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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
GLOBAL DIAMOND RESOURCES, INC.
(Name of Small Business Issuer in its charter)
Nevada 33-0213535
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
836 Prospect Street, Suite 2B
La Jolla, California 92037
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE (619) 459-1928
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SECURITIES TO BE REGISTERED UNDER SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
None N/A
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.001 par value
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(TITLE OF CLASS)
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development
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Global Diamond Resources, Inc., a Nevada corporation ("Company"), was
formed under the laws of the State of Nevada on January 7, 1987 under the name
Lohengrin, Inc. for the purpose of conducting an unspecified offering of its
securities and then applying the net proceeds towards the acquisition of one or
more businesses. In March and April 1987, the Company conducted a public
offering of 34,667 shares of its Common Stock pursuant to an offering statement
on Form 1-A filed with the Securities and Exchange Commission. In that public
offering, the Company sold 24,267 shares at an offering price of $2.88 per
share. From April 1987 to March 1988, the Company's operations consisted solely
of the investigation of acquisition candidates.
In March 1988, the Company entered into an Agreement of Merger and Plan of
Reorganization ("Western Capital Agreement") pursuant to which it acquired all
of the outstanding common shares of capital stock of Western Capital Leasing
Corporation, a California corporation engaged in the business of equipment
financing. At that time, the Company changed its corporate name to Western
Capital Financial Corporation. Pursuant to the Western Capital Agreement, the
Company issued to the stockholders of Western Capital Leasing Corporation 91,313
shares of the Common Stock of the Company. Between March 1988 and March 1992,
the Company acted as a holding corporation for its wholly-owned subsidiary,
Western Capital Leasing Corporation. However, as a result of declining interest
rates and an economic recession, Western Capital Leasing Corporation's business
became less profitable to the point that in 1992 Western Capital Leasing
Corporation discontinued active business operations. Between March 1992 and
July 1995, the Company and Western Capital Leasing Corporation were both
inactive.
In July 1995, the Company acquired all of the outstanding shares of common
stock of Global Diamond Resources Inc. ("Global Diamond-BC"), a British Columbia
corporation. At the time, Global Diamond-BC served as a holding company for its
South African operations. Pursuant to a Securities Purchase Agreement and Plan
of Reorganization dated July 17, 1995, the Company acquired from the
shareholders of Global Diamond-BC all of the issued and outstanding capital
shares of that corporation in exchange for the Company's issuance of 4,415,000
shares of Common Stock of the Company (representing 95% of the issued and
outstanding shares of the Common Stock after giving effect to the
reorganization) and a warrant to purchase 550,000 shares of Common Stock, at
Canadian $.75 per share, expiring on December 31, 1997. The terms of the
reorganization were the result of arm's-length negotiations between management
of the Company and management of Global Diamond-BC. Prior to the consummation of
the reorganization, the Company divested itself of its interest in Western
Capital Leasing Corporation by selling all of the issued and outstanding shares
of the common stock of Western Capital Leasing Corporation to its founder,
Weston J. Coolidge, for $1.00. At the time of the divestiture, Western Capital
Leasing Corporation was a dormant corporation without assets or operations of
any kind. Subsequent to the reorganization, the Company changed its corporate
name to Global Diamond Resources, Inc.
In September 1995, the Company sold in a nonpublic offering 100,000 shares
of Common Stock at $2.50 per share. The purchaser was unaffiliated with the
Company and the proceeds of the offering were applied towards working capital.
During the period August through November of 1996, the Company conducted a
public offering of 400,000 shares of its Common Stock at $2.50 per share
pursuant to Rule 504 under the Securities Act of 1933. In that offering, the
Company sold 400,000 shares of Common Stock for the gross proceeds of
$1,000,000. Proceeds from the sale of the shares were applied towards the bulk
sampling at the Caerwinning Deposit and working capital.
In September 1996, the Company entered into an investment banking agreement
with Lion Mining Corporation ("Lion Mining"), a mining financial and consulting
firm located in London, England. Pursuant to the Agreement, Lion Mining has
agreed to provide general investment banking services to
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the Company, including the provision of its best efforts to provide or arrange
for the Company's receipt of $3 million in additional capital. In exchange for
its services, the Company has agreed to provide Lion Mining (i) common stock
purchase warrants to purchase 100,000 shares of Common Stock at $2.50
exercisable through December 31, 2000; (ii) subject to the Company's receipt of
$3 million in additional funds through the efforts of Lion Mining, 1,000,000
shares of Common Stock and common stock purchase warrants to purchase 900,000
shares of Common Stock exercisable through December 31, 2000 at exercise prices
of $.75 per share (for 300,000 shares) and $3.00 per share (for 600,000 shares).
The Company has also agreed to pay Lion Mining a monthly fee of $6,000 for 24
months commencing October 1, 1996 and appoint to its board of directors one
person designated by Lion Mining. Mr. Colin Bird, Chief Operating Officer and a
director of Lion Mining, has been appointed to, and presently serves on, the
Company's Board of Directors pursuant to Lion Mining's right of
appointment.
Unless the context otherwise requires, all references to the Company
include its wholly-owned subsidiaries, Global Diamond Resources Inc., a British
Columbia corporation, Global Diamond Resources (SA) (Pty) Limited, a South
African corporation, and P.D.J. Mining (Pty) Limited, a South African
corporation. The Company's executive offices are located at 836 Prospect
Street, Suite 2B, La Jolla, California 92037; Telephone (619) 459-1928.
Business of the Issuer
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GENERAL
The Company was recently organized to engage in diamond exploration and
mining and has exercised an option to acquire one mining property, acquired an
option to purchase a second mining property and has acquired a 50% partnership
interest in a third property, all of which are located in the Republic of South
Africa. The Company's current mine projects include:
The Caerwinning Deposit. The property is an alluvial deposit downstream of
the confluence of the Vaal and Harts Rivers in the Griqualand West area of the
Northern Cape Province. The property is estimated to include 38.3 million
tonnes of in situ diamondiferous gravel. During the period February 1989 to
October 1994, 3,685 carats of high quality large gemstones with an average value
of $488 per carat were recovered from this property. The Company has exercised
an option to acquire the Caerwinning Deposit in June 1996 and completed a bulk
sample in September 1996 in which it recovered 60 diamonds with a combined
weight of 111.05 carats and a value of $642 per carat. The Company intends to
commence full scale mining operations at the Caerwinning Deposit in the first
quarter of 1997 subject to the receipt of additional capital. See "Item 2.
Management's Discussion and Analysis or Plan of Operations."
The Montrose Kimberlite Pipe. The property is located 30 kilometers east
of Pretoria in the Gauteng Province, and is part of the Pretoria Group
geological formation which includes the Premier Diamond Mine. Geological
testing and drilling evidences a diamondiferous kimberlite pipe with a surface
dimension of 4.25 hectares and a depth of 400 meters, which indicates a
geological resource in excess of 9 million tonnes. The Company has acquired an
option to purchase the Montrose Pipe which expires on October 10, 1997 and
intends to commence bulk sampling at the site in the first quarter of 1997
subject to the receipt of additional capital. See "Item 2. Management's
Discussion and Analysis or Plan of Operations."
The Grasdrif Deposit. The property is an alluvial deposit on the inner
bank of the Orange River in the Northern Cape Province. Based on previous
exploration, the deposit is estimated to contain 54 million tonnes of in situ
diamondiferous gravel. Between 1973 and 1984, a previous producer recovered in
excess of 700,000 carats of high quality large gemstones from some 19 million
tonnes of gravel from properties in the area. The Company owns the rights to
this property in partnership with the local surface
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right holders. The Company intends to commence site establishment, including
the development of roads, power, housing and water at the Grasdrif Deposit, in
the first quarter of 1997 subject to the receipt of additional capital. See
"Item 2. Management's Discussion and Analysis or Plan of Operations." Mining
operations are expected to commence in the second half of 1997.
The Company believes that historical mining data and the results of past
prospecting at its three mining properties to date suggest significant reserves
exist throughout the mine properties. However, drilling at any of the three
mines has not been conducted for the purpose of establishing proven reserves.
Any estimate of reserves is necessarily imprecise and would depend on
statistical inferences drawn from limited drilling which can prove unreliable.
Consequently, the Company is unable to estimate with any degree of assurance the
amount of reserves at any of its mine properties.
The Company intends to conduct exploration and acquisitions of additional
diamond pipes and alluvial deposits and is continuously evaluating potential
property acquisitions.
Unless the context otherwise requires, all references to the Company
include its subsidiaries: Global Diamond Resources Inc. ("Global Diamond-BC"), a
British Columbia corporation that is wholly-owned by the Company; Global Diamond
Resources (SA) (Pty) Limited, a South African corporation wholly-owned by the
Company; and P.D.J. Mining (Pty) Limited, a South African corporation wholly-
owned by Global Diamond-BC.
Certain mining and geological terms used below are defined in the section
"Glossary," below. The Company has entered into certain financial commitments
payable in Rand, the unit of currency of the Republic of South Africa. All Rand
based amounts are designated by the symbol R. As of October 22, 1996, the Rand-
Dollar exchange rate was 4.57 Rand to 1 U.S. Dollar.
DIAMOND MINING - GENERALLY
Diamonds are chemically inert crystals formed by the subjection of carbon
to extraordinary heat and pressure. Diamonds are believed to have been formed
more than 90 million years ago at a depth of 400 km below the surface of the
earth and then transported to the earth's surface by the movement of molten
rock. The solidified rock is known as kimberlite pipes or fissures, and it is
from these kimberlite pipes or fissures that diamonds are generally mined. Some
of the pipes and fissures have eroded over time, and the diamonds once contained
in such formations have been transported and deposited in ancient or existing
river beds, seas and beaches. The Company's present projects include the mining
of kimberlite pipes and alluvial deposits.
Diamond exploration typically begins with surface sampling and magnetic
surveys for purposes of locating kimberlite or geographical anomalies which may
indicate the presence of kimberlite. In the event a pipe is located, follow-up
prospecting, trenching or drilling is conducted to determine if it is
diamondiferous. If the pipe is determined to be diamondiferous, bulk sampling
is conducted to evaluate the grade of the prospect and, thereby, establish
proven or probable reserves. The exploration and evaluation of an alluvial
diamond deposit is typically more complex and less conclusive because of scarce
and irregular distribution of diamonds.
Kimberlite pipes are mined through a combination of open pit excavation and
underground mining. The mining of a kimberlite pipe typically commences with an
open pit mine to a shallow depth, generally 30 meters. Initially, a mining zone
is designed and then dozers are used to remove the topsoil which is set aside
for reclamation. Dozers are then employed to excavate an open pit. As the
mining operations expand, the open pit is enlarged by digging benches into the
pit wall. Since kimberlite pipes are relatively narrow bodies, it becomes
impractical at a certain depth, approximately 30 to 50 meters, to continue
mining operations through open pit excavation. At this point, shafts are sunk
away from and parallel to the ore body, and from these shafts adits to the ore
body are developed at various levels. The kimberlite ore is hoisted to the
surface and hauled to a recovery plant by front-end loaders and trucks.
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MINING OPERATIONS
The Company intends to construct at each mining prospect a state-of-the-art
recovery plant for purposes of processing ore. Each recovery plant will consist
of a wash plant and associated screens, tables and separators that will employ
water, agitation, gravity and centrifugal force to separate the heavier
diamondiferous material from the lighter gravel. In the case of ore from a
kimberlite pipe, the ore will be delivered to the plant in large chunks and
those chunks will initially be subjected to a primary crusher that will mill the
ore into smaller blocks five inches thick. In the case of ore from an alluvial
deposit, the ore is initially passed over a grizzly that catches and rejects
all rocks six inches or greater in size. From this point, the recovery process
is virtually the same in the case of pipe or alluvial ore. The ore passes on a
covered conveyor belt through a Sortex machine. The Sortex machine beams an X-
Ray over the ore, which will cause any freed diamonds to fluoresce. When a
light detector identifies the fluorescent diamonds, the Sortex machine sends a
blast of air to knock the diamond off the conveyor belt and into a secured
recovery chamber.
The ore is then sent to a crusher that will mill the ore to a size of one
and one-half inches in diameter. At this point water will be introduced,
turning the ore into a slurry. The slurry passes through a dense medium
separation process through which gravity and centrifugal force are used to
separate the heavier diamondiferous ore from the lighter gravel. The
diamondiferous ore is sent through a second Sortex machine and the lighter
gravels are sent to a tailing pile. From the second Sortex machine, the slurry
is run over a grease table. Because water does not adhere to or "wet" diamonds,
any freed diamonds will stick to the grease table whereas the remainder of the
slurry will slide over the grease. The ore from the grease table is sent
through a ball mill and the ore is reduced to pulp. The ore from the ball mill
is sifted through small mesh screens to recover any remaining diamonds, and the
residue is sent to the tailing pile.
The Company intends to sell its diamonds directly to private diamond
dealers and manufacturers. There are no formal rules by which the price of
diamonds are determined. Sale prices are usually set by the diamond's weight,
color and clarity, and the evaluation process is generally subjective. The
Company expects that its sale of diamonds will be transacted in U.S. dollars on
a cash basis. The Company has engaged Weir International Limited ("Weir") to
market the Company's diamond production. In exchange for Weir's services, the
Company shall pay Weir five percent (5%) of the gross amount of all diamond
sales. Weir is a stockholder of the Company and certain members of management,
including the Company's Chief Executive Officer, have a beneficial interest in
Weir. See "Item 7. Certain Relationships and Related Transactions."
THE CAERWINNING DEPOSIT
Property Rights. The Company has acquired the exclusive rights to conduct
mining operations at the Caerwinning Deposit, a 2,333 hectare alluvial deposit
located in the Northern Cape Province. The Caerwinning Deposit lies on
"alienated State land" pursuant to the Precious Stones Act of 1964 and,
therefore, the Republic of South Africa owns all rights to the precious stones
on the property. In 1978, Lama Minerals CC acquired from the Minister of Mines
the necessary approvals to mine the surface and subsurface of the deposit. In
June 1996, the Company acquired the mineral lease to the alluvial deposit from
Lama Minerals CC for R1.14 million.
Pursuant to the mineral lease, the Company has the perpetual right to mine
the Caerwinning Deposit, subject to Lama Minerals CC's right to terminate the
mineral lease based on the Company's default thereunder. The Company's
principal obligations to Lama Minerals CC under the lease are to comply with all
South African mining regulations, restore disturbed land to the satisfaction of
Lama Minerals CC and to compensate Lama Minerals CC for lost farming profits to
the extent any mining operations disturb cultivated land.
The Company's acquisition of the mineral lease is subject to government
approval which is expected by January 1997. The Company believes that as a
condition to the governmental approval it will be required to pay the government
between 2.5% to 5% of the gross selling price of the monthly production from the
deposit.
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Geography. The Caerwinning Deposit is situated in the Griqualand area of
the Northern Cape province, approximately 70 kilometers west of Kimberley. It
borders to the east along the Vaal River, approximately 20 kilometers downstream
of the confluence of the Vaal and Hart Rivers. Ingress to and egress from the
Caerwinning property is available by way of public paved and gravel roads. The
property is serviced by the state electric utility.
Geology. The gravels of the Caerwinning Deposit are underlain by quartzite
and shale of the Schmidtsdrift formation of the Transvaal Sequence, as well as
carboniferous shale and tillite of the Dwyka Formation of the Karoo Sequence.
Rock types of both sequences found on the deposit are horizontally or near
horizontally bedded, and are not conducive to pothole formation. Outcrops of
rocks of the Transvaal Sequence occur along the western and southern boundaries
of the deposit. Rock types belonging to the Dwyka formation do not outcrop and
were only found in boreholes and excavations.
The gravels occur in three distinct terraces of which the oldest is the
furthest removed from the present river bed. Secondary calcification is rather
extensive in the oldest terraces but negligible in the later and recent
deposits. The gravels mainly consist of cobble and pebble sized casts in a
sandy matrix. Boulder sized particles are extremely rare except where local
tributaries have introduced large more or less angular boulders into the
mainstream deposits.
Reserves. Based on past exploration drilling and bulk sampling and recent
mining activities, the Company believes that the Caerwinning Deposit has 38.3
million tonnes of in situ diamondiferous gravel.
Historical Production. The Caerwinning Deposit has been mined sporadically
since 1969. Over the years, various producers have recovered 4,539 carats.
Over the last six years, the most recent contractor, Mr. Pieter van Wyk,
recovered 3,685 carats from 344,400 tonnes of ore, for an average grade of 1.07
carats per 100 tonnes. A review of available production records indicates that
90 to 95% of the diamonds recovered were of gem quality, and that the overall
price during the last six years of production was $488 per carat. Mr. van Wyk
has served as Chief Consulting Geologist for the Company since July 1994.
Mining Plan. The Company intends to commence production at the Caerwinning
Deposit in the first quarter of 1997 subject to the receipt of additional
capital. See "Item 2. Management's Discussion and Analysis or Plan of
Operations." The Company intends to conduct directly all mining and recovery
activities at the Caerwinning Deposit. However, in the event the Company
encounters calcified deposits that require blasting, it intends to engage
contractors for this purpose.
THE MONTROSE KIMBERLITE PIPE
Property Rights. The Company has acquired exclusive prospecting rights and
an option to purchase a farm in the Gauteng Province, which includes a mining
prospect known as the Montrose No. 3 (referred to herein as the "Montrose
Pipe"). Pursuant to a Notarial Prospecting Contract between Maria Anna Gobey
and Global Diamond Resources (SA) (Pty) Limited, the Company has acquired the
exclusive rights to prospect on the property until October 11, 1997 in
consideration of the Company's payment of R54,000 and 10% of the value of all
minerals recovered by the Company during the prospecting period. The Company
also has the exclusive option until October 10, 1997 to purchase the farm for
R2.5 million.
Geography. The Montrose Pipe lies 500 meters north of Rayton and 30 km
east of Pretoria in the Gauteng Province. The area forms part of the temperate
eastern plateau and has an average elevation of 1,500 meters, with warm summers
and cool winters. Annual rainfall during the summer months averages 785
millimeters and year-round mining is undertaken in the vicinity.
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The region is accessible by the N4 Freeway and the Transnet Railway.
Ingress to and egress from the Montrose property is available by way of public
paved and gravel roads. The property is serviced by the state electric utility
and water for mining purposes is available by pipeline from the Bronkhorstspruit
Dam, 20 kilometers to the east.
Geology. The area of the Montrose Pipe is part of the Rayton Formation,
Pretoria Group. The area is underlain by a north-east succession of quartzite,
shale and subgraywacke of Precambrian time, and overlain by sandstone and
sandstone-shale The Pretoria Group has been intruded by a number of kimberlite
pipes and to a lesser extent by kimberlite fissures, the latter striking mainly
east-west. A total of ten kimberlite bodies are known to exist around Rayton,
six of which, the Montrose No.1, Montrose No.2, Montrose No. 3, Schuller-
Kaalfontein, National and Annex, have been prospected and exploited to a limited
extent.
In November 1994, Geo Hydro Technologies ("Geo Hydro"), an independent
geological engineering firm located in Pretoria, was commissioned by the
Company to conduct a geophysical survey of the Montrose Pipe for purposes of
detecting and delineating the kimberlite pipe. Geo Hydro's written report
stated that it was able to map the position of the kimberlite through
electromagnetic profiling. Geo Hydro estimated that the kimberlite had a
surface dimension of 4.25 hectares based on electromagnetic profiling; however,
the magnetic profiling suggested the presence of a fissure on the southeastern
boundary of the kimberlite, which, if present, would reduce the surface area of
the pipe to a minimum size of 1.25 hectares with the remaining area comprising
fissure material.
Reserves. Drilling to date together with surface sampling and geological
mapping indicate a kimberlite resource with a surface area of 4.25 hectares and
a depth of at least 50 meters. For purpose of estimating the total ore body,
the Company has assumed the pipe has a depth of at least 400 meters based on the
results of the drilling program interpreted by Steffen, Robertson & Kirsten.
Based on a depth of 400 meters and a surface area of 4.25 hectares, the Company
estimates that the pipe contains in excess of 9 million tonnes of ore.
Historical Production. In the early part of this century a prospecting
shaft was sunk alongside the Montrose Pipe to a depth of 30 meters and two
exploratory adits excavated, one at nine meters and the other at 30 meters.
While production records are incomplete, it is known that surface and shallow
underground mining of the Montrose Pipe produced 6,952 carats between 1910 and
1925. During this period average recovery grades varied from 3.19 carats per
100 tonnes from surface material to 15.08 carats per 100 tonnes from underground
ore. In 1989, an unaffiliated mining company acquired prospecting rights to the
Montrose Pipe and between April and July 1990 the company recovered 24.52 carats
from 367 tonnes of surface ore, which were sold for $123 per carat.
Mining Plan. The Company intends to commence a bulk sampling program at
the Montrose Pipe in the first quarter of 1997 subject to the receipt of
additional capital. See "Item 2. Management's Discussion and Analysis or Plan
of Operations." Following successful results from the proposed bulk sampling
program, the Company will conduct open pit mining to a depth of 30 meters.
While final pit design will depend on exploration results, the Company presently
plans to excavate 10 meter benches at a pit slope angle of 55 degrees. Based on
a surface area of 4.25 hectares, the Company estimates that open pit mining will
result in the recovery of 1.06 million tonnes of ore and an estimated life of
the open pit of 1.77 years. Based on the high estimated capital cost of open
pit mining at the Montrose Pipe, the Company intends to engage mine operators on
a contract basis in order to take advantage of the economies offered by a larger
mine operator.
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The Company will commence underground mining activity upon the completion
of open-pit mining. During the initial phase of underground mining, the
existing shaft will be refurbished and enlarged to a depth of 100 meters. A
second shaft for ventilation purposes will be developed to a depth of 100
meters. Next, the Company intends to excavate adits at the 33 meter level in
order to carry out bulk sampling. The Company presently estimates that R13
million in capital expenditures and two years of development will be required in
order to commence underground mining operations.
THE GRASDRIF DEPOSIT
Property Rights. The Company has entered into a joint venture for purposes
of mining the Grasdrif Deposit, an alluvial diamond deposit located on the inner
bank of the Orange River in the Northern Cape Province. The deposit is
currently held by promoters of a South African corporation to be formed under
the name Nabas Holdings (Pty) Limited ("Nabas Holdings"). The promoters of
Nabas Holdings have acquired exclusive rights to prospect the deposit from
appropriate governmental agencies.
Pursuant to a Shareholder Agreement, dated March 24, 1995, between Global
Diamond Resources (SA) (Pty) Limited and the promoters of Nabas Holdings, the
parties have formed a South African corporation, Nabas Diamonds (Pty) Limited
("Nabas Diamonds"), owned 50/50 by the parties. The Company will contribute R3
million to Nabas Diamonds and Nabas Holdings will assign the mining rights to
the Grasdrif Deposit. Thereafter, each party will contribute additional capital
to Nabas Diamonds in equal amounts as required by the Company. In the event
either party fails to make a required capital contribution, the other party may
make the contribution in return for a proportional interest in its percentage
ownership of Nabas Diamonds. The Company and Nabas Holdings will appoint three
directors and two directors, respectively, to the board of Nabas Diamonds. The
parties have granted each other the right of first refusal to purchase each
other's interest in Nabas Diamonds.
Allocations and distributions of the income of Nabas Diamonds will be made
to Nabas Holdings and the Company based on their percentage ownership of Nabas
Diamonds. Initially, all allocations and distributions shall be 50/50, however,
in the event one party fails to make a required capital contribution, the other
party's percentage ownership in Nabas Diamonds shall increase
proportionately.
Geology. The Grasdrif Deposit is an alluvial gravel deposit situated on a
bedrock of Dwyka Tillites. The gravels of the Grasdrif Deposit have been
preserved in three distinct elevations, all of which seem to have been deposited
on the inner bank of the paleo and present Orange River. The upper terrace
(elevation 215 meters above sea level) seems to have been deposited as a point
bar of a channel incising to the west, while all other terraces are associated
with a gradual migration of channels towards its present situation in the east.
Ingress to and egress from the Grasdrif Deposit is available by way of
public paved and gravel roads. At the present time, power is supplied to the
property by Company-owned generators. Prior to commencement of full scale
mining, the Company intends to connect the Grasdif Deposit to the state electric
utility.
Reserves. Based on previous exploration activity by Namex (Pty) Limited
("Namex"), a South African mining company, the Company estimates that the
deposit contains approximately 54 million tonnes of in situ diamondiferous
gravel. The management of Namex at the time of such production included several
individuals who presently serve as senior management of the Company, including
Johann de Villiers.
Historical Production. The Grasdrif Deposit was prospected for the first
time by Namex. Between 1973 and 1984, Namex produced 706,607 carats from
19,613,759 tonnes of ore, for an average grade of 3.6 carats per 100 tonnes from
properties in the area.
Mining Plan. The Company intends to commence site establishment, including
the development of roads, power, housing and water at the Grasdrif Deposit, in
the first quarter of 1997 subject to the receipt of additional capital. See
"Item 2. Management's Discussion and Analysis or Plan of Operations." Mining
operations are expected to commence in the second half of 1997. The Company
intends to conduct all mining and recovery activities directly. However, in the
event the Company encounters calcified deposits that require blasting, it
intends to engage contractors for this purpose. The Company estimates that
Nabas Diamonds will incur up to R9.5 million in expenses in developing and
mining the
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Grasdrif Deposit before it will commence the recovery of diamonds. While Nabas
Holdings has the right to contribute fifty percent (50%) of the required capital
in excess of the Company's initial R3 million capital contribution, the Company
assumes that Nabas Holdings will be unable to meet additional capital
contributions and the Company will be required to fund all costs until the
commencement of diamond recovery.
COMPETITION
The diamond mining industry is intensely competitive. The principle areas
of competition are the exploration and acquisition of mineral properties. A
large number of companies are engaged in the exploration and development of
diamond properties, many of which have substantially greater technical and
financial resources than the Company. Competition among the members of the
diamond mining industry also affect the marketing of the diamonds produced by
the members, including the price of cut and uncut diamonds.
REGULATION
The Company's mining and milling operations in the Republic of South Africa
and elsewhere are subject to various government regulations governing the
protection of the environment, prospecting, production, labor standards and mine
safety. Failure to comply with applicable laws and regulations may result in
orders being issued that may cause operations to cease or be curtailed, require
the installation of additional equipment and possibly the loss of mining rights.
Existing and future legislation and regulations could also cause restrictions
and delays in the development of the Company's properties and additional expense
and capital expenditures. The Company believes it is in substantial compliance
with all material laws and regulations applicable to it and its operations.
The Company's mining operations are also subject to governmental
regulations regarding environmental considerations, including regulations
relating to air quality standards, pollution of stream and fresh water sources
and reclamation. The Company may be required to prepare and present to
governmental authorities data pertaining to the effect or impact that any
proposed exploration or mining may have upon the environment. As well, the
Company will be responsible for reclamation costs. Reclamation requirements may
vary depending on the location and the nature of the mining operations, however,
they are similar in that they aim to minimize long term effects of exploration
and mining disturbance by requiring the operating company to control possible
deleterioius effluents and to re-establish to some degree predisturbance
landforms and vegetation. The environmental regulations of the Republic of
South Africa are not considered by the Company to be as stringent as the
environmental laws adopted in the U.S., and the Company does not consider the
existing environmental regulations in the Republic of South Africa to represent
a material cost or burden on the Company's proposed mining operations. However,
future legislation may significantly emphasize the protection of the environment
and, as a consequence, more closely regulate the Company's mining operations.
Any such legislation, as well as future interpretation of existing laws, may
require substantial increases in equipment and operating costs to the Company
and delays, interruptions, or a termination of operations, the extent of which
cannot be predicted.
Mining rights in the Republic of South Africa are governed by the Minerals
Act No. 50 of 1991. Pursuant to the Minerals Act, the right to prospect or mine
is dealt with in terms of the common law, which entitles the holder of the right
to the minerals on his land to prospect and mine. This common law right is,
however, made subject to the provisions of the Minerals Act, which state that no
common law right to prospect or mine minerals may be exercised unless the
prescribed statutory authorization has been obtained in the form of a permit to
prospect or an authorization to mine. A prerequisite for the granting of the
authorization is that the applicant must be the holder of the common law right
to the minerals. Pursuant to assignments from the holders of the common law
mineral rights, the Company has obtained government authorization to prospect
the Grasdrif Deposit and the Montrose Kimberlite Pipe and government
authorization to prospect and mine the Caerwinning Deposit. The Company expects
to acquire the common law mineral rights and direct government authorization to
prospect and mine the Caerwinning Deposit by January 1997. The Company believes
it will be granted the necessary authorization to mine the Grasdrif Deposit and
the Montrose Kimberlite Pipe in a timely manner.
-8-
<PAGE>
EMPLOYEES
The Company employs 37 persons, including three management level employees
in the U.S. and four managers and 30 laborers in the Republic of South Africa.
None of the Company's employees are unionized or otherwise subject to a
collective bargaining agreement and the Company believes that its relationship
with its employees is excellent.
GLOSSARY
Set forth below are definitions of certain mining and geological terms used
in this Registration Statement.
Adit A horizontal tunnel from a shaft to a
- ---- kimberlite pipe through which the pipe is
mined and the ore is excavated.
Alluvial Deposit A deposit of alluvium (deposits made by
- ---------------- water) made by a stream where it runs out onto
a level plain or meets a slower stream.
Bedrock The solid rock underlying mineral-bearing
- ------- gravel, sand, clay, etc. and upon which
alluvial diamond rests.
Bench Cuts The excavation of a flat bench or dirt on a
- ---------- slope to stabilize the slope or to remove
material of value in open pit mining.
Bulk Sampling Acquiring a large (often several thousand
- ------------- tons) sample of rock obtained by mining,
excavation, digging or drilling large diameter
holes. Bulk sampling is necessary to determine
the grade and value of diamonds contained in a
property.
Carat A small unit of weight for precious stones
- ----- equal to 200 milligrams or 0.2 grams.
Diamondiferous Containing diamonds.
- --------------
Geophysical Surveys Measuring and recording any geophysical
- ------------------- properties over a specific area, e.g.,
gravity, magnetics, electrical conductivity,
acoustical velocities, etc., utilizing
instruments on land, water or airborne.
Grade The number of carats (weight) in a physical
- ----- unit of ore, normally in carats per 100
tonnes.
Gravel A comprehensive term applied to the water-worn
- ------ mass of broken down rocks making up an
alluvial. Alluvial gravels are sometimes
arbitrarily described in terms of size as
"pebble" gravel, "cobble" gravel or "boulder"
gravel.
Hectare Unit of measurement of surface area. One
- ------- hectare approximates 2.47 acres.
Kimberlite One of two primary types of diamond-bearing
- ---------- rock and the most common, often characterized
by a carrot-shaped structure referred to as a
kimberlite "pipe."
-9-
<PAGE>
Magnetic Surveys Measuring the magnetic variations in the
- ---------------- Earth's crustal rocks over a specified area by
installing a magnetometer within, or by towing
a magnetometer behind an aircraft and
recording the variation in the Earth's
magnetic field. Useful in detecting kimberlite
and ilmenite bodies due to the presence of
magnetite in kimberlite.
Minerology The science dealing with inorganic, solid,
- ---------- homogeneous crystalline, chemical elements or
compounds (minerals), their crystallography,
physical and chemical properties,
classifications and distinguishing
characteristics.
Mining The making of any excavation for the purpose
- ------ of recovering diamonds in commercial
quantities. Of primary importance in the
Republic of South Africa where mining laws
draw a distinction between "mining" and
"prospecting." See "Prospecting."
Ore A mineral deposit containing one or more
- --- metals that can be mined or treated
commercially. See"Reserves."
Petrology The science that deals with the origin,
- --------- history, occurrence, structure, chemical and
mineralogical composition and classification
of rocks.
Probable Reserves Reserves for which quantity and grade and/or
- ----------------- quality are computed from information similar
to that used for proven reserves, but the
sites for inspection, sampling, and
measurement are farther apart or are otherwise
less adequately spaced. The degree of
assurance, although lower than that for proven
reserves, is high enough to assume continuity
between points of observation. See "Reserves"
and "Proven Reserves."
Prospecting Searching for diamonds by any means and the
- ----------- recovery of diamonds through searching, but
does not include "mining" (i.e., excavation
for purposes of recovering diamonds in
commercial amounts). See "Mining."
Proven Reserves Reserves for which (a) quantity is computed
- --------------- from dimensions revealed in outcrops,
trenches, workings or drill holes, grades
and/or quality are computed from the results
of detailed sampling, and (b) the sites for
inspection, sampling and measurement are
spaced so closely and the geologic character
is so well defined that size, shape, depth and
mineral content of reserves are well-
established. See "Reserves" and "Probable
Reserves."
Reserves That part of a mineral deposit that can be
- -------- economically and legally extracted or produced
at the time of the reserve determination.
Reserves are customarily stated in terms of
"ore" when dealing with diamonds and other
metalliferous minerals.
Tailings The washed material that issues from a
- -------- recovery plant after the concentrate has been
removed.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The Company is engaged in diamond exploration and mining. The Company has
exercised an option to acquire one mining property (the Caerwinning Deposit),
acquired an option to purchase a second mining property (the Montrose Kimberlite
Pipe) and has acquired a 50% partnership interest in the third property (the
Grasdrif Deposit), all of which are located in the Republic of South Africa.
The Company intends to conduct exploration and acquisitions of additional
diamond pipes and alluvial deposits and is continuously evaluating potential
property acquisitions. See "Item 2. Description of Business" for a further
description of the Company's mining properties.
The Company has entered into certain financial commitments payable in Rand,
the unit of currency of the Republic of South Africa. All Rand based amounts
are designated by the symbol R. As of October 22, 1996, the Rand-Dollar
exchange rate was 4.57 Rand to 1 U.S. Dollar.
To date, the Company's activities have included the investigation and
acquisition of mining property interests and limited exploratory work. The
Company has financed its activities to date through the sale of shares of its
Common Stock. See "Item 4, Part II - Recent Sales of Unregistered Securities"
for a description of the Company's sale of shares of its Common Stock over the
last three years. The Company believes that it requires a minimum of $2.5
million of additional capital in order to achieve a meaningful level of revenue
producing operations. In September 1996, the Company entered into an investment
banking agreement with Lion Mining Corporation ("Lion Mining"), a mining
financial and consulting firm located in London, England. Pursuant to the
agreement, Lion Mining has agreed to provide general investment banking services
to the Company, including the provision of its best efforts to provide or
arrange for the Company's receipt of additional capital. Please see "Item 1.
Description of Business - Business Development" for a complete description of
the terms of the Company's agreement with Lion Mining. As of the date of this
registration statement, the Company is engaged in the pursuit of an additional
$4.5 million of capital, the proceeds of which will be used to complete
exploration activities and commence production, as described below. However,
there are no firm commitments or agreements on the part of any party at this
time to provide any additional capital to the Company and there can be no
assurance that the Company will be able to obtain sufficient additional capital
in order to attain a meaningful level of operations. If the Company is unable
to raise additional capital, the Company may not be able to commence revenue
producing operations or finance the exercise of certain options to acquire
mining properties prior to their termination. See "Item 1. Description of
Business - Business of the Issuer."
The Company's plan of operations for the next 12 months include the
completion of exploratory work and the commencement of production at all three
of its present mining properties, subject to the receipt of additional
financing. The Company intends to undertake the following activities at each of
its three properties, in the following order of priority. The Company intends
to commence production at the Caerwinning Deposit, subject to its receipt of an
additional $2.5 million of capital to be applied towards this purpose. The
Company intends to commence a bulk sampling program at the Montrose Pipe subject
to its receipt of an additional $500,000 in capital to be applied towards this
purpose. Following successful results from the proposed bulk sampling program,
the Company intends to conduct open pit mining to a depth of 30 meters which
would be followed by underground mining activity. The Company estimates that it
will require R13 million ($2,844,639 as of October 22, 1996) in capital
expenditures and 2 years of development in order to commence underground mining
operations at the Montrose Pipe. Subject to the Company's receipt of an
additional $1 million in capital to be applied towards such purpose, the Company
intends to conduct site establishment at the Grasdrif Deposit, including the
development of roads, power, housing and water. The Company believes that site
establishment will take approximately 6 months, after which the Company would
propose to commence production at the
-11-
<PAGE>
Grasdrif Deposit. The Company expects to incur R9.5 million ($2,078,775 as of
October 22, 1996) in expenses for the development and mining of Grasdrif Deposit
before it will commence the recovery of diamonds.
In addition to the foregoing requirements, the Company will require
additional capital to finance the cost of development of its three mining
properties from banks and others or from the sale of equity securities. Because
the likelihood of discovery of an economically recoverable deposit and the
amount of funds required to finance the development of any particular project
cannot be predicted, it is impracticable to estimate the Company's requirements
for additional financing for development purposes at this time. Any such
additional financing might involve a pledge or mortgage of the Company's
properties and of any production therefrom. There is, of course, no assurance
that satisfactory financing could be obtained therefor. In addition to
borrowings to finance individual development projects, the Company may also
borrow funds from time to time for working capital and other general corporate
purposes.
ITEM 3. DESCRIPTION OF PROPERTY.
The Company's executive offices are located in La Jolla, California and
consist of approximately 485 square feet of leased premises. The Company's
lease for these premises expires on March 31, 1999 and provides for monthly rent
of $1,050. See "Item 2. Business and Properties - The Caerwinning Deposit; The
Montrose Kimberlite Pipe; and The Grasdrif Deposit" for a description of the
Company's mining properties.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the beneficial
ownership of the shares of Common Stock as of October 22, 1996 by (i) each
person who is known by the Company to be the beneficial owner of more than five
percent (5%) of the issued and outstanding shares of Common Stock, (ii) each of
the Company's directors and executive officers and (iii) all directors and
executive officers as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OWNED
----------------- ----------------
<S> <C> <C>
Johann de Villiers Family 1,200,000 18.4%
Trust(1)(2)
Mervyn McCulloch(1)(3) 250,000 4.4%
Kenneth MacLeod(1) -0- -
John Tyson(1) 46,960 (4)
Hans Smith(1) 25,000 (4)
Charles MacDonald(1) -0- -
Colin Bird(1)(5) -0- -
</TABLE>
-12-
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OWNED
----------------- ----------------
<S> <C> <C>
Goddard Trustees (Jersey) Limited 467,000 8.6%
P.O. Box 344, Osprey House
5 Old Street, St. Helier
Jersey, JE4 8U2 Channel Islands
Weir International Limited(6) 723,323 12.3%
Pasca Estates, Road Town
Tortola, British Virgin Islands
All officers and directors 1,521,960 22.5%
as a group(2)(3)
</TABLE>
- ------------------------------------------
(1) Address is 836 Prospect, Suite 2B, La Jolla, California 92037.
(2) Includes 1,100,000 shares of Common Stock underlying immediately
exercisable options held by Mr. de Villiers. See "Item 6. Management
Compensation." Does not include Mr. de Villiers beneficial interest in any
shares of Common Stock held by Weir International Limited, a British Virgin
Islands corporation wholly-owned by a discretionary trust established for
the benefit of Mr. de Villiers and his family. Pursuant to the terms of the
trust agreement, Mr. de Villiers has no legal voting or dispositive control
over the shares of Common Stock held by Weir International Limited.
(3) Represents 250,000 shares of Common Stock underlying immediately
exercisable options held by Mr. McCulloch. See "Item 6. Management
Compensation."
(4) Less than one percent.
(5) Does not include securities of the Company held by Lion Mining Corp., of
which Mr. Bird is an officer and a director.
(6) Includes 449,000 shares of Common Stock underlying immediately exercisable
warrants held by Weir International Limited. The Company's Chief Executive
Officer, Mr. Johann de Villiers, has a beneficial interest in Weir.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Directors and Executive Officers
- --------------------------------
Set forth below are the directors and officers of the Company and its South
African subsidiaries, Global Diamond Resources (SA)(Pty) Limited and P.D.J.
Mining (Pty) Limited (collectively "SA-Group"). Unless otherwise indicated,
each person holds the stated positions with all companies.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Johann de Villiers 43 Chairman of the Board and Chief
Executive Officer
</TABLE>
-13-
<PAGE>
<TABLE>
<S> <C> <C>
Mervyn McCulloch 52 Chief Financial Officer
Secretary of the Company
Kenneth MacLeod 45 Director
John Tyson 49 Director of the Company
Hans Smith 55 Director of the Company
Charles MacDonald 42 Director of the Company
Andries Janzen 53 Managing Director of SA-Group
Colin Bird 52 Director of the Company
Pierre de Jager 50 Financial Director of SA-Group
Pieter van Wyk 46 Chief Consulting Geologist of SA-Group
Anthony de la Harpe 51 Director of SA-Group
</TABLE>
Mr. de Villiers founded the business of the Company in 1993 and has served
as Chairman and Chief Executive Officer since inception. From 1984 to 1990, Mr.
de Villiers served as Chief Executive Officer of Kensington Finance Corp., an
options trading firm and member of the American Stock Exchange. From 1990 to
1994, Mr. de Villiers acted as investment advisor to the Monitrend Gold Mutual
Fund. From 1976 to 1984, Mr. de Villiers was the managing director of the Octha
Group, a South Africa based international diamond mining, polishing and trading
company.
Mr. McCulloch has served as Chief Financial Officer and Secretary of the
Company since March 1995. Mr. McCulloch is a Certified Public Accountant and
was a partner of Deloitte, Haskins & Sells in South Africa from 1972 to 1984 and
a partner in Deloitte & Touche in the United States from 1985 to 1990. From
1990 to 1995, Mr. McCulloch was Executive Vice President and Chief Financial
Officer of Armor All Products Corporation, a NASDAQ/NMS public corporation
located in California.
Mr. MacLeod has served as a director of the Company since its inception in
1993 and has served as a director of Global Diamond-SA since January 1995. In
September 1995, Mr. MacLeod was appointed President of International Panorama
Resource Corp., a British Columbia mining corporation that has its shares listed
on the Vancouver Stock Exchange. Mr. MacLeod served as Vice President of
International Panorama Resource Corp. from 1994 to September 1995. From 1983 to
1993, Mr. MacLeod served as President of Canadian & Overseas Management Corp., a
financial and management consulting firm.
Mr. Tyson has served as director of the Company since 1994. Since 1990,
Mr. Tyson has served as President of Tyson & Associates, an international
consulting firm headquartered in Washington, D.C. specializing in providing
investment, business development and promotional services to African countries.
Mr. Smith has served as a director of the Company since July 1995. Mr.
Smith holds degrees in metallurgy and in mining and was employed by Gold Fields
of South Africa and Gencor before joining
-14-
<PAGE>
the Octha Group as technical mining director. Since 1985, he has held the
positions of Senior Manager Marketing and Managing Director of Trans Natal, the
Coal Division of Gencor, the Managing Director of Samancor Limited; a Director
of Genmin and is currently the Chief Executive & Managing Director of Iscor Ltd.
Mr. MacDonald has served as a director of the Company since July 1995.
Since 1990, Mr. MacDonald has been engaged in the practice of law in Cape Town,
South Africa. Mr. MacDonald represents the interests of the Company's joint
venture partners involved in the Grasdrif Deposit.
Mr. Bird has served as director of the Company since October 1996. Mr.
Bird has served as Chief Operating Officer and a director of Lion Mining
Corporation since October 1995 and September 1996, respectively. Mr. Bird has
spent 14 years in South Africa in the management of base metal and coal mines,
including five years as Manager of the Selebi Phikwe Nickel Copper Mine.
Mr. Janzen has served as Managing Director of SA-Group since July 1994.
Mr. Janzen is a qualified engineer with a degree in commerce, and a shareholder
and general manager of Elite Diamond Cutting Works (Pty) Ltd., a South African
based diamond cutting and trading company. He was the general manager of the
Octha Group, having established the Johannesburg and Taiwan diamond cutting
factories. In this position he was responsible for the operations of five
producing diamond mines, an active mine exploration program, two diamond
polishing factories, as well as the marketing organization of the group that
extended to Belgium, Switzerland and the United States.
Mr. de Jager has served as Financial Director of SA-Group since July 1994.
Mr. de Jager is a qualified chartered accountant with more than ten years
experience as financial director and general manager of a number of Johannesburg
Stock Exchange listed public companies. In addition he is a director and
shareholder of companies involved in the transport, property development, time
share development and travel industries.
Mr. van Wyk has served as Chief Consulting Geologist of SA-Group since July
1994. Mr. van Wyk holds a M.Sc. (Geology) and has lectured in Sedimentology at
the University of Pretoria and in Economic Geology at the Rand Afrikaans
University. He was the Senior Field Geologist for Rand Mines before operating
his own diamond mining and exploration concern with interests in southern
Namibia (alluvials), south of Kimberley (kimberlite fissures), and west of
Kimberley along the Vaal River (alluvials) at Caerwinning. He is the published
author of a number of articles.
Mr. de la Harpe has served as a director of SA-Group since September 1995.
Mr. de la Harpe is a former teacher in the Richtersveld, South Africa. He is
also a representative of Nabas Holdings (Pty) Limited, the Company's joint
venture partner in the Grasdrif Deposit. Since retiring as a teacher, Mr. De La
Harpe has served as member of the African National Congress Land Commission for
the Western Cape Region.
ITEM 6. EXECUTIVE COMPENSATION.
Cash Compensation of Executive Officers. The following table sets forth
the cash compensation paid by the Company to its executive officers for services
rendered during the fiscal years ended December 31, 1995, 1994 and 1993.
-15-
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------- ------------------------------------------
COMMON
SHARES
RESTRICTED UNDERLYING
OTHER STOCK OPTIONS
ANNUAL AWARDS GRANTED ALL OTHER
NAME AND POSITION YEAR SALARY BONUS COMPENSATION ($) (# SHARES) COMPENSATION
- -------------------------- ---- ------ ----- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Johann de Villiers, CEO(1) 1995 $40,000 -0- -0- -0- 1,100,000(2) -0-
1994 17,500 -0- -0- -0- -0- -0-
1993 -0- -0- -0- -0- -0- -0-
Mervyn McCulloch, CFO(3) 1995 -0- -0- -0- -0- -0- -0-
1994 -0- -0- -0- -0- -0- -0-
1993 -0- -0- -0- -0- -0- -0-
</TABLE>
- -------------------------
(1) From June 1994 through August 1995, Mr. de Villiers was paid a salary of
$2,500 per month. Commencing September 1, 1995, Mr. de Villiers has been
paid a salary of $5,000 per month.
(2) On July 25, 1995, the Company granted its Chief Executive Officer, Johann
de Villiers, a Nonqualified Stock Option which, as amended, allows Mr. de
Villiers to purchase up to 1,000,000 shares of Common Stock at $3.00 per
share. The option is fully vested and may be exercised at any time, or
from time to time, until July 25, 2000. On September 7, 1995, the Company
granted to Mr. de Villiers a Nonqualified Stock Option to purchase 100,000
shares of Common Stock at an exercise price of $3.00 per share. The option
is fully vested, and immediately exercisable and expires on September 7,
1998.
(3) Commencing July 1, 1996, Mr. McCulloch has been paid a salary of $7,000 per
month. On October 2, 1996, the Company granted to Mr. McCulloch, a
Nonqualified Stock Option to purchase 250,000 shares of Common Stock at an
exercise price of $2.50 per share. The option is fully vested and
immediately exercisable and expires on October 2, 2001.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- ------------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING % OF TOTAL OPTIONS/SARS
OPTIONS/SARS GRANTED GRANTED TO EMPLOYEES IN EXERCISE OR BASE
NAME (#) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE
- ------------------------ -------------------- ------------------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Johann de Villiers, CEO 1,000,000 91% $3.00 07/25/00
Johann de Villiers, CEO 100,000 9% $3.00 09/07/98
</TABLE>
Compensation of Directors. All non-officer directors receive an attendance
fee of $1,000 per meeting of the Board of Directors. All directors receive
reimbursement for out-of-pocket expenses in attending Board of Directors
meetings. From time to time the Company may engage certain non-officer members
of the Board of Directors to perform services on behalf of the Company. The
Company will compensate the non-officer members for their services at rates no
more favorable than could be obtained from unaffiliated parties.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has engaged Weir International Limited ("Weir") to market and
sell the Company's diamond production. The Company shall be responsible for all
direct costs relating to the sale of the diamonds, such as insurance, freight,
import and export duties, and all applicable taxes and levies. Weir shall be
responsible for all sales and marketing expenses. In consideration of its
services, the Company shall pay Weir a commission of five
-16-
<PAGE>
percent (5%) of the gross sale amount. Weir is a stockholder of the Company and
the Company's Chief Executive Officer, Johann de Villiers, has a beneficial
interest in Weir. See Item 4. Securities Ownership of Certain Beneficial Owners
and Management. The Company believes that the terms of its agreement with Weir
are no less favorable than could be obtained from an unaffiliated party.
In 1994, the Company granted warrants entitling the holders to purchase
550,000 shares of Common Stock at C$.75. Of those warrants, Weir presently
holds warrants to purchase 349,000 shares of Common Stock and the balance of the
warrants are held by an unaffiliated party. The warrants are fully vested,
immediately exercisable and expire on December 31, 1997. In December 1995, the
Company granted to Weir additional warrants entitling the holder to purchase
100,000 shares of Common Stock at $3.00 per share. The warrants are fully
vested, immediately exercisable and expire on December 30, 1998.
In 1995, the Company loaned $25,000 to its Chief Executive Officer, Mr.
Johann de Villiers. The loan is unsecured, due on demand and bears no interest.
As of December 16, 1996, the loan was still outstanding and the Company had not
called for its repayment.
In April 1995, the Company organized Zaire Diamond Partners, LLC ("Zaire
Partners"), a California limited liability company, for the purpose of
exploring, and if exploratory activities were positive, investing in and
exploiting a diamond mining concession in the Republic of Zaire. The Company
owns 50% of the outstanding interests in Zaire Partners, for which it paid
$50,000, and Weir owns 25%, which it received as a promotional interest. The
remaining 25% interest is held by a group of unaffiliated parties. After
preliminary exploration proved negative, Zaire Partners abandoned its interest
in the Zaire diamond concession and terminated all activities. Zaire Partners is
presently, inactive and the Company does not expect it to undertake any
further activity in the future.
All related party transactions involving the Company will be conducted on
terms no less favorable than could be obtained from unaffiliated parties and
approved by the majority of the independent and disinterested members of the
Company's Board of Directors.
ITEM 8. DESCRIPTION OF SECURITIES.
COMMON STOCK
The Company is authorized to issue 25,000,000 shares of Common Stock, $.001
par value, of which, as of December 13, 1996, 5,600,054 shares were issued and
outstanding and held by 127 stockholders of record. As of December 13, 1996,
there are no outstanding options, warrants or other securities which upon
exercise or conversion entitle their holder to acquire shares of Common Stock,
other than (i) as described in "Item 6. Executive Compensation" and "Item 7.
Certain Relationships and Related Transactions," and (ii) an additional option
to purchase 100,000 shares of Common Stock at $2.50 per share granted to a
Company employee.
Holders of shares of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders generally. The approval of
proposals submitted to stockholders at a meeting other than for the election of
directors requires the favorable vote of a majority of the shares voting, except
in the case of certain fundamental matters (such as certain amendments to the
Articles of Incorporation, and certain mergers and reorganizations), in which
case Nevada law and the Company's Bylaws require the favorable vote of at least
a majority of all outstanding shares. Stockholders are entitled to receive such
dividends as may be declared from time to time by the Board of Directors out of
funds legally available therefor, and in the event of liquidation, dissolution
or winding up of the Company to share ratably in all assets remaining after
payment of liabilities. The holders of shares of Common Stock have no
preemptive, conversion, subscription or cumulative voting rights. All Shares of
Common Stock sold in this offering will be, when issued, fully paid and
nonassessable.
PREFERRED STOCK
The Company is authorized to issue 10,000,000 shares of preferred stock,
$.001 par value ("Preferred Stock"), none of which has been issued as of the
date of this Registration Statement. The Company's Board of Directors is
authorized to issue from time to time, without shareholder authorization, in one
or more designated series or classes, any or all of the authorized but unissued
shares of Preferred Stock with such dividend, redemption, conversion and
exchange provisions as may be provided in the particular series. Any series of
Preferred Stock may possess voting, dividend, liquidation and redemption rights
superior to that of the Common Stock. The rights of the holders of Common Stock
will be subject to and may be adversely affected by the rights of the holders of
any Preferred Stock that may be issued in the future. Issuance of a new series
of Preferred Stock, while providing desirable flexibility in connection with
possible acquisition and other corporate purposes, could make it more difficult
for a third party to acquire, or discourage a third party from acquiring, a
majority of the outstanding voting stock of the Company. The Company has no
present plans to issue any series of Preferred Stock.
TRANSFER AGENT
The Transfer Agent for the Company's Common Stock is American Securities
Transfer & Trust, Incorporated, 1825 Lawrence Street, Suite 444, Denver,
Colorado 80202.
-17-
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
The Company's Common Stock has been listed on the OTC Bulletin Board
under the symbol "GDRS" since August 12, 1996. During the period August 12, 1996
to October 22, 1996, the high and low last sale prices were $3.00 and $1.88,
respectively. The Company considers its Common Stock to be thinly traded and
that any reported bid or sale prices may not be a true market-based valuation of
the Common Stock.
As of December 13, 1996, there were approximately 127 record holders
of the Company's Common Stock.
The Company has not paid any cash dividends since its inception and
does not contemplate paying dividends in the foreseeable future. It is
anticipated that earnings, if any, will be retained for the operation of the
Company's business.
ITEM 2. LEGAL PROCEEDINGS.
There are no pending legal proceedings to which the Company or the
property of the Company are subject. In addition, no proceedings are known to be
contemplated by a governmental authority against the Company or any officer or
director of the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Inapplicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
During the last three years the Company sold unregistered shares of
its Common Stock in the following transactions:
A. In July 1995, the Company issued 4,415,000 shares of its Common
Stock to 17 persons in connection with the Company's reorganization with Global
Diamond-BC. The shares were issued pursuant to Section 4(2) and Regulation S of
the Securities Act of 1933 ("Securities Act"). See "Item 1, Part I -Description
of Business - Business Development." There were no underwriters involved in the
transaction.
B. In July 1995, the Company sold 335,000 shares of Common Stock for
$80,000 to one person. The shares were issued pursuant to Regulation S under the
Securities Act. There were no underwriters involved in the transaction.
C. In September 1995, the Company sold 100,000 shares of Common
Stock at $2.50 per share to one person pursuant to Section 4(2) of the
Securities Act. There were no underwriters involved in the transaction.
D. During the period from August through November of 1996, the
Company sold 400,000 shares of Common Stock, at $2.50 per share, to
institutional investors pursuant to Rule 504 under the Securities Act. There
were no underwriters involved in the transaction.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Nevada Statutes
- ---------------
Section 78.751 of the Nevada General Corporation Law provides for the
indemnification of the Company's officers, directors and corporate agents under
certain circumstances as follows:
1. A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
except an action by or in the right of the corporation, by reason of the fact
that he is or was a director, officer, employee or agent of the corporation, or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise,
-18-
<PAGE>
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
2. A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in its favor
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually paid and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he acted in
good faith and in a manner which he reasonably believed to be in or not opposed
to the best interests of the corporation. Indemnification may not be made for
any claim, issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals therefrom, to
be liable to the corporation or for amounts paid in settlement to the
corporation, unless and only to the extent that the court in which the action or
suit was brought or other court of competent jurisdiction determines upon
application that in view of all the circumstances of the case, the person is
fairly and reasonably entitled to indemnity for such expenses as the court deems
proper.
3. To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections 1 and 2, or in defense of
any claim, issue or matter therein, he must be indemnified by the corporation
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
4. Any indemnification under subsections 1 and 2, unless ordered by
a court or advanced pursuant to subsection 5, must be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors
who were not parties to the act, suit or proceeding so orders, by independent
legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not
parties to the act, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
5. The certificate or articles of incorporation, the bylaws or an
agreement made by the corporation may provide that the expenses of officers and
directors incurred in defending a civil or criminal action, suit or proceeding
must be paid by the corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an undertaking by
or on behalf of the director or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the corporation. The provisions of this subsection do not affect
any rights to advancement of expenses to which corporate personnel other than
directors or officers may be entitled under any contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to this section:
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<PAGE>
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the certificate
or articles of incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to subsection 2 or for the
advancement of expenses made pursuant to subsection 5, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
Articles of Incorporation
- -------------------------
The Company's Articles of Incorporation provide for the limitation of the
personal liability of the Company's officers and directors under certain
circumstances as follows:
The personal liability of a director or officer to the corporation or its
stockholders for damages for breach of fiduciary duty as a director or officer
shall be eliminated to the fullest extent permissible under Nevada law except
for: (a) acts or omissions which involve intentional misconduct, fraud or a
knowing violation of law; or (b) the payment of distributions in violation of
Section 78.300 of the Nevada Revised Statutes.
If the Nevada Revised Statutes are hereinafter amended to authorize the
further elimination or limitation of the liability of a director or officer,
then the liability of a director or officer of the corporation shall be
eliminated or limited to the fullest extent permitted by the Nevada Revised
Statutes, so as amended.
Any repeal or modification of the foregoing provisions of Article IX by the
stockholders of the corporation shall not adversely affect any right or
protection of a director or officer of the corporation existing prior to the
date when such repeal or modification becomes effective.
Bylaws
- ------
The Company's Bylaws provide for the permissive indemnification of the
Company's officers and directors under certain circumstances as follows:
Section 1. ACTIONS OTHER THAN BY THE CORPORATION. The corporation may
-------------------------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or in the
right of the corporation, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
Section 2. ACTIONS BY THE CORPORATION. The corporation may indemnify
--------------------------
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against
-20-
<PAGE>
expenses, including amounts paid in settlement and attorneys' fees, actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
Section 3. SUCCESSFUL DEFENSE. To the extent that a director, officer,
------------------
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections 1
and 2, or in defense of any claim, issue or matter therein, he must be
indemnified by the corporation against expenses, including attorneys' fees,
actually and reasonably incurred by him in connection with the defense.
Section 4. REQUIRED APPROVAL. Any indemnification under Sections 1
-----------------
and 2, unless ordered by a court or advanced pursuant to Section 5, must be made
by the corporation only as authorized in the specific case upon a determination
that indemnification of the director, officer, employee or agent is proper in
the circumstances. The determination must be made:
(a) By the stockholders;
(b) By the board of directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit or proceeding;
(c) If a majority vote of a quorum consisting of directors
who were not parties to the act, suit or proceeding so orders, by independent
legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not
parties to the act, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
Section 5. ADVANCE OF EXPENSES. The articles of incorporation, the
-------------------
bylaws or an agreement made by the corporation may provide that the expenses of
officers and directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the corporation as they are incurred and in advance
of the final disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation. The provisions of this section
do not affect any rights to advancement of expenses to which corporate personnel
other than directors or officers may be entitled under any contract or otherwise
by law.
Section 6. OTHER RIGHTS. The indemnification and advancement of
------------
expenses authorized in or ordered by a court pursuant to this Article VI:
(a) Does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under the
articles of incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in his official
capacity or an action in another capacity while holding his office, except that
indemnification, unless ordered by a court pursuant to Section 2 or for the
advancement of expenses made pursuant to Section 5, may not be made to or on
behalf of any director or officer if a final adjudication establishes that his
acts or omissions involved intentional misconduct, fraud or a knowing violation
of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
-21-
<PAGE>
Section 7. INSURANCE. The corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise for any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article VI.
Section 8. RELIANCE ON PROVISIONS. Each person who shall act as an
----------------------
authorized representative of the corporation shall be deemed to be doing so in
reliance upon the rights of indemnification provided by this Article.
Section 9. SEVERABILITY. If any of the provisions of this Article are
------------
held to be invalid or unenforceable, this Article shall be construed as if it
did not contain such invalid or unenforceable provision and the remaining
provisions of this Article shall remain in full force and effect.
Section 10. RETROACTIVE EFFECT. To the extent permitted by applicable
------------------
law, the rights and powers granted pursuant to this Article VI shall apply to
acts and actions occurring or in progress prior to its adoption by the board of
directors.
-22-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report.............................................. F-1
Consolidated Balance Sheets at December 31, 1994 and 1995................. F-2
Consolidated Statements of Operations for the years
ended December 31, 1994 and 1995......................................... F-3
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended December 31, 1994 and 1995........................... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1994 and 1995............................................... F-5
Notes to Consolidated Financial Statements................................ F-6
Unaudited Consolidated Balance Sheet at September 30, 1996................ F-12
Unaudited Consolidated Statements of Operations for the nine-
month periods ended September 30, 1995 and 1996.......................... F-13
Unaudited Consolidated Statement of Stockholders' Equity
for the nine-month period ended September 30, 1996....................... F-14
Unaudited Consolidated Statements of Cash Flows for the nine-month
periods ended September 30, 1995 and 1996................................ F-15
Notes to Unaudited Consolidated Financial Statements...................... F-16
</TABLE>
-23-
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Global Diamond Resources, Inc.:
We have audited the accompanying consolidated balance sheets of Global Diamond
Resources, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global Diamond
Resources, Inc. and subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
San Diego, California KPMG Peat Marwick LLP
June 28, 1996
F-1
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1994 and 1995
<TABLE>
<CAPTION>
ASSETS 1994 1995
-------- --------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 309,508 390,439
Accounts receivable:
Trade 1,877 3,041
Officer (note 3) -- 25,000
Prepaid expenses -- 6,877
--------- ---------
311,385 425,357
Equipment, net (note 4) 8,592 9,828
--------- ---------
$ 319,977 435,185
========= =========
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities $ 9,004 20,517
Subscription to be refunded -- 83,333
--------- ---------
9,004 103,850
--------- ---------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.001 par value, 10,000,000 shares authorized,
no shares issued -- --
Common stock, $0.001 par value, 25,000,000 shares authorized,
4,415,000 and 5,100,054 shares issued and outstanding, respectively 4,415 5,100
Additional paid-in capital 869,758 1,199,073
Accumulated deficit (246,488) (871,460)
Receivable from stock sales (299,401) --
Cumulative translation adjustment (17,311) (1,378)
--------- ---------
310,973 331,335
--------- ---------
$ 319,977 435,185
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
1994 1995
------- --------
<S> <C> <C>
Revenue - interest income $ 4,650 15,242
--------- --------
Expenses:
Business development 112,893 82,758
Site investigation, option costs and project 46,883 117,218
costs written off
Consulting fees 13,377 15,504
Depreciation -- 4,913
Foreign exchange transaction (gain) loss (871) 2,228
Interest and bank charges 557 1,510
Legal and accounting 24,209 181,165
Management fees 17,500 38,855
Office and miscellaneous 8,240 34,948
Office rent 5,576 20,062
Printing and graphics 10,835 16,384
Salaries and benefits -- 27,881
Telephone 4,581 16,716
Travel 7,358 80,072
--------- --------
251,138 640,214
Operating loss (246,488) (624,972)
Income taxes (note 5) -- --
--------- --------
Net loss $(246,488) (624,972)
========= ========
Net loss per share $ (.12) (.13)
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
For the years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
Preferred stock Common Stock Additional
------------------------ --------------------- paid-in
capital
Shares Amount Shares Amount
------ ------- ------ ------ -----------
<S> <C> <C> <C> <C> <C>
Balance at
January 1, 1994 -- $ -- 1 $ 1 --
Translation Adjustment -- -- -- -- --
Issuance of common stock:
June 1994 -- -- 3,350,000 3,350 658,433
October 1994 -- -- 1,065,000 1,065 211,325
Cancellation of share -- -- (1) (1) --
Net loss -- -- -- -- --
--- ----
Balance at
December 31, 1994 -- -- 4,415,000 4,415 869,758
Receipt of payment for
receivable from stock
sales -- -- -- -- --
Net effect of issuance of
common stock to account
for reverse acquisition
(note 1) -- -- 250,054 250 (250)
Issue of shares for cash:
July 1995 -- -- 335,000 335 79,665
September 1995 -- -- 100,000 100 249,900
Translation adjustment -- -- -- -- --
Net loss -- -- -- -- --
--- ----
Balance at
December 31, 1995 -- $ -- 5,100,054 $5,100 1,199,073
=== ==== ========= ====== =========
<CAPTION>
Total
Cumu- stock-
Receivable lative holders'
Accumulated from stock translation equity
deficit sales adjustment (deficit)
----------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Balance at
January 1, 1994 -- -- -- 1
Translation Adjustment -- -- (17,311) (17,311)
Issuance of common stock:
June 1994 -- (299,401) -- 362,382
October 1994 -- -- -- 212,390
Cancellation of share -- -- -- (1)
Net loss (246,488) -- -- (246,488)
-------- -------- ------- --------
Balance at
December 31, 1994 (246,488) (299,401) (17.311) 310,973
Receipt of payment for
receivable from stock
sales -- 299,401 -- 299,401
Net effect of issuance of
common stock to account
for reverse acquisition
(note 1) -- -- -- --
Issue of shares for cash:
July 1995 -- -- -- 80,000
September 1995 -- -- -- 250,000
Translation adjustment -- -- 15,933 15,933
Net loss (624,972) -- -- (624,972)
-------- -------- ------- --------
Balance at
December 31, 1995 (871,460) -- (1,378) 331,335
======== ======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
1994 1995
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(246,488) (624,972)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation -- 4,913
Increase in receivables (1,877) (26,164)
Increase in prepaid expenses -- (6,877)
Increase in accounts payable and accrued liabilities 9,004 11,513
--------- --------
Net cash used in operating activities (239,361) (641,587)
--------- --------
Cash flows provided by financing activities -
proceeds from issuance of common shares 574,771 330,000
--------- --------
Cash flows from investing activities:
Receipt of payment for receivable from -- 299,401
stock sales
Subscriptions received -- 83,333
Purchase of equipment (8,592) (6,149)
--------- --------
Net cash provided by (used in)
investing activities (8,592) 376,585
--------- --------
Effects of exchange rates on cash (17,311) 15,933
--------- --------
Net increase in cash and cash equivalents 309,507 80,931
Cash and cash equivalents, beginning of year 1 309,508
--------- --------
Cash and cash equivalents, end of year
$ 309,508 390,439
========= ========
</TABLE>
Supplemental disclosure of noncash financing transactions:
During the year ended December 31, 1994, the Company sold 4,415,000
shares of stock for gross proceeds of $874,173. Of these proceeds, cash,
of $574,772 was received and a receivable of $299,401 was carried until
repayment of the receivable in cash during 1995.
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1994 and 1995
(1) NATURE OF OPERATIONS
Western Capital Financial Corporation ("Western") was incorporated on
January 7, 1987 pursuant to the laws of the State of Nevada. Western was
inactive from December 31, 1991 until July 1995 when it merged with Global
Diamond Resources Inc. ("Global BC"), a diamond exploration and mining
company in an exchange of stock accounted for as a reverse acquisition.
Under the terms of the merger, each share of Global BC's common stock was
exchanged for one share of Western's common stock. The merger constituted
a reverse acquisition of Western by Global BC in that Western survived the
merger, but is owned approximately 95% by the former stockholders of Global
BC. At the date of the merger, Western had no assets. In conjunction with
the merger, the combined company changed its name to Global Diamond
Resources, Inc. (the "Company").
The Company's operations have been directed primarily towards raising
capital, developing business strategies, developing diamond mining
opportunities, carrying out mining surveys, initial drilling and sampling,
and recruiting personnel. The Company was incorporated on January 22, 1993
and commenced operations during 1994. Operations prior to January 1, 1994
were not significant.
(2) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Global Diamond Resources, Inc. and its wholly-owned subsidiary, Global BC,
a Canadian corporation and Global BC's wholly-owned subsidiary, Global
Diamond Resources (SA) (Pty) Limited ("Global SA"), a South African
corporation. Prior to the merger in July 1995, the accompanying
consolidated financial statements reflect the accounts of Global BC and
Global SA. All amounts are in U.S. dollars unless otherwise indicated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less.
FOREIGN EXCHANGE TRANSLATION
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of the subsidiaries are translated at the exchange
rate in effect at each year-end. Income statement accounts are translated
at the average rate of exchange prevailing during the year. Translation
adjustments arising from differences in exchange rates from period to
period are included in the cumulative translation adjustment account in
stockholders' equity (deficit).
EQUIPMENT
Equipment (primarily computers) is recorded at cost with depreciation
provided using the straight-line method over the estimated useful lives
(3 years) of such assets.
F-6
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
MINING OPERATIONS
Initial exploration and evaluation costs are expensed as incurred. Initial
option payments and costs of acquiring options or other mineral or mining
rights to properties, when not expected to be significant, are also
expensed as incurred.
The decision to develop or mine a property is based on an assessment of the
viability of the property and the availability of financing. Once the
decision to proceed with development is made, development and other
expenditures relating to such property will be deferred and carried at cost
with the intention of depleting such costs over the related reserves from
such mining operations.
STOCK OPTIONS
The Company accounts for stock options under the intrinsic value based
method whereby compensation expense is recognized on the difference between
the fair value of the Company stock at the date of grant and the option
price.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating losses. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid approximates the amounts expensed in all years presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires that fair values be
disclosed for the Company's financial instruments. The carrying amounts of
cash and cash equivalents, accounts receivable - trade, accounts receivable
- officer, accounts payable and accrued liabilities, and subscription to be
refunded approximate fair values due to the short-term nature of these
instruments.
NET LOSS PER SHARE
Net loss per share for each year is computed based on the average number of
common and common equivalent shares outstanding. When dilutive, stock
options are included as share equivalents using the treasury stock method.
The weighted average shares outstanding for the years ended December 31,
1994 and 1995 were 2,036,458 and 4,712,316, respectively. For 1994 and
1995 the loss per share, assuming full dilution, is considered to be the
same as primary since the effect of the common stock equivalents would be
antidilutive.
F-7
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenue and expenses to prepare
these consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(3) ACCOUNTS RECEIVABLE - OFFICER
As of December 31, 1995, the Company had a $25,000 account receivable from
the Chairman and Chief Executive Officer of the Company. The receivable is
unsecured, is due on demand and bears no interest.
(4) EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995
---------------------------- --------------------------
ACCUMULATED ACCUMULATED
COST DEPRECIATION NET COST DEPRECIATION NET
---- ------------ --- ---- ------------- ---
<S> <C> <C> <C> <C> <C> <C>
Equipment $8,592 -- 8,592 14,741 4,913 9,828
====== === ===== ====== ===== =====
</TABLE>
(5) INCOME TAXES
The Company has historically generated operating losses which might be
available to reduce future years' income. The potential income tax
benefits of carrying forward these losses have not been recorded in the
accounts since recoverability of such carryforwards and the ability to
generate future income is not assured. In addition, changes in ownership
structure further limit the Company's ability to utilize such operating
losses for tax purposes in the event future income is generated.
(6) FOREIGN OPERATIONS
The Company's wholly-owned subsidiary, Global SA, operates in the Republic
of South Africa. During the year ended December 31, 1995, Global SA's
revenue represented 1% of consolidated revenue, while Global SA's expenses
represented 8% of consolidated expenses. At December 31, 1995, Global SA's
total assets (primarily cash) represented 6% of consolidated total assets.
The Republic of South Africa has experienced and continues to experience
political and economic instability. While current indications are such
that instability appears to be diminishing, there can be no assurance that
the Company's business or interests in mining properties and related
options will not be materially adversely affected by local political or
economic developments.
(7) OPTIONS AND WARRANTS
In July 1995, the Company granted its Chairman and Chief Executive Officer
performance based options to purchase up to 1,000,000 shares of common
stock at $4.80 per share. In June 1996, the Company
F-8
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
adjusted the exercise price to $3 per share and deleted the performance
based vesting conditions. The options expire on July 25, 2000 and are
exercisable at any time.
In conjunction with the merger with Global BC in July 1995, the Company
issued 550,000 common stock purchase warrants to the majority stockholder
of Global BC. The warrants were issued in connection with the securities
exchange agreement and plan of reorganization in consideration of the
recipient's cancellation of warrants of like number and terms previously
granted to it by Global BC. The warrants are exercisable at Canadian $.75
per share and expire on December 31, 1997.
In September 1995, the Company sold 100,000 common shares at $2.50 per
share. The Company granted the Chairman and Chief Executive Officer
100,000 common stock purchase warrants exercisable at $3.00, which expire
on September 7, 1998. In December 1995, the Company granted certain
shareholders 100,000 common stock purchase warrants at $3.00 per share,
exercisable at any time until they expire on December 30, 1998.
(8) PROPERTIES, PARTNERSHIP AND OTHER INVESTMENTS
PROPERTIES
The Company, through its wholly-owned subsidiary, Global SA, owns options
to acquire two mining properties (the Caerwinning Deposit and the Montrose
- Kimberlite Pipe) in South Africa and a 50% partnership interest in a
third South African property (the Grasdrif Deposit, see Joint Venture
below). The Caerwinning option allows for the transfer of the mineral
lease to Global SA with governmental consent and includes the right to mine
alluvial deposits for 1,140,000 Rand (U.S. $312,457 at December 31, 1995)
and the right to mine the pipes and fissures that may be discovered for
8,000,000 Rand (U.S. $2,192,682 at December 31, 1995). The right to mine
pipes or fissures discovered on the property could be granted to a third
party if the option is not exercised. The Company must pay the owner ten
percent of the recovery value of any minerals prospected and recovered
during the option period. The Company exercised the alluvial deposit
option for the Caerwinning Deposit in June 1996. The option for the
Montrose - Kimberlite Pipe expires on October 10, 1996, however, the
Montrose - Kimberlite Pipe contract contains a provision to extend the
option for another year. The mineral lease and mining authorization for
the Caerwinning Deposit also requires that the government receive
approximately five percent of gross proceeds from mining. The mineral
lease for the Caerwinning Deposit will continue until the profitable,
productive life of the related property is exhausted. It may be terminated
by the Company with thirty days notice. The Company is required to meet
certain requirements to maintain good standing with the lessor. The
contract for the Montrose - Kimberlite Pipe provides that the Company must
pay the owner ten percent of the recovery value of any minerals prospected
and recorded during the option period. The option on the Montrose -
Kimberlite Pipe property also includes the exclusive option to purchase the
related land and mineral rights for 2,500,000 Rand (U.S. $685,213 at
December 31, 1995). A prospecting permit is required for the Montrose -
Kimberlite Pipe from the local government and is renewable annually subject
to government approval. The Company presently holds such a permit for the
Montrose - Kimberlite Pipe, which expires on June 7, 1997. The Company has
expensed all option payments and the cost of acquiring the 50% interest in
the third property because of uncertainty regarding recoverability or
future benefit.
JOINT VENTURE
The Company has entered into a joint venture for purposes of mining the
Grasdrif Deposit. Under the agreement, a new corporation will be formed
and ownership will be split evenly between the entities. The
F-9
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Company will contribute 3,000,000 Rand (U.S. $822,256 at December 31, 1995)
and the other company will assign the exclusive mining rights of the
Grasdrif Deposit to the new corporation. Each party will then be required
to contribute equal amounts of capital to the new corporation as required.
In the event either party fails to make the required capital contribution,
the other party may make the contribution in return for a proportional
interest in its percentage ownership of the new corporation. The Company
will appoint three directors and the other company will appoint two
directors. The parties have also granted each other first right of refusal
to purchase each other's interest in the new corporation.
OTHER INVESTMENTS
In April 1995, Global BC acquired a 50% interest in Zaire Diamond Partners,
LLC ("Zaire Partners") for the purpose of exploring, investing in and
exploiting diamond mining concessions in Zaire. In addition, Global BC
advanced $25,000 to an independent investigating party for preliminary site
investigation costs. These advances were written off by Global BC, before
the Acquisition, because of uncertainty regarding recoverability or future
benefit. The remainder of Zaire Partners is owned 25% by the majority
stockholder of the Company and 25% by a group of unaffiliated parties.
Certain members of management of the Company, including the Chief Executive
Officer of the Company, have a beneficial interest in the majority
stockholder. Zaire Partners has an agreement with the Company's majority
stockholder that, in the event significant mining operations commence, the
majority stockholder will act as agent for Zaire Partners in their diamond
production in return for a 5% commission.
F-10
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-11
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
September 30, 1996
<TABLE>
ASSETS
<S> <C>
Current Assets:
Cash and cash equivalents $ 552,529
Accounts receivable:
Trade and other 12,498
Officer (note 3) 25,000
Inventory 67,699
Prepaid expenses 1,602
-----------
659,328
Fixed Assets (note 4) 138,358
-----------
$ 797,686
===========
LIABILITIES
Current Liabilities:
Accounts payable and accrued liabilities $ 41,065
-----------
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value, 10,000,000 shares
authorized, no shares issued or outstanding
Common stock, $0.001 par value, 25,000,000 shares
authorized, 5,420,054 shares issued and
outstanding 5,420
Additional paid-in capital 1,959,845
Accumulated deficit (1,199,774)
Cumulative translation adjustment (8,870)
-----------
756,621
-----------
$ 797,686
===========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
F-12
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
For the nine-month periods ended September 30, 1995 and 1996
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED NINE-MONTH PERIOD ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Revenue - interest and in
1996 includes fee income of
$35,950 $ 10,997 42,309
------------- --------
Expenses
Business development 106,576 6,893
Site investigation, option
costs and project costs
written off 100,037 49,713
Consulting fees 10,000 10,038
Depreciation 3,429 3,866
Interest and bank charges 974 1,497
Legal and accounting 149,123 66,088
Management fees 33,138 13,113
Office and miscellaneous 19,566 22,575
Office rent 14,719 10,061
Printing and graphics 12,829 4,551
Salaries and benefits 8,250 88,638
Telephone 10,594 13,428
Travel 28,972 78,538
------------- --------
498,207 368,999
Operating loss (487,210) (326,690)
Income taxes (note 5) -- 1,624
--------
$ (487,210) (328,314)
============= ========
Net (loss) per share
$(0.11) (0.06)
============= ========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
F-13
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
-----------------------------------------------
Consolidated Statement of Stockholders' Equity
(Unaudited)
For the nine-month period ended September 30, 1996
<TABLE>
<CAPTION>
TOTAL
COMMON COMMON ADDITIONAL CUMULATIVE STOCK-
STOCK STOCK PAID-IN ACCUMULATED TRANSLATION HOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
--------- ------- ---------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31,
1995 5,100,054 $5,100 1,199,073 (871,460) (1,378) 331,335
Issue of shares for
cash:
August 1996 150,000 150 357,314 -- -- 357,464
September 1996 170,000 170 403,458 -- -- 403,628
Translation
adjustment -- -- -- -- (7,492) (7,492)
Net loss -- -- -- (328,314) -- (328,314)
--------- ------ --------- ---------- ------ --------
Balance at
September 30,
1996 5,420,054 $5,420 1,959,845 (1,199,774) (8,870) 756,621
========= ====== ========= ========== ====== ========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
F-14
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
For the nine-month periods ended September 30, 1995 and 1996
<TABLE>
<CAPTION>
NINE-MONTH PERIOD NINE-MONTH PERIOD ENDED
ENDED SEPTEMBER 30, SEPTEMBER 30,
1995 1996
---- -----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(487,210) (328,314)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 3,429 3,866
(Increase) in receivables (25,141) (9,457)
(Increase) in inventory -- (67,699)
(Increase) decrease in prepaid expenses (10,000) 5,275
Increase in accounts payable
and accrued liabilities 123,126 20,548
--------- --------
Net cash used in operating activities (395,796) (375,781)
--------- --------
Cash flows provided by financing activities -
proceeds from issuance of common shares 629,401 761,092
--------- --------
Cash flows from investing activities:
Subscriptions (repaid) -- (83,333)
Mining property and equipment (6,149) (132,396)
--------- --------
Net cash used in investing activities
(6,149) (215,729)
--------- --------
Effects of exchange rates on cash 15,376 (7,492)
--------- --------
Net increase in cash and cash equivalents 242,832 162,090
Cash and cash equivalents, beginning of
period 309,508 390,439
--------- --------
Cash and cash equivalents, end of period $ 552,340 552,529
========= ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-15
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
September 30, 1995 and 1996
(1) NATURE OF OPERATIONS
The Company's operations have been directed primarily towards raising
capital, developing business strategies, developing diamond mining
opportunities, carrying out mining surveys, initial drilling and sampling,
and recruiting personnel. The Company was incorporated on January 22, 1993
and commenced operations during 1994. Operations prior to January 1, 1994
were not significant.
(2) ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Global Diamond Resources, Inc., and its wholly-owned subsidiaries, Global
Diamond Resources Inc., a Canadian corporation ("Global BC"), and Global
Diamond Resources (SA) (Pty) Limited ("Global SA"), a South African
corporation, and Global BC's wholly-owned subsidiary, P.D.J. Mining (Pty)
Limited ("PDJ"), a South African corporation. Prior to a reorganization in
July 1995, the accompanying consolidated financial statements reflect the
accounts of Global BC and PDJ. All amounts are in U.S. dollars unless
otherwise indicated.
The unaudited operating results have been prepared on the same basis as the
audited financial statements and, in the opinion of management, include all
adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation for the periods. The results of operations for interim
periods are not necessarily indicative of results to be achieved for full
fiscal years.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly liquid investments with an
original maturity of three months or less.
FOREIGN EXCHANGE TRANSLATION
The financial position and results of operations of the Company's foreign
subsidiaries are measured using local currency as the functional currency.
Assets and liabilities of the subsidiaries are translated at the exchange
rate in effect at each period-end. Income statement accounts are translated
at the average rate of exchange prevailing during the period. Translation
adjustments arising from differences in exchange rates from period to
period are included in the cumulative translation adjustment account in
stockholders' equity.
INVENTORY
Inventory consists of diamonds ready for sale and are valued at the lower
of cost or estimated net realizable value. Diamonds are ready for sale when
they have been separated from the alluvials or broken ore, processed and
are in a deliverable form. No value is ascribed to diamonds in the
alluvials or in the broken ore.
EQUIPMENT
Equipment (primarily computers) is recorded at cost with depreciation
provided using the straight-line method over the estimated useful lives (3
years) of such assets.
F-16
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements, Continued
MINING OPERATIONS
Initial exploration and evaluation costs are expensed as incurred. Initial
option payments and costs of acquiring options or other mineral or mining
rights to properties, when not expected to be significant, are also
expensed as incurred.
The decision to develop or mine a property is based on an assessment of the
viability of the property and the availability of financing. Once the
decision to proceed with development is made, development and other
expenditures relating to such property will be deferred and carried at cost
with the intention of depleting such costs over the related reserves from
such mining operations.
STOCK OPTIONS
The Company accounts for stock options under the intrinsic value based
method whereby compensation expense is recognized on the difference between
the fair value of the Company stock at the date of grant and the option
price.
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating losses. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
SUPPLEMENTAL CASH FLOW INFORMATION
Interest and income taxes paid approximates the amounts expensed in all
years presented.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No 107, "Disclosures About Fair
Value of Financial Instruments," requires that fair values be disclosed for
the Company's financial instruments. The carrying amounts of cash and cash
equivalents, accounts receivable - trade and other, accounts receivable -
officer, accounts payable and accrued liabilities approximate fair values
due to the short-term nature of these instruments.
NET LOSS PER SHARE
Net loss per share for each period is computed based on the average number
of common and common equivalent shares outstanding. When dilutive, stock
options are included as share equivalents using the treasury stock method.
The weighted average shares outstanding for the periods ended September 30,
1995 and 1996 were 4,583,071 and 5,134,498, respectively. For 1995 and
1996 the loss per share, assuming full dilution, is considered to be the
same as primary since the effect of the common stock equivalents would be
antidilutive.
F-17
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements, Continued
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and disclosure of
contingent assets and liabilities at date of the consolidated financial
statements and the reported amounts of revenue and expenses to prepare
these consolidated financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
(3) ACCOUNTS RECEIVABLE - OFFICER
As of September 30, 1996, the Company had a $25,000 account receivable from
the Chairman and Chief Executive Officer of the Company. The receivable is
unsecured, is due on demand and bears no interest.
(4) FIXED ASSETS
<TABLE>
<CAPTION>
September 30,
1996
----
<S> <C>
Mining Properties
Under Development
Caerwinning Deposit 123,985
-------
Equipment, at cost 22,753
Less accumulated depreciation 8,380
-------
14,373
-------
138,358
=======
</TABLE>
The Caerwinning Deposit costs include the bulk sample carried out in 1996
and option costs incurred since July 1, 1996 less the net realizable value
of the diamonds recovered in the bulk sample.
5) INCOME TAXES
The Company has historically generated operating losses which might be
available to reduce future years' income. The potential income tax benefits
of carrying forward these losses have not been recorded in the accounts
since recoverability of such carry forwards and the ability to generate
future income is not assured. In addition, changes in ownership structure
further limit the Company's ability to utilize such operating losses for
tax purposes in the event future income is generated.
(6) FOREIGN OPERATIONS
The Company's subsidiaries, Global SA and PDJ ("SA Group") operate in the
Republic of South Africa. During the nine-month period ended September 30,
1996, SA Group's revenue represented 1% of consolidated revenue, while SA
Group's expenses represented 19% of consolidated expenses. At September 30,
1996 SA Group's total assets (primarily cash and mining properties)
represented 19% of consolidated total assets. The Republic of South Africa
has experienced and continues to experience political and economic
instability. While current indications are such that instability appears to
be diminishing, there can be no assurance that the Company's business or
interests in mining properties and related options will not be materially
adversely affected by local political or economic developments.
F-18
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statement, Continued
(7) OPTIONS AND WARRANTS
In July 1995, the Company granted its Chairman and Chief Executive Officer
performance based options to purchase up to 1,000,000 shares of common
stock at $4.80 per share. In June 1996, the Company adjusted the exercise
price to $3 per share and deleted the performance based vesting conditions.
The options expire on July 25, 2000 and are exercisable at any time.
In conjunction with the merger with Global BC in July 1995, the Company
issued 550,000 common stock purchase warrants to certain stockholders of
Global BC. The warrants were issued as part of the securities exchange
under the securities exchange agreement and plan of reorganization in
consideration of the recipient's cancellation of warrants of like number
and terms previously granted to it by Global BC. The warrants are
exercisable at Canadian $.75 per share and expire on December 31, 1997.
In September 1995, the Company sold 100,000 common shares at $2.50 per
share. The Company granted the Chairman and Chief Executive Officer 100,000
common stock purchase warrants exercisable at $3.00, which expire on
September 7, 1998.
In December 1995, the Company granted certain shareholders 100,000 common
stock purchase warrants at $3.00 per share, exercisable at any time until
they expire on December 30, 1998. In October 1996, the Company granted
250,000 common stock options to the Chief Financial Officer of the Company
and 100,000 common stock options to another employee of the Company. The
exercise price of the options is $2.50 per share and the options are
exercisable at any time until they expire on October 2, 2001.
(8) PROPERTIES, PARTNERSHIP AND OTHER INVESTMENTS
PROPERTIES
The Company through its subsidiaries, SA Group owns options to acquire two
mining properties (the Caerwinning Deposit and the Montrose-Kimberlite
Pipe) in South Africa and a 50% partnership interest in a third South
African property (the Grasdrif Deposit, see Joint Venture below). The
Caerwinning option allows for the transfer of the mineral lease to SA Group
with governmental consent and includes the right to mine alluvial deposits
for 1,140,000 Rand (U.S. $253,000 at September 30, 1996) and the right to
mine pipes or fissures that may be discovered for 8,000,000 Rand (U.S.
$1,778,000 at September 30, 1996). This amount is payable only, if and
when, such pipes or fissures are discovered and if management deems this
deposit to be economically exploitable. The right to mine pipes or fissures
discovered on the property could be granted to a third party if not
exercised. The Company exercised its alluvial deposit option for the
Caerwinning Deposit in June 1996 and is awaiting governmental consent for
transfer of the mineral lease. Approval is expected by early 1997. (See
Caerwinning Option below). The mineral lease and mining authorization for
the Caerwinning Deposit also requires that the government receive
approximately five percent of gross proceeds from mining. The mineral lease
for the Caerwinning Deposit will continue until the profitable, productive
life of the related property is exhausted. It may be terminated by the
Company with thirty days notice. The Company is required to meet certain
requirements to maintain good standing with the lessor. The option for the
Montrose-Kimberlite Pipe expires on October 10, 1997. The contract for the
Montrose-Kimberlite Piper provides that the Company must pay the owner ten
percent of the recovery value of any minerals prospected and recorded
during the option period. The option on the Montrose-Kimberlite Pipe
property also includes the exclusive option to purchase the related land
and mineral rights for 2,500,000 Rand (U.S. $556,000 September 30, 1996). A
prospecting permit is required or the Montrose-Kimberlite Pipe from the
local government and is renewable annually subject to government approval.
The Company presently holds such a permit for the Montrose-Kimberlite Pipe
which expires on June 7, 1997. The Company has expensed all option
payments, with the exception of the
F-19
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statement, Continued
Caerwinning Deposit from July 1, 1996 and the cost of acquiring the 50%
interest in the third property because of uncertainty regarding
recoverability or future benefit.
JOINT VENTURE
The Company has entered into a joint venture for purposes of mining the
Grasdrif Deposit. Under the agreement, a new corporation was formed and
ownership will be split evenly between the entities. The Company will
contribute 3,000,000 Rand (U.S. $667,000 at September 30, 1996) and the
other company will assign the exclusive mining rights of the Grasdrif
Deposit to the new corporation. Each party will then be required to
contribute equal amounts of capital to the new corporation as required. In
the event either party fails to make the required capital contribution, the
other party may make the contribution in return for a proportional interest
in its percentage ownership of the new corporation. The Company will
appoint three directors and the other company will appoint two directors.
The parties have also granted each other first right of refusal to purchase
each other's interest in the new corporation.
CAERWINNING OPTION
In June 1996, the Company exercised the option for the mineral lease for
the alluvial deposits for 1,140,000 Rand (U.S. $253,000 at September 30,
1996). The mineral lease is issued upon governmental approval which is
expected early in 1997. The cost of the option and the related liability
will be reported in the balance sheet upon receipt of the governmental
approval.
F-20
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLOBAL DIAMOND RESOURCES, INC.
Date: December 16, 1996 By: /s/ Johann de Villiers
-------------------------------------------
Johann de Villiers, Chief Executive Officer
II-1
<PAGE>
PART III
<TABLE>
<CAPTION>
ITEM 1. INDEX TO EXHIBITS. Page
----
<S> <C>
2.1* Securities Purchase Agreement and Plan of
Reorganization dated July 17, 1995 between
Western Capital Financial Corporation and
Global Diamond Resources Inc.
3.1* Articles of Incorporation of the Company
3.2* Bylaws of the Company
4.1* Specimen of Common Stock Certificate
10.1* Notarial Prospecting Contract dated March 22,
1995 between Global Diamond Resources (SA)(Pty)
Limited and Maria Anna Gobey (Montrose Kimberlite
Pipe).
10.2* Deed of Assignment between Lama Minerals CC and
Global Diamond Resources (SA)(Pty) Limited
(Caerwinning Deposit).
10.3* Shareholder Agreement dated March 25, 1995 between
Global Diamond Resources (SA)(Pty) Limited and
Nabas Holdings (Pty) Limited (Grasdrif Deposit).
21.1 The Company's subsidiaries are Global Diamond
Resources Inc., a British Columbia corporation,
Global Diamond Resources (SA) (Pty) Limited, a
South African corporation, and P.D.J. Mining (Pty)
Ltd., a South African corporation.
27.1* Financial Data Schedule.
</TABLE>
III-1
- ------------------------
* Previously filed as part of registration statement on Form 10-SB (SEC File
No. 0-21635) filed with the Securities and Exchange Commission on October 29,
1996.
<PAGE>
EXHIBIT 21.1
The Company's subsidiaries are Global Diamond Resources Inc., a British Columbia
corporation, Global Diamond Resources (SA) (Pty) Limited, a South African
corporation, and P.D.J. Mining (Pty) Ltd., a South African corporation.
