - - - - - - - 12,446.
Proxy costs - - - - - - - - 26,555.
Office expense 7,587. 18,132. 111,364.
Travel 92. 92. 43,234.
Rent ( 4,500.) - - - - 72,000.
--------------- --------------- -------------
OPERATING (LOSS) ( 93,282.) (158,904.) (1,413,910.)
OTHER INCOME (EXPENSES)
Interest and royalty income 80. 359. 4,921.
Organization costs - - - - - - - - ( 4,800.)
Interest expense - - - - - - - - ( 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 Limited - - - - - - - - 12,875.
--------------- --------------- -------------
(LOSS) BEFORE INCOME TAXES ( 93,202.) (158,545.) (1,876,458.)
Income taxes (170.) (320.) (3,076.)
--------------- --------------- -------------
NET (LOSS) $(93,372.) $(158,865.) $(1,879,534.)
--------------- --------------- -------------
--------------- --------------- -------------
NET (LOSS) PER SHARE $( .021) $(.037)
--------------- ---------------
--------------- ---------------
See Notes to the Financial statements.
Page 3a
Exhibit C
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Statement 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)
Statement 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 June 30, 1998 - - - - - - - - - - - - - - - - (158,865.) - - - - (158,865.)
---------- ---------- ----------- ------------ ------------ ------------ ----------
Shareholders' Equity
June 30, 1998 4,348,114 $ 4,348. $3,236,602. $(2,907,648.) $(1,879,534.) $1,493,223. $( 53,009.)
---------- ---------- ----------- ------------ ------------ ------------ ----------
---------- ---------- ----------- ------------ ------------ ------------ ----------
In 1997 Global Gold Corporation 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 Mines Ltd. financing.
See Notes to the Financial Statements.
Page 4
Exhibit D
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Statements of Cash Flow
(Unaudited)
January 1, 1995
January 1, 1998 January 1, 1997 (development stage)
through through through
June 30, 1998 June 30, 1997 June 30, 1998
--------------- --------------- -------------
CASH FLOW FROM DEVELOPMENT
STAGE ACTIVITIES:
Net loss $(158,865.) $(227,262.) $(1,879,534.)
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 - - - - 480. (9,601.)
Gain on sale of Armenia mining interests - - - - - - - - (12,875.)
Accounts payable, accrued expenses
and miscellaneous 78,299. (935,806.) 335,237.
--------------- --------------- -------------
Net cash provided (used) by
Development Stage Activities ( 80,566.) (1,147,234.) (1,106,050.)
--------------- --------------- -------------
CASH FLOW FROM INVESTING ACTIVITIES:
Investment in short-term securities - - - - (150,000.) - - - -
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 - - - - (3,256,583.) ( 878,858.)
--------------- --------------- -------------
Net cash (used) by Investing Activities - - - - (3,406,583.) 658,803.
--------------- --------------- -------------
CASH FLOW FROM FINANCING ACTIVITIES
Loan from First Dynasty Mines Ltd. - - - - 4,576,597. - - - -
Net proceeds from private placement offering - - - - 200,000. 421,573.
Loans payable - officers 20,000. - - - - 20,000.
Note payable - officer (net) (191,000.) - - - -
Warrants exercised - - - - - - - - 100.
--------------- --------------- -------------
Net cash (used) provided by Financing Activities 20,000. 4,585,597. 441,673.
--------------- --------------- -------------
NET INCREASE/DECREASE IN CASH
CASH - beginning 66,344. 369. 11,352.
CASH - end 5,778. 32,149. 5,778.
--------------- --------------- -------------
$ 60,566. $ 31,780. $ 5,574.
--------------- --------------- -------------
--------------- --------------- -------------
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 320. $ 352. $ 1,668.
--------------- --------------- -------------
--------------- --------------- -------------
Interest paid - - - - $ 7,090. $ 14,821.
--------------- --------------- -------------
--------------- --------------- -------------
NON-CASH INVESTING AND FINANCING ACTIVITIES
In 1995 Global Gold Corporation issued one million shares of common stock for
certain mining interests, with an estimated value of $850,000 (Note 5). In 1997
Global Gold Corporation 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 Mines Ltd. financing.
See Notes to the Financial Statements.
Page 5
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
June 30, 1998
NOTE 1: ORGANIZATION (AS A DEVELOPMENT STAGE COMPANY) AND ACCOUNTING POLICIES
Global Gold Corporation (the "Company") was incorporated as Triad
Energy Corporation in the State of Delaware on February 21, 1980 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 commencing January 1, 1996 through
December 31, 1997 for use of the premises, office equipment,
facilities, etc. The lease was terminated on December 31, 1997. 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
June 30, 1998
NOTE 3: COMPANY HISTORY AND REPORTS WITH THE SECURITIES AND EXCHANGE
COMMISSION
The Company was incorporated as Triad Energy Corporation on
February 21, 1980, and closed a Public Offering of its common
stock in January 1981. Several months after the closing of such
Public 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
the Public Offering by its then president, Samuel McNell, in July
1981. The case has long since gone through the judicial system and
Samuel 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 its investment in the
Armenian joint venture.
Page 7
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
June 30, 1998
NOTE 5: ACQUISITION OF ARMENIAN MINING INTEREST FROM EYRE
Pursuant to the Asset Purchase Agreement dated June 1995, 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 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 Asset Purchase 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 Asset
Purchase 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 to U.S.
residents and, if that did not occur as prescribed, Eyre would
surrender certain of their warrants in return for an increased
royalty potentially totalling another 1%. The initial Armenian
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
June 30, 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 in order to facilitate possible future financings
and to reduce the equity stake of certain shareholders who received
shares pursuant to the Restructuring Agreement essentially in their
capacity as finders. 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 of 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, of counsel to PBW&T, has been designated to conduct
the negotiations with the Republics. Mr. Krikorian 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
June 30, 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 May 13, 1997, unbilled contingent project charges in excess of
the minimum $25,000 per quarter were assumed by First Dynasty Mines
Ltd. ("First Dynasty"), 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 June 30, 1998 total
approximately $300,000, which will be finalized with First Dynasty.
In addition, PBW&T performs additional legal services 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 (the "Venture") entitled the
Armenian Gold Recovery Company. The Venture was modified May 1, 1996.
On June 29, 1996, the Republic of Armenia issued a parliamentary
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 Armenian government may materially and adversely affect the
Company. Pursuant to the May 1, 1996 Venture modification, 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 Venture calls for the Armenian
government to transfer to AGRC 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
June 30, 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 was contained in each metric tonne of ore with
a 50% recovery, although there can be no assurance thereof.
Pursuant to the decree issued in connection with the Venture, Global
Gold Armenia Limited ("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.
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 Venture. 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.
An agreement to contribute the Zod and Meghradzor mines to the
Venture was signed on September 30, 1997 and approved by the Armenian
government on June 25, 1998 based on a feasibility study prepared by
a joint venture between Kilborn-SNC Lavalin and CMPS&F, and submitted
on June 8, 1998.
Page 11
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
June 30, 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 Foundation 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 Foundation Agreement.
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. 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. Jet-Line owns certain valuable assets.
Page 12
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
June 30, 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 fully reserved the loan with an allowance for doubtful accounts
of $300,000.
NOTE 10: OFFICERS' COMPENSATION PAYABLE
Officers' compensation payable consists of the following:
June 30, 1998
-------------
Drury J. Gallagher $125,000.
(see Note 15)
Page 13
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
June 30, 1998
NOTE 11: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
June 30, 1998
-------------
Legal - General Counsel $ 24,816.
Legal - PBW&T (see Note 6) 29,797.
Rent 18,000.
Accounting/Auditing 22,500.
Other Miscellaneous 18,675.
----------
$113,788.
---------
---------
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 (the "Offering") dated
May 17, 1995, as amended, the Company issued $500,000 of 10%
Convertible 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
Convertible 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
June 30, 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 employment agreements
called for automatic annual increases as defined. The Board of
Directors of the Company may award bonuses up to 50% of base
compensation. On February 1, 1997 Mr. Garrison's employment
agreement was cancelled and replaced with a GGA consulting
contract. Mr. Gallagher's base salary was increased to $150,000
per year on July 1, 1997.
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
June 30, 1998
NOTE 15: OFFICERS' COMPENSATION, INCENTIVE STOCK OPTIONS AND STOCK
APPRECIATION RIGHTS (continued)
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. The consulting agreement was terminated on
July 24, 1998 with the payment of consulting fees through that date
and the issuance of 500,000 special warrants of First Dynasty
convertible into common shares, deliverable on or before August 31,
1998.
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 six-month period ended June
30, 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
June 30, 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
June 30, 1998
NOTE 19: FIRST DYNASTY MINES LTD.
The Company, GGA and 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. They 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 and
Construction Management Services Contract 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
June 30, 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 was due to be paid on June 30, 1998. This amount is recorded
as a Note Receivable as of June 30, 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 as
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 FDM Agreement. All such funds were paid into the Venture
(Note 7). Financial information for the six months ended June 30,
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. The Armenian government passed a governmental
decree on June 25, 1998. On July 24, 1998 First Dynasty and the
Company entered into an agreement to accelerate the issuance of
the 4,000,000 special warrants exchangeable at no cost into an
equal amount of First Dynasty common shares. The warrants will be
distributed by August 31, 1998 in exchange for the Company's
forgoing any increase in shares proportional to the extent that
mineable reserves exceed five million ounces. The feasibility
study issued on June 8, 1998 using current gold prices and
production costs outlined an economically mineable reserve of one
million five hundred thousand ounces. The Company will retain the
right until December 31, 2009 to elect to participate at a level
of up to twenty percent with First Dynasty or any of its
affiliates in any exploration project undertaken in Armenia.
Page 19
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Notes to Financial Statements
June 30, 1998
NOTE 19: FIRST DYNASTY MINES LTD. (continued)
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
June 30, 1998
(A) GENERAL OVERVIEW
Global Gold Corporation (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 (the "Venture") dated
May 1, 1996. The Company thereafter assigned its rights and
obligations thereunder to Global Gold Armenia Limited ("GGA"), its
wholly-owned Cayman Islands subsidiary. The Venture formed the
Armenian Gold Recovery Joint Venture Co., L.L.C. ("AGRC"), a limited
liability company under Armenian law, 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
Venture involves the processing of an estimated 12 million tonnes of
tailings from the Ararat processing plant (the "Tailings Project"),
which the Company believes average one and one tenth gram of gold
per tonne (based on the independent metallurgical study obtained by
the Company), 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 Joint Venture Agreement dated September
30, 1997 which, among other things, provides for the right of AGRC
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. On June 25, 1998 the Armenian
government approved the contribution of the Zod and Meghradzor mines
into the Venture company.
(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 Venture, 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 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. Independent engineering
firms prepared a feasibility report with respect to the reserves at
the Zod and Meghradzor mines which was completed on June 8, 1998.
(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/Bulletin Board. 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 initially entered into a
definitive agreement (the "FDM Agreement") dated May 13, 1997
reflecting the final agreement of the parties with respect to the
above projects, and amended the FDM Agreement on July 24, 1998 as
described in 9(a) below. 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 (which
occurred in December 1997).
(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 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.
On July 24, 1998 First Dynasty and the Company entered into an
agreement to accelerate the issuance of the 4,000,000 special
warrants exchangeable at no cost into an equal amount of First
Dynasty common shares. The warrants will be distributed by August 31,
1998 in exchange for the Company's forgoing any increase in shares
proportional to the extent that mineable reserves exceed five million
ounces. The feasibility study
issued on June 8, 1998 using current gold prices and production costs
outlines an economically mineable reserve of one million five hundred
thousand ounces. The Company will retain the right until December 31,
2009 to elect to participate at a level of up to twenty percent with
First Dynasty or any of its affiliates in any exploration project
undertaken in Armenia.
(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.
The $200,000 balance was paid $50,000 on July 28, 1998,
with the remaining balance to be paid on or before August
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. 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
until December 31, 2009. 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. The consulting
agreement was terminated on July 24, 1998 with the payment
of fees to date plus 500,000 First Dynasty special warrants
exchangeable at no cost into common stock deliverable on or
before August 31, 1998.
7. The parties also entered into a Shareholders Agreement
providing for, among other things, the following:
(a) From the inception of the Shareholders 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, Drury J.
Gallagher, the Company's Chairman and Chief Executive
Officer, and Robert A. Garrison, the Company's President
and Chief Operating Officer, 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 Shareholders 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 Shareholders 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 New York
State law (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 contract for Engineering, Procurement
and Construction Management Services 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.
9. The principal terms of the amended FDM Agreement are set forth
below:
(a) First Dynasty agreed to pay the sum of $200,000 which was
due on June 30, 1998 in two installments thereafter, of
which $50,000 was due upon the execution of the letter
agreement by the parties (which has been paid) and the sum
of $150,000 was due upon the earlier of three business
days after First Dynasty receives the cash proceeds of the
sale of its Indonesian oil properties or August 31, 1998
(the "Closing Date").
(b) Subject to the prior approval of Toronto Stock Exchange
(which First Dynasty agreed to apply for promptly), First
Dynasty will acquire from the Company all of the remaining
outstanding shares of GGA and agreed to deliver to the
Company a certificate representing 4,000,000 First Dynasty
special warrants on the same date as the $150,000 payment
is made under 9(a) above. The special warrants will be in
form and substance satisfactory to all parties and each
warrant will be exercisable, at the Company's option, into
one share of common stock of First Dynasty without any
payment therefor. Pursuant to the existing terms of the
FDM Agreement, First Dynasty agreed to use its best
efforts for a period of one year from the Closing Date to
cause the shares of First Dynasty common stock subject to
such warrants to become issuable for freely tradable
shares of First Dynasty common stock.
(c) Upon the delivery to the Company of the special warrants,
the Company's guarantee of the obligations of GGA under
the debenture issued to First Dynasty to secure the
obligations of GGA will be deemed to be released in full.
Also, the delivery by First Dynasty to the Company of a
certificate for the 4,000,000 special warrants of First
Dynasty will be in full satisfaction of First Dynasty's
obligations under the payment section of the FDM
Agreement, subject to First Dynasty's continuing best
efforts obligations described in 9(b) above.
(d) First Dynasty or GGA will compensate Mr. Garrison under
his consulting agreement by (a)paying him the sum of
$62,500 upon the Closing Date and (b)subject to the
prior approval of the Toronto Stock Exchange (which
First Dynasty agreed to apply for promptly), delivering
to Mr. Garrison 500,000 special warrants to purchase
shares of First Dynasty common stock, which will be
subject to the obligations imposed on First Dynasty to
use its best efforts for a period of one year from the
Closing Date to cause the shares of First Dynasty
common stock subject to such warrants to become freely
tradable stock. Upon receipt of such compensation, Mr.
Garrison's consulting agreement will be deemed
satisfied of all the obligations of First Dynasty to
Mr. Garrison under the FDM Agreement, except for First
Dynasty's continuing best efforts obligation described
above.
(e) The Shareholders Agreement described in 7(a)(d) hereof
will be deemed terminated as of the Closing Date.
(f) The Company's right to elect to participate in any
exploration project described in 5 hereof has been
clarified to extend to any such project undertaken in
Armenia by First Dynasty or any of its affiliates,
including GGA, on the same terms and conditions previously
set forth in the FDM Agreement.
(g) Except as amended as provided above, and except for
certain other provisions which were deemed to have lapsed,
the FDM Agreement will continue in full and effect in
accordance with its terms.
10. MINING PLANS
GGA, in conjunction with First Dynasty, negotiated with the
Armenian government to obtain 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 Venture, 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. The feasibility study was completed on June 8,
1998, and the Zod and Meghradzor mines which were contributed
to the Venture on September 30, 1997 were approved by the
Armenian government on June 25, 1998.
(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,
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 six-month period ended June 30, 1998, the Company's
interest and royalty income was $359, versus - 0 - for the same period
last year.
ADMINISTRATIVE AND OTHER EXPENSES: The Company's administrative and other
expenses for the six-month period ended June 30, 1998 were $159,224, which
represented a decrease from the amount paid or accrued of $227,262 in the
same period last year. Expense reductions were attributable to the
Company's (a) reduction of legal fees related to the Armenian Project of
$54,405 which are now paid by First Dynasty, (b) reduction in rent of
$18,000, and (c) elimination of interest expense of $7,570 partially
offset by (d) an increase in officers compensation of $16,666.
LIQUIDITY AND CAPITAL RESOURCES: As of June 30, 1998, the Company's total
assets were $205,779, of which $5,778 consisted of cash or cash
equivalents.
The Company's plan of operation for the remainder of calendar year 1998
is:
(a) To oversee the implementation of its definitive agreement with
First Dynasty (the "FDM Agreement") with respect to the cash
payments due and the accelerated distribution of the 4,000,000
special warrants exchangeable for common stock of First Dynasty
agreed to on July 24, 1998;
(b) To favorably conclude the legal proceedings against Eyre
Resources N.L., the Parry-Beaumont Trust and Kevin Parry;
(c) To examine potential joint ventures to develop mining
properties in Armenia under terms of the FDM Agreement or other
projects presented to the Company by other entities;
(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 June 30, 1998, the Company had liquid assets consisting of cash of
approximately $5,778. 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 the above financings will be
provided 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
Venture.
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) of the
Form 10-KSB filed by the Company for the year ended December 31,
1997). 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 discovery, each of the parties
has produced documents in response to requests for the same.
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.
In addition, the United States Attorney for the Eastern District of
Pennsylvania commenced an investigation of various nursing homes in
Pennsylvania managed by Penn-Med Consultants, Inc. ("Penn-Med"), a
corporation owned by Drury J. Gallagher, the Company's Chairman, 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 Penn-Med 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. At this time the Department of Justice has informed the
Company that it is not a target of such investigation. In addition, the
United States Attorney served a subpoena on the Company on such date to
obtain additional information on August 29, 1997, and the Company has
responded to the same.
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
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 June 30, 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: August 11, 1998 By: /S/ DRURY J. GALLAGHER
------------------------
Drury J. Gallagher, Chairman
and Chief Executive Officer