<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 March 31, 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 March 31, 1997, there were 4,098,114 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:
Report of Independent Certified Public Accountants (unaudited).......3
Balance Sheet - As of March 31, 1997 ................................4
Statements of Income and (Loss) - For the periods January 1, 1997
through March 31, 1997 and January 1, 1996 through March 31, 1996 and
for the development stage period January 1, 1995 through
March 31, 1997.......................................................5
Statements of Changes in Stockholders' Equity For the period January
1, 1997 through March 31, 1997 and for the development stage period
January 1, 1995 through March 31, 1997...............................6
Statements of Cash Flows - For the periods January 1, 1997 through
March 31, 1997 and January 1, 1996 through March 31, 1996 and
for the development stage period January 1, 1995 through
March 31, 1997 ......................................................8
Notes to Financial Statement ........................................9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operation ............................................26
PART II. Other Data ..........................................................35
2
<PAGE>
ACCOUNTANTS' COMPILATION REPORT
To the Board of Directors and Stockholders
of Global Gold Corporation
We have compiled the accompanying balance sheet of Global Gold Corporation (a
development stage company) as of March 31, 1997, and the related statements of
operations, stockholders' equity, and cash flows for the quarters ended March
31, 1997 and 1996 and the development stage period January 1, 1995 through March
31, 1997, in accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
A development stage entity reports profit and loss information cumulatively,
from the inception of development stage activities, which is January 1, 1995.
We audited the 1996 and 1995 statements and a going concern opinion was rendered
(as below).
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 4 to the
financial statements, management must continue to raise significant amounts of
capital in accordance with its requirements as a joint venture partner and
ultimately must commence profitable operations. These matters raise substantial
doubt about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
these uncertainties.
Marks Shron & Company, LLP
May 13, 1997
3
<PAGE>
Exhibit A
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Balance Sheet
March 31, 1997
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 17,850
---------
NONCURRENT ASSET
Notes receivable, net of allowance for bad
debts of $150,000 - Note 9 150,000
OTHER ASSETS
Organization costs 9,361
Investment in certain mining interests - Notes 6 and 8 1,003,494
Deferred costs - Note 12 1,467,344
---------
2,480,199
---------
TOTAL ASSETS $2,648,049
----------
----------
CURRENT LIABILITIES
Note payable - First Dynasty Mines, Ltd. - Note 20 $1,071,000
Officers' compensation payable - Notes 10 and 16 158,334
Accounts payable and accrued expenses - Note 11 566,227
Notes payable - Note 13 192,000
----------
1,987,561
----------
STOCKHOLDERS' EQUITY - Exhibit C
Common stock $.001 par, 100,000,000 shares authorized
4,098,114 issued and outstanding 22,981
Paid-in capital - Dormant period 3,228,519
Paid-in capital - Development stage 1,457,673
Retained earnings - Dormant period (2,907,648)
Retained earnings - Development stage (1,141,037)
----------
660,488
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,648,049
----------
----------
See the accompanying notes and Accountants' Compilation Report.
4
<PAGE>
Exhibit B
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Statements of Income and (Loss)
(Unaudited)
<TABLE>
<CAPTION>
January 1, 1995
January 1, 1997 January 1, 1996 (development stage)
through through through
March 31, 1997 March 31, 1996 March 31, 1997
--------------- ---------------- -------------------
<S> <C> <C> <C>
REVENUE $ - $ - $ -
--------- --------- ----------
EXPENSES
Officers compensation /=/ Note 16 33,334 50,000 333,334
Administrative fees 3,000 2,400 24,158
Legal 32,896 14,204 356,225
Accounting and auditing 20,000 11,423 90,848
Transfer agent and securities fees 1,111 2,337 12,023
Proxy costs - 111 26,555
Office expense 6,558 210 16,011
Travel - 11,594 42,949
Rent - Note 1 9,000 9,000 45,000
---------- ---------- ----------
105,899 101,279 947,103
---------- ---------- ----------
OPERATING (LOSS) 105,899 101,279 947,103
---------- ---------- ----------
OTHER INCOME (EXPENSES)
Interest and royalty income - 4 869
Organization costs (240) (3,200) (5,040)
Interest expense (4,800) (2,290) (12,531)
Provision for bad debts - Note 9 - - (175,000)
---------- ---------- ------------
(5,040) (5,486) (191,702)
---------- ---------- ------------
(LOSS) BEFORE INCOME TAXES (110,939) (106,765) (1,138,805)
Income taxes 176 176 2,232
---------- ---------- ------------
NET (LOSS) $ (111,115) $ (106,941) $ (1,141,037)
---------- ---------- ------------
---------- ---------- ------------
NET (LOSS) PER SHARE (Note 18) $ (.027) $ (.051)
---------- ----------
---------- ----------
</TABLE>
See the accompanying notes and Accountants' Compilation Report.
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>
Exhibit C
(Concluded)
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
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 -
March 31, 1997 (111,115) (111,115)
Issuance of common stock -
Note 16 2,000,000 2,000 - - - 198,000 200,000
------------ --------- ----------- ----------- ------------ ------------- --------------
Stockholders' Equity -
March 31, 1997 4,098,114 $ 22,981 $3,228,519 $(2,907,648) $(1,141,037) $1,457,673 $ 660,488
------------ --------- ----------- ----------- ------------ ------------- --------------
------------ --------- ----------- ----------- ------------ ------------- --------------
</TABLE>
In 1996, 200,000 shares were issued to collateralize two guarantees by London
and International Merchantile Ltd.
The guarantees were rescinded and therefore, such shares were returned in 1997
and have not been reflected on this statement.
See the accompanying notes and Accountants' Compilation Report.
7
<PAGE>
Exhibit D
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
January 1, 1995
January 1, 1997 January 1, 1996 (development stage)
through through through
March 31, 1997 March 31, 1996 March 31, 1997
--------------- ---------------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM DEVELOPMENT
STAGE ACTIVITIES:
Net loss - Exhibit B $ (111,115) $ (106,941) $(1,141,037)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Non-cash items included in loss
Amortization 240 - 240
Provision for bad debt - - 175,000
Change in assets and liabilities:
Organization costs - (6,401) (9,601)
Accounts payable and accrued expenses (355,158) 163,600 842,061
---------- ---------- ----------
Net Cash Provided (Used) by Development Stage
Activities (466,033) 50,258 (133,337)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in certain mining interests -
net of financing - - (153,494)
Deferred costs - mining interests (588,486) (102,586) (1,391,344)
---------- ---------- ----------
Net Cash (Used) by Investing Activities (588,486) (102,586) (1,544,838)
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from First Dynasty Mines, Ltd. 1,071,000 - 1,071,000
Net proceeds from private placement offering - - 421,573
Note payable - officer 1,000 - 192,000
Warrants exercised - - 100
---------- ---------- ----------
Net Cash Provided by Financing Activities 1,072,000 - 1,684,673
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 17,481 (52,328) 6,498
CASH - beginning 369 63,299 11,352
---------- ---------- ----------
CASH - end $ 17,850 $ 10,971 $ 17,850
---------- ---------- ----------
---------- ---------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid $ 688 $ 990 $ 1,336
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITIES:
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).
See the accompanying notes and Accountants' Compilation Report.
8
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
March 31, 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 in premises operated by the
Company's President, Mr. Drury Gallagher who 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
March 31, 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 the McNells are no longer, officers, directors, employees or in
any other fashion doing business with the company. After the
consummation of the public offering, the Company failed to file any
further annual or periodic reports required under the Exchange Act.
The Company filed its Form 10-KSB for the calendar years 1994 and
1995, its Form 10-Q for all quarters in 1995 and thereafter, and also
filed audited financial statements covering the calendar years 1987,
1988, 1989, 1990, 1992 -1995. There can be no assurance that the SEC
might not assert claims against the Company and its present and former
directors and officers, which actions might adversely affect the
future conduct of the Company's business or be detrimental to future
trading of the Company's stock in the public markets.
10
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
March 31, 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
March 31, 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
March 31, 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 $100,000,000 (1%),
and is subject to adjustment if it falls short or exceeds that goal.
In the event the contemplated financing is not consummated, PBWT will
reduce its hourly charges by 50%.
PBWT will also represent the Company in preparation and negotiation
with the Georgian Government of a revised Joint Venture Agreement and
associated documents, and other related matters similar to the
aforementioned Armenian retainer agreement. The contemplated Georgian
fee is $600,000 for the period July 1, 1995 to July 1, 1999, and the
minimum quarterly payment is $10,000.
In addition, PBWT performs additional legal services for the Company
as requested and as of March 31, 1997, there were approximately
$300,000 of unbilled fees and contingent fees.
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
March 31, 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
March 31, 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 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
March 31, 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.
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
March 31, 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 is 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. However, 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
March 31, 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 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
March 31, 1997
NOTE 10: OFFICERS' COMPENSATION PAYABLE
Officers' compensation payable consists of the following:
March 31, 1997
--------------
Drury Gallagher $ 75,000
Robert Garrison 83,334
---------
$ 158,334
---------
---------
(See Note 16)
NOTE 11: ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses include the following:
March 31, 1997
--------------
Legal - General Counsel $ 91,789
Legal - Patterson, Belkap, Webb
& Tyler LLP (Note 6) 325,844
Drury Gallagher, Robert Garrison
and Affiliates 72,651
Other Miscellaneous 75,943
---------
$ 566,227
---------
---------
NOTE 12: DEFERRED COSTS
Deferred costs include the following:
March 31, 1997
--------------
Legal - Patterson, Belknap, Webb
& Tyler LLP(Note 6) $ 459,542
Legal - General Counsel 81,747
Engineering 608,404
Research and Analysis 82,042
Overseas travel 71,656
Equipment 14,713
Other 73,241
----------
$1,467,344
----------
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
March 31, 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 is due on or before June 30,
1997 together with accrued and unpaid interest.
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
March 31, 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
March 31, 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
March 31, 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
March 31, 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 $396,000 on the Tailings contact
and engineering agreement in the first quarter of 1997.
24
<PAGE>
GLOBAL GOLD CORPORATION
(A Development Stage Company)
Consolidated Financial Statements
Notes to Financial Statements
March 31, 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, 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. Although not reflected in the FDM Agreement, First
Dynasty also agreed to pay the Company $150,000 to defray the expenses
incurred by GGA during the three-month period ending March 31, 1997.
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 as well as
engineering and building a gold processing plant 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.
26
<PAGE>
(b) TAILINGS PROJECT
The parties have begun to implement the Tailings Project. As of February
1, 1997, GGA had a definitive agreement authorized by an Armenian government
decree granting it fixed rights to process tailings from the Ararat site as
well as a license and environmental approval for construction.
Pursuant to the Armenian Joint Venture Agreement, AGRC is now engaged in
the final engineering and initial construction for 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 planned for
September, 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.
27
<PAGE>
(b) The next $3,520,000 of debt, together with the advance described
in 1(a) above, is convertible into 51% of the capital stock of GGA, at First
Dynasty's option.
(c) For every additional $.5 million invested for expenditures
advanced in respect of the development of the Zod and Meghradzor mines
(excluding the $10 million Tailings Project expenditure) as a loan to GGA,
such debt is convertible, at First Dynasty's option, into an additional 1%
of the capital stock of GGA, up to a maximum of 80% of the issued and
outstanding shares of capital stock of GGA. Thus, upon advancing a total of
$24,510,000 in the Armenian mining projects, First Dynasty would be entitled
to acquire 80% of the shares of GGA, if First Dynasty elects to convert all
of its debt into equity.
2. (a) Upon obtaining 80% of the capital stock of GGA or upon making
aggregate advances of $24,510,000, First Dynasty would be required to acquire
the remaining 20% of the outstanding 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 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 in GGA were true as
of the date of the execution and the delivery of the FDM Agreement;
(ii) neither the Company nor (prior to the actual implementation
of the appointment of First Dynasty's designees as three directors of
GGA) GGA will have breached in any material respects any of its
28
<PAGE>
covenants under the FDM Agreement, and
(iii) with respect to any advances in excess of $10,000,000 or the
issuance of any shares of First Dynasty stock, First Dynasty will have
obtained the approval of The Toronto Stock Exchange.
(b) First Dynasty right's under the FDM Agreement remain exclusive
for so long as First Dynasty continues to fulfill its obligations under the
FDM Agreement and GGA continues to fulfill its obligations under any joint
venture agreement in Armenia, except that FDM's rights will cease to be
exclusive if (i) the Company notifies First Dynasty in writing that First
Dynasty is in default under the FDM Agreement or that GGA is in default under
any Armenian joint venture agreement and (ii) First Dynasty fails to cure
such default within 45 days thereafter, but, in any event, prior to the
expiration of any cure period to which GGA is subject if First Dynasty's
default results in a default by GGA under any joint venture agreement.
4. (a) First Dynasty agreed to pay the Company $400,000 for use, at
its option, to defray its expenses in participating in the negotiation of the
second Armenian joint venture agreement, which is now occurring, of which
$200,000 was paid upon the execution and the delivery of the FDM Agreement
and the balance of $200,000 will be paid on June 30, 1998.
(b) Although not reflected in the FDM Agreement, First Dynasty also
agreed to pay $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 up to 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.
29
<PAGE>
7. The parties also entered into a shareholders agreement, providing for,
among other things, the following:
(a) From the inception of the agreement and until First Dynasty shall
acquire 80% of the issued and outstanding common stock of GGA, First
Dynasty's designees serve as three of the five directors of GGA, including
Marcus Randolph, the President of First Dynasty, and Drury J. Gallagher and
Robert A. Garrison, the Company's Chairman and Chief Executive Officer and
the President and Chief Operating Officer, respectively, serve as the
Company's designees. If the size of the board is increased thereafter, each
party will have the right to designate such number of its designees as
members as the board of directors as shall be proportionate to the number
of designees established under such agreement. As a result of this
provision, First Dynasty now controls the board of directors of GGA.
(b) The board of directors of GGA will act by the vote of majority of
its members, except that the unanimous vote of the board is required to take
action on the following matters:
(i) the sale, lease or any disposition of substantially all of
the assets of GGA;
(ii) the sale or assignment of any interest of GGA in any joint
venture company in which GGA is a shareholder or equity participant or
has provided financing in excess of $250,000; or
(iii) the financing of any of the projects contemplated under the
FDM Agreement other than when such financing is provided solely by FDM.
(c) In the event that the FDM Agreement becomes non-exclusive pursuant
to the provisions thereof, then First Dynasty shall have the right to
designate only one director of GGA, the Company shall have right to
designate one director of GGA and the party or parties who provide financing
required under the then applicable provisions of the contemplated second
Armenian joint venture agreement will have the right to appoint three
designees to the board of directors of GGA, simultaneously with the
execution and delivery of any financing agreement relating thereto or upon
the payment of the first funding thereunder (and the Company will have the
right to participate in the financing described in such provision).
(d) Each party cannot sell, transfer or pledge its shares of ordinary
shares of GGA, except that each party may transfer its interest to a
corporation, partnership or limited liability company 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
30
<PAGE>
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 shareholders
agreement.
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 $5,000, and on or before
February 10, 1997, advanced an additional $91,000, and, thereafter, First
Dynasty has agreed to fund the balance.
c. First Dynasty agreed to guarantee or co-sign for up to $3,500,000
of the equipment purchase contract and up to $1,000,000 of the engineering,
procurement, construction management agreement between AGRC and a Canadian
engineering firm. Also, First Dynasty agreed to advance funding for
expenditures thereunder as jointly agreed by the Company and First Dynasty
from time to time, subject to certain cancellation provisions agreed to by
First Dynasty.
(d) 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.
31
<PAGE>
(C) JET-LINE ENVIRONMENTAL SERVICES, INC.
Jet-Line Environmental Services, Inc. ("Jet-Line") is a privately-held
Delaware corporation organized in 1970, and is engaged in providing various
environmental clean-up services for a variety of customers, including fuel
service, laboratory services, disposable services, transportation and safety
and compliance services. A copy of Jet-Line's compiled and unaudited
financial statement for the calendar year ended December 31, 1996 showed a
loss of approximately $377,000 for such year.
On April 21, 1993, the Company loaned $300,000 to Jet-Line, which is
evidenced by Jet-Line's promissory note that is convertible into 20% of
Jet-Line's common stock, and 25% of its common stock upon the payment (upon
conversion) to Jet-Line of $37,500, at the option of the Company, and 30% of
its common stock upon the payment (upon conversion) to Jet-Line of $100,000,
at the Company's option, as provided therein (the "Jet-Line Note"). The
Jet-Line Note, which matured on April 21, 1996 and which was restructured on
May 13, 1996, is secured by a pledge of transportation equipment and
machinery and equipment used in Jet-Line's business and a Jet-Line owned
warehouse and office laboratory building 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 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 it
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, 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 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 a 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.
32
<PAGE>
THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996
REVENUES: During the three month period ended March 31, 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 March 31, 1997 were $111,115,
which represent an increase from the amount paid or accrued of $106,941 in
the same period last year. Such increase was attributable to the Company's
(a) accrual of officers' compensation and (b) the accrual and/or payment of
legal and accounting fees and expenses in connection with its retention of
counsel to implement the Company's transaction with First Dynasty 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), to file the
Company's 10-KSB for the period ended December 31, 1996 and to negotiate
additional joint venture agreements for projects in Armenia.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1997, the Company's total assets were $2,648,049, of which
$17,850 consisted of cash or cash equivalents.
The Company's plan of operation for calendar year 1997 is:
(a) To enter into a 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 (which agreement has been
concluded);
(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 March 31, 1997, the Company had liquid assets consisting of cash of
$17,850. 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
33
<PAGE>
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 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. While the
Company does not know with certainty whether the Warrants will be exercised,
it does anticipate that a substantial amount thereof will be exercised,
although there can be no assurance of such result.
(ii) 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 September 30, 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 does not intend to engage in any project research and
development during 1997 and does not expect to purchase or sell any plant or
significant equipment, except as contemplated in connection with the Tailings
Project and as additionally provided in the Armenian Joint Venture Agreement.
The Company does not expect to hire any additional full-time employees in
1997.
34
<PAGE>
PART II
Item 1. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject. However, 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 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.
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
35
<PAGE>
Stockholders Equity, Statement of Cash Flow and Notes to Financial Statement
as at and for the period ended March 31, 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: May 16, 1996 By: /s/ Drury J. Gallagher
----------------------------
Drury J. Gallagher, Chairman
and Chief Executive Officer
(Principal Executive and
Financial Officer)
36
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GLOBAL GOLD CORPORATION DATED 3/31/97
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 17,850
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