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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________________ to ______________________
Commission file number 0-21635
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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 UNDER SECTION 12(g) OF THE ACT:
Common Stock, $.001 par value
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(TITLE OF CLASS)
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes X No
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Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K contained in this form, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [___]
The market value of the voting stock held by non-affiliates of the registrant as
of April 11, 1997, was approximately $3,037,750.
The number of shares of the Common Stock outstanding as of April 11, 1997 was
5,811,728.
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
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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 private 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 December of 1996, the Company completed a
private placement 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. The net proceeds of $948,561 from the sale of the shares
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were applied towards the bulk sampling at the Caerwinning Deposit and working
capital. See "Business of the Issuer - The Caerwinning Deposit."
In March 1997, the Company entered into separate agreements with three
parties ("Agreements") pursuant to which those parties agreed to purchase, at
prices ranging from $1.60 to $2.20 per share, 802,931 shares of Common Stock for
a total of $1,500,000. The offering was conducted pursuant to Regulation S under
the Securities Act of 1933. The transactions under the Agreements are expected
to close at various dates through April 29, 1997. Through April 11, 1997,
subscriptions totaling $548,020 have been received by the Company in connection
with these Agreements. The consideration received consists of $235,520 in cash
and 100,000 shares of a publicly traded company with a market value as of April
11, 1997 of $312,500. Subject to the Company's receipt of the entire $1,500,000
of proceeds under the Agreements, the Company has agreed to issue to a finder
unaffiliated with the Company 60,000 shares of Common Stock and a common stock
purchase warrant entitling the holder to purchase 1,500,000 shares of Common
Stock at an exercise price of $.50 per share for three year period ending March
31, 2000.
In March 1997, the Company entered into discussion with Kensington
Resource, Ltd. ("Kensington") concerning a strategic alliance between the two
companies. Kensington is a diamond exploration and mining company with mining
properties in Canada and the Peoples Republic of China. While the discussions
between the companies are at a preliminary stage, it is contemplated that
Kensington will assist the Company in obtaining additional capital to finance
its South African mining operations and, in return, the Company will provide
Kensington with management, technical and administrative assistance on a
contract basis. Pending the negotiation and execution of formal agreements
between the companies, Mr. Donald Nicholson has been appointed to the Company's
Board of Directors to serve in that capacity as Kensington's nominee and
Kensington has nominated the Company's Chief Executive Officer, Mr. Johann de
Villiers, to serve as a member of Kensington's Board of Directors. In addition,
Kensington has nominated John Tyson, a member of the Company's Board of
Directors, to serve as a member of the Board of Directors of Kensington, and has
nominated the Company's Chief Financial Officer, Mr. Mervyn McCulloch, to serve
as the Chief Financial Officer of Kensington. There can be no assurance that
the parties will be able to conclude a definitive agreement.
Unless the context otherwise requires, all references to the Company
include its wholly-owned subsidiaries, Global Diamond Resources Inc., a British
Columbia corporation, and Global Diamond Resources (SA) (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
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commence full scale mining operations at the Caerwinning Deposit in the second
quarter of 1997 subject to the receipt of additional capital. See "Part II, Item
6. 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 second quarter of 1997 subject to the
receipt of additional capital. See "Part II, Item 6. 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 right holders. The Company
intends to complete site establishment, including the development of roads,
power, housing and water, and commence mining operation at the Grasdrif Deposit
in the second quarter of 1997 subject to the receipt of additional capital. See
"Part II, Item 6. Management's Discussion and Analysis or Plan of Operations."
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, as of the date of this report,
the Company has not conducted sufficient drilling or bulk sampling at any of the
three mines for the purpose of establishing proven reserves. Any estimate of
reserves is necessarily imprecise and would depend on statistical inferences
drawn from limited drilling or bulk sampling, 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.
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 April 7, 1997, the Rand-
Dollar exchange rate was 4.4285 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.
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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.
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
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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 "Part III, Item 12. 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 exercised its option to acquire the mineral lease to the
alluvial deposit from Lama Minerals CC for R1.14 million. The Company's
acquisition of the mineral lease is subject to government approval which is
expected by mid-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.
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.
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
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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. In September 1996,
the Company conducted a bulk sampling of the property in which it recovered 60
diamonds with a combined weight of 111.05 carats and a value of $642 per carat.
Mining Plan. The Company intends to commence production at the Caerwinning
Deposit in the second quarter of 1997 subject to the receipt of additional
capital. See "Part II, Item 6. 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 ($564,525 as of April 7, 1997).
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.
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.
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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 second quarter of 1997 subject to the receipt of
additional capital. See "Part II, Item 6. 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.
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 ($2,935,531 as
of April 7, 1997) 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 an unaffiliated South African corporation named Nabas Holdings (Pty)
Limited ("Nabas Holdings"). Nabas Holdings has 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 intend to form a South African corporation, Nabas Diamonds (Pty) Limited
("Nabas Diamonds"), to be 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 an
increased proportional interest in
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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 Grasdrif Deposit to the state
electric utility.
Reserves. Based on previous exploration and production 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 complete site establishment, including
the development of roads, power, housing and water, and commence mining
operations at the Grasdrif Deposit in the third quarter of 1997, subject to the
receipt of additional capital. See "Part II, Item 6. Management's Discussion
and Analysis or Plan of Operations." 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 ($2,145,196 as of April 7, 1997) in expenses in developing and mining
the 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
-8-
<PAGE>
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
deleterious 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 mid-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.
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
-9-
<PAGE>
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 report.
<TABLE>
<CAPTION>
<C> <S>
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.
</TABLE>
-10-
<PAGE>
<TABLE>
<S> <C>
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."
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.
</TABLE>
-11-
<PAGE>
ITEM 2. 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 1. Business and Properties - The Caerwinning Deposit; The
Montrose Kimberlite Pipe; and The Grasdrif Deposit" for a description of the
Company's mining properties.
ITEM 3. 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to the security holders of the Company
during the fourth quarter of fiscal year 1996.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED 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
December 31, 1996, the high and low last sale prices were $3.00 and $1.50,
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 April 11, 1997, there were approximately 130 record
holders and 263 beneficial 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.
During the fiscal year ended December 31, 1996, the Company sold
unregistered shares of its Common Stock in the following transactions:
A. 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.
B. During the period from August through December 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 this transaction.
-12-
<PAGE>
ITEM 6. 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 "Part I, Item 1. 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 April 7, 1997, the Rand-Dollar exchange
rate was 4.4285 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 7, Financial Statements." As of the date of this
report, the Company is engaged in the pursuit of an additional $3.5 million of
capital, the proceeds of which will be used to complete exploration activities
and commence production, as described below. As of the date of this report, the
Company is seeking to acquire the additional capital through the nonpublic
offering of shares of its Common Stock. 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 "Part I, 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 $1.4 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. If the results from the proposed bulk sampling program are successful,
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 ($2,935,531 as of April 7, 1997) 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 $1.2 million in capital to be applied towards such purpose, the
Company intends to complete site establishment, including the development of
roads, power, housing and water, and commence mining operations at the Grasdrif
Deposit. The Company believes that site establishment will take approximately 6
months, after which the Company would propose to commence production at the
Grasdrif Deposit. The Company expects to incur R9.5 million ($2,145,196 as of
April 7, 1997) 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
-13-
<PAGE>
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.
This report contains various forward-looking statements that are based on
the Company's beliefs as well as assumptions made by and information currently
available to the Company. When used in this report, the words "believe,"
"expect," "anticipate," "estimate" and similar expressions are intended to
identify forward-looking statements. Such statements are subject to certain
risks, uncertainties and assumptions, including, without limitation, that as of
this date the Company has not commenced mining operations at any of its three
mines; the Company requires an additional $2 million of capital to achieve a
meaningful level of revenue producing operations; the lack of proven reserves at
any of the Company's three mines; mining risks generally; political risks
associated with the Company's operations in the Republic of South Africa;
general economic conditions; currency fluctuations; and estimates of costs of
production. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, or projected. The Company
cautions potential investors not to place undue reliance on any such forward-
looking statements all of which speak only as of the date made.
-14-
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report......................................... 16
Consolidated Balance Sheets at December 31, 1996 and 1995............ 17
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994............................. 18
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994............... 19
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994................................... 20
Notes to Consolidated Financial Statements........................... 21
</TABLE>
-15-
<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 (the "Company") as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996. 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.
San Diego, California
January 10, 1997, except as to
Note 9, which is as of April 11, 1997 KPMG Peat Marwick LLP
-16-
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
----------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 334,387 $ 390,439
Accounts receivable:
Trade 6,538 3,041
Officer (note 5) 25,000 25,000
Inventory 64,208 --
Prepaid expenses 24,115 6,877
----------- ----------
454,248 425,357
Fixed assets, net (note 2) 271,739 9,828
----------- ----------
$ 725,987 435,185
=========== ==========
LIABILITIES
Current liabilities:
Accounts payable and accrued liabilities $ 86,258 20,517
Subscription to be refunded -- 83,333
----------- ----------
86,258 103,850
----------- ----------
STOCKHOLDERS' EQUITY
Stockholders' equity:
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,
5,500,054 and 5,100,054 shares issued and outstanding,
respectively 5,500 5,100
Additional paid-in capital 2,199,234 1,199,073
Accumulated deficit ( 1,547,612) (871,460)
Cumulative translation adjustment (17,393) (1,378)
----------- ----------
639,729 331,335
----------- ----------
$ 725,987 435,185
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-17-
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Other Income:
Interest income 10,017 15,242 4,650
Fee income $ 35,950 - -
--------- -------- ---------
45,967 15,242 4,650
Expenses:
Business development 84,085 82,758 112,893
Site investigation, option costs and
project costs written off 100,031 117,218 46,883
Consulting fees 26,078 15,504 13,377
Depreciation 6,024 4,913 --
Foreign exchange transaction (gain) loss (6,862) 2,228 (871)
Interest and bank charges 2,783 1,510 557
Legal and accounting 134,891 181,165 24,209
Management fees -- 38,855 17,500
Office and miscellaneous 62,895 34,948 8,240
Office rent 14,134 20,062 5,576
Printing and graphics 14,897 16,384 10,835
Salaries and benefits 149,431 27,881 --
Telephone 18,111 16,716 4,581
Travel 113,997 80,072 7,358
--------- -------- ---------
720,495 640,214 251,138
Operating loss (674,528) (624,972) (246,488)
Income taxes (note 3) 1,624 -- --
--------- -------- ---------
Net loss $(676,152) (624,972) (246,488)
========= ======== =========
Net loss per share $ (0.13) (0.13) (0.12)
========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
-18-
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
-------------------- --------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
-------- --------- --------- --------- --------- -----------
<S> <C> <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 - - - - - (246,488)
-------- --------- --------- --------- --------- ----------
Balance at December 31, 1994 - - 4,415,000 4,415 869,758 (246,488)
Receipt of payment for
receivable from stock sales - - - - - -
Net effect of issuance of
common stock to account for
reverse acquisition - - 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 - - - - - (624,972)
-------- --------- --------- --------- --------- ----------
Balance at December 31, 1995 - - 5,100,054 5,100 1,199,073 (871,460)
Issue of shares for cash, net
of issuance costs of
$51,439:
August 1996 - - 160,000 160 381,081 -
September 1996 - - 160,000 160 379,740 -
December 1996 - - 80,000 80 187,340 -
Issuance of stock options
to nonemployees - - - - 52,000 -
Translation adjustment - - - - - -
Net loss - - - - - (676,152)
-------- --------- --------- --------- --------- ----------
Balance at December 31, 1996 - $ - 5,500,054 $ 5,500 2,199,234 (1,547,612)
======== ========= ========= ========= ========= ==========
<CAPTION>
Receivable Cumulative Total
from stock translation Stockholders'
sales adjustment equity
---------- ----------- -----------------
<S> <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)
---------- ----------- ------------
Balance at December 31, 1994 (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 - - -
Issue of shares for cash:
July 1995 - - 80,000
September 1995 - - 250,000
Translation adjustment - 15,933 15,933
Net loss - - (624,972)
---------- ----------- ------------
Balance at December 31, 1995 - (1,378) 331,335
Issue of shares for cash, net
of issuance costs of
$51,439:
August 1996 - - 381,241
September 1996 - - 379,900
December 1996 - - 187,420
Issuance of stock options
to nonemployees - - 52,000
Translation adjustment - (16,015) (16,015)
Net loss - - (676,152)
---------- ----------- ------------
Balance at December 31, 1996 - (17,393) 639,729
========== =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
-19-
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(676,152) (624,972) (246,488)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 6,024 4,913 -
Increase in accounts receivable - trade (3,497) (26,164) (1,877)
Increase in inventory (64,208) - -
Increase in prepaid expenses (17,238) (6,877) -
Increase in accounts payable and accrued
liabilities 65,741 11,513 9,004
--------- -------- --------
Net cash used in operating activities (689,330) (641,587) (239,361)
--------- -------- --------
Cash flows from investing activities:
Purchase of equipment, net (19,978) (6,149) (8,592)
Mining properties (247,957) - -
--------- -------- --------
Net cash used in investing activities (267,935) (6,149) (8,592)
--------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of common shares 948,561 330,000 574,771
Subscriptions received (refunded) (83,333) 83,333 -
Receipt of payment for receivable from stock
sales - 299,401 -
Issuance of stock options to nonemployees 52,000 - -
--------- -------- --------
Net cash provided by financing activities 917,228 712,734 574,771
--------- -------- --------
Effects of exchange rates on cash (16,015) 15,933 (17,311)
--------- -------- --------
Net increase (decrease) in cash and (56,052) 80,931 309,507
cash equivalents
Cash and cash equivalents, beginning of year 390,439 309,508 1
--------- -------- --------
Cash and cash equivalents, end of year $ 334,387 390,439 309,508
========= ======== ========
</TABLE>
Supplemental disclosure of noncash investing and 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.
-20-
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1996 and 1995, and for each of the
years in the three-year period ended December 31, 1996
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
DESCRIPTION OF BUSINESS
Global Diamond Resources, Inc. (the "Company") was incorporated on January
22, 1993 and commenced operations during 1994. Operations prior to January
1, 1994 were not significant. 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.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
Global Diamond Resources, Inc. and its wholly-owned subsidiary, Global
Diamond Resources Inc., a Canadian corporation ("Global BC") and Global
BC's wholly-owned subsidiary, Global Diamond Resources (SA) (Pty) Limited
("Global SA") (formerly P.D.J. Mining (Pty) Limited), a South African
corporation. Prior to a reorganization in July 1995, the accompanying
consolidated financial statements reflect only the accounts of Global BC
and Global SA. All amounts are in U.S. dollars unless otherwise indicated.
All significant intercompany balances and transactions have been eliminated
in consolidation.
CASH EQUIVALENTS
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.
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.
FIXED ASSETS
Fixed assets consist of mining properties under development and equipment
(primarily computers) recorded at cost. Depreciation is provided for
equipment using the straight-line method over the estimated useful lives (3
years) of such assets. Costs capitalized for mining properties under
development are depleted by the net realizable value of diamonds recovered
from the underlying mining properties.
-21-
<PAGE>
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 properties.
STOCK OPTIONS AND WARRANTS
Prior to January 1, 1996, the Company accounted for its stock options and
warrants in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be recorded
on the date of grant only if the current market price of the underlying
stock exceeded the exercise price. On January 1, 1996, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
for Stock-Based Compensation, which permits entities to recognize as
expense over the vesting period the fair value of all stock-based awards on
the date of grant. Alternatively, SFAS No. 123 allows entities to continue
to apply the provisions of APB Opinion No. 25 and provide pro forma net
income and pro forma earnings per share disclosures for employee stock
option and warrant grants made in 1995 and future years as if the fair-
value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure of SFAS No. 123.
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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS 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, inventory and 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 weighted
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, 1996, 1995 and 1994 were 5,210,054, 4,712,316 and
2,036,458, respectively.
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.
-22-
<PAGE>
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of, on January 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. Adoption of this
Statement did not have a material impact on the Company's financial
position, results of operations, or liquidity.
<TABLE>
<CAPTION>
(2) FIXED ASSETS
DECEMBER 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C>
Mining properties under development:
Caerwinning deposit $ 209,553 -
Grasdrif deposit 38,404 -
------------ ------------
247,957 -
------------ ------------
Equipment, at cost 34,320 14,741
Less accumulated depreciation (10,538) (4,913)
------------ ------------
23,782 9,828
------------ ------------
$ 271,739 9,828
============ ============
</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. The Grasdrif Deposit costs
include capital expenditures incurred to date on the property.
(3) INCOME TAXES
The Company has no significant taxable temporary differences which would
require recognition of deferred tax liabilities, and due to the uncertainty
of future realizability has not recognized any deferred tax assets for
deductible temporary differences and tax operating loss carryforwards.
At December 31, 1996, the Company had available net operating loss
carryforwards of approximately $800,000 for federal income tax reporting
purposes which begin to expire in 2010. The net operating loss
carryforwards for state purposes, which begin to expire in 2000, are
approximately 50% of federal amounts. The net operating loss carryforwards
are subject to certain limitations under Section 382 of the Internal
Revenue Code.
(4) FOREIGN OPERATIONS
The Company's wholly-owned subsidiary, Global SA, operates in the Republic
of South Africa. During the year ended December 31, 1996, Global SA's
revenue represented 1% of consolidated revenue, while Global SA's expenses
represented 17% of consolidated expenses. At December 31, 1996, Global SA's
total assets (primarily cash and mining properties under development)
represented 39% 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.
-23-
<PAGE>
(5) RELATED PARTY 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 percent (5%) of the gross sale amount. Weir is a stockholder of the
Company and certain members of the Company's management, including the
Company's Chairman and Chief Executive Officer have a beneficial interest
in Weir.
As of December 31, 1996 and 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.
(6) STOCK 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 $3.00 per share and removed the performance based vesting
conditions. The options expire on July 25, 2000 and are exercisable at any
time.
In conjunction with the reorganization 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 in 1994. The
warrants are exercisable at Canadian $.75 per share and expire on December
31, 1997.
In September 1995, 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 a certain shareholder 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 options are exercisable at $2.50 per
share and are exercisable at any time until they expire on October 2, 2001.
In December 1996, the Company granted Lion Mining Corporation ("Lion
Mining"), a mining financial and consulting firm located in London,
England, 100,000 common stock purchase warrants at $2.50 per share,
exercisable at any time until they expire on December 31, 2000 (See Note 8,
Other Commitments).
The per share weighted-average fair value of stock options and warrants
granted during 1996 and 1995 was $.66 and $1.21, respectively, on the date
of grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 1996 - expected dividend yield 0%, risk-free
interest rate of 6.54%, expected life of 3.5 years, and an expected
volatility of the stock over the expected life of the options and warrants
of 40%; 1995 - expected dividend yield 0%, risk-free interest rate of
6.08%, expected life of 3.8 years, and an expected volatility of the stock
over the expected life of the options and warrants of 40%.
The Company applies APB Opinion No. 25 in accounting for its stock options
and warrants and, accordingly, no compensation cost has been recognized for
its stock options and warrants issued to employees or directors
-24-
<PAGE>
of the Company in the consolidated financial statements. Had the Company
determined compensation cost based on the fair value at the grant date for
its stock options and warrants under SFAS No. 123, the Company's net loss
and net loss per share would have been increased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
Net loss, as reported $(676,152) (624,972)
Net loss, pro forma (921,152) (2,017,972)
Net loss per share, as reported $ (.13) (.13)
Net loss per share, pro forma (.18) (.43)
</TABLE>
Pro forma net loss and net loss per share reflects only options and
warrants granted in 1996 and 1995. Therefore, the full impact of
calculating compensation cost for stock options and warrants under SFAS No.
123 is not reflected in the pro forma net loss and net loss per share
amounts presented above because compensation cost for options and warrants
granted prior to January 1, 1995 is not considered.
Stock option and warrant activity during the periods indicated is as
follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
---------- --------------
<S> <C> <C>
Balance at December 31, 1994 550,000 $ 0.56
Granted 1,200,000 4.50
---------- ------
Balance at December 31, 1995 1,750,000 3.26
Granted 450,000 2.50
Canceled (1,000,000) 4.80
Reissued 1,000,000 3.00
---------- ------
Balance at December 31, 1996 2,200,000 $ 2.28
========== ======
</TABLE>
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options and warrants were $0.55 -
$3.00 and 3.9 years, respectively.
At December 31, 1996 and 1995, the number of options and warrants
exercisable was 2,200,000 and 1,750,000, respectively, and the weighted-
average exercise price of those options and warrants was $2.28 and $3.26,
respectively.
(7) 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 provides for the right to mine alluvial
deposits for 1,140,000 Rand (US $243,000 at December 31, 1996) and the
right to mine the pipes or fissures that may be discovered for 8,000,000
Rand (US $1,708,000 at December 31, 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 the option
is not exercised. The Company exercised the alluvial deposit option for the
Caerwinning Deposit in June 1996 and is waiting governmental consent for
transfer of the mineral lease. Approval is expected by mid 1997. (See
Caerwinning Option below.) The mineral lease and mining authorization for
the Caerwinning Deposit also requires that the government receive
approximately 5 percent of gross proceeds from mining. The mineral lease
for the
-25-
<PAGE>
Caerwinning Deposit will continue until the profitable, productive life of
the related property is exhausted. It may be terminated by the Company with
30 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 Pipe provides that the Company must pay the owner 10 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 (US $534,000 at December 31, 1996). 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, with the exception of the option payment on the Caerwinning
Deposit, from July 1, 1996 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 Company will
contribute 3,000,000 Rand (US $640,000 at December 31, 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 an increased 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 (US $243,000 at December 31,
1996). The mineral lease is issued upon governmental approval which is
expected in mid 1997. The cost of the option and the related liability will
be reported in the balance sheet upon receipt of the governmental approval.
(8) COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENT
As of December 31, 1996, the Company had a noncancelable operating lease
commitment for the Company's corporate office expiring in March 1999. The
monthly rent payment on this operating lease is $1,050. Additionally, the
Company rents office space in South Africa and Canada on a month-to-month
basis. Rent expense for the years ended December 31, 1996, 1995 and 1994
was $14,134, $20,062 and $5,576, respectively.
LEGAL MATTERS
From time-to-time, the Company is subject to certain litigation in the
ordinary course of business. At the present time, the Company is not party
to any pending legal proceedings that it believes will have a material
adverse effect on its financial position, results of operations or
liquidity.
(9) SUBSEQUENT EVENT
During March 1997, the Company entered into agreements with three parties
("Agreements") whereby they would subscribe, at prices ranging from $1.60
to $2.20 per share, for 802,931 common shares of the Company for a total of
$1,500,000. The offering was conducted pursuant to Regulation S under the
Securities Act of 1933. The transactions under the Agreements are to be
closed at various dates through April 29, 1997. Through April 11, 1997,
subscriptions totaling $548,020 have been received by the Company in
connection with these Agreements. The consideration received consists of
$235,520 in cash and 100,000 shares of a publicly traded company with a
market value as of April 11, 1997 of $312,500.
-26-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Inapplicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Directors and Executive Officers
- --------------------------------
Set forth below are the directors and officers of the Company and its South
African subsidiary, Global Diamond Resources (SA)(Pty) Limited ("Global Diamond-
SA"). Unless otherwise indicated, each person holds the stated positions with
all companies.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Johann de Villiers 44 Chairman of the Board and Chief Executive Officer
Mervyn McCulloch 53 Chief Financial Officer
Secretary of the Company
Kenneth MacLeod 45 Director of the Company
John Tyson 49 Director of the Company
Donald Nicholson 57 Director of the Company
A. Richard Bullock 48 Director of the Company
Charles MacDonald 43 Director of the Company
Andries Janzen 53 Managing Director of Global Diamond-SA
Pierre de Jager 51 Financial Director of Global Diamond-SA
Pieter van Wyk 46 Chief Consulting Geologist of Global Diamond-SA
Anthony de la Harpe 52 Director of Global Diamond-SA
</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. As of the date of this report, Mr. de Villiers has been nominated to
serve as a director of Kensington Resource, Ltd.
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
-27-
<PAGE>
NASDAQ/NMS public corporation located in California. As of the date of this
report, Mr. McCulloch has been nominated to serve as Chief Financial Officer of
Kensington Resource, Ltd.
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.
As of the date of this report, Mr. Tyson has been nominated to serve as a
director of Kensington Resource, Ltd.
Mr. Nicholson has served as director of the Company since March 1997. From
1996 to date, Mr. Nicholson has been employed as an independent management
consultant to junior natural resource companies. From 1991 to 1995, Mr.
Nicholson served as President and Chief Executive Officer of Yarrows Limited, a
Vancouver, British Columbia corporation engaged in the business of ship building
and repair. Mr. Nicholson is a director of Kensington Resource Ltd., a diamond
exploration and mining company traded on the Vancouver Stock Exchange.
Mr. Bullock has served as director of the Company since March 1997. Since
1979, Mr. Bullock has served as President of Quidquia Management Corporation, a
business consulting firm specializing in start-up and development stage
ventures. Mr. Bullock serves as a director of Aurora Gold Corporation,
Bioflorescent Technology Corp., Attwood Gold Corporation, La Plata Gold Corp.
and Canamed Ventures.
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. Janzen has served as Managing Director of Global Diamond-SA 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 Global Diamond-SA 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 Global Diamond-SA
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 Global Diamond-SA 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.
-28-
<PAGE>
ITEM 10. 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, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM 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) 1996 $60,000 5,000 -0- -0- -0- -0-
1995 40,000 -0- -0- -0- 1,100,000(2) -0-
1994 17,500 -0- -0- -0- -0- -0-
Mervyn McCulloch, CFO(3) 1996 $42,000 3,000 -0- -0- 250,000(3) -0-
1995 -0- -0- -0- -0- -0- -0-
1994 -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 $2.50 per share. The option is fully vested and
immediately exercisable and expires on October 2, 2001.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
- -------------------------------------------------------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING % OF TOTAL OPTIONS/SARS EXERCISE OR
OPTIONS/SARS GRANTED GRANTED TO EMPLOYEES IN BASE
NAME (#) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE
- ---------------- -------------------- ----------------------- ----------- ---------------
<S> <C> <C> <C> <C>
Mervyn McCulloch 250,000 71% $2.50 10/02/01
</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 members of the Board
of Directors to perform services on behalf of the Company. The Company will
compensate the members for their services at rates no more favorable than could
be obtained from unaffiliated parties.
-29-
<PAGE>
ITEM 11. 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 April 11, 1997 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(1)(2) 1,200,000 17.4%
Mervyn McCulloch(1)(3) 250,000 4.1%
Kenneth MacLeod(1) -0- -
John Tyson(1) 46,960 (4)
Donald Nicholson(1) 10,000 (4)
A. Richard Bullock(1) -0- -
Charles MacDonald(1) -0- -
Weir International Limited(5) 703,323 11.2%
Pasca Estates, Road Town
Tortola, British Virgin Islands
All officers and directors 1,506,960 21.0%
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 "Part III, Item 10.
Executive 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 "Part III, Item 10.
Executive Compensation."
(4) Less than one percent.
(5) Includes 449,000 shares of Common Stock underlying immediately exercisable
warrants held by Weir International Limited. Certain members of management
of the Company, including Mr. de Villiers, have a beneficial interest in
Weir.
-30-
<PAGE>
ITEM 12. 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 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 11. 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.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) 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* Deed of Assignment 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, and Global Diamond Resources (SA)(Pty)
Limited, a South African corporation.
27.1 Financial Data Schedule.
_______________
* 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.
(b) REPORTS ON FORM 8-K.
There were no reports on Form 8-K filed by the Company during the fiscal
year ended December 31, 1996.
-31-
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
GLOBAL DIAMOND RESOURCES, INC.
Date: April 14, 1997 By: /s/ Johann de Villiers
--------------------------------------------
Johann de Villiers, Chief Executive Officer
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Johann de Villiers Chairman of the Board and Chief April 14, 1997
- ------------------------- Executive Officer
JOHANN DE VILLIERS
/s/ Mervyn McCulloch Chief Financial Officer and April 14, 1997
- ------------------------- Principal Accounting Officer
MERVYN MCCULLOCH
/s/ Kenneth Macleod Director April 14, 1997
- -------------------------
KENNETH MACLEOD
/s/ John Tyson Director April 14, 1997
- -------------------------
JOHN TYSON
/s/ Donald Nicholson Director April 14, 1997
- -------------------------
DONALD NICHOLSON
/s/ A. Richard Bullock Director April 14, 1997
- -------------------------
A. RICHARD BULLOCK
/s/ Charles MacDonald Director April 14, 1997
- -------------------------
CHARLES MACDONALD
</TABLE>
-32-
<PAGE>
EXHIBIT 21.1
GLOBAL DIAMOND
SUBSIDIARIES
The following is a list of all the subsidiaries of the Company, as of
December 31, 1996, which are included in the Company's Notes to Consolidated
Financial Statements.
100%
GLOBAL DIAMOND RESOURCES, INC.
A BRITISH COLUMBIA CORPORATION
100%
GLOBAL DIAMOND RESOURCES (SA) (PTY) LIMITED
A SOUTH AFRICAN CORPORATION
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> DEC-31-1996 DEC-31-1995
<CASH> 334,387 390,439
<SECURITIES> 0 0
<RECEIVABLES> 31,538 25,000
<ALLOWANCES> 0 0
<INVENTORY> 64,208 0
<CURRENT-ASSETS> 454,248 425,357
<PP&E> 271,739 9,828
<DEPRECIATION> 10,538 4,913
<TOTAL-ASSETS> 725,987 435,185
<CURRENT-LIABILITIES> 86,258 103,850
<BONDS> 0 0
0 0
0 0
<COMMON> 5,500 5,100
<OTHER-SE> 2,199,234 1,199,073
<TOTAL-LIABILITY-AND-EQUITY> 725,987 435,185
<SALES> 0 0
<TOTAL-REVENUES> 45,967 15,242
<CGS> 0 0
<TOTAL-COSTS> 720,495 640,214
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (674,528) (624,972)
<INCOME-TAX> 1,624 0
<INCOME-CONTINUING> (676,152) (624,972)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (676,152) (624,972)
<EPS-PRIMARY> (0.13) (0.13)
<EPS-DILUTED> (0.13) (0.13)
</TABLE>
