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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1 to
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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
836 Prospect Street, Suite 2B
La Jolla, California 92037
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE (858) 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
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None N/A
SECURITIES TO BE REGISTERED UNDER SECTION 12(g) OF THE ACT:
Common Stock, $.0005 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 __
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 28, 2000 was approximately $10,546,008.
The number of shares of the Common Stock outstanding as of April 28, 2000 was
47,646,678.
DOCUMENTS INCORPORATED BY REFERENCE: NONE.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development
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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 28,
2000, THE RAND-DOLLAR EXCHANGE RATE WAS 6.78 RAND TO ONE U.S. DOLLAR.
Global Diamond Resources, Inc., a Nevada corporation ("Company"), was
formed under the laws of the State of Nevada on January 7, 1987. We are engaged
in diamond mining and exploration through our wholly owned subsidiary Global
Diamond Resources (SA) (Pty) Limited, a South African corporation.
On June 16, 1999 the Company increased its authorized Common Stock from
50 million shares of $0.0005 par value Common Stock to 100 million shares of
$0.0005 par value Common Stock.
Unless the context otherwise requires, all references to "we" and "the
Company" include its wholly owned subsidiaries:
o Global Diamond Resources Inc., a British Columbia corporation
(GDR-BC),
o Global Diamond Resources (SA) (Pty) Limited, a South African
corporation (GDR-SA),
o Global Diamond Resources International Limited, a British
Virgin Islands corporation (GDR-BVI),
o Nabas Diamonds (Pty) Limited, a South African corporation
(Nabas).
Our executive offices are located at 836 Prospect Street, Suite 2B, La
Jolla, California 92037; Telephone (858) 459-1928.
Business of the Issuer
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GENERAL
The Company is engaged in diamond exploration and mining. We have
acquired two mining properties (the Grasdrif Deposit and the Caerwinning
Deposit), and own an option to purchase a third mining property (the Montrose
Kimberlite Pipe), all of which are located in the Republic of South Africa.
BACKGROUND
Diamond is the name attributed to a chemically inert mineral, which
normally occurs as crystals formed when the element carbon is subjected to
extraordinary heat and pressure. Diamond is believed to have been formed at a
depth of 200-400km below the surface of the earth and is then transported to the
earth's surface by the upward movement of molten rock. The molten rock
solidifies as semi-circular (pipes) or linear bodies (fissures). The solidified
rock is known as kimberlite. Pipes and fissures are eroded over time, and the
diamonds thus released from such formations are transported and are eventually
deposited in ancient or existing riverbeds and on beaches. In these deposits,
the diamonds are typically associated with the coarser (gravel) fraction of the
sediments, which are collectively known as alluvial deposits. The process of
erosion grinds and crushes the poorer quality diamonds thereby enhancing greatly
the average quality of the diamonds eventually deposited.
DIAMOND EXPLORATION
Diamond exploration typically begins with aerial photography, surface
sampling and magnetic surveys for purposes of locating indicator minerals or
geophysical anomalies, which may indicate the presence of kimberlite or an
alluvial deposit. In the event a pipe is located, follow-up sampling is
conducted to determine if it is diamondiferous. If the pipe is determined to be
diamondiferous, bulk sampling is then conducted to evaluate the value of the
diamonds present and the grade of the prospect and thereby establishing proven
or probable reserves.
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The exploration and evaluation of an alluvial diamond deposit is
similar to that of kimberlite but typically more complex and less conclusive
because of what is termed the "nugget-effect" which pertains to the scarce and
irregular distribution of diamonds in the gravel. Drilling can only determine
the three-dimensional extent of the gravel while bulk sampling is of necessity
substantially more complex than for kimberlite.
DIAMOND MINING
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 bulldozers are used to remove the topsoil, which is
set aside for reclamation. Hydraulic excavators are then employed to excavate an
open pit. As the mining operations expand, digging benches into the pit wall
enlarges the open pit. Since kimberlite pipes are relatively confined bodies, it
becomes impractical at a certain depth, approximately 30 to 100 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 trucks.
Alluvial deposits are mined by open cast methods generally known as
strip mining. Removing any overburden present exposes the gravel. The gravel is
then removed by hydraulic excavator, loaded onto trucks and transported to the
recovery plant where it is then screened to remove all particles larger than
25mm. The larger fraction is discarded while the smaller fraction is then
processed by gravity separation (rotary pans) or centrifugal separation (DMS) to
recover the particles with a relative density of larger than 2.9 as concentrate.
RECOVERY
Each recovery plant consists of screens and associated separators that
employ water, agitation, gravity and centrifugal force as a primary method to
separate the heavier diamondiferous concentrate from the lighter tailings. The
two methods employed are rotary pans and dense media separation (DMS). Both
methods are well tried, the only difference being that pans are much cheaper to
construct and operate, however a DMS can be monitored electronically.
Electronic sorting machines conduct final recovery from the
concentrate. These machines utilize the luminescent properties of diamond when
it is irradiated with X-rays. Photo multiplier tubes sense the luminescence and
activate a trap door, which diverts the diamond to a safe box. This concentrate
is then finally sorted by hand.
MARKETING
The Company sells its diamonds directly to private diamond dealers and
manufacturers through a tender system. There are no formal rules by which the
prices of diamonds are determined. Sale prices are set by the diamonds' color,
clarity, cut and weight which the prospective buyer expects to obtain through
the polishing process, and the evaluation process is generally subjective. We
expect that the sales of diamonds will be transacted in U.S. dollars on a cash
basis.
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GLOSSARY
Set forth below are definitions of certain mining and geological terms
used in this report.
ADIT The main horizontal or near-horizontal
underground opening, with single
access to the surface, through which a
kimberlite pipe is mined and the ore
is excavated.
ALLUVIAL DEPOSIT A mass of gravel, sand or similar
material resulting from the crumbling
and erosion of solid rocks. In the sense
that it is used here, it also implied an
association with precious minerals such
as diamond. A deposit of alluvium
(deposits made by water) is made by a
stream where it runs out onto a level
plain or meets a slower stream.
BEDROCK The solid or weathered rock underlying
mineral-bearing gravel, sand clay, etc.
and upon which alluvial deposits rest.
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 deposit.
CARAT A unit of weight used for precious
stones equal to 200 milligrams or 0.2
grams.
CONCENTRATE That fraction of the processed ore
which contains all or the largest
portion of the economic mineral to be
recovered. In the case of alluvial
deposits, approximately 0.5-1.5% of
the ore reports as concentrate from
the primary recovery process. Of this
a further 0.1-0.5% reports as
concentrate from the electronic
sorters.
DIAMONDIFEROUS Containing diamonds.
GEOPHYSICAL SURVEYS Measuring and recording any geophysical
properties over a specific area, e.g.,
gravity, magnetics, electrical
conductivity, acoustical velocities
(seismics), 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 deposit.
Alluvial gravels are sometimes
arbitrarily described in terms of size
as "pebble," "cobble" or "boulder"
gravel.
HECTARES Unit of measurement of surface area. One
hectare approximates 2.47 acres.
KIMBERLITE One of two primary types of
diamond-bearing rock and the most
common, often characterized by a more or
less vertically orientated carrot-shaped
structure referred to as a kimberlite
"pipe."
MAGNETIC SURVEYS Measuring the magnetic variations in the
earth's magnetic field caused by the
variations in the magnetic properties of
different rocks in the earth's crust
with an instrument known as a
magnetometer either as ground-based or
mounted within or towed by an aircraft.
Useful in detecting kimberlite bodies
due to the presence of magnetite and/or
ilmenite.
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MINERALOGY 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 activity, occupation, and industry
concerned with the large-scale
extraction of minerals and includes
both surface and underground
excavations. 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 body of rock or sediment containing a
mineral that has sufficient utility and
value to be extracted at a profit. See
"Reserves."
PETROLOGY The science that deals with the
origin, history, occurrence,
structure, chemical and mineralogical
composition and classification.
PROBABLE RESERVES Reserves for which quantity and grade
(Indicated Resource) 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 minerals (including
diamond) by any means such as
geophysical, drilling and pilot plant
recovery methods, but does not include
"mining" (i.e., excavation for purposes
of recovering diamonds in commercial
amounts). See "Mining."
PROVEN RESERVES Reserves for which (a) the quantity is
(Measured Resource) computed from dimensions which can be
measured from outcrops, trenches,
workings or drill holes. Certain grades
and/or qualities computed from the
results of detailed sampling, can be
allocated to the quantity thus
delineated 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 the
reserves are well-established. See
"Reserves" and "Proven Reserves."
RESERVES That part of a total mineral deposit
(resource) that can be economically
and legally processed or produced from
at the time of the reserve
determination. Reserves are
customarily stated in terms of "ore."
STRIPPING RATIO The overburden that must be removed to
gain access to an amount of ore.
Expressed as a ratio in meters or tonnes
of overburden: one meter or tonne of
ore. The standard in this Company is to
use a m:m ratio.
TAILINGS The washed material that issues from a
recovery plant after the economic
portion of the ore has been removed as
a concentrate.
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THE GRASDRIF DEPOSIT
PROPERTY RIGHTS. The Company holds a prospecting permit for the
Grasdrif Deposit through its wholly-owned subsidiary company, Nabas. The
prospecting permit expires on August 4, 2003. We will apply for a mining permit
when the level of activities warrant such an application. In terms of the
prospecting permit, we are required to pay to the government a surface rental
amounting to R5,200 ($767 as of April 28, 2000) per annum, and a royalty to the
government in the amount of 5% of the gross selling price of the production from
the deposit. We are in the process of delineating ore reserves on these
extensive deposits with the view of applying for a mining permit in the near
future.
GEOGRAPHY. The Grasdrif deposit is an alluvial diamond deposit located
on the inner bank of the Orange River in the Northern Cape Province.
GEOLOGY. The Grasdrif Deposit is an alluvial gravel deposit situated on
a bedrock of shale and greywacke of the Dwyka formation. The gravels of the
Grasdrif Deposit have been preserved at 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) appears to have
been deposited as a point bar of a channel incising in a westerly direction,
while all other terraces are associated with a gradual eastward migration of the
channels towards its present position.
RESERVES. Based upon the following, we estimate that the Grasdrif
deposit contains approximately 80 million tones of diamondiferous gravel:
o the results derived from a 10,000 meter drilling program
completed by the Company in 1997,
o ongoing second phase drilling and bulk sampling, and
o the results of previous exploration programs on the property
conducted during the early 1980's.
MINING ACTIVITIES. We have completed site establishment at Grasdrif,
including roads, power, housing and water reticulation, erection of a primary
and final recovery plant on the lower terrace, and a primary recovery plant on
the upper terrace. Bulk sampling operations on the lower terrace commenced
during the last quarter of 1998 and trial mining on the upper terrace during the
last quarter of 1999.
See "Item 6. Management's Discussion and Analysis or Plan of
Operations" for a discussion of the results of operations and capital
requirements of the Grasdrif Deposit.
THE CAERWINNING DEPOSIT
PROPERTY RIGHTS. The Company has acquired the exclusive rights to
conduct mining operations at Caerwinning, a 2,333 hectare alluvial deposit
located in the Northern Cape Province of the Republic of South Africa. Pursuant
to the mineral lease, we have an initial 10-year right to mine at the
Caerwinning deposit, expiring March 31, 2008 (with a 10 year renewal option). In
terms of the mineral lease, we are required to pay to the government a 5%
royalty of the gross selling price of the monthly production from the deposit,
with a minimum payment of R60,000 per year, ($8,850 as of April 28, 2000), and
to be increased by R5,000 per year.
GEOGRAPHY. The Caerwinning Deposit is an alluvial gravel deposit
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. Access to the Caerwinning property is available by way of public paved
and gravel roads. The property is serviced by the state electric utility.
GEOLOGY. The gravel of the Caerwinning deposit is 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 drill holes and excavations. The gravel occurs in
three distinct terraces, of which the oldest is located the furthest from the
present riverbed. The terraces are named T1, T2 and T3 with T1 being the oldest.
Secondary calcification is extensive in the oldest terraces but negligible in
the later and recent deposits. The gravel of both terraces mainly consist of
cobble and pebble sized clasts in a sandy matrix. Boulder sized particles are
extremely rare except where local tributaries have introduced large, slightly
angular boulders into the mainstream deposits.
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RESERVES. We have completed a drilling program covering the entire T1
terrace east of the main road and T2 terraces. The results of this drilling
program indicate that the T1 terrace contains 21.5 million tonnes of gravel and
the area drilled on the T2 terrace contains 1.2 million tonnes of diamondiferous
gravel. During 1999, a drilling program was conducted on the T1 terrace to the
west of the main road. The results of this program still need to be interpreted
further but preliminary indications are that the T1 gravel extends into this
area. Prior to incorporation of the Company, Mr. Pieter Van Wyk, currently the
Director of Mining and Exploration of the Company, worked this deposit in his
private capacity and extracted 3,685 carats from 344,400 tonnes of ore for an
average grade of 1.07 carats per hundred tonnes between 1989 and 1994. Diamonds
thus produced were sold for an average price of $488 per carat.
MINING PLAN. We commenced production at the T2 terrace at Caerwinning
when we commissioned the primary and final recovery plant on site in the last
quarter of 1998. We commissioned an additional diamond recovery plant during the
last quarter of 1999. The combined capacity of the recovery plants now amounts
to 240 tonnes per hour.
See "Item 6. Management's Discussion and Analysis or Plan of
Operations" for a discussion of the results of operations and capital
requirements of the Caerwinning Deposit.
THE MONTROSE KIMBERLITE PIPE
PROPERTY RIGHTS. The Company has the exclusive prospecting rights and
an option to purchase a farm in the Gauteng Province in the Republic of South
Africa, 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 our wholly-owned subsidiary, GDR-SA, we have
acquired the exclusive rights to prospect on the property until October 10, 2000
in consideration of a payment of R60,000 ($7,900 at September 10, 1999) and 10%
of the value of all diamonds recovered by us during the prospecting period. We
also have the exclusive option until October 10, 2000 to purchase the farm for a
purchase price of $600,000. We are in the process of applying for an extension
of the prospecting permit, which includes the preparation of an Environmental
Management Program Report (EMPR) for the submission to the local government.
Upon acceptance of the report, the prospecting permit will be issued.
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 from the Bronkhorstspruit Dam, 20 kilometers to the east.
GEOLOGY. The Montrose Pipe is intruded into the upper part of the
Rayton Formation, Pretoria Group. The area is underlain by a north-east striking
succession of quartzite, shale and subgraywacke of Precambrian age. 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 the past.
RESERVES. The results derived from a geophysical survey, a drilling
program, as well as a large diameter drilling program completed in April of 1998
indicate the existence of a kimberlite pipe with a surface area of approximately
1.25 hectares as well as a 12m wide fissure on the southeastern boundary of the
farm. A sample of 28 mainly gem quality macro diamonds obtained from the drill
samples indicate that the diamonds are distributed throughout the pipes at all
levels. We estimate the pipe to contain in excess of 9 million tonnes of
kimberlite ore to a depth of 400 meters.
See "Item 6. Management's Discussion and Analysis or Plan of
Operations" for a discussion of the results of operations and capital
requirements of the Montrose Pipe.
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COMPETITION
The diamond mining industry is intensely competitive. The principal
areas of competition are the exploration and acquisition of mineral properties.
A large number of companies are engaged in the exploration and development of
diamond properties, many of which have substantially greater technical and
financial resources than the Company. Competition among the members of the
diamond mining industry also affect the marketing of the diamonds produced by
the members, including the price of cut and uncut diamonds.
REGULATION
The Company's mining and prospecting 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 operations to cease or to be curtailed, require
further expenditures or possibly the loss of mining rights. Existing and future
legislation and regulations could also cause restrictions and delays in the
development of our properties and additional expense and capital expenditures.
We believe we are in substantial compliance with all laws and regulations.
Our 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
rehabilitation. We 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, we will be
responsible for rehabilitation costs. We currently engage in ongoing
rehabilitation as well as provide funds, on an annual basis, for final mine
closure rehabilitation. Rehabilitation requirements may vary depending on the
location and the nature of the mining operations. However, they aim to restore
the pre-mining landforms and vegetation and control possible deleterious
effluents. We do not consider the existing environmental regulations in the
Republic of South Africa to represent a material cost or burden on our proposed
mining operations. However, new environmental legislation has been tabled, and
other legislation has been passed which places significantly more emphasis on
the protection of the environment and, as a consequence, more closely regulates
our mining operations. Such legislation, together with legislation which may be
tabled in future, as well as future interpretation of existing laws, may require
substantial increases in equipment and operating costs, and may cause delays,
interruptions or a termination of operations, the extent of which, at present,
cannot be predicted with certainty.
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 prospect for and mine the minerals concerned. 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 cessions from the holders of the common law mineral
rights, we have obtained government authorization to prospect the Grasdrif
Deposit and mine the Caerwinning Deposit. We have applied for the necessary
authorization to bulk sample the Montrose Kimberlite pipe. We believe we will be
granted the necessary authorization to mine the Grasdrif Deposit and the
Montrose Kimberlite Pipe when required.
EMPLOYEES
The Company employs 129 persons, including 3 management level employees
in the U.S. and 5 managers and 121 other employees in the Republic of South
Africa. None of our employees are unionized or otherwise subject to a collective
bargaining agreement and we believe that our relationship with our employees is
excellent.
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ITEM 2. DESCRIPTION OF PROPERTY.
The Company's executive offices are located in La Jolla, California and
consist of approximately 599 square feet of leased premises. Our lease for these
premises expires on March 31, 2002 and provides for monthly rent of $1,411. We
lease approximately 750 square feet of office space in Somerset West from a
director of the Company for R1800 ($265 as of April 28, 2000) per month with no
expiration. We also lease approximately 260 square feet in the SA Diamond Center
in Johannesburg, South Africa. The lease provides for monthly rental of R1496
($221 as of April 28, 2000) and expires on February 28, 2003. We purchased a
property in August 1998 in Delportshoop, South Africa, which is near the
Caerwinning Deposit, by issuing 151,171 shares of Common Stock and an extension
of certain warrant terms. The property, which consists of an office and
employees and visitors housing totaling 5,880 square feet, is used for the
Caerwinning Deposit. 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.
In July 1999, the Company and its Chairman, Johann de Villiers, were
named as defendants in an action Mr. Abu Bakr Bin Ali Al-Akhdar Mood brought in
the United States District Court for the Southern District of California. Mr.
Abu Bakr is a former director of the Company. In that action, Mr. Abu Bakr
alleges that he acted as a finder in connection with the sale of a total of
$6,000,000 of the Company's common stock to two private investors and that in
connection with that offering, he was entitled to a finders' fee equal to
approximately 28% of the gross proceeds. Mr. Abu Bakr alleges that the Company
and Mr. de Villiers fraudulently forced Mr. Abu Bakr to participate in a binding
arbitration regarding his finders' fees and that as a result of this
arbitration, he was forced to return the finders' fee and resign from his
position with his then current employer. Mr. Abu Bakr has alleged causes of
action for breach of contract, unjust enrichment, fraud, misrepresentation and
duress. Mr. Abu Bakr also alleges interference with and breach of his employment
contract with his then current employer. Mr. Abu Bakr seeks compensatory and
punitive damages in an unspecified amount.
In August 1999, the Company and Mr. de Villiers filed an answer to Mr.
Abu Bakr's complaint in which they denied all of the allegations contained
therein. The Company believes that the allegations of Mr. Abu Bakr are frivolous
and, accordingly, the Company intends to vigorously defend this case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to the security holders of the Company
in 1999.
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. Set forth below are the high and
low closing prices for the Company's Common Stock for each quarter during 1999
and 1998. The quotations represent inter-dealer quotations without retail
markups, markdowns or commissions and may not represent actual transactions.
Quarter Ended High Low
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December 31, 1999 $ .2500 $ .0781
September 30, 1999 $ .3438 $ .1250
June 30, 1999 $ .2344 $ .1094
March 31, 1999 $ .4375 $ .1562
December 31, 1998 $ .4062 $ .0938
September 30, 1998 $ .5000 $ .1406
June 30, 1998 $ .5000 $ .4375
March 31, 1998 $ .5000 $ .3900
As of April 28, 2000, there were approximately 137 record holders and
297 beneficial holders of the Company's Common Stock.
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We have not paid any cash dividends and do 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 1999, there were no sales of common stock. In August 1999,
100,000 common stock options were granted to an employee of the Company
exercisable at $.25 per share with 25,000 exercisable at any time, 25,000 after
February 1, 2000, 25,000 after August 1, 2000 and 25,000 after August 1, 2001.
The options expire August 1, 2009 or 60 days after termination of service,
whichever occurs first. In addition, 167,000 common stock options were granted
to a consultant, immediately exercisable at $.0781 and expiring December 31,
2004.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
BACKGROUND
The Company is engaged in diamond exploration and mining. We have
acquired the rights to two mining properties, the Grasdrif Deposit and the
Caerwinning Deposit, and own an option to purchase a third mining property, the
Montrose kimberlite pipe, all of which are located in the Republic of South
Africa.
To date, our activities have included the investigation and acquisition
of mining property interests, exploratory work, site establishment and the
purchase and operation of mining plant and equipment in the process of
development as well as full-scale mining operations at its properties. During
1999, the Company purchased mining plant and equipment amounting to $830,246 and
$1,457,555 at the Grasdrif and Caerwinning Deposits, respectively. Additionally,
we have incurred mine development and exploration costs at the Grasdrif Deposit
for the Upper and Lower Terraces of $475,004, net of diamonds recovered of
$266,028.
RESULTS OF OPERATIONS
CAERWINNING
Our principal mining activities are conducted at the Caerwinning
property, which commenced production in September of 1998. During 1999 a new
primary diamond recovery plant, capable of treating 160 tons of mine gravel per
hour, was erected and commissioned in the fourth quarter of 1999. The new plant
has the capacity to treat wet ore that was encountered in the area as a result
of the higher-than-normal rainfall and drainage from irrigation lands. During
the fourth quarter, initial commissioning problems relating to this plant
resulted in targets for tonnage not being met. These problems were rectified by
the end of 1999. The following table summarizes the activity for 1999 and 1998:
<TABLE>
<CAPTION>
Caerwinning Deposit 1999 1998
------------------- ---- ----
<S> <C> <C>
Number of tonnes of diamondiferous gravel treated 186,000 37,000
Number of carats yielded 1080 219
Estimated $ Value per carat at recovery* $423 $398
Estimated Total $ Value at recovery* $457,000 $87,000
Average number of carats per stone .91 1.24
* May not reflect actual sales value due to changing prices
</TABLE>
The lower-than-expected grade for 1999 resulted from production problems in the
treatment of wet gravel. These production problems were corrected in December of
1999, resulting in a marked improvement in the grade. During 1999, the
Caerwinning Deposit incurred a loss from production amounting to $536,649.
GRASDRIF
Development activities continued at the Grasdrif Deposit during 1999.
Although the recovery from this gravel was significantly lower than expected,
the average size and value of the recovered diamonds far exceed expectations.
The table below summarizes the activity of the Lower Terrace for 1999 and 1998:
<TABLE>
<CAPTION>
Grasdrif Deposit - Lower Terrace 1999 1998
-------------------------------- ---- ----
<S> <C> <C>
Number of tonnes of diamondiferous gravel treated 91,000 68,000
Number of carats yielded 158 54
Estimated $ Value per carat at recovery* $1,272 $438
Estimated Total $ Value at recovery * $201,000 $24,000
Average number of carats per stone 3.04 2.59
*May not reflect actual sales value due to changing prices
</TABLE>
9
<PAGE>
Trial mining commenced during the last quarter of 1999 on the Upper
Terrace. The grade was lower than expected, and is a result of the upper layer
of gravel being treated on a very small scale. The following table summarizes
the activity of the Upper Terrace for 1999 and 1998:
<TABLE>
<CAPTION>
Grasdrif Deposit - Upper Terrace 1999 1998
-------------------------------- ---- ----
<S> <C> <C>
Number of tonnes of diamondiferous gravel treated 26,000 -0-
Number of carats yielded 97 -0-
Estimated $ Value per carat at recovery* $732 -0-
Estimated Total $ Value at recovery* $71,000 -0-
Average number of carats per stone 2.61 -0-
*May not reflect actual sales value due to changing prices
</TABLE>
During the first quarter of 2000, development activities on both the
Upper and Lower Terrace continued, with results in the same order of magnitude
as that of 1999 being achieved. The treatment of a total of 263,566 tons of
diamondiferous gravel since commencement of operations in 1998 through the first
quarter of 2000 at the Grasdrif Deposit amounted to 0.33% of the entire reserve.
Mine development costs for the Upper and Lower Terraces of the Grasdrif Deposit
for 1999 and 1998, respectively, amounted to $741,032 and $632,824.
MONTROSE
During 1999 we completed our interpretation of the results of the large
diameter drilling program conducted during 1998. The conclusion was that
diamonds, mainly gemstones, were found across the pipe at various levels. It was
therefore decided to begin preparations for a 5,000 ton bulk sample of the pipe
with the purpose of determining the actual grade of the deposit and the value
per carat of the diamonds. This information is required to complete a
feasibility study on the production potential of the Montrose Pipe. We are in
the process of completing an Environmental Management Program Report (EMPR) for
the bulk sample. During 2000 it is expected that the required permit will be
received to conduct the bulk sample. It is also expected that the option to
acquire the property will be extended to allow for the completion of the bulk
sample during 2001. There can be no assurance that either of these events will
occur.
CURRENCY CONSIDERATION
Our mining properties, mining properties under development, and mining
equipment are all situated in the Republic of South Africa, where the currency
is the Rand. The re-evaluation of our property and equipment to reflect the
average Rand/US$ exchange rate of $6.25 caused most of the foreign currency
translation adjustment of $350,803 for 1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its activities to date through the sale of its
equity securities as well as short-term loan facilities. In both 1997 and 1998
we raised $6 million through the issue of equity and debt securities. These
funds were essentially used to establish production facilities at our
Caerwinning and Grasdrif properties. We now have the ability to treat 1.5
million tonnes of gravel per year.
We believe that we require, additional working capital of approximately
$500,000 to satisfy our working capital requirements for the next 12 months.
Should any of the following events occur, additional working capital may be
needed during the next 12 months. The events are:
a) the Caerwinning Deposit has negative cash flow from operations;
b) the trial mining on the Upper Terrace at the Grasdrif property results
in an operating loss or negative cash flow.
During the first quarter of 2000, the Company completed a private
placement of securities, raising $409,200 through the issuance of 2,046,000
shares of common stock and warrants to purchase an additional 2,046,000 shares
of common stock at $.20. The Company intends to raise additional working capital
through private placement of common stock as well as using available lines of
credit.
10
<PAGE>
Our belief concerning our working capital requirements are based on
certain assumptions concerning, among other things, the estimated grade
processed ore, average price per carat, scale of mining operations, Rand-U.S.
dollar exchange rate, and cost of production. If any of these assumptions prove
incorrect, we may require further additional capital. Any such additional
financing may require an additional pledge or mortgage of our properties and/or
any production therefrom. There is, of course, no assurance that satisfactory
financing could be obtained. In addition to financing individual and available
projects, we may also borrow funds from time to time for working capital and
other general corporate purposes.
As stated in the Auditor's Report to the accompanying financial
statements, the financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2 to the financial
statements, the Company has suffered recurring losses from operations that raise
substantial doubt about its ability to continue as a going concern. Management's
plans in regards to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
FORWARD-LOOKING STATEMENTS
This report contains various forward-looking statements that are based
on our belief as well as assumptions made by and information currently available
to us. 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 we only recently commenced
mining operations at the Caerwinning Property, have not engaged in commercial
mining operations at the Grasdrif Property, mining risks in general, political
risks associated with our 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. We caution potential
investors not to place undue reliance on any such forward-looking statements,
all of which speak only as of the date made.
11
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report for 1999........................................13
Independent Auditors' Report for 1998........................................14
Consolidated Balance Sheet at December 31, 1999..............................15
Consolidated Statements of Operations for the years
ended December 31, 1999 and 1998...........................................16
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999 and 1998.............................17
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and 1998.................................................18
Notes to Consolidated Financial Statements...................................19
12
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors and Shareholders
Global Diamond Resources, Inc.
We have audited the accompanying consolidated balance sheet of Global Diamond
Resources, Inc. and subsidiaries (the "Company") as of December 31, 1999, and
the related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit 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, on a test basis, examination of 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 consolidated financial
statement presentation. We believe that our audit provides 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, 1999, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered recurring losses
from operations and it requires additional capital to fund its operations. These
conditions raise substantial doubt about its ability to continue as a going
concern. Management's plans regarding these matters are also described in Note
2. The consolidated financial statements do not include any adjustments that
might results from the outcome of this uncertainty.
/s/ CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
May 8, 2000
13
<PAGE>
Independent Auditor's Report
The Board of Directors and Stockholders
Global Diamond Resources, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Global Diamond Resources, Inc. and
subsidiaries (the "Company") for the year ended December 31, 1998. 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 audit.
We conducted our audit 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 consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Global Diamond Resources, Inc. and subsidiaries for the year ended December 31,
1998, in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for exploration and related costs on unproven
properties.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
that raise substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ KPMG LLP
KPMG LLP
San Diego, California
March 9, 1999, except for Notes 2, 5, 8 and 10
as to which the date is July 16, 1999
14
<PAGE>
<TABLE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
<CAPTION>
ASSETS DECEMBER 31, 1999
-----------------
<S> <C>
Current assets:
Cash and cash equivalents $ 182,100
Trade accounts receivable 9,619
Inventory 46,650
-----------------
Total current assets 238,369
Deferred foreign tax asset 866,485
Mining properties and equipment 6,188,068
-----------------
$ 7,292,922
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 187,085
Accrued liabilities 214,158
Note payable to director 222,453
-----------------
623,696
Total current liabilities
Long-term debt 3,000,000
-----------------
Total liabilities 3,623,696
-----------------
Commitments and contingencies --
Stockholders' equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized,
no shares issued and outstanding --
Common stock, $0.0005 par value, 100,000,000 shares authorized,
45,600,678 shares issued and outstanding, 22,800
Additional paid-in capital 13,457,899
Accumulated deficit (8,625,689)
Accumulated other comprehensive income:
Foreign currency translation adjustment (1,185,784)
-----------------
Total stockholders' equity 3,669,226
-----------------
$ 7,292,922
=================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
<TABLE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1999 1998
----------------- -----------------
<S> <C> <C>
Diamond Sales $ 448,651 $ 36,990
----------------- -----------------
Production Expenses (936,541) (159,199)
----------------- -----------------
Development and exploration expenses (741,032) --
Less diamonds recovered 266,028 --
----------------- -----------------
Net development and exploration expenses (475,004) --
Royalty (62,060) --
Selling, general and administrative expenses (1,680,005) (2,210,343)
----------------- -----------------
Operating loss (2,704,959) (2,332,552)
----------------- -----------------
Other
Interest income 84,842 69,045
Interest expense (452,176) (400,917)
----------------- -----------------
Net interest expense (367,334) (331,872)
----------------- -----------------
Loss before net tax benefit/expense and cumulative
effect of accounting change (3,072,293) (2,664,424)
----------------- -----------------
Deferred foreign tax benefit 880,635 --
Income tax expense (1,073) (914)
----------------- -----------------
Net tax benefit/expense 879,562 (914)
----------------- -----------------
Loss before cumulative effect of accounting change (2,192,731) (2,665,338)
Cumulative effect of accounting change-
exploration and related costs -- (929,829)
----------------- -----------------
Net loss (2,192,731) (3,595,167)
Other comprehensive loss -
Foreign currency translation adjustment (350,803) (794,310)
----------------- -----------------
Comprehensive loss $ (2,543,534) $ (4,389,477)
================= =================
Basic and diluted loss per share before cumulative
effect of accounting change $ (.05) $ (.11)
Accounting change -- (.04)
----------------- -----------------
$ (.05) $ (.15)
================= =================
Pro forma amounts assuming the change in the method of accounting
for exploration and related costs is applied retroactively $ -- $ (2,988,386)
================= =================
Basic and diluted loss per share on a proforma basis $ -- $ (.12)
================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
<TABLE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1999 and 1998
<CAPTION>
FOREIGN
COMMON STOCK CURRENCY TOTAL
---------------------------- ADDITIONAL PAID- ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES AMOUNT IN CAPITAL DEFICIT ADJUSTMENT EQUITY
---------------- ----------- ---------------- -------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 23,903,604 $ 11,952 $ 6,955,639 $ (2,837,791) $ (40,671) $ 4,089,129
Issue of shares for cash,
net of issuance costs of
$98,125 19,986,950 9,993 6,136,111 -- -- 6,146,104
Issue of shares for
warrants exercised 172,286 86 45,810 -- -- 45,896
Issue of shares for services 1,386,667 693 222,640 -- -- 223,333
Issue of warrants for services -- -- 5,701 -- -- 5,701
Issue of shares and extension
of warrants for mining
properties 151,171 76 91,998 -- -- 92,074
Foreign currency translation
adjustment -- -- -- -- (794,310) (794,310)
Net loss -- -- -- (3,595,167) -- (3,595,167)
---------------- ----------- ----------------- -------------- ------------- ------------------
Balance at December 31, 1998 45,600,678 $ 22,800 13,457,899 (6,432,958) (834,981) 6,212,760
Foreign currency translation
Adjustment -- -- -- -- (350,803) (350,803)
Net loss -- -- -- (2,192,731) -- (2,192,731)
---------------- ----------- ----------------- -------------- ------------- ------------------
Balance December 31, 1999 45,600,678 $ 22,800 $ 13,457,899 $ (8,625,689)$ (1,185,784) $ 3,669,226
================ =========== ================= ============== ============= ==================
</TABLE>
See accompanying notes to consolidated financial statements
17
<PAGE>
<TABLE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<CAPTION>
YEAR END DECEMBER 31,
--------------------------------------
1999 1998
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,192,731) $ (3,595,167)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 442,468 61,261
Shares issued for services -- 223,333
Increase in deferred foreign tax asset (866,485)
Issuance of warrants to non-employees -- 5,701
Decrease in accounts receivable -
Trade 15,859 49,520
Officer 25,000 --
Decrease (increase) in inventory 10,366 (57,016)
Increase (decrease) in accounts payable
and accrued liabilities (558,492) 723,347
------------------ ------------------
Net cash used in operating activities (3,124,015) (2,589,021)
------------------ ------------------
Cash flows provided by financing activities:
Net proceeds from issuance of common shares -- 6,192,000
Proceeds from long-term debt -- 1,400,000
Repayment of long-term debt -- (127,503)
Proceeds from note payable to Director 222,453 --
------------------ ------------------
Net cash provided by financing activities 222,453 7,464,497
------------------ ------------------
Cash flows used in investing activities:
Additions to mining properties and equipment (2,359,264) (3,441,037)
------------------ ------------------
Net cash used in investing activities (2,359,264) (3,441,037)
------------------ ------------------
Effects of exchange rates on cash (18,309) (69,345)
------------------ ------------------
Net increase (decrease) in cash and
cash equivalents (5,279,135) 1,365,094
Cash and cash equivalents, beginning of year 5,461,235 4,096,141
------------------ ------------------
Cash and cash equivalents, end of year $ 182,100 $ 5,461,235
================== ==================
Supplemental disclosure of noncash investing and financing transactions:
1999 1998
------------------ ------------------
Acquisition of mining properties and equipment $ -- $ 61,980
================== ==================
Other supplemental disclosures:
Interest paid $ 452,176 $ 400,917
================== ==================
Income taxes paid $ 1,073 $ 914
================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
DESCRIPTION OF BUSINESS
Global Diamond Resources, Inc. (the "Company") was incorporated in the
state of Nevada on January 7, 1987 and commenced significant mining operations
is South Africa during 1994.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements
of the Company and its wholly-owned subsidiaries, Global Diamond Resources Inc.,
a Canadian corporation ("Global BC"), Global Diamond Resources International
Limited, a British Virgin Islands corporation ("Global BVI"), Global BVI's
wholly-owned subsidiary, Global Diamond Resources (SA) (Pty) Limited ("Global
SA"), a South African corporation and Global SA's wholly owned subsidiary, Nabas
Diamonds (Pty) Limited ("Nabas"), a South African corporation. 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. Statement of Operations 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 foreign currency translation adjustment account in stockholders'
equity.
INVENTORY
Inventory consists of diamonds ready for sale 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, have been processed and
are in a deliverable form. No value is ascribed to diamonds in the alluvials or
in the broken ore. Also included in inventory is fuel, spare parts and rations.
MINING PROPERTIES AND EQUIPMENT
Mining properties and equipment consisting of mineral rights, mining
properties under development, mining equipment and office equipment (primarily
computers) are recorded at cost. Depreciation is provided for mineral rights,
mining equipment and office equipment using the straight-line method over the
estimated useful lives of 10 years, 3-10 years and 3 years, respectively, of
such assets. Mining properties under development are depreciated over the life
of the mine using the straight-line method once commercial production is
reached. Value of diamonds recovered from bulk sampling and drilling activities
are offset against mine development costs.
MINING OPERATIONS
Initial exploration and evaluation costs are 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.
Effective January 1, 1998, the Company changed its method of accounting
for exploration and related costs on unproven reserves from capitalizing all
expenditures to expensing all costs, other than acquisition costs, prior to the
completion of a definitive feasibility study which establishes proven and
probable reserves. Previously, the Company began capitalizing exploration costs
upon the decision to develop a property, which for certain properties preceded
the completion of a definitive feasibility study. The cumulative effect of this
change calculated as of January 1, 1998, was $606,781, which amount was charged
to operations in 1998 as the cumulative effect of a change in accounting
principle. Adoption of this new accounting method increased the net loss by
$929,829 in 1998.
19
<PAGE>
REHABILITATION COSTS
Estimated site restoration and post closure rehabilitation costs are
charged against earnings over the expected economic useful life of each mine.
Accrued rehabilitation costs are subject to review by management on a regular
basis and are revised when appropriate for changes in future estimated costs
and/or regulatory requirements. At December 31, 1999, $16,004 of rehabilitation
reserve is included in accounts payable and accrued liabilities.
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. Compensation expense was 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 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 AND CONCENTRATION OF CREDIT RISK
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, trade accounts receivable,
inventory and accounts payable and accrued liabilities approximate fair values
due to the short-term nature of these instruments. The carrying amount of the
long term debt approximates fair value because the terms are comparable to the
current market.
Financial instruments that potentially subject the Company to
concentrations of credit risk consist of cash. The Company's policy is to
maintain cash at high credit quality financial institutions to minimize risk,
but from time to time account balances may exceed Federally insured limits.
LOSS PER COMMON SHARE
In December 1997, the Company adopted the provisions of SFAS No. 128
EARNINGS PER SHARE. SFAS No. 128 supersedes APB Opinion No. 15 and replaces
"primary" and "fully diluted" earnings per share ("EPS") under APB Opinion No.
15 with "basic" and "diluted" EPS. Unlike primary EPS, basic EPS excludes the
dilutive effects of securities options, warrants and other convertible
securities. Diluted EPS reflects the potential dilution of securities that could
share in the earnings of the Company. Common equivalent shares from convertible
debt, stock options and warrants are excluded from the computation because their
effect is anti-dilutive for all periods presented. All current and prior period
information presented conforms to the provisions of SFAS No. 128.
Net loss per share for 1999 and 1998 is computed based on the
weighted-average number of common shares outstanding of 45,600,678 and
24,189,634, respectively. Common equivalent shares from stock options and
warrants excluded from the computation because their effect is anti-dilutive for
1999 and 1998 were 10,866,980 and 9,863,552, respectively.
20
<PAGE>
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.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND
FOR LONG-LIVED ASSETS TO BE DISPOSED OF 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. Long lived assets are reviewed annually for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable.
COMPREHENSIVE INCOME
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income."
This statement requires that certain items of comprehension income other than
net earnings or loss be reported in the financial statements. For the two years
in the period ended December 31, 1999, the Company's comprehensive income (loss)
relates to foreign currency translation adjustments.
SEGMENT REPORTING
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major customers.
An operating segment is defined as a component of an enterprise that engages in
business activities from which it may earn revenues and incur expenses, and
about which separate financial information is regularly evaluated by the chief
operating decision maker in deciding how to allocate resources. All of the
Company's operations are aggregated into one reportable segment given the
similarities of economic characteristics between the operations represented by
the various mines. The Company's administrative headquarters is located in
Southern California.
(2) GOING CONCERN
The Company believes that it requires additional working capital of
approximately $500,000 to satisfy its working capital requirements for the next
12 months. Should any of the following events occur, additional working capital
may be needed during the next 12 months. The events are:
1. the Caerwinning Deposit has negative cash flow from operations;
2. the trial mining on the Upper Terrace at the Grasdrif property results in an
operating loss or negative cash flow.
Subsequent to year end, the Company completed a private placement on
securities, raising $409,200 through the issuance of 2,046,000 shares of common
stock and warrants to purchase an additional 2,046,000 shares of common stock.
The Company intends to raise additional working capital through private
placement of common stock as well as using available lines of credit.
The Company's belief concerning its working capital requirements are
based on certain assumptions concerning, among other things, the estimated grade
of it processed ore, average price per carat, commencement and scale of mining
operations Rand-U.S. dollar exchange rate, and cost of production. If any of
these assumptions prove incorrect, the Company may require further additional
capital. Any such additional financing may require an additional pledge or
mortgage of the Company', properties and/or any production therefrom. There is,
of course, no assurance that satisfactory financing, if necessary, could be
obtained. In addition to financing individual and available projects, the
Company may also borrow funds from time to time for working capital and other
general corporate purposes.
There is no assurance that the Company will be able to raise the
additional capital it requires through the equipment refinancing or otherwise.
In the event that the Company is unable to raise the working capital it needs,
it will focus its effort on the profitable activities that its resources can
support at that time.
The financial statements have been prepared assuming the Company will
continue as a going concern. The Company has suffered recurring losses from
operations that raise substantial doubt about its ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
21
<PAGE>
(3) MINING PROPERTIES AND EQUIPMENT
DECEMBER 31,
1999
------------
Mining property:
Caerwinning deposit, at cost $ 504,183
Less accumulated amortization (59,545)
------------
444,638
------------
Mining properties under development:
Grasdrif deposit 1,137,913
------------
Mining equipment, at cost 5,257,349
Less accumulated depreciation (669,028)
------------
4,588,321
------------
Office equipment, at cost 63,539
Less accumulated depreciation (46,343)
------------
17,196
------------
$ 6,188,068
============
Depreciation expense for the years ending December 31, 1999 and
December 31, 1998, respectively, amounted to $442,468 and $61,261.
(4) LONG-TERM DEBT
The $3,000,000 secured note payable has a prepayment requirement that
if on December 31, 2000 or 2001, the Company has in excess of $2,000,000 in cash
and cash equivalents on hand, that excess must be paid on the note. The note
does not contain any penalties for prepayment. Interest at 15% is payable every
six months in arrears and the note is secured by the pledge of 100% of the stock
of Global SA, which holds all of the Company's mining properties, plant and
equipment. The agreement related to the note restricts the payment of dividends
by the Company. The principal and interest under the note is convertible into a
maximum of 1,807,816 common shares of the Company at the rate of $0.425 per
share. As of December 31, 1999, the Company was not in compliance with a debt
covenant which required the Company to timely file the 1999 Form 10-KSB. The
Company received a waiver and expects to complete this filing by May 22, 2000.
(5) AUTHORIZED SHARE CAPITAL
On June 16, 1999 the Company increased its authorized common stock from
50,000,000 shares of $.0005 par value common stock to 100,000,000 shares of
$0.0005 par value common stock.
(6) INCOME TAXES
The Company has no significant taxable temporary differences which
would require recognition of deferred tax liabilities. Utilization of the
deferred foreign tax asset of $866,485 from net operating loss carryforwards in
South Africa is dependent on future taxable profits in excess of profits arising
from existing taxable temporary differences. Although there was a reported loss
for the year ended December 31, 1999, the asset has been recognized because
forecasts for the mining operation indicated the carryforwards will be realized.
Additionally, Federal deferred tax assets of approximately $2,078,000 and state
deferred tax assets of approximately $3,611,000 were not recognized due to the
uncertainty of future realizability and a 100% valuation allowance was set up to
reduce the asset to zero.
At December 31, 1999, the Company had available net operating loss
carryforwards of approximately $6,113,000 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, approximate the federal amounts.
The net operating loss carryforwards are subject to certain limitations under
Section 382 of the Internal Revenue Code.
22
<PAGE>
(7) FOREIGN OPERATIONS
The Company's wholly-owned subsidiary, Global SA, operates in the
Republic of South Africa. During 1999 and 1998, Global SA's sales represented
100% of consolidated sales, while Global SA's expenses represented 36% and 31%,
respectively, of consolidated non-production expenses. All production occurs in
the Republic of South Africa and thus Global SA represents 100% of the
production, development and exploration expenses for 1999 and 1998. At December
31, 1999 and 1998, Global SA's total assets (primarily cash, mining properties
and equipment) represented 96% and 46%, respectively, of consolidated total
assets. In the past, the Republic of South Africa experienced political and
economic instability. While current indications are that it appears to be
becoming more stable, 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.
(8) RELATED PARTY TRANSACTIONS
At December 31, 1999, the Company granted 2,000,000 common stock
warrants to Weir International Limited ("Weir") in consideration for the
termination of a marketing agreement whereby Weir would be paid 5% of all
diamonds sold. The warrants are exercisable at $.40 and will only vest once the
Company's publicly traded stock reaches a minimum price of $1.00 and the Company
has earnings of $.05 per share. The warrants will expire three years after
vesting. Weir is a stockholder of the Company and the Company's Chairman and
Chief Executive Officer has a beneficial interest in Weir. Total commissions
paid during 1999 were $25,000 and are included in Royalty expense for the year
ended December 31, 1999. No commissions were paid during 1998.
As of December 31, 1999, the Company owed R1,390,000 ($222,453 at
December 31,1999) to a director of the company. The note bears interest at 17%
per annum, payable monthly, and is due on demand. Additionally, included in
accounts payable is $25,000 owed to a director of the Company.
As of December 31, 1999, the Company entered into an agreement with
Elite Diamond Cutters ("Elite") to market and sell its diamonds. A director of
the Company is a partial owner of Elite. The Company believes that the terms of
its transactions with Elite are no less favorable than could be obtained from an
unaffiliated party.
In connection with the 1998 private placement of common stock, the
Company paid a finder's fee amounting to $1,363,200 and 2,750,000 shares of
Common Stock to Mr. Abu Bakr Bin Ali Al-Akhdar Mood, who at the time was a
director of PCM and a member of the Board of Directors of the Company. As a
result of a subsequent arbitration over the matter, Mr. Abu Bakr returned to the
Company $963,165 and the 2,750,000 shares of Common Stock in June 1999. The
remaining portion of the finder's fee of $400,035 was charged to operations
during 1998. On June 3, 1999, Mr. Abu Bakr resigned from the Board of Directors
of the Company. 666,667 shares of common stock were issued to International PCM
Holdings Limited as a fee for their assistance in the return of the finder's
fee.
In December 1998, the Company sold to a director of the Company
1,510,758 shares of common stock for $244,300.
(9) STOCK OPTIONS AND WARRANTS
All issuances of options and warrants were at prices at or above market
at the time of issuance.
In March 1998, the Company issued 25,000 common stock warrants for
consulting services at $.50 per share, exercisable at any time until they expire
on March 20, 2001.
In August 1998, the Company issued the following options to directors
of the Company: 100,000 common stock options to each of three directors,
exercisable at $.525 per share, exercisable at any time until they expire on
December 31, 2000; 50,000 common stock options to each of five directors,
exercisable at $.525 per share, exercisable at any time until they expire on
January 2, 2001; 50,000 common stock options to each of the two directors,
exercisable at $.525 per share, exercisable at any time until they expire,
50,000 on February 4, 2001 and 50,000 on May 5, 2001.
In December 1998, the Company issued 50,000 common stock options to
each of four directors, exercisable at $.4875 per share. 100,000 of these
options expire on December 29, 2001 and 100,000 options expire on December 30,
2001.
In August 1999, the Company granted 100,000 common stock options to an
employee of the Company. The options are exercisable at $.25 per share with
25,000 exercisable at any time, 25,000 after February 1, 2000, 25,000 after
August 1, 2000 and 25,000 after August 1, 2001. The options expire August 1,
2009 or 60 days after termination of service, whichever occurs first.
23
<PAGE>
In December 1999, the Company granted 167,000 common stock options to a
consultant, immediately exercisable at $0.0781 and expiring on December 31,
2004.
In December 1999, the Company granted Weir International Limited
("Weir") 2,000,000 common stock warrants. The warrants are exercisable at $.40
and will only vest once the Company's publicly traded stock reaches a minimum
price of $1.00 per share and the Company has earnings of $.05 per share. The
warrants will expire three years after vesting.
The per share weighted-average fair value of stock options and warrants
granted to directors, officers and employees during 1999 and 1998 was $0.16 and
$0.16, respectively, on the date of grant using the Black Scholes option-pricing
model with the following weighted-average assumptions; 1999 - expected dividend
yield 0%, risk-free interest rate of 5.97%, expected life of 2.5 years and an
expected volatility of the stock over the expected life of the options and
warrants of 68%; 1998 - expected dividend yield 0%, risk-free interest rate of
5.97%, expected life of 2.5 years, and an expected volatility of the stock over
the expected life of the options and warrants of 68%.
The Company applies APB Opinion No. 25 in accounting for its stock
options and warrants granted to directors, officers and employees. No
compensation cost has been recognized for its stock options and warrants issued
to employees or directors of the Company in the consolidated financial
statements as they were issued at or above market. 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:
1999 1998
------------- -------------
Net loss, as reported $ (2,192,731) $ (3,597,167)
Net loss, pro forma $ (2,304,644) $ (3,749,919)
Basic and diluted net loss per
share, as reported ($.05) ($.15)
Basic and diluted loss per
share, pro forma ($.05) ($.16)
Stock option and warrant activity during the periods indicated is as
follows:
WEIGHTED-
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
--------------- ---------------
Balance at December 31, 1997 9,160,838 $ 0.57
Granted 1,075,000 0.50
Exercised (172,286) 0.27
Lapsed (200,000) 0.75
--------------- ---------------
Balance at December 31, 1998 9,863,552 0.57
Granted 2,717,000 0.38
Canceled (1,713,572) 0.47
--------------- ---------------
Balance at December 31, 1999 10,866,980 $ 0.54
=============== ===============
At December 31, 1999, the range of exercise prices and the
weighted-average remaining contractual life of outstanding options and warrants
were $0.0781 to $1.25 and 3.5 years, respectively.
At December 31, 1999 and 1998, the number of options and warrants
exercisable was 10,866,980 and 9,838,552, respectively.
24
<PAGE>
(10) COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENT
As of December 31, 1999, the Company had a non-cancelable operating
lease commitment for the Company's corporate office expiring in March 2002. The
monthly rent payment on this operating lease is $1,411. The Company also leases
office space from a director of the Company for R1800 ($265 at April 28, 2000)
per month, which is cancelable on demand. In addition, Global SA had a
non-cancelable operating lease commitment for the South African corporate office
expiring in March 2003. The monthly rent payment on this operations lease is
R1,496 ($221 at April 28, 2000). Rent expense for 1999 and 1998 was $20,356 and
$17,961, respectively.
Minimum lease obligations for non-cancelable leases for each of the next five
years are:
2000 $ 19,584
2001 $ 19,584
2002 $ 6,885
2003 $ 663
2004 $ -0-
LEGAL MATTERS
In July 1999, the Company and its Chairman, Johann de Villiers, were
named as defendants in an action Mr. Abu Bakr Bin Ali Al-Akhdar Mood brought in
the United States District Court for the Southern District of California. Mr.
Abu Bakr is a former director of the Company. In that action, Mr. Abu Bakr
alleges that he acted as a finder in connection with the sale of a total of
$6,000,000 of the Company's common stock to two private investors and that in
connection with that offering, he was entitled to a finders' fee equal to
approximately 28% of the gross proceeds. Mr. Abu Bakr alleges that the Company
and Mr. de Villiers fraudulently forced Mr. Abu Bakr to participate in a binding
arbitration regarding his finders' fees and that as a result of this
arbitration, he was forced to return the finders' fee and resign from his
position with his then current employer. Mr. Abu Bakr has alleged causes of
action for breach of contract, unjust enrichment, fraud, misrepresentation and
duress. Mr. Abu Bakr also alleges interference with and breach of his employment
contract with his then current employer. Mr. Abu Bakr seeks compensatory and
punitive damages in an unspecified amount.
In August 1999, the Company and Mr. de Villiers filed an answer to Mr.
Abu Bakr's complaint in which they denied all of the allegations contained
therein. The Company believes that the allegations of Mr. Abu Bakr are frivolous
and, accordingly, the Company intends to vigorously defend this case.
25
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On December 1, 1999, KPMG LLP resigned as the principal accountants for
the Company.
In connection with the audits of the two fiscal years ended December
31, 1998 and the subsequent interim period through December 1, 1999, there were
no disagreements with KPMG LLP on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures,
which disagreements if not resolved to their satisfaction would have caused them
to make reference in connection with their opinion to the subject matter of the
disagreement.
The audit report of KPMG LLP on the consolidated financial statements
of the Company as of December 31, 1998 and for the years ended December 31, 1998
and 1997 did not contain any adverse opinion or disclaimer of opinion, nor were
they qualified or modified as to uncertainty, audit scope, or accounting
principles, except that it contained separate paragraphs stating that: A) "As
discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for exploration and related costs on unproven
properties." B) "The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has suffered recurring losses from
operations that raise substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty."
26
<PAGE>
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, effective as of July 1, 1999, are the directors and
officers of the Company and its South African subsidiary, Global Diamond
Resources (SA)(Pty) Limited ("Global Diamond-SA"). Each person holds the stated
positions with the indicated companies.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Johann de Villiers 47 Chairman of the Board, Director of the Company, Chief
Executive Officer and Chief Financial Officer
Director of Global Diamond-SA
Pieter van Wyk 49 Director of Exploration and Mining and Director of
the Company and Director of Global Diamond-SA
John Tyson 52 Director of the Company
Charles MacDonald 46 Director of the Company and Director of Global
Diamond-SA
Said H. Ghachem 58 Director of the Company
Ahmed M. Basodan 38 Director of the Company
Yassin Abduaalh Kadi 45 Director of the Company
Mattar Abdulla Al Muhairy 56 Director of the Company
Amin Koudsi 56 Director of the Company
Andries Janzen 56 Director of the Company and
Managing Director of Global Diamond-SA
Gasem S. Al-Shaikh 46 Director of the Company
Paulus Vries 48 Director of Global Diamond-SA
Eugene Brill 35 Secretary of the Company
</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. He was appointed Chief Financial Officer in July 1999.
Mr. van Wyk has served as Chief Consulting Geologist of Global
Diamond-SA from July 1994 to February 1998. In February 1998, Mr. van Wyk was
appointed to serve as Director of Exploration and Mining of the Company and as
member of the Company's Board of Directors. 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. 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.
27
<PAGE>
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. Said H. Ghachem has served as a director of the Company since
December 1997. He has also served as the Vice President of PCM since 1994 and is
President of IPCM. Mr. Ghachem serves on the Board of Directors of the Company
as the nominee of International PCM Holdings Limited.
Mr. Basodan has served as a director of the Company since December
1998. Mr. Basodan is the President of the Caravan Group Company based in the
Kingdom of Saudi Arabia. Mr. Basodan holds a B.SC in Industrial Management. Mr.
Basodan serves on the Board of Directors as the nominee of New Diamond Holdings
Limited.
Mr. Kadi has served as a director of the Company since December 1998.
Mr. Kadi is the Chairman of Saudi National Consulting Center and Qordoba Real
Estate Co. based in the Kingdom of Saudi Arabia, Chairman of Caravan Co. based
in Turkey, board member of Himont Chemical based in Pakistan and Cariba Bank
based in Kazakhstan. Mr. Kadi holds a B.SC in Engineering. Mr. Kadi also serves
on the Board of Directors as the nominee of New Diamond Holdings Limited.
Mr. Al Muhairy has served as a director of the Company since December
1998. Mr. Al Muhairy is vice chairman of Al Muhairy Group based in United Arab
Emirates. Al Muhairy Group was established in 1981 and its activities are
diversified in many fields: Contracting, Oil Drilling - Petroleum Services,
investments in other major companies in United Arab Emirates and in other fields
in United Arab Emirates and other countries overseas. Mr. Al Muhairy serves on
the Board of Directors as the nominee of LIWA Diamond Company Limited.
Mr. Koudsi has served as a director of the Company since December 1998.
Mr. Koudsi has served as Deputy General Manager of Al Muhairy Group based in
United Arab Emirates since 1981. Al Muhairy Group was established in 1981 and
its activities are diversified in many fields: Contracting, Oil Drilling -
Petroleum Services, investments in other major companies in United Arab Emirates
and in other fields in United Arab Emirates and other countries overseas. Mr.
Koudsi serves on the Board of Directors as the nominee of LIWA Diamond Company
Limited.
Mr. Janzen has served as Managing Director of Global Diamond-SA since
July 1994 and a director of the Company from February 1998 to December 1998. He
was reappointed as a director of the Company in May 1999. 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 its 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.
Eng. Gasem S. Al-Shaikh as served as a director of the Company from
December 1997 to December 1998. He was reappointed as a director of the Company
in June 1999. He has also served as the Deputy Managing Director of the
Petroleum Chemicals and Mining Division and an Executive Board Member of PCM
since 1994. He also serves as Chairman of International PCM Holdings Limited.
Eng. Gasem S. Al-Shaikh serves on the Board of Directors of the Company as the
nominee of International PCM Holdings Limited.
Mr. Vries has served as a director of Global Diamond-SA from April of
1999 to present. He is a partner of Nabas Holdings. He received his South
African matriculation degree and has 20 years experience in mining
administration.
Mr. Brill has served as Vice President of Investor Relations of the
Company since January 1994. In July 1999, he was appointed Secretary of the
Company. Since January 1993, he was a Vice President at Kensington Finance
Corp., an options trading firm and investment trader for the Monitrend Gold
Mutual Fund. He holds Series 7, 63, 4 and 24 as a securities representative with
the National Association of Securities Dealers, Inc. He holds a certificate in
diamond grading from the Gemological Institute of America as well as a
certificate in rough evaluation from the Diamond Institute of Africa.
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, 1999, and 1998.
28
<PAGE>
<TABLE>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------------------------------ --------------------------
YEAR SALARY BONUS OTHER RESTRICTED COMMON
($) ($) ANNUAL STOCK SHARES
COMPENSATION AWARDS UNDERLYING
($) ($) OPTIONS ALL OTHER
GRANTED COMPENSATION
NAME AND POSITION (# SHARES) ($)
- --------------------------- ------ -------- ------- -------------- ----------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Johann de Villiers, CEO(1) 1999 $250,000 -0- -0- -0- -0- -0-
1998 241,667 -0- -0- -0- -0- -0-
Abu Bakr Bin Ali 1999 $ 41,668 -0- -0- -0- -0- -0-
Al-Akhdar Mood, Executive 1998 $ -0- -0- -0- -0- -0- 400,035(4)
Vice Chairman(3)
Mervyn McCulloch, CFO(2) 1999 $ 90,000 -0- -0- -0- -0- -0-
1998 $175,000 -0- -0- -0- -0- -0-
- ---------------
(1) The Company has entered into a five year employment agreement with Mr.
de Villiers effective as of February 4, 1998. Pursuant to the
agreement, Mr. de Villiers receives a monthly salary of $20,833 and a
monthly car allowance of $750. In addition, Mr. de Villiers is
entitled to participate in a senior management bonus pool in the
amount of 10% of the Company's annual after tax earnings. Mr. de
Villiers was appointed Chief Financial Officer on July 1, 1999.
(2) The Company had entered into a five year employment agreement with Mr.
McCulloch effective as of February 4, 1998. Pursuant to the agreement,
Mr. McCulloch receives a monthly salary of $15,000 and a car allowance
of $500. In addition, Mr. McCulloch is entitled to participate in a
senior management bonus pool in the aggregate amount of 10% of the
Company's annual after tax earnings. Mr. McCulloch resigned as Chief
Financial Officer on June 30, 1999.
(3) The Company had entered into a five year employment agreement with Mr.
Abu Bakr Bin Ali Al-Akhdar Mood effective as of January 1, 1999.
Pursuant to the Agreement, Mr. Abu Bakr Bin Ali Al-Akhdar Mood was
appointed Executive Vice Chairman and received a monthly salary of
$10,417. He resigned as Executive Vice Chairman on April 30, 1999,
relinquishing all present and future benefits of options held.
(4) In December 1998, Mr. Abu Bakr Bin Ali Al-Akhdar Mood received a
finders fee in connection with the $6,000,000 equity financing which
closed in December 1998. The finders fee consisted of $1,363,200 in
cash (paid part in January 1999 and the balance in March 1999) and
2,750,000 shares of Common Stock of the Company. In June 1999, Mr. Abu
Bakr returned all the common shares and $963,165 of the cash as of June
23, 1999. He resigned as a director in June 1999.
</TABLE>
COMPENSATION OF DIRECTORS. Effective January 1, 1998, all non-officer
directors receive an attendance fee of $1,000 per meeting of the Board of
Directors and $250 per telephone meeting. Directors' fees incurred in 1999 and
1998 were $15,000 and $11,000, respectively. 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.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFIC OWNERS AND MANAGEM
The following table sets forth certain information regarding the
beneficial ownership of the shares of Common Stock as of April 28, 2000 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 IP directors and executive officers and (iii) all
directors and executive IAL officers as a group.
29
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OWNED
---------------- ---------------- ----------------
<S> <C> <C>
Johann de Villiers(1)(2) 3,822,333 4.0%
Pieter van Wyk(1)(3) 921,220 2.0%
John Tyson(1)(4) 481,920 1.1%
Charles MacDonald(1)(5) 375,000 (6)
Said H. Ghachem(7)(8)(9) 250,000 (6)
Ahmed M. Basodan(10)(11)(12) 150,000 (6)
Yassin Abduaalh Kadi(10)(11)(12) 150,000 (6)
Mattar Abdulla Al Muhairy(10)(13)(14) 150,000 (6)
Amin Koudsi(10)(13)(14) 150,000 (6)
Andries Janzen(1)(10) 150,000 (6)
Gasem S. Al-Shaikh(7)(8)(9) 250,000 (6)
Eugene Brill(1)(15) 535,040 1.2%
International PCM Holdings Limited(7)(16)(17) 11,732,392 25.7%
New Diamond Holdings Limited(11) 9,238,096 20.3%
LIWA Diamond Company Limited(13) 9,238,096 20.3%
All officers and directors
as a group 7,385,513 11.8%
- ---------------
(1) Address is 836 Prospect, Suite 2B, La Jolla, California 92037.
(2) Includes 1,633,333 shares of Common Stock underlying immediately exercisable options and 2,000,000
shares of Common Stock exercisable only upon certain vesting requirements.
(3) Represents 600,000 shares of Common Stock underlying immediately exercisable options.
(4) Includes 450,000 shares of Common Stock underlying immediately exercisable options.
(5) Includes 250,000 shares of Common Stock underlying immediately exercisable options.
(6) Less than one percent.
(7) Address is P.O. Box 33251, Jeddah 21448, Saudi Arabia.
(8) Includes 250,000 shares of Common Stock underlying immediately exercisable options.
(9) Serves on the Board of Directors of the Company as the nominee of International PCM Holdings Limited.
(10) Includes 150,000 shares of common stock underlying immediately exercisable options.
(11) Address is Almahmal Center, 18th Floor, Jeddah, Saudi Arabia.
(12) Serves on the Board of Directors of the Company as the nominee of New Diamond Holdings Limited.
(13) Address is P.O. Box 95, Abu Dhabi, United Arab Emirates.
(14) Serves on the Board of Directors of the Company as the nominee of LIWA Diamond Company Limited.
(15) Includes 400,000 shares of Common Stock underlying immediately exercisable options.
(16) Includes 1,807,816 shares of Common Stock issuable upon conversion of a Secured Convertible
Promissory Note. Does not include 346,494 shares of Common Stock underlying warrants not immediately
exercisable.
(17) Address is Parade House, The Parade, Castletown, IM9 1LG, Isle of Man, British Isles.
</TABLE>
30
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the years ended December 31, 1999 and 1998, the Company had
engaged Weir International Limited ("Weir") to market and sell the Company's
diamond production. The Company was 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 was responsible for all sales and
marketing expenses. In consideration of its services, the Company would 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. The Company believes that the terms
of its transactions with Weir are no less favorable than could be obtained from
an unaffiliated party. During the year ended December 31, 1999 the Company paid
to Weir $25,000 commission from sales of diamonds. No commissions were paid
during the year ended December 31, 1998. On December 31, 1999, in consideration
for the termination of this marketing agreement, the Company issued 2,000,000
warrants to purchase common stock at $.40 per share to Weir. These warrants will
only vest once the Company's publicly traded stock reaches a minimum of $1.00
per share and the Company has earnings of $.05 per share. The warrants will
expire three years after vesting.
The Company paid a finders fee of $1,363,200 and 2,750,000 shares of
Common Stock of the Company to Mr. Abu Bakr Bin Ali Al-Akhdar Mood upon the
closing of the $6,000,000 equity funding in December 1998. At the time, Mr. Abu
Bakr was a member of the Board of Directors of the Company. The $1,363,200 was
paid part in January 1999 and the balance in March 1999. Pursuant to the request
of the Company and the investors, Mr. Abu Bakr returned $963,165 and 2,750,000
common shares of the Company. It is uncertain whether Mr. Abu Bakr will return
the $400,035 balance of the cash portion of the finder's fee. Mr. Abu Bakr
resigned from the Board of Directors on June 3, 1999. 666,667 shares of common
stock were issued to International PCM Holdings Limited as a fee for their
assistance in the return of the finder's fee.
In December 1998, the Company sold to a director of the Company and his
family 1,510,758 shares of common stock for $244,300.
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
3.3 Certificate dated December 17, 1997
3.4 Amendment dated June 16, 1999 to Articles of Incorporation
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).
10.4** Securities Purchase Agreement dated December 5, 1997 between
the Company and International PCM Holdings Limited.
10.5*** Securities Purchase Agreement dated December 29, 1998
between the Company and New Diamond Holdings Limited
10.6*** Securities Purchase Agreement dated December 29, 1998
between the Company and LIWA Diamond Company Limited
31
<PAGE>
10.7*** Amendment No. 1 dated June 28, 1999 to Securities Purchase
Agreement dated December 29, 1998 between the Company and
New Diamond Holdings Limited
10.8*** Amendment No. 1 dated June 28, 1999 to Securities Purchase
Agreement dated December 29, 1998 between the Company and
LIWA Diamond Company Limited
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,
Global Diamonds Resources International Limited, a British
Virgin Islands corporation, and Nabas Diamonds (Pty) Ltd., a
South African corporation
- ---------------
* 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.
** Previously filed as part of Annual Report on Form 10-KSB for the year
ended December 31, 1997.
*** Previously filed as part of Annual Report on Form 10-KSB for the year
ended December 31, 1998.
(b) REPORTS ON FORM 8-K.
The following is a list of Current Reports on Form 8-K filed by the
Company during or subsequent to the last quarter of the fiscal year ended
December 31, 1999.
1. Form 8-K dated February 28, 2000, reporting under Item 4, a
change in the Company's certifying accountant.
32
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GLOBAL DIAMOND RESOURCES, INC.
Date: April 28, 2000 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, Director, April 28, 2000
- ------------------------------------ Chief Executive Officer and Chief
JOHANN DE VILLIERS Financial Officer
/S/ PIETER VAN WYK Director April 28, 2000
- ------------------------------------
PIETER VAN WYK
/S/ JOHN TYSON Director April 28, 2000
- ------------------------------------
JOHN TYSON
/S/ CHARLES MACDONALD Director April 28, 2000
- ------------------------------------
CHARLES MACDONALD
/S/ SAID H. GHACHEM Director April 28, 2000
- ------------------------------------
SAID H. GHACHEM
/S/ AHMED M. BASODAN Director April 28, 2000
- ------------------------------------
AHMED M. BASODAN
/S/ YASSINABDUALLAH KADI Director April 28, 2000
- ------------------------------------
YASSIN ABDUALLAH KADI
/S/ MATTAR ABDULLA
AL MUHAIRY
- ------------------------------------
MATTAR ABDULLA Director April 28, 2000
AL MUHAIRY
/S/ AMIN KOUDSI Director April 28, 2000
- ------------------------------------
AMIN KOUDSI
/S/ ANDRIES JANZEN Director April 28, 2000
- ------------------------------------
ANDRIES JANZEN
/S/ GASEM S. AL-SHAIKH Director April 28, 2000
- ------------------------------------
GASEM S. AL-SHAIKH
</TABLE>
33
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 182,100
<SECURITIES> 0
<RECEIVABLES> 9,619
<ALLOWANCES> 0
<INVENTORY> 46,650
<CURRENT-ASSETS> 238,369
<PP&E> 6,188,068
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,292,922
<CURRENT-LIABILITIES> 623,696
<BONDS> 0
0
0
<COMMON> 22,800
<OTHER-SE> 3,646,426
<TOTAL-LIABILITY-AND-EQUITY> 7,292,922
<SALES> 448,651
<TOTAL-REVENUES> 448,651
<CGS> 475,004
<TOTAL-COSTS> 1,680,005
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 452,176
<INCOME-PRETAX> (2,192,731)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,192,731)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,192,731)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
