<PAGE>
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, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE EXCHANGE ACT
For the transition period from ________________ to _________________
Commission file number 02-69494
GLOBAL GOLD CORPORATION
-----------------------------------------------
(Name of small business issuer in its charter)
Delaware 13-3025550
- -------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
438 West 37th Street, Suite 5-G, New York, New York 10018
- ---------------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 563-5933
------------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No .
--- ---
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes ___ No ___. Not Applicable
As of June 30, 1997, there were 4,348,114 shares of the registrant's Common
Stock outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X .
--- ---
<PAGE>
TABLE OF CONTENTS
PART I. Financial Information
Item 1. Financial Statement:
Balance Sheet - June 30, 1997 ...................................... 3
Statement of Income and (Loss) - for the period April 1, 1997
through June 30, 1997, April 1, 1996 through June 30, 1996.......... 4
Statement of Income and (Loss) - for the period January 1, 1997
through June 30, 1997, January 1, 1997 through June 30, 1997
and for the development stage period January 1, 1995 through
June 30, 1997. ..................................................... 5
Statement of Changes in Stockholders Equity -
for the period January 1, 1997 through June 30, 1997 and
for the year January 1, 1996 through December 31, 1996 ............. 6
Statement of Cash Flow - for the period January 1, 1997
through June 30, 1997 and for the year January 1, 1996
through December 31, 1996 and for the development stage
period January 1, 1995 through June 30, 1997........................ 8
Notes to Financial Statement (unaudited) ........................... 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation ........................................... 26
2
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET
June 30, 1997
(Unaudited)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash.......................................................................... $ 32,149
Money Market Investment....................................................... 150,000
----------
NONCURRENT ASSET
Notes receivable, net of allowance for bad debts of $150,000--Note 9.......... 150,000
----------
OTHER ASSETS
Organization costs............................................................ 9,121
Investment in certain mining interests--Notes 6 and 8......................... 1,003,494
Deferred costs--Note 12....................................................... 4,160,441
----------
$ 5,173,056
----------
----------
TOTAL ASSETS.................................................................... $ 5,505,205
----------
----------
CURRENT LIABILITIES
Note payable--First Dynasty Mines, Ltd.--Note 20.............................. 4,576,597
Officers' compensation payable--Notes 10 and 16............................... 170,834
Accounts payable and accrued expenses--Note 11................................ 188,433
----------
4,935,864
STOCKHOLDERS' EQUITY--Exhibit C
Common stock $.001 par, 100,000,000 shares authorized 4,348,114 shares issued
and outstanding............................................................. 23,231
Paid-in capital--Dormant period............................................... 3,228,519
Paid-in capital--Development stage............................................ 1,482,423
Retained earnings--Dormant period............................................. (2,906,648)
Retained earnings--Development stage.......................................... (1,257,184)
----------
569,341
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY...................................... $ 5,505,205
----------
----------
</TABLE>
See the accompanying notes
3
<PAGE>
GLOBAL GOLD CORPORATION
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
STATEMENTS OF INCOME AND (LOSS)
(UNAUDITED)
APRIL 1, 1997 APRIL 1, 1996
THROUGH THROUGH
JUNE 30, 1997 JUNE 30, 1996
------------- -------------
REVENUE $ - $ -
EXPENSES
Officers compensation 25,000 50,000
Administrative fees 7,403 3,015
Legal 64,689 33,017
Accounting and auditing 4,900 3,750
Transfer agent and securities fees 352 23
Proxy costs - 80
Office expense 2,097 4,106
Travel - 9,168
Rent - Note 1 9,000 9,000
---------- ----------
OPERATING (LOSS) (113,441) (112,159)
---------- ----------
OTHER INCOME (EXPENSES)
Interest and royalty income - -
Organization costs (240) -
Interest expense (2,290) (2,862)
Provision for bad debts - Note 9 - -
---------- ----------
(2,530) (2,862)
---------- ----------
(LOSS) BEFORE INCOME TAXES (115,971) (115,021)
Income taxes (176) -
---------- ----------
NET (LOSS) $ (116,147) $ (115,021)
---------- ----------
---------- ----------
NET (LOSS) PER SHARE (Note 18) $ (.0278) $ (.0055)
---------- ----------
---------- ----------
See the accompanying notes.
4
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
Statements of Income and (Loss)
(Unaudited)
June 30, 1997
<TABLE>
<CAPTION>
January 1,
January 1, January 1, 1995
1997 1996 Development
through through Stage through
June 30, 1997 June 30, 1996 June 30, 1997
-------------- -------------- --------------
<S> <C> <C> <C>
REVENUE......................................................... $ -- $ -- $ --
EXPENSES
Officers compensation-Note 16................................. 58,334 100,000 358,334
Administrative fees........................................... 10,403 5,415 31,561
Legal......................................................... 97,585 47,221 420,914
Accounting and auditing....................................... 24,900 15,173 95,748
Transfer agent & securities fees.............................. 1,463 2,380 12,375
Proxy costs................................................... -- 191 26,555
Office expense................................................ 8,655 4,296 18,108
Travel........................................................ -- 20,762 42,949
Rent--Note 1.................................................. 18,000 18,000 54,000
-------------- -------------- --------------
OPERATING (LOSS)................................................ (219,340) (213,438) (1,060,544)
-------------- -------------- --------------
-------------- -------------- --------------
OTHER INCOME (EXPENSES)
Interest and royalty income................................... -- 4 869
Organization costs............................................ (480) (3,200) (5,280)
Interest expense.............................................. (7,090) (5,152) (14,821)
Provision for bad debts--Note 9............................... -- -- (175,000)
-------------- -------------- --------------
(7,570) (8,348) (194,232)
(LOSS) BEFORE INCOME TAXES...................................... (226,910) (221,786) (1,254,776)
-------------- -------------- --------------
Income taxes.................................................. (352) (176) (2,408)
-------------- -------------- --------------
NET (LOSS)...................................................... $ (227,262) $ (221,962) $ (1,257,184)
-------------- -------------- --------------
-------------- -------------- --------------
NET (LOSS) PR SHARE (Note 18) (.0549) (.0106)
</TABLE>
See the accompanying notes
5
<PAGE>
Exhibit C
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Statements of Changes in Stockholders' Equity - Note 19
(Unaudited)
<TABLE>
<CAPTION>
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
----------- -------- ---------- -------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' Equity
January 1, 1995.......... 898,074 $ 89,807 $3,147,693 $(2,907,648) $ - $ - $ 329,852
Net Loss - January 1,-
December 31, 1995........ - - - - (361,345) - (361,345)
Adjustment re: restatement
of par value - Note 1.... - (80,826) 80,826 - - - -
Eyre acquisition - Note 5.. 1,000,000 10,000 - - - 840,000 850,000
Proceeds through private
offering - Note 14....... 200,000 2,000 - - - 419,573 421,573
----------- -------- ---------- ------------ ------------ ---------- ----------
Stockholders' equity
December 31, 1995........ 2,098,074 $ 20,981 $3,228,519 $(2,907,648) $ (361,345) $1,259,573 $1,240,080
----------- -------- ---------- ------------ ----------- ---------- ----------
----------- -------- ---------- ------------ ----------- ---------- ----------
</TABLE>
See the accompanying notes and Accountants' Compilation Report.
6
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Statements of Changes in Stockholders' Equity--Note
(Unaudited)
<TABLE>
<CAPTION>
ISSUED PAID-IN RETAINED RETAINED PAID-IN
AND CAPITAL EARNINGS EARNINGS CAPITAL
OUTSTANDING COMMON (DORMANT (DORMANT (DEVELOPMENT (DEVELOPMENT
SHARES STOCK PERIOD) PERIOD) STAGE) STAGE) TOTAL
----------- ---------- ------------ ------------ ------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Stockholders' Equity December
31, 1995................... 2,098,074 $ 20,981 $ 3,228,519 $(2,907,648) $(361,345) $ 1,259,573 $ 1,240,080
Net Loss-January 1,-
December 31, 1996.......... - - - - (668,577) (668,577)
Warrants exercised........... 40 - - - - 100 100
Stockholders' Equity December
31, 1996................... 2,098,114 20,981 3,228,519 (2,907,648) (1,029,922) 1,259,673 571,603)
Net Loss--January 1-- June
30, 1997................... (227,262) (227,262)
Issuance of Common
Stock--Note 16............. 2,000,000 2,000 198,000 200,000
Note 20...................... 250,000 250 24,750 25,000
--------- --------- ---------- ----------- ---------- --------- -------
Shareholders' Equity June 30,
1997....................... 4,348,114 $ 23,231 $ 3,228,519 $(2,907,648) $(1,257,184) $ 1,482,423 $ 569,341
--------- --------- ---------- ----------- ---------- --------- -------
--------- --------- ---------- ----------- ---------- --------- -------
</TABLE>
In 1996, 200,000 shares were issued to collaterlize two guarantees by London
International Merchantile Ltd. The guarantees were rescinded and, therefore,
such shares were returned to the Company in 1997 and have not been reflected on
this statement.
See the accompanying notes
7
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
JANUARY 1, JANUARY 1, JANUARY 1, 1995
1997 1996 DEVELOPMENT STAGE
THROUGH THROUGH THROUGH
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997
-------------- -------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM DEVELOPMENT STAGE ACTIVITIES
Net loss--Exhibit B......................................... (227,262) (221,962) (1,257,184)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Non-cash items included in loss
Amortization............................................... -- -- --
Provision for bad debt.................................... -- -- 175,000
Change in Assets and Liabilities:
Organization costs........................................ 480 (6,401) (9,121)
Accounts Payable and Accrued Expenses..................... (935,806) 328,090 337,413
Net Cash Provided (Used) by Development Stage Activities..... (1,147,234) 99,727 (738,538)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in short-term securities......................... (150,000) -- (150,000)
Investment in certain mining interests--net of financing.... (153,499)
Deferred costs--mining interests............................ (3,256,583) (204,920) (4,135,441)
-------------- -------------- -----------------
Net Cash (Used) by Investing Activities...................... (3,406,583) (204,920) (4,438,935)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from First Dynasty Mines, Ltd...................... 4,576,597 -- 4,576,597
Net proceeds from private placement offering................ 200,000 -- 621,573
Note payable--officer....................................... (191,000) 42,500 --
Warrants exercised.......................................... -- -- 100
-------------- -------------- -----------------
Net Cash Provided by Financing Activities.................... 4,585,597 42,500 5,198,270
NET INCREASE (DECREASE) IN CASH
CASH--beginning.............................................. 369 63,298 11,352
CASH--end.................................................... 32,149 606 32,149
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid........................................... $ 352 $ 980 $ 1,000
-------------- -------------- -----------------
NON-CASH INVESTING AND FINANCING ACTIVITIES:
</TABLE>
In January 1997 the Board of Directors of the Company approved the issuance
of 2,000,000 shares of its common stock in exchange for cancellation of $200,000
of officers' compensation payable (Note 16).
In June 1997 the Company issued 250,000 shares of its common stock in
connection with the First Dynasty Mines Ltd. Financing (Note 20)
See the accompanying notes
8
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 1: ORGANIZATION (AS A DEVELOPMENT STAGE COMPANY) AND
ACCOUNTING POLICIES
The Company was incorporated in the State of Delaware and as further
described hereafter, had no operating or development stage history
from its inception until January 1, 1995. Accordingly, the Company
has been dormant until 1995. During 1995, the Company changed its
name from Triad Energy Corp. to Global Gold Corporation. An
Australian corporation, Eyre Resources N.L. and an affiliate
(hereafter Eyre) presented to management an opportunity to develop
certain gold and copper mining rights in the former Soviet Republics
of Armenia and Georgia. As part of the plan to acquire the mining
interests and raise venture capital, the Company increased the number
of shares authorized to be issued from ten million to one hundred
million. These Republics, which recently won their independence, may
be prone to political and economic turmoil which may result in various
adverse ramifications.
The Company has offices in New York City which it leases from Penn Med
Consultants, Inc., which is charging rent in the amount of $3,000 per
month to the Company for use of the premises, office equipment,
facilities, etc. commencing January 1, 1996. The Company has not paid
any employees for services, except Mr. Gallagher and Mr. Garrison, as
hereafter discussed.
During 1995, the Company formed certain-wholly owned foreign
subsidiaries. Any reference in these statements to Global (the
Company) may also include one, some, or all of the subsidiaries. All
intercompany transactions were eliminated.
As a result of ownership changes, the Company will not be able to
benefit from all of its net operating loss carryforwards. (Income tax
matters - Note 17).
Management has made any necessary interim period accounting
adjustments in order for the statements not to be misleading.
9
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 2: USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
balance sheet date, and also the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
NOTE 3: COMPANY HISTORY AND REPORTS WITH THE SECURITIES AND
EXCHANGE COMMISSION
The Company was incorporated on February 21, 1980, and closed a public
offering of the common stock in January 1981. Several months after
the closing of such offering, the Company withdrew the listing of the
Common Stock for trading on Nasdaq because of the theft of
substantially all of the cash funds of the Company derived from the
proceeds of a public offering by its then president, Samuel McNell in
July, 1981. The case has long since gone through the judicial system
and Mr. McNeil is no longer, an officer, director, employee or in
any other fashion doing business with the company. After the
consummation of the public offering, the Company failed to file any
further annual or periodic reports required under the Exchange Act.
The Company filed its Form 10-KSB for the calendar years 1994, 1995 and
1996, its Form 10-Q for all quarters in 1995 and thereafter, and also
filed audited financial statements covering the calendar years 1987,
1988, 1989, 1990, 1992 -1995 and 1996. There can be no assurance that
the SEC might not assert claims against the Company and its present
and former directors and officers, which actions might adversely affect
the future conduct of the Company's business or be detrimental to
future trading of the Company's stock in the public markets.
10
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 4: DEVELOPMENT STAGE COMPANY
The Company may encounter problems, delays, expenses and difficulties
typically encountered in the development stage, many of which may be
outside of the Company's control. These include, without limitation,
unanticipated problems and additional costs relating to development,
production, marketing, and competition. Management must also be
successful in securing significant additional investor and/or lender
financing and political risk insurance. The Company expects to incur
operating losses for the near term and, in any event, until such time
as it derives substantial revenues from the sale of concentrates
containing gold and copper. Pursuant to the documents as hereafter
summarized, different mining, processing, purifying, reprocessing and
exploration endeavors are contemplated. Where appropriate, an
endeavor will commence only after successful results of a feasibility
study are rendered.
NOTE 5: ACQUISITION OF ARMENIAN MINING INTEREST FROM EYRE
Pursuant to the Asset Purchase Agreement dated June, 1995, (the
"Agreement"), the Company acquired from Eyre, an Australian
corporation, all of its potential interest in its Armenian gold mining
project and all of Eyre's potential interest in its Georgia gold and
copper mining project (Note 8). The Agreement closed April, 1996.
The Company paid Eyre for the Armenian and Georgian interests as
follows:
Cash $ 153,494
Note payable (Note 13) 100,000
Note payable (Note 13) 46,506
-----------
$ 300,000
-----------
-----------
The Agreement also provided for the Company to cause the delivery to
Eyre of one million shares of stock, with an estimated value of
$850,000, and warrants to acquire an additional four hundred thousand
shares (Note 15). The Agreement left Eyre with two out of five seats
on the Board of Directors.
11
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 5: ACQUISITION OF ARMENIAN MINING INTEREST FROM EYRE (continued)
As of December 1, 1995, the Company and Eyre entered into a
Restructuring Agreement pursuant to which Eyre surrendered 1,000,000
shares of common stock and acquisition warrants to purchase 600,000
shares of common stock and acquired a 2% overriding production royalty
subject to adjustment in the event the ownership of the Company were
to become owned by less than 50% United States residents. If such
were about to occur, Eyre would have the right to sell warrants to
purchase the Company's common stock by U.S. residents, and, if that
did not occur as prescribed, Eyre would surrender certain of their
warrants in return for an increased royalty potentially totaling
another 1%. The initial Armenian tailings project (Note 7) is
excluded from the royalty arrangement. In the event the Company
undertakes any additional mineral extraction projects in the Republics
of Armenia or Georgia, Eyre will receive a 1% overriding production
royalty from the Company's revenues, also subject to a similar
adjustment which may total up to another 1/2%. The Company shall pay
to Eyre $8,333 per month to be applied against the royalty arrangement
commencing with the closing of the funding of the tailings project at
Ararat, Armenia (Note 7).
The Restructuring Agreement provided that Eyre may submit to the
Company additional projects, and that the Company shall in good faith
consider acquiring such projects by issuing additional shares of
common stock; provided in no event shall Eyre own or control 50% or
more of the outstanding common stock of the Company.
Various prospective investment banking firms and potential investors
who expressed an interest in providing funding for the Company's
projects in the fall of 1996 requested that the Company undertake a
reverse split of its Common Stock (see Note 19) to decrease the number
of shares outstanding and to reduce the equity stake of certain
shareholders who received shares pursuant to the Agreement essentially
in their capacity as finders in order to facilitate possible future
financings. In response thereto, by letter dated December 4, 1996,
Eyre and the Parry-Beaumont Trust surrendered their Acquisition
Warrants to purchase 240,000 and 160,000 shares of the Company's
Common Stock (a total of 400,000 shares), surrendered their right to
designate two members of the Board of Directors of the Company and in
addition, Eyre agreed to waive its overriding royalties in the
Armenian projects and to waive the approximately $146,000 due it under
the promissory notes received at the closing (the "Second
Restructuring Agreement"). While Eyre had 2% overriding royalty on the
Armenian mining projects (other than the Tailings Project), the Second
Restructuring Agreement referred to the waiver of a overriding royalty
of 1.5% on the Armenian projects in reliance on Eyre's earlier
agreement to reduce such royalty to 1.5% by virtue of its failure to
secure financing from a designated mining company in November, 1996.
Accordingly, the Company believes that all overriding royalties on the
Armenian mining projects have been validly waived.
12
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 6: PATTERSON, BELKNAP, WEBB & TYLER LLP
Global has retained the law firm of Patterson, Belknap, Webb & Tyler
LLP (PBWT) to represent the Company in its dealings with the Armenian
and Georgian Republics. PBWT has an international law practice
involving commercial, non-profit and humanitarian issues and has
offices in Moscow. Mr. Van Z. Krickorian (VZK), of counsel to PBWT,
has been designated to conduct the negotiations with the Republics.
VZK was formerly Armenia's Deputy Permanent Representative to the
United Nations.
In connection with preparation and negotiation of the Armenian Joint
Venture Agreement and associated documents, as well as corporate, tax,
strategic, regulatory, financing, political risk insurance and other
miscellaneous matters, PBWT shall be compensated $930,000 plus
expenses ratably over the period May 1, 1995 through May 1, 1999, with
minimum quarterly payments of $25,000. The retainer arrangement is
predicated on the total value of the deal reaching $93 million (1%),
and is subject to adjustment if it falls short or exceeds that goal.
In the event the contemplated financing is not consummated, PBWT will
reduce its hourly charges by 50%.
PBWT will also represent the Company in preparation and negotiation
with the Georgian Government of a revised Joint Venture Agreement and
associated documents, and other related matters similar to the
aforementioned Armenian retainer agreement. The contemplated Georgian
fee is $180,000 for the period July 1, 1995 to July 1, 1999, and the
minimum quarterly payment is $10,000.
As of June 30, 1997 unbilled contingent project charges in excess of
the minimum $25,000 per quarter were assumed by First Dynasty Mines
Ltd. payable upon receipt of an executed agreement assigning the rights
to the Zod Mine to AGRC. Unbilled fees and expenses through June 30,
1997 total approximately $300,000.
In addition PBWT performs additional legal service for the Company
as requested. Current payables and accruals are $95,000.
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.
13
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT (continued)
The Venture may at times be required to obtain various approvals,
licenses, permits, etc., on a timely basis. Failure to obtain such
from the Government, may materially and adversely affect the Company.
Pursuant to the May 1, 1996 Agreement, Armenia, in general, has agreed
to have the cost of the approval process be borne against its share of
joint venture profits.
The initial stage calls for processing tailings at the Ararat site and
for various studies for a gold mining operations at the Zod site.
Management believes capacities at Zod will be significant. Mining at
a third site, Meghradzor, will commence once Zod is operational. At
each site, the Agreement calls for the Armenian Government to transfer
to the Venture free and clear title in the mining rights. The Company
will be required to provide administration, training, management,
feasibility studies, technology and business plans, as appropriate.
Pursuant to the Joint Venture Agreement, the Company has the following
obligations:
Investment
Endeavor Requirement
----------------------------- -----------
Delivery of tailings processing
Operation equipment to Ararat $5,000,000
Zod Complex prefeasibility study
and commencement of full
feasibility study on Zod Complex $ 500,000
Operation of Tailings processing $2,250,000
Complete full feasibility study
and business plan on Zod Complex $ 500,000
Tailings processing operations
at Ararat $2,250,000
14
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT (continued)
The parties have begun to implement the Tailings Project. On October
7, 1996, the Armenian Government issued a license for a five-year
period of implementation of the development plan at Ararat, effective
after the registration of the Venture with the appropriate Armenian
governmental authorities, in accordance with applicable Armenian law.
The registration of the Venture occurred 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.
15
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 7: THE ARMENIAN JOINT VENTURE AGREEMENT (continued)
Presently, it is not contemplated that the Armenian Government will be
assigned a value for their contribution of the mine properties and
rights to the venture. VZK has advised that profit computations are
still to be resolved. International or other accounting standards
have not been adopted in the Agreement. For the Ararat tailings
project, once profits are determined, they shall be split 50/50 so
long as the Percentage of Recovery of Metals Per Gram Per Ton is 70%
or more. Based upon a sliding scale, Global's profit share will
increase to 66.67% if the recovery rate declines to 50% or less.
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.
Deferred Project Costs Through June 30, 1997 Total $4,135,441
NOTE 8: THE GEORGIAN AGREEMENT
The Company also acquired from Eyre rights under a Foundation
Agreement dated April 22, 1995 (including a Charter for a Joint
Venture Company) with R.C.P.A. "Madneuli", a Georgian state
enterprise, in connection with carrying out certain mining of the
Madneuli deposit. The Company has been advised that the application
for the license required to be filed with the Georgian government has
not been filed, and it has no definitive agreement granting it fixed
rights to mining production or processing in Georgia. The Company
intends to commence discussions with the Government after it raises
capital.
The current Agreement calls for each partner to advance capital in a
50/50 ratio. Neither international nor any other body of accounting
standards have been adapted in the joint venture agreement. Cash flow
initially is to be distributed as follows:
RCPA Madneuli 9.75%
Eyre (now the Company) 9.75%
Panquest .25% (Georgian resource broker)
Sinking Fund .25% (Georgia)
Capital Repayments 80.00%
16
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 8: THE GEORGIAN AGREEMENT (continued)
After recovery of capital, the net profit were to be distributed as
follows:
a) RCPA - according to shareholdings (i.e. share of the Foundation
Fund, which shares could be changed only by unanimous vote of the
participants), less 2.5% to the Sinking Fund, and
b) The Company (or its wholly-owned subsidiary) - according to
shareholdings less 2.5% to Panquest.
The Agreement calls for the Board of the Joint Venture Company to
annually decide upon the amount of profit distributions.
The Joint Venture Company will not be required to pay Georgian income
tax on the profits obtained within the Company for the first two years
after all capital and capital costs have been repaid. In the
following two years, taxation shall be at 50% of the normal rate.
Thereafter, the Joint Venture Company may apply to the Ministry of
Finance for additional taxation privileges. Reinvested capital will
be exempt from taxation.
The Joint Venture Company may at times be required to obtain various
approvals, licenses, permits, etc., on a timely basis. Failure to
obtain such from the Government could materially and adversely affect
the Company.
The Company recently learned that the Georgian Government is planning
to privatize the development of the Madneuli mine through a public
bidding process which was slated to end on April 15, 1997. Since the
structure of the Madneuli mining project under the public tender
differs markedly from that contemplated under the Asset Purchase
Agreement between the Company and Eyre dated as of June 30, 1995, the
Company has decided not to submit a bid for the development of the
Madneuli mining project. Accordingly, there can be no assurance that
the Company will be successful in acquiring any rights or concluding
any definitive agreements with respect to the Madneuli mining project,
or, if so, on terms acceptable to it. Furthermore, if the Company does
acquire any rights to the Madneuli mining project, there can be no
assurance that it will be able to obtain financing for the acquisition
or development thereof, or, if so, on terms acceptable to the Company.
17
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 9: NOTES RECEIVABLE
The Company holds a note receivable as follows:
Amount Interest Rate Debtor
---------- ------------- ------------------------------
$ 300,000 Prime + 2% Jet-Line Environmental Services,
Inc. (Jet-Line)
(150,000) Allowance for doubtful accounts
----------
$ 150,000
----------
----------
The Jet-Line note as more fully described in the documents, is
convertible into at least 20% of Jet-Line's common stock. Jet-Line has
defaulted on prior balloon payment obligations and is in default of
its current interest requirements. The note is secured by U.C.C.'s on
certain equipment. Jet-Line owns certain valuable assets. The
Company pledged the Jet-Line notes as collateral for loans to the
Company from Drury Gallagher.
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 a further demand letter on April 2, 1997, and is considering
whether to sell the assets in which it holds a first security
interest. The Company has also requested Jet-Line to seek additional
financing and to use part of the proceeds therefrom to satisfy the
Jet-Line Note in full. However, there can be no assurance that
Jet-Line will be able to consummate such sale or obtain such
financing. Thus, there can be no assurance that the Company will
ultimately be paid the full principal amount of, and accrued interest
on, the Jet-Line note. Management has not accrued interest on the
note and revised its allowance for doubtful accounts to $150,000.
18
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 10: OFFICERS' COMPENSATION PAYABLE
Officers' compensation payable consists of the following:
June 30, 1997
--------------
Drury Gallagher $ 75,000
Robert Garrison 95,834
---------
$ 170,834
---------
---------
(See Note 16)
NOTE 11: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
June 30, 1997
-------------
Legal - General Counsel $ 20,854
Legal - Patterson, Belkap, Webb
& Tyler LLP (Note 6) 95,118
Affiliates 54,000
Other Miscellaneous 18,461
---------
$ 188,433
--------
--------
NOTE 12: DEFERRED COSTS
Deferred costs include the following:
June 30, 1997
--------------
Legal - Patterson, Belknap, Webb
& Tyler LLP(Note 6) $ 598,298
Legal - General Counsel 81,747
Engineering 1,790,149
Research and Analysis 82,042
Overseas travel 259,024
Construction 441,504
Other 882,677
---------
$4,135,441
---------
---------
NOTE 13: NOTES PAYABLE
On December 1, 1995, the Company closed the Eyre agreement to purchase
certain mining rights (Note 5). Pursuant to the agreement, the
Company issued two $100,000 promissory notes.
19
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 13: NOTES PAYABLE (continued)
The first note bears interest at 6.36% per annum, and is payable
contingent upon the Company obtaining financing of at least
$2,000,000, whether from equity, debt or a combination of both. After
this condition is met, the note is due within 10 business days.
The second, with interest at 5.65% per annum, is payable in full no
later than December 31, 1996. Pursuant to the Second Restructuring
Agreement (Note 5) dated December 4, 1996 both promissory notes were
cancelled.
Drury Gallagher loaned the Company $192,000. The note evidencing the
loan bears interest at 10% per annum and was due on or before June 30,
1997 together with accrued and unpaid interest. The Note was repaid in
full together with interest thereon.
NOTE 14: CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
Pursuant to a Private Placement Offering dated May 17, 1995, as
amended, the Company issued $500,000 of 10% convertible senior notes
due December 31, 1996. Expenses in connection with the offering were
$78,427.
Each $1,000 convertible note entitled the holder to 400 shares of
common stock, and warrants to purchase 800 shares of common stock at
an exercise price of $.50 per share at any time before December 31,
1996. The expiration date was subsequently extended to December 31,
1997.
In accordance with the Offering, interest was not payable on the notes
so long as they were converted to equity within a specified time
frame. After the December 1, 1995 Eyre closing, the entire $500,000
of convertible notes were exchanged for 200,000 shares of common
stock.
NOTE 15: WARRANTS OUTSTANDING
The Company had warrants outstanding as follows:
# Shares Right Price/Share Expiration
Warrant Holder(s) to Purchase Exercisable at Date
------------------- ------------- ------------- ----------
Stockholders through
Note Conversion -
Note 5 400,000 $1.00 12/31/97
Other 4,000 $5.00 11/30/98
-------
404,000
-------
-------
20
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 16: OFFICERS' COMPENSATION, INCENTIVE STOCK OPTIONS AND STOCK
APPRECIATION RIGHTS
Management presently consists of Mr. Drury Gallagher and Mr. Robert
Garrison. Mr. Gallagher has been President of the Company and a
stockholder since 1981. Mr. Garrison was subsequently hired to oversee
mining and related financing activities. Mr. Gallagher and Mr.
Garrison entered into employment agreements with the Company effective
July 1, 1995. Each is entitled to receive a base salary of $100,000
per year, for 50% of their time, for a three year term. The
agreements call for automatic annual increases as defined. The Board
may award bonuses up to 50% of base compensation.
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, and the cancellations
of his options to acquire 175,000 shares of the Common Stock of the
company and the cancellation of his stock appreciation rights (the
"SARs") which, under certain circumstances, could have resulted in the
issuance to him of up to 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, and to increase their proprietary stake of 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.
Global Gold Armenia Limited ("GGA") (Note 17) agreed to retain Robert
A. Garrison as a consultant for a three-year period commencing
February 1, 1997 for $150,000 per annum pursuant to the terms of the
consulting agreement entered into between such parties. Under such
agreement, Mr. Garrison will serve as a Senior Vice President of 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.
21
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 17: NON-UNITED STATES WHOLLY OWNED SUBSIDIARIES/INCOME TAX MATTERS
On November 29, 1995, the Company formed Global Gold Armenia Limited
and Global Gold Georgia Limited, which were respectively assigned the
Armenian and Georgian mining rights from Eyre at the closing on
December 1, 1995 (Note 5). The two subsidiaries are Cayman Island
entities which were granted a twenty year tax exemption from any law
of that jurisdiction which hereafter imposes any tax to be levied on
profits, income, gains or appreciation, commencing December 19, 1995.
Company experienced net operating losses for each of the two years
ended December 31, 1996. The Company has elected to carryforward such
losses for Federal income tax purposes and offset future taxable
earnings. However, since the Company is a development stage company
and its ability to obtain future earnings is uncertain, no deferred
tax asset has been recorded.
The off shore companies were formed in part, as a result of the
concerns of Eyre, the previous Australian owner of the mining rights,
and presently a substantial non-controlling stockholder group of the
Company, that they not be exposed to two layers of corporate taxation,
United States and Australia. The Company will obtain a tax opinion on
the transaction, which will also seek to give greater comfort to
current and future U.S. and non-U.S. shareholders, that the structure
will in fact satisfy realistic income tax goals of all concerned
parties. Inasmuch as management valued the shares of stock
distributed to Eyre in exchange for acquiring the aforementioned
mining interests at $.085 per share (such interests, described herein,
were not substantially perfected at the time of the transaction), it
is management's position that even if the Internal Revenue Service
deemed the transaction to be a taxable event, there would nevertheless
be insignificant income tax consequences. However, there can be no
such assurance. Furthermore, the Company will determine that the
structure will not in any way be a deterrent from obtaining future
financing or political risk insurance. Management will consider
future structural changes, if necessary.
22
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 18: NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of
shares outstanding during the period. Common stock equivalents have
not been included since the effect would be antidilutive.
NOTE 19: REVERSE STOCK SPLIT
Various prospective investment banking firms and potential investors
who expressed an interest in providing funding for the Company's
projects in 1996 requested that the Company undertake a reverse split
of its Common Stock to decrease the number of shares outstanding and
thereby facilitate possible future financings. Accordingly, the
Company effected a 1 for 10 reverse split of its common stock
effective as of December 31, 1996. Such step was taken by the written
consent of the holders of a majority of the Company's issued and
outstanding shares of Common Stock. By virtue of the reverse split,
each stockholder's number of shares of Common Stock became 1/10th of
the number previously held. The Company filed its Certificate of
Amendment to the Certificate of Corporation with respect to the
reverse split with the Delaware Secretary of State on December 31,
1996.
All share and per share data in this report have been restated to
reflect the reverse stock split, unless otherwise noted.
NOTE 20: FIRST DYNASTY MINES LTD.
The Company, GGA and First Dynasty Mines Ltd. ("First Dynasty"), a
Canadian public company, entered into a preliminary agreement dated
January 27, 1997 whereby First Dynasty agreed to advance funds in
stages necessary for the development of the Armenian mining projects.
The Company and First Dynasty entered into a definitive agreement
dated May 13, 1997 reflecting the final agreement of the parties with
respect to the Armenian mining projects (the "FDM Agreement"). The
principal terms of the FDM Agreement are outlined as follows:
23
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 20: FIRST DYNASTY MINES LTD. (continued)
First Dynasty agreed to advance a maximum of $24,510,000 under the FDM
agreement. All funds advanced by First Dynasty will be advanced to
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
million 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 of capital stock of GGA,
within 18 months after making such total advances, by issuance of
4,000,000 of its common stock, except that such number of shares will
be increased proportionately to the extent that the mineable reserves
at the Zod and Meghradzor mines (which are established at the end of
such 18 month period), exceed five million ounces.
First Dynasty will be entitled to appoint three of the five directors
of GGA until First Dynasty shall acquire 80% of the issued and
outstanding common stock of GGA.
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,
construction management agreement between the Venture and a Canadian
engineering firm. First Dynasty further agreed to loan the Company an
additional $675,000 to cover the balance of the outstanding payables.
First Dynasty made direct payments of $2,630,270 on the Tailings
contact and engineering agreement and an additional $396,327 in
legal and administrative expenses in the first half of 1997.
24
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
June 30, 1997
NOTE 20: FIRST DYNASTY MINES LTD. (continued)
In addition, First Dynasty agreed to pay the Company $400,000 for use,
at its option, to defray its expenses in participating in the
negotiation of the second Armenian joint venture agreement, of which
$200,000 was paid upon the execution and the delivery of the FDM
Agreement and the balance of $200,000 will be paid on June 30, 1998.
Although not reflected in the FDM Agreement, First Dynasty also paid
the Company $141,155.02 on May 15, 1997 to defray the expenses incurred
by GGA during the three-month period ending March 31, 1997.
In connection with the First Dynasty financing the Company paid a
finders fee of 125,000 shares of its common stock to each of Walker
Investments Ltd. and Alpine Holdings Ltd.
25
<PAGE>
GLOBAL GOLD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(A) GENERAL OVERVIEW
The Company is presently engaged in the development of a gold mining
project in Armenia, and is currently considering pursuing a gold and copper
mining project in Georgia (both of which countries are members of Commonwealth
of Independent States). The Company is currently in the pre-development stage
and has not received any revenues from mining activities. Prior thereto, the
Company did not engage in any substantial business activities, except as
described in the section 1(D) entitled "Prior History of the Company" reflected
in the Form 10-KSB filed by the Company for the period ended December 31, 1996.
(B) ARMENIAN MINING PROJECT
(a) ARMENIAN JOINT VENTURE AGREEMENT
The Company, the Ministry of Industry of Armenia and Armgold, S.E., the
Armenian state gold enterprise, executed and delivered the Armenian Joint
Venture Agreement, dated as of May 1, 1996. The Company thereafter assigned its
rights and obligations thereunder to Global Gold Armenia Limited, its
wholly-owned Cayman Islands subsidiary ("GGA"). The Armenian Joint Venture
Agreement contemplates the formation of the Armenian Gold Recovery Joint Venture
Co. Ltd., a limited liability company under Armenian law ("AGRC"), which will
construct, operate and market the gold production and provide capital and
financing in a multistage development of the Armenian gold industry. Stage 1 of
the Armenian Joint Venture Agreement involves the processing of an estimated 12
million tonnes of tailings from the Ararat processing plant, which the Company
believes average 1 gram of gold per tonne (based on the independent
metallurgical study obtained by the Company) (the "Tailings Project") and the
completion of a comprehensive feasibility study and business plans for the
development of the Zod mine. Based on the business plans to be approved by all
parties, Stage 2 calls for the rehabilitation of the Ararat Gold Processing
Plant and for mine development and operation as well as engineering and building
a gold processing plant at the Zod mine, and Stage 3 calls for mine development
and operation at the Meghradzor mine, a feasibility study for a gold refinery,
and exploration activity. GGA is currently negotiating a new agreement with the
Armenian authorities to expedite and modify stages 2 and 3.
(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.
26
<PAGE>
Pursuant to the Armenian Joint Venture Agreement, AGRC is now engaged in
the final engineering and initial 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. Operation of the
tailings processing plant is now planned for December, 1997, although
construction and other contingencies exist which may delay meeting such target
date.
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's making advances of $6,490,000, such amount
will then be automatically converted into 25% of the capital stock of GGA.
(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,
27
<PAGE>
into an additional 1% of the capital stock of GGA, up to a maximum of
80% of the issued and outstanding shares of capital stock of GGA. Thus,
upon advancing a total of $24,510,000 in the Armenian mining projects,
First Dynasty would be entitled to acquire 80% of the shares of GGA, if
First Dynasty elects to convert all of its debt into equity.
2. (a) Upon obtaining 80% of the capital stock of GGA or upon making
aggregate advances of $24,510,000, First Dynasty would be required to acquire
the remaining 20% of the outstanding of capital stock of GGA, within 18 months
after making such total of advances, by issuance of 4,000,000 shares of its
common stock except that such number of shares will be increased proportionately
to the extent that the mineable reserves at the Zod and Meghradzor mines (which
are established at the end of such 18-month period) exceed five million ounces.
(b) First Dynasty further agreed to use its best efforts to issue
freely tradeable FDM shares to GGA if it is feasible to do so in connection with
a contemporaneous public offering of shares of FDM stock or, alternatively,
special warrants to acquire shares of common stock of First Dynasty without
payment therefor (each of which would be exercisable into one share of First
Dynasty common stock) in a form and substance satisfactory to all parties,
pursuant to a prospectus filed with the applicable Canadian securities
regulatory authorities.
(c) In the event of a violation of First Dynasty's obligations to pay
the Company 4,000,000 shares of its Common Stock or greater amount or to arrange
for the issuance of freely tradeable shares pursuant to the mechanisms
contemplated in the FDM Agreement, the Company would be able to require First
Dynasty to specifically perform its obligations pursuant to the grant of an
injunction or other appropriate decree of specific performance by any court
having equity jurisdiction over the parties.
3. (a) First Dynasty's agreement to continue funding under the FDM
Agreement is subject to the following conditions:
(I) all of the representations and warranties of GGA were true
as of the date of the execution and the delivery of the FDM Agreement;
(ii) neither the Company nor GGA (prior to the actual
implementation of the appointment of First Dynasty's designees as
three directors of GGA) will have breached in any material respects
any of its covenants under the FDM Agreement, and
(iii) with respect to any advances in excess of $10,000,000
or the issuance of any shares of First Dynasty stock, First Dynasty
will have obtained the approval of The Toronto Stock Exchange.
(b) First Dynasty right's under the FDM Agreement remain exclusive
for so long as First Dynasty continues
28
<PAGE>
to fulfill its obligations under the FDM Agreement and GGA continues to
fulfill its obligations under any joint venture agreement in Armenia, except
that FDM's rights will cease to be exclusive if (i) the Company notifies
First Dynasty in writing that First Dynasty is in default under the FDM
Agreement or that GGA is in default under any Armenian joint venture
agreement and (ii) First Dynasty fails to cure such default within 45 days
thereafter, but, in any event, prior to the expiration of any cure period to
which GGA is subject if First Dynasty's default results in a default by GGA
under any joint venture agreement.
4. (a) First Dynasty agreed to pay the Company $400,000 for use, at its
option, to defray its expenses in participating in the negotiation of the second
Armenian joint venture agreement, which is now occurring, of which $200,000 was
paid upon the execution and the delivery of the FDM Agreement and the balance of
$200,000 will be paid on June 30, 1998.
(b) Although not reflected in the FDM Agreement, First Dynasty also
agreed to pay up to $150,000 to defray the expenses incurred by GGA during the
three-month period ending March 31, 1997.
5. Upon the formation of AGRC Exploration, a limited liability company to
be formed under the laws of Armenia, and ending on December 31, 2009, the
Company will be entitled to elect to participate with GGA in any exploration
projects undertaken by AGRC Exploration up to a level of 20% of GGA's rights in
any exploration project. GGA and the Company also agreed to enter into a
mutually acceptable participation agreement in respect of any exploration
project.
6. GGA agreed to retain Robert A. Garrison as a consultant for a
three-year period commencing February 1, 1997 pursuant to the terms of the
consulting agreement entered into between such parties. Under such agreement,
Mr. Garrison will serve as a Senior Vice President of GGA, will assist it in
furtherance of its business interests under the supervision of the board of
directors of GGA and provide ongoing management as the board of directors of GGA
reasonably requests of him from time to time. Mr. Garrison agreed to devote 50%
of his time and attention to the performance of his services under such
agreement, in his capacity as an independent contractor. Such agreement is
terminable by the consultant upon 90 days prior written notice to GGA (or lesser
notice if GGA agrees to such shorter period) or for cause (as defined therein)
or without cause, which, in such latter case, would require GGA to pay Mr.
Garrison the amount of his consulting fees 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
29
<PAGE>
the right to designate such number of its designees as
members as the board of directors as shall be proportionate to the number
of designees established under such agreement. As a result of this
provision, First Dynasty now controls the board of directors of GGA.
(b) The board of directors of GGA will act by the vote of majority of
its members, except that the unanimous vote of the board is required to
take action on the following matters:
(i) the sale, lease or any disposition of substantially all of
the assets of GGA;
(ii) the sale or assignment of any interest of GGA in any joint
venture company in which GGA is a shareholder or equity participant or
has provided financing in excess of $250,000 or
(iii) the financing of any of the projects contemplated under
the FDM Agreement other than when such financing is provided solely by
FDM.
(c) In the event that the FDM Agreement becomes non-exclusive
pursuant to the provisions thereof, then First Dynasty shall have the right
to designate only one director of GGA, the Company shall have right to
designate one director of GGA and the party or parties who provide
financing required under the then applicable provisions of the contemplated
second Armenian joint venture agreement will have the right to appoint
three designees to the board of directors of GGA, simultaneously with the
execution and delivery of any financing agreement relating thereto or upon
the payment of the first funding thereunder (and the Company will have the
right to participate in the financing described in such provision).
(d) Each party cannot sell, transfer or pledge its shares of
ordinary shares of GGA, except that each party may transfer its interest to
a corporation, partnership or limited liability which is wholly owned by
the transferring party. During the period that First Dynasty's 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's shares, GGA and
thereafter the non-selling stockholder has the right to purchase the stock
in question at the offered price, each for successive 30-day periods. If
such right of first refusal is exercised, the purchaser is required to pay
the full purchase price in immediately available funds or by wire transfer.
Alternatively, the non-selling shareholder may exercise so-called tag along
rights and participate on a pro rata basis in the sale of shares of GGA of
both the recipient of the offer and the non-selling shareholder to the
offeror. If such right of first refusal or tag along right is not
exercised, than the seller may sell its shares of GGA to the offeror on the
terms described in the offer within 120 days after receipt of such offer
and provided further that such third party signs an instrument in writing
agreeing to be bound by all of the terms and conditions of the stockholders
agreement.
30
<PAGE>
8. Each party is entitled to engage in any other activities or business
or mining or other investments outside of Armenia and will not be required to
account to any other party for any profits derived from such permitted
activities, businesses or investments.
Pursuant to the First Dynasty Agreement, First Dynasty carried out certain
initial commitments described below:
a. First Dynasty loaned $1,350,000 to GGA in two installments of
$675,000 each to repay such amount of payables attributable to GGA and such
amounts were disbursed according to the agreement (or are being disbursed
in the case of the second installment).
b. Upon the signing of the $640,000 Tailings Dams construction
contract with Armhydro, First Dynasty funded $96,000, and, thereafter,
First Dynasty has agreed to fund the balance.
c. First Dynasty agreed to guarantee or co-sign for up to $3,500,000
of the equipment purchase contract and up to $1,000,000 of the engineering,
procurement, construction management agreement between AGRC and a Canadian
engineering firm. Also, First Dynasty agreed to advance funding for
expenditures thereunder as jointly agreed by the Company and First Dynasty
from time to time, subject to certain cancellation provisions agreed to by
First Dynasty.
As of June 30, 1997, First Dynasty had advanced $4,576,597 in total project
costs.
(d) MINING PLANS
GGA, in conjunction with First Dynasty, is currently negotiating with the
Armenian Government to obtain for AGRC, or separate, similar joint venture
companies, 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, although there can be no assurance of the outcome thereof.
(C) JET-LINE ENVIRONMENTAL SERVICES, INC.
Jet-Line Environmental Services, Inc. ("Jet-Line") is a privately-held
Delaware corporation organized in 1970, and is engaged in providing various
environmental clean-up services for a variety of customers, including fuel
service, laboratory services, disposable services, transportation and safety and
compliance services. A copy of Jet-Line's compiled and unaudited financial
statement for the calendar year ended December 31, 1996 showed a loss of
approximately $377,000 for such year.
On April 21, 1993, the Company loaned $300,000 to Jet-Line, which is
evidenced by Jet-Line's promissory note that is convertible into 20% of
Jet-Line's common stock, and 25% of its common stock upon the payment (upon
conversion) to Jet-Line of $37,500, at the option of the
31
<PAGE>
Company, and 30% of its common stock upon the payment (upon conversion) to
Jet-Line of $100,000, at the Company's option, as provided therein (the
"Jet-Line Note"). The Jet-Line Note, which matured on April 21, 1996 and
which was restructured on May 13, 1996, is secured by a pledge of
transportation equipment and machinery and equipment used in Jet-Line's
business and a Jet-Line owned warehouse and office laboratory building
totaling 22,500 square feet located on one acre of land. The total appraisal
value of the assets when made in part in December, 1992 and in part in early
1993 was in excess of a total of $1,500,000, but the Company does not know
the appraised value of such collateral at present since no updated appraisal
of such assets has been made. Prior to such transaction, Jet-Line had no
affiliation of any kind with the Company or its stockholders.
Since Jet-Line has been experiencing operating losses, and lacks adequate
liquid resources, it is highly unlikely that Jet-Line will be able to pay the
full amount of the principal and accrued interest on the Jet-Line Note, and
defaulted under the May 13, 1996 loan extension agreement between the parties.
In addition, Jet-Line advised the Company in early March, 1997 that it received
a notice of the revocation of its license to operate its business in
Massachusetts, and of a $100,000 fine, from the Massachusetts environmental
authorities, and Jet-Line contested such revocation and fine in the
Massachusetts state courts unsuccessfully. As a result, Jet-Line has been
requested by such authorities to sell its facility in Massachusetts, and
Jet-Line is now engaged in negotiations with a potential buyer with respect to
such sale. The Company sent Jet-Line a written notice of default and demand for
payment on March 14, 1997, a further demand letter on April 2, 1997, and had
many subsequent telephonic discussions with the President of Jet-Line with
respect to the payment of the Jet-Line Note, and is considering whether to sell
the assets in which it holds a first security interest. The Company has also
requested Jet-Line to seek an additional financing and to use part of the
proceeds therefrom to satisfy the Jet-Line Note in full. However, there can be
no assurance that Jet-Line will be able to consummate such sale or obtain such
financing. Thus, there can be no assurance that the Company will ultimately be
paid the full principal amount of, and accrued interest on, the Jet-Line Note.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
REVENUES: During the three month period ended June 30, 1997, the Company's
interest and royalty income was zero, which was 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 June 30, 1997 were $116,147, which
represented a slight increase from the amount paid or accrued of $115,021 in
the same period last year. Expenses were attributable to the Company's (a)
accrual of officers' compensation and (b) the accrual and/or payment of legal
and accounting fees and expenses in connection with its retention of counsel to
implement the Company's transaction with First Dynasty Mines Ltd. pursuant to
the agreement between such parties dated January 27, 1997 in connection with the
financing of the Tailings Project and the additional projects contemplated in
Armenia (subject to miscellaneous contingencies), and to file the Company's
10-QSB for the period ended March 31, 1997.
32
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES: During the six months ended June 30, 1997, the Company's interest
and royalty income was $0, which represented a decrease from the interest and
royalty interest of $4 for the same period last year, since the Company's assets
were invested on a non-currently interest-paying basis.
ADMINISTRATIVE EXPENSES: The Company's administrative expenses for the six
months ended June 30, 1997 were $227,762, which represented a slight increase
from the amount paid of $221,962 in the same period last year. Expenses were
attributable to the Company's (a) accrual of officers' compensation and (b) the
accrual and/or payment of legal and accounting fees and expenses in connection
with its retention of counsel to implement the Company's transaction with First
Dynasty Mines Ltd. pursuant to the agreement between such parties dated January
27, 1997 in connection with the financing of the Tailings Project and the
additional projects contemplated in Armenia (subject to miscellaneous
contingencies), and to file the Company's 10-QSB for the period ended March 31,
1997.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company's total assets were approximately
$5,505,205, of which $182,149 consisted of cash or cash equivalents.
The Company's plan of operation for calendar year 1997 is:
(a) To oversee the implementation of its definitive agreement with
First Dynasty with respect to all of the Armenian mining projects
contemplated under the Armenian Joint Venture Agreement, including, without
limitation, completing any financing needed for the Tailings Project.
(b) To commence the mining of gold pursuant to the Tailings Project;
(c) To earn the right to mine production and process gold at the Zod
mine in Armenia in accordance with the terms of the Armenian Joint Venture
Agreement or to negotiate obtaining such rights and, in preparation
therefor, conclude an engineering feasibility study on the Zod mine;
(d) To collect payments of accrued interest and principal on and/or
restructure the $300,000 convertible note issued by Jet-Line to the
Company; and
(e) To commence the public trading of the Company's Common Stock.
As of June 30, 1997, the Company had liquid assets consisting of cash of
approximately $182,149. It is anticipated that First Dynasty will provide or
arrange for all of the financing needed
33
<PAGE>
in connection with the Tailings Project and such initial financing as
is needed in connection with the development of the Zod and Meghradzor mines,
although there can be no assurance of such result. In addition, if the
Company earmarks a portion of the $200,000 payment from First Dynasty under
the FDM Agreement to cover administrative and professional costs, the Company
should be able to meet its monthly administrative expenses during 1997 which
average approximately $10,000 per month (exclusive of accrued officers'
compensation), plus additional amounts for legal and accounting costs,
although there can be no assurance that the Company will use such funds for
such purpose. However, the Company expects to receive further additional
financing in 1997 from several sources to cover the latter types of costs
(and for general corporate purposes) and its contemplated financing sources
are as follows:
(i) Pursuant to the Offering of $500,000 principal amount of the
Convertible Notes of the Company, the Company issued Warrants to purchase
4,000,000 shares of its Common Stock at an exercise price of $0.50 per
share. By virtue of the one for 10 reverse split of the Company's Common
Stock effective as of December 31, 1996, the Warrants were converted into
Warrants to purchase 400,000 shares of the Company's Common Stock at an
exercise price of $5 per share. On January 23, 1997, the Company amended
the Warrants to reduce the exercise price to $1 per share and to extend the
expiration date until December 31, 1997. If the Warrants were exercised
in full, the Company would receive $400,000 in gross proceeds. The
Company does not know whether any of the Warrants will be exercised, and,
accordingly, there can be no assurance of such result.
(ii) The Company anticipates that it will receive some payments of
principal and interest on the Jet-Line Note, although there can be no
assurance of such result.
Nevertheless, there can be no assurance that any one or more of the above
financings will be provided, or, if so, on terms acceptable to the Company. In
the event that no contemplated financing is consummated, the Company believes
that it has sufficient financial resources to meet its obligations through
December 31, 1997.
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 does not intend to engage in any project research and
development during 1997 and does not expect to purchase or sell any plant or
significant equipment, except as contemplated in connection with the Tailings
Project and as additionally provided in the Armenian Joint Venture Agreement.
34
<PAGE>
The Company does not expect to hire any additional full-time employees in
1997.
PART II
Item 1. LEGAL PROCEEDINGS
Except as noted below, there is no material pending legal proceeding to
which the Company is a party or to which any of its properties is subject.
Eyre and the Parry-Beaumont Trust have questioned, in writing in February,
March and April, 1997, the validity of the Second Restructuring Agreement (as
defined in Item 12(B) of the Form 10-KSB filed by the Company for the year ended
December 31, 1996) and the validity of the issuance by the Company of 1,000,000
shares of its Common Stock to each of Messrs. Gallagher and Garrison. The
Company believes that the Second Restructuring Agreement is valid and that Eyre
and the Parry-Beaumont have waived the rights covered thereby. The Company
further believes that the Company properly issued the shares of its Common Stock
to Messrs. Gallagher and Garrison in exchange for valuable consideration and
that the claim of invalidity of such action has no merit. For a further
description of the Second Restructuring Agreement and such transfers, see Item
12(B) as described above.
The Company has also received requests from Panquest Lte. and from Eyre
relating to amounts alleged to be due to Panquest Lte. relating to the Company's
acquisition of rights from Eyre relating to the Armenian and Georgian projects.
No evidence has yet been supplied to the Company in this regard.
In addition, the United States Attorney for the Eastern District of
Pennsylvania commenced an investigation of various nursing homes in Pennsylvania
managed by PennMed Consultants, Inc. ("PennMed"), a corporation owned by Drury
J. Gallagher, the Company's President, and John Hayman and Frank Hayman, who are
also major stockholders of the Company, as to whether or not such nursing homes
and their managers and affiliates engaged in potential violations of Federal
health laws. In the course of the execution of a search warrant, all documents
relating to PennMed were seized on August 6, 1997, as well as the books and
records of other possible businesses located at such address, including all of
the Company's books and records which were located at such address. 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.
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.
35
<PAGE>
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 report of independent
certified public accountants, 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, 1997.
(b) The Exhibits which are listed on the Exhibit Index attached
hereto: Not applicable.
2. No reports on Form 8-K were filed by the registrant during the period
covered by this report.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GLOBAL GOLD CORPORATION
Dated: August 21, 1997 By: /s/ Drury J. Gallagher
-----------------------------------
Drury J. Gallagher, Chairman
and Chief Executive Officer
(Principal Executive and
Financial Officer)
36
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
GLOBAL GOLD CORPORATION DATED 6/30/97
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 32,149
<SECURITIES> 150,000
<RECEIVABLES> 300,000
<ALLOWANCES> 150,000
<INVENTORY> 0
<CURRENT-ASSETS> 182,149
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,505,205
<CURRENT-LIABILITIES> 4,935,864
<BONDS> 0
0
0
<COMMON> 23,231
<OTHER-SE> 4,710,942
<TOTAL-LIABILITY-AND-EQUITY> 5,505,205
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 219,340
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,090
<INCOME-PRETAX> 0
<INCOME-TAX> 352
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (227,262)
<EPS-PRIMARY> (.055)
<EPS-DILUTED> 0
</TABLE>
