<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________________
Commission file number 0-21635
Global Diamond Resources, Inc.
(Name of Small Business Issuer in its charter)
Nevada 33-0213535
- -------------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
836 Prospect Street, Suite 2B 92037
La Jolla, California
- -------------------------------------- ---------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (858) 459-1928
--------------
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None N/A
-------------------------------------- ---------------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.0005 par value
- --------------------------------------------------------------------------------
(Title of class)
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 March 27, 2000 was approximately $7,673,000.
The number of shares of the Common Stock outstanding as of March 27, 2000 was
47,284,678.
Documents incorporated by reference: None.
<PAGE>
Part I
Item 1. Description of Business.
Business Development
- --------------------
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 March 27, 2000, the Rand-
Dollar exchange rate was 6.47 Rand to one U.S. Dollar. Unless otherwise
indicated, all share information contained in this report has been adjusted to
give effect for a two for one split of the outstanding shares of Common Stock
effected on December 19, 1997.
Global Diamond Resources, Inc., a Nevada corporation ("Company"), was
formed under the laws of the State of Nevada on January 7, 1987. The Company is
engaged in diamond mining and exploration through its wholly owned subsidiary
Global Diamond Resources (SA) (Pty) Limited, a South African corporation.
In December 1997, the Board of Directors approved a two for one split of
the outstanding shares of Common Stock of the Company and a change in its
authorized Common Stock from 25 million shares of $.001 par value Common Stock
to 50 million shares of $.0005 par value Common Stock. The effective date of the
split was December 19, 1997.
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 the Company
include its wholly-owned subsidiaries, Global Diamond Resources Inc., a British
Columbia corporation, Global Diamond Resources (SA) (Pty) Limited, a South
African corporation, Global Diamond Resources International Limited, a British
Virgin Islands corporation, and Nabas Diamonds (Pty) Limited, a South African
corporation. The Company's executive offices are located at 836 Prospect Street,
Suite 2B, La Jolla, California 92037; Telephone (858) 459-1928.
Business of the Issuer
- ----------------------
General
The Company is engaged in diamond exploration and mining. The Company has
acquired two mining properties (the Grasdrif Deposit and the Caerwinning
Deposit), and owns 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
1
<PAGE>
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.
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 it 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. The
Company expects that its sale of diamonds will be transacted in U.S. dollars on
a cash basis.
2
<PAGE>
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
3
<PAGE>
or mounted within or by towed an aircraft. Useful in
detecting kimberlite bodies due to the presence of
magnetite and/or ilmenite.
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 and/or quality
- ----------------- are computed from information similar to that used for
(Indicated Resource) 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 computed from
- --------------- dimensions which can be measured from outcrops,
(Measured Resource) 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 tone 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.
4
<PAGE>
The Grasdrif Deposit
Property Rights. The Company holds a prospecting permit for the Grasdrif
Deposit through its wholly-owned subsidiary company (Nabas Diamonds (Pty) Ltd.).
The prospecting permit expires on August 4, 2003. The Company will apply for a
mining permit when the level of activities warrant such an application. In
terms of the prospecting permit, the Company is required to pay a surface rental
amounting to R5,200 ($804 as of March 27, 2000) per annum, and a royalty in the
amount of 5% of the gross selling price of the production from the deposit. The
Company is in the process of delineating ore reserves on these extensive
deposits with the view of applying for a mining permit.
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) seems to have
been deposited as a point bar of a channel incising to the west, while all other
terraces are associated with a gradual eastward migration of the channels
towards its present position.
Reserves. Based upon the results derived from a 10,000 meter drilling
program completed by the Company in 1997, ongoing second phase drilling and bulk
sampling, as well as the results of previous exploration programs on the
property conducted during the early 1980's, the Company estimates that the
deposit contains approximately 80 million tonnes of diamondiferous gravel.
Mining Activities. The Company has 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 in 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 Province of the Republic of South Africa. Pursuant to the mineral
lease, the Company has 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, the Company is required to pay the government a 5% royalty of
the gross selling price of the monthly production from the deposit, with a
minimum payment of R50,000 per year.
Geography. The Caerwinning Deposit is an alluvial 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. Ingress to
and egress from the Caerwinning property is available by way of public paved and
gravel roads. The property is serviced by the state electric utility.
Geology. The 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 the furthest removed from the present
riverbed. The terraces are named T1, T2 and T3 with T1 being the oldest.
Secondary calcification is rather extensive in the oldest terraces but
negligible in the later and recent deposits.
5
<PAGE>
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, more or less angular boulders into the
mainstream deposits.
Reserves. The Company has 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 1.15 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 needs to
be interpreted further but preliminary indications are that the T1 gravel
extends into this area. Mr. Pieter Van Wyk, Director of Mining and Exploration
of the Company, recovered 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. The Company commenced production at the T2 terrace at
Caerwinning when it commissioned the primary and final recovery plant on site
in the last quarter of 1998. The Company commissioned an additional diamond
recovery plant at Caerwinning 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 the Company's wholly-owned subsidiary (Global
Diamond Resources (SA) (Pty) Limited), the Company has acquired the exclusive
rights to prospect on the property until October 10, 2000 in consideration of
the Company's payment of R60,000 ($7,900 at September 10, 1999) and 10% of the
value of all diamonds recovered by the Company during the prospecting period.
The Company also has the exclusive option until October 10, 2000 to purchase the
farm for a purchase price of $600,000. The Company is 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. The Company estimates that the pipe may contain in excess of 9 million
tonnes of kimberlite ore to a depth of 400 meters.
6
<PAGE>
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.
Competition
The diamond mining industry is intensely competitive. The principle areas
of competition are the exploration and acquisition of mineral properties. A
large number of companies are engaged in the exploration and development of
diamond properties, many of which have substantially greater technical and
financial resources than the Company. Competition among the members of the
diamond mining industry also affect the marketing of the diamonds produced by
the members, including the price of cut and uncut diamonds.
Regulation
The Company's mining and 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
orders being issued that may cause operations to cease or be curtailed, require
the installation of additional equipment and possibly the loss of mining rights.
Existing and future legislation and regulations could also cause restrictions
and delays in the development of the Company's properties and additional expense
and capital expenditures. The Company believes it is in substantial compliance
with all material laws and regulations applicable to it and its operations.
The Company's mining operations are also subject to governmental
regulations regarding environmental considerations, including regulations
relating to air quality standards, pollution of stream and fresh water sources
and rehabilitation. The Company may be required to prepare and present to
governmental authorities data pertaining to the effect or impact that any
proposed exploration or mining may have upon the environment. As well, the
Company will be responsible for rehabilitation costs. The Company currently
engages in ongoing rehabilitation as well as providing 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 are similar in that they aim to minimize long term effects of exploration
and mining disturbance by requiring the operating company to control possible
deleterious effluents and to re-establish to some degree predisturbance
landforms and vegetation. The Company does not consider the existing
environmental regulations in the Republic of South Africa to represent a
material cost or burden on the Company's proposed mining operations. However,
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 the Company's 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 to the Company, 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 minerals on land 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, the Company has obtained government authorization to prospect
the Grasdrif Deposit and mine the Caerwinning Deposit. The Company has applied
for the necessary authorization to bulk sample the Montrose Kimberlite pipe. The
Company believes it will be granted the necessary authorization to mine the
Grasdrif Deposit and the Montrose Kimberlite Pipe in a timely manner.
Employees
The Company employs 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 the Company's employees are unionized or otherwise subject to a
collective bargaining agreement and the Company believes that its relationship
with its employees is excellent.
7
<PAGE>
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. The Company's lease
for these premises expires on March 31, 2002 and provides for monthly rent of
$1,411. The Company leases approximately 750 square feet of office space in
Somerset West from a director of the Company for R1800 ($278 as of March 27,
2000) per month with no expiration. The Company also leases approximately 260
square feet in the SA Diamond Center in Johannesburg, South Africa. The lease
provides for monthly rental of R1496 ($231 as of March 27, 2000) and expires on
February 28, 2003. The Company purchased a property in August 1998 in
Delportshoop, South Africa which is near the Caerwinning Deposit, by issuing
151,171 shares of Common Stock. 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
during the fiscal year 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. During the twelve months ended December
31, 1999 and December 31, 1998, the high and low closing sale prices were $.3906
and $.0938 and $.5625 and $.1094, respectively. The Company considers its Common
Stock to be thinly traded and that any reported bid or sale prices may not be a
true market-based valuation of the Common Stock. As of February 18, 2000, there
were approximately 131 record holders and 443 beneficial holders of the
Company's Common Stock.
The Company has not paid any cash dividends since its inception and does
not contemplate paying dividends in the foreseeable future. It is anticipated
that earnings, if any, will be retained for the operation of the Company's
business.
8
<PAGE>
During the fiscal year ended December 31, 1999, there were no sales of
common stock. 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. In
addition, the Company granted 166,641 in common stock options in exchange for
accounting services, exercisable at $0.01 and expiring December 31, 2004.
Item 6. Management's Discussion and Analysis or Plan of Operation.
Background
The Company is engaged in diamond exploration and mining. The Company
has acquired the rights to two mining properties, the Grasdrif
Deposit and the Caerwinning Deposit, and owns 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, the companies' 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
the year ended December 31, 1999, the Company purchased mining plant and
equipment amounting to $843,746 and $1,481,255 at the Grasdrif and Caerwinning
Deposits, respectively. Additionally, the Company incurred mine development
costs at the Grasdrif Deposit for the Upper and Lower Terraces, net of diamonds
recovered, amounting to approximately $380,000.
Results of Operations
Caerwinning
The Company's principal mining activities are conducted at its 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. During 1999, 186,487 tons of diamondiferous gravel was treated
at Caerwinning. [1998, 37,046 tons]. Treatment of these tons yielded 1,079.81
carats of large, high-quality gemstone diamonds. [1998, 218.95 carats]. The
value of this production amounts to $457,235 or $423 per carat. [1998 $87,335 or
$398 per carat]. The lower-than-expected grade for the period under review
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 an
operating loss amounting to $479,230.
Grasdrif
Development activities continued at the Grasdrif Deposit during 1999. On
the Lower Terrace, 91,125 tons of diamondiferous gravel was treated. [1998
68,198 tons]. The treatment of these tons yielded 158.25 carats for a grade of
0.17 carats per hundred tons. [1998 54.43 carats yielding a grade of 0.08 carats
per hundred tons]. Although the recovery from this gravel is significantly lower
than expected, the average size and value of the recovered diamonds far exceed
expectations. The average size of diamonds produced on the Lower Terrace for
1999 amounted to 3.04 carats per stone, valued at $1,272 per carat. [1998 2.59
carats per stone valued at $438 per carat]. Trial mining commenced during the
last quarter on the Upper Terrace, and 25,949 tons of diamondiferous gravel was
treated, yielding 37 stones with a mass of 96.52 carats at an average grade of
0.37 carats per hundred tons and average size of 2.61 carats per stone, valued
at $732 per carat. The grade is lower than expected, and is a result of the
upper layer of gravel being treated on a very small scale. During the first
quarter of 2000, development activities on both the Upper and Lower Terrace
continued, with results in the same order of magnitude as that of 1999 being
achieved. The treatment of a total of 263,566 tons of diamondiferous gravel
since commencement of operations in 1998 through the first quarter of 2000 at
the Grasdrif Deposit amounted to 0.33% of the entire reserve. Mine development
costs for the Upper and Lower Terraces of the Grasdrif Deposit for 1999 amounted
to R2,359,787. [1998 R4,502,541].
9
<PAGE>
Montrose
During 1999 the Company completed its interpretation of the results of its
large diameter drilling program conducted during 1998. The conclusion was that
diamonds, mainly gemstones, were found across the pipe at various levels. It was
therefore decided to begin preparations for a 5,000 ton bulk sample of the pipe
with the purpose of determining the actual grade of the deposit and the value
per carat of the diamonds. This information is required to complete a
feasibility study on the production potential of the Montrose Pipe. The Company
is in the process of completing its Environmental Management Program Report
(EMPR) for the bulk sample. During 2000 it is expected that the EMPR for the
bulk sample will be approved by the authorities and a permit will be received to
conduct the bulk sample. It is also expected that the option to acquire the
property will have to be extended to allow for the completion of the bulk sample
during 2001.
Currency Consideration
The Company's mining properties, mining properties under development, and
mining equipment are all situated in the Republic of South Africa, where the
currency is the Rand. The re-evaluation of the Company's property and equipment
to reflect the average Rand/US$ exchange rate of $6.25 caused most of the
foreign currency translation adjustment of $337,726 for the year ending December
31, 1999.
Liquidity and Capital Resources
The Company has financed its activities to date through the sale of its
equity and securities as well as short-term loan facilities. In each of 1997 and
1998 the Company raised $6 million through the issue of equity and debt
securities. These funds were essentially used to establish production facilities
at the Company's Caerwinning and Grasdrif properties. The Company now has the
ability to treat 1.5 million tonnes of gravel per year.
The Company believes that it requires, at minimum, 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:
a) that 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. Additionally, 1,154,980 warrants to purchase common stock at $.25
per share expired on March 30, 2000.
The Company's belief concerning its working capital requirements are based
on certain assumptions concerning, among other things, the estimated grade of
its 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, the Company may require further additional capital. Any such
additional financing may require an additional pledge or mortgage of the
Company's 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, the Company may also borrow funds
from time to time for working capital and other general corporate purposes.
Forward-Looking Statements
10
<PAGE>
This report contains various forward-looking statements that are based on
the Company's belief as well as assumptions made by and information currently
available to the Company. When used in this report, the words `believe',
`expect', `anticipate', `estimate', and similar expressions are intended to
identify forward-looking statements. Such statements are subject to certain
risks, uncertainties and assumptions, including, without limitation, that the
Company only recently commenced mining operations at the Caerwinning Property,
has not engaged in commercial mining operations at the Grasdrif Property, mining
risks in general, political risks associated with the Company's operations in
the Republic of South Africa, general economic conditions, currency
fluctuations, and estimates of costs of production. Should one or more of these
risks or uncertainties materialize, or should underlying assumptions prove
incorrect, actual results may vary materially from those anticipated, estimated
or projected. The Company cautions potential investors not to place undue
reliance on any such forward-looking statements, all of which speak only as of
the date made.
11
<PAGE>
Item 7. Financial Statements
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report................................... 13
Consolidated Balance Sheets at December 31, 1999 and 1998...... 14
Consolidated Statements of Operations for the years
ended December 31, 1999, 1998 and 1997....................... 15
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997......... 16
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997............................. 17
Notes to Consolidated Financial Statements..................... 19
12
<PAGE>
The consolidated financial statements of Global Diamond Resources, Inc. and its
subsidiaries as of and for the fiscal year ended December 31, 1999 included in
this report are unaudited. Management has engaged independent public accountants
to audit the 1999 fiscal year financials and expects the audit will be concluded
within 30 days, at which time this report will be amended to include the audited
financial statements.
13
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
(Unaudited)
------------------ ------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 182,100 5,461,235
Accounts receivable:
Trade 9,619 25,478
25,000
Inventory 46,650 57,016
------------------ ------------------
238,369 5,568,729
Fixed assets, net 6,237,804 4,603,765
------------------ ------------------
$ 6,476,173 10,172,494
================== ==================
Liabilities
Current liabilities:
Accounts payable and accrued liabilities $ 397,433 772,237
Current portion of long-term debt -- 187,497
Note payable to director 222,453 --
------------------ ------------------
619,886 959,734
------------------ ------------------
Long-term debt, less current portion 3,000,000 3,000,000
------------------ ------------------
Stockholders' Equity
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 and 45,600,678 shares issued and outstanding,
respectively 22,800 22,800
Additional paid-in capital 13,457,899 13,457,899
Accumulated deficit (9,451,705) (6,432,958)
Accumulated other comprehensive income
Foreign currency translation adjustment (1,172,707) (834,981)
------------------ ------------------
2,856,287 6,212,760
------------------ ------------------
$ 6,476,173 10,172,494
================== ==================
</TABLE>
Commitments and contingencies (Note 13)
See accompanying notes to consolidated financial statements.
14
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
(Unaudited)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Diamond Sales 741,043 -- --
Other Income: --
Interest income $ 84,842 69,045 17,990
Production Expenses 966,968 122,209 --
Exploration Expenses 682.347 323,048 399,931
Sales Expenses:
Royalty 62,060 -- --
Other Expenses:
Business development 4,772 145,321 64,529
Site investigation, option costs and
project costs written off -- -- 11,234
Consulting fees 19,428 138,701 444,248
Depreciation 11,785 10,952 43,013
Foreign exchange transaction loss 4,330 6,778 --
Interest 452,176 400,917 15,333
Legal and accounting 290,436 339,626 135,340
Office and miscellaneous 211,412 602,403 125,843
Political contributions 4,000 -- --
Salaries and benefits 762,025 645,380 332,259
Telephone 68,657 69,443 25,706
Travel 303,163 251,739 108,884
------------------ ------------------ ------------------
2,132,184 2,611,260 1,306,389
------------------ ------------------ ------------------
Operating loss (3,017,674) (2,987,472) (1,688,330)
Income tax expense 1,073 914 1,780
------------------ ------------------ ------------------
Net Loss (3,018,747) (2,988,386) (1,690,110)
Other comprehensive income (loss) -
Foreign currency translation adjustment (337,726) (794,310) (23,278)
------------------ ------------------ ------------------
Comprehensive loss (3,356,473) (3,782,696) (1,713,388)
================== ================== ==================
Basic and diluted loss per share (.07) (.12) (.14)
================== ================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Foreign
Currency Total
Preferred Stock Common Stock Additional Paid- Accumulated Translation Stockholders'
------------------ --------------------
Shares Amount Shares * Amount in Capital Deficit Adjustment Equity
-------- -------- ---------- --------- ----------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 -- -- 11,000,108 5,500 2,199,234 (1,754,462) (17,393) 432,879
Issue of shares for cash, net
of issuance costs of $517,760 -- -- 8,262,726 4,131 3,408,805 -- -- 3,412,936
Issue of shares for warrants
Exercised -- -- 1,100,000 550 292,579 -- -- 293,129
Issue of shares for services -- -- 1,310,000 655 417,387 -- -- 418,042
Issue of shares for equipment -- -- 1,230,770 616 249,384 -- -- 250,000
Issue of shares and warrants
for mining rights -- -- 1,000,000 500 388,250 -- -- 388,750
Foreign currency translation -- -- -- -- -- -- (23,278) (23,278)
Adjustment
Net loss -- -- -- -- -- (1,690,110) -- (1,690,110)
-------- -------- ---------- --------- ----------------- ----------- ------------ ---------
Balance at December 31, 1997 -- -- 23,903,604 11,952 6,955,639 (3,444,572) (40,671) 3,482,348
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 -- -- -- -- -- (2,988,386) -- (2,988,386)
-------- -------- ---------- --------- ----------------- ----------- ------------ ---------
Balance at December 31, 1998 -- $ -- 45,600,678 22,800 13,457,899 (6,432,985) (834,981) 6,212,760
Foreign currency translation
Adjustment (Unaudited) -- -- -- -- -- -- (337,726) (337,726)
Net loss (Unaudited) -- -- -- -- -- (3,018,747) -- (3,018,747)
-------- -------- ---------- --------- ----------------- ----------- ------------ ---------
Balance December 31, 1999
(Unaudited) -- -- 45,600,678 22,800 13,457,899 (9,451,705) (1,172,707) 2,856,287
======== ======== ========== ========= ================= =========== ============ =========
</TABLE>
_______________
See accompanying notes to consolidated financial statements.
16
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
(Unaudited)
------------------ ------------------- ------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (3,018,747) (2,988,386) (1,690,110)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 442,468 61,261 43,013
Shares issued in consideration for services -- 223,333 418,042
Issuance of warrants to non-employees -- 5,701 --
Decrease (increase) in accounts receivable -
Trade 15,859 49,520 (44,345)
Officer 25,000
Decrease (increase) in inventory 10,366 (57,016) 64,208
Increase (decrease) in accounts payable
and accrued liabilities (562,301) 723,347 (22,368)
------------------ ------------------- ------------------
Net cash used in operating activities (3,087,355) (1,982,240) (1,231,560)
------------------ ------------------- ------------------
Cash flows provided by financing activities:
Net proceeds from issuance of common shares -- 6,192,000 3,706,065
Proceeds from long-term debt -- 1,400,000 1,900,000
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 5,606,065
------------------ ------------------- ------------------
Cash flows used in investing activities:
Additions to property and equipment (2,100,271) (4,047,818) (305,035)
Deposits on equipment -- -- (284,438)
------------------ ------------------- ------------------
Net cash used in investing activities (2,100,271) (4,047,818) (589,473)
------------------ ------------------- ------------------
Effects of exchange rates on cash (313,962) (69,345) (23,278)
------------------ ------------------- ------------------
Net increase (decrease) in cash and
cash equivalents (5,279,135) 1,365,094 3,761,754
Cash and cash equivalents, beginning of year 5,461,235 4,096,141 334,387
------------------ ------------------- ------------------
Cash and cash equivalents, end of year $ 182,100 5,461,235 4,096,141
================== =================== ==================
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the years ended December 31, 1999, 1998 and 1997
Supplemental disclosure of noncash investing and financing transactions:
During the year ended December 31, 1999, the Company entered into an agreement
whereby stock options will be issued for consulting services rendered. Total
options due at December 31, 1999 amounted to 166,641.
During the year ended December 31, 1998, the Company purchased mine housing and
administration offices for R380,000 ($61,980) by the issue of 151,171 shares of
Common Stock and the extension of the expiration date of certain warrants, being
the number of shares calculated based on the market value of the share and
exchange rate on the date of purchase. The amount capitalized for the mine
housing was based on market price on the date the shares were issued. The amount
expensed for the extension of the expiration date of the common stock warrants
was based on a change in value using the Black Scholes Method. During the year
ended December 31, 1998, the Company issued 720,000 common shares to two
unaffiliated parties and 666,667 common shares to an affiliated party. The
shares were issued in consideration of investment banking services.
See accompanying notes to consolidated financial statements.
18
<PAGE>
GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 1999 and 1998, and for each of the
years in the three-year period ended December 31, 1999
(1) Summary of Significant Accounting Policies and Practices
Description of Business
Global Diamond Resources, Inc. (the "Company") was incorporated on January
7, 1987 and commenced operations during 1994. Operations prior to January 1,
1994 were not significant. The Company's operations have been directed
primarily towards raising capital, developing business strategies, developing
diamond mining opportunities, carrying out mining surveys, drilling, bulk
sampling, acquiring mining interests, mine site establishment, purchasing
mining equipment, mine operations and recruiting personnel.
Principles of Consolidation
The consolidated financial statements include the financial statements of
Global Diamond Resources, Inc. 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.
The financial statements for the three years ended December 31, 1999 have
been restated to reflect the change in accounting policy for comparative
purposes.
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 and are valued at the lower
of cost or estimated net realizable value. Diamonds are ready for sale when
they have been separated from the alluvials or broken ore, processed and are in
a deliverable form. No value is ascribed to diamonds in the alluvials or in the
broken ore. Also included in inventory is fuel, spare parts and rations.
Fixed Assets
Fixed assets consisting of mining properties, mining properties under
development, mining equipment and office equipment (primarily computers) are
recorded at cost. Depreciation is provided for mining properties, 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. Value of diamonds recovered from bulk sampling and drilling
activities are offset against mine development costs.
19
<PAGE>
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. The financial statements for the three years ending December
31, 1999 were restated to allocate these costs to exploration costs for
comparative purposes.
Stock Options and Warrants
Prior to January 1, 1996, the Company accounted for its stock options and
warrants in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense 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 made in 1995 and future years as if the
fair-value-based method defined in SFAS No. 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure of SFAS No. 123.
Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating losses. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires that fair values be disclosed for the Company's financial instruments.
The carrying amounts of cash and cash equivalents, accounts receivable - trade,
inventory, deposits on equipment 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.
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 each period is computed based on the weighted-
average number of common shares outstanding. The weighted-average shares
outstanding for the years ended December 31, 1999, 1998 and 1997 were
45,600,678, 24,189,634 and 12,241,298 respectively. Common equivalent shares
from stock options and warrants excluded from the computation because their
effect is anti-dilutive for the years ended December 31, 1999, 1998 and 1997
were 10,866,621, 9,863,552 and 9,160,838, 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.
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 three
years 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
various the mines. The Company's administrative headquarters is located in the
United States of America.
(2) Financial Results and Liquidity
The Company's principal mining activities are conducted at its Caerwinning
property, which commenced production in September of 1998. The Caerwinning
Property incurred an operating loss for 1999 and 1998, respectively, amounting
to $479,230 and $122,209. 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. During the years ending December 31,
1999 and 1998, respectively, 186,487 and 37,046 tons of diamondiferous gravel
was treated at Caerwinning. Treatment of these tons yielded 1079.81 and 218.95
carats of large, high-quality gemstone diamonds during 1999 and 1998,
respectively. The value of this production amounted to $457,235, or $423 per
carat for the year ended December 31, 1999 and $87,335, or $398 per carat for
the year ended December 31, 1998.
Development activities continued at the Grasdrif Deposit during 1999.
During the years ending December 31, 1999 and 1998, respectively, 91,125 and
68,198 tons of diamondiferous gravel was treated on the lower terrace. The
treatment of these tons yielded 158.25 carats for a grade of 0.17 carats per
hundred tons and 54.43 carats yielding a grade of 0.08 carats per hundred tons
for 1999 and 1998, respectively. Although the recovery from this gravel is
significantly lower than expected, the average size and value of the recovered
diamonds far exceed expectations. The average size of diamonds produced on the
Lower Terrace during 1999 amounted to 3.04 carats per stone, valued at $1,272
per carat and 2.59 carats per stone valued at $438 per carat during 1998. Trial
mining commenced during the last quarter of 1999 on the Upper Terrace, and
25,949 tons of diamondiferous gravel was treated, yielding 37 stones with a mass
of 96.52 carats at an average grade of 0.37 carats per hundred tons and average
size of 2.61 carats per stone, valued at $732 per carat. The grade is lower than
expected, and is a result of the upper layer of gravel being treated on a very
small scale. The treatment of a total of 185,272 tons of diamondiferous gravel
since commencement of operations in 1998 through December 31, 1999 at the
Grasdrif
21
<PAGE>
Deposit amounted to 0.23% of the entire reserve. During 1999 and 1998,
respectively, the Company incurred development costs at the Grasdrif Deposit of
approximately $379,998 and $632,824.
The Company believes that it requires, at minimum, 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. that 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.
During the first quarter of 2000, the Company completed a private placement
of securities, raising $409,200 through the issuance of 2,046,000 shares of
common stock and warrants to purchase an additional 2,046,000 shares of common
stock.
The Company's belief concerning its working capital requirements are based
on certain assumptions concerning, among other things, the estimated grade of
its processed ore, average price per carat, scale of mining operations, Rand-
U.S. dollar exchange rate, and cost of production. If any of these assumptions
prove incorrect, the Company may require further additional capital. Any such
additional financing may require an additional pledge or mortgage of the
Company's properties and/or any production therefrom. There is, of course, no
assurance that satisfactory financing could be obtained. In addition to
financing individual and available projects, the Company may also borrow funds
from time to time for working capital and other general corporate purposes.
There is no assurance that the Company will be able to raise the additional
capital it requires through the equipment refinancing or otherwise. In the event
that the Company is unable to raise the working capital it needs, it will focus
its efforts on the profitable activities that its resources can support at that
time.
The Company's beliefs concerning its working capital requirements are based
on certain assumptions concerning, among other things, the estimated grade of
the processed ore, average price per diamond carat, commencement and scale of
mining operations, Rand - US$ 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's properties and of any production therefrom. There is,
of course, no assurance that satisfactory financing, if necessary could be
obtained. In addition to financing individual development projects, the Company
may also borrow funds from time to time for working capital and other general
corporate purposes.
(3) Fixed Assets
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
---------------------- ----------------------
<S> <C> <C>
Mining property:
Caerwinning deposit, at cost $ 504,183 534,868
Less accumulated amortization (59,545) (13,392)
---------------------- ----------------------
444,638 521,476
---------------------- ----------------------
Mining properties under development:
Grasdrif deposit 1,187,988 1,220,197
---------------------- ----------------------
Mining equipment, at cost 5,257,010 3,123,268
Less accumulated depreciation (669,028) (290,883)
---------------------- ----------------------
4,587,982 2,832,385
---------------------- ----------------------
Office equipment, at cost 63,539 57,880
Less accumulated depreciation (46,343) (28,173)
---------------------- ----------------------
17,196 29,707
---------------------- ----------------------
$ 6,237,804 4,603,765
====================== =====================
</TABLE>
22
<PAGE>
(4) Accounts Payable and Accrued Liabilities.
Included in accounts payable and accrued liabilities at December 31, 1999
is $25,000 due to a director of the Company. Additionally, $4,065 and $8,130 for
the Grasdrif and Caerwinning deposits, respectively, have been accrued in
Accounts Payable and Accrued Liabilities at December 31, 1999 to provide for
estimated rehabilitation costs.
Included in accounts payable and accrued liabilities at December 31, 1998
is an amount of $400,035 which represents a net amount paid to a related party
in January 1999 and March 1999 as a finder's fee in connection with the
$6,000,000 equity financing which closed in December 1998. The $400,035 was
included in office and miscellaneous expense in the Statement of Operations for
the year ended December 31, 1998.
(5) Long-term Debt
December 31, December 31,
1999 1998
-------------- -------------
15% Secured note payable, due 2002 $ 3,000,000 3,000,000
Other -0- 187,497
-------------- -------------
Less current portion -0- (187,497)
-------------- -------------
$ 3,000,000 3,000,000
============== =============
The 15% 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 as a prepayment on the note.
The note does not contain any penalties for prepayment. The interest 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. The principal amount of the secured note payable is
$3,000,000.
(6) 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.
(7) Common Stock
There were no sales of common stock during the year ended December 31,
1999.
(8) Income Taxes
The Company has no significant taxable temporary differences which would
require recognition of deferred tax liabilities, and due to the uncertainty of
future realizability, has not recognized any deferred tax assets for deductible
temporary differences and tax operating loss carryforwards.
At December 31, 1999 and December 31, 1998, the Company had available net
operating loss carryforwards of approximately $6,938,000 and $3,920,591,
respectively 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.
(9) Foreign Operations
The Company's wholly-owned subsidiary, Global SA, operates in the Republic
of South Africa. During the year ended December 31, 1999 and December 31, 1998,
Global SA's revenue represented 91% and 3%,
23
<PAGE>
respectively, of consolidated revenue, 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 expenses for the year ended December 31, 1999 and 1998.
At December 31, 1999 and December 31, 1998, Global SA's total assets (primarily
cash, mining properties and equipment) represented 96% and 46%, respectively,
of consolidated total assets. The Republic of South Africa has experienced and
continues to experience political and economic instability. While current
indications are such that instability appears to be diminishing, there can be
no assurance that the Company's business or interests in mining properties and
related options will not be materially adversely affected by local political or
economic developments.
(10) 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 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 ($214,838 at March 27,
2000) to a director of the company. The note bears interest at 17% per annum,
payable monthly, and is due on demand.
In connection with the investment by LIWA Diamond Company Limited and New
Diamond Holdings Limited, 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. It is uncertain whether Mr. Abu Bakr will return
the $400,035 balance of the cash portion of the finder's fee. 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.
In December 1997, the Company entered into a consulting agreement with a
director of the Company. It was terminated in 1998. The Company paid consulting
fees of $43,000 during the year ended December 31, 1998 and $5,000 during the
year ended December 31, 1997.
(11) Stock Options and Warrants
In October 1996, the Company granted 500,000 common stock options to the
Chief Financial Officer of the Company and 200,000 common stock options to
another employee of the Company. The options are exercisable at $1.25 per share
and are exercisable at any time until they expire on October 2, 2001. In August
1997, the Company cancelled the options and reissued them with an exercise
price of $.75 per share.
In December 1996, the Company issued to a mining financial and consulting
firm located in London, England, 200,000 common stock purchase warrants at
$1.25 per share, exercisable at any time until they expire on December 31,
2000.
In August 1997, the Company issued to each of the four directors 100,000
common stock options, exercisable at $.75 per share, exercisable at any time
until they expire on December 31, 2000. In October 1997, the Company granted a
new director 100,000 common stock options exercisable at $.75 per share,
exercisable at any time until they expire on December 31, 2000.
In October 1997, the Company issued to a certain shareholder 808,486 common
stock purchase warrants, exercisable at $.25 per share, for assisting with the
raising of equity financing. The warrants are exercisable at any time until
they expire on March 31, 2000.
In November 1997, the Company granted 1,200,000 common stock options to the
Chairman and Chief Executive Officer of the Company, 600,000 common stock
options to the Chief Financial Officer of the Company, 200,000 to one of the
directors of the Company and 800,000 common stock options to two other
24
<PAGE>
employees of the Company. The options are exercisable at $.525 per share and
are exercisable at any time until they expire on November 26, 2002.
In December 1997, the Company issued common stock purchase warrants as part
of an equity financing agreement. Of the total 807,852 warrants issued, 346,494
are exercisable at $.25 any time until they expire on March 31, 2000. In March
1998, 172,286 were exercised at $.375 Canadian and the remaining 289,072
warrants expired in 1999.
In December 1997, the Company issued to a mining financial and consulting
firm located in London, England, 70,000 common stock purchase warrants,
exercisable at $.85 per share, at any time until they expire on March 6, 2001.
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
the four directors, exercisable at $.4875 per share. 100,000 of these options
expire on December 29, 2001 and the balance of 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.
In December 1999, the Company granted 166,641 common stock options in
exchange for accounting services, exercisable at $0.01 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 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, 1998 and 1997 was
$0.07, $0.16 and $0.23, 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 6%, expected life
of 3 years and an expected volatility of the stock over the expected life of
the options and warrants of 70%; 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%; 1997 -
expected dividend yield 0%, risk-free interest rate of 6%, expected life of 3
years, and an expected volatility of the stock over the expected life of the
options and warrants of 70%.
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. 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 1997
----------- ------------ ------------
Net loss, as reported $(3,018,747) (2,988,386) (1,690,110)
Net loss, pro forma (3,031,087) (3,143,138) (2,249,030)
Basic and diluted net loss per
share, as reported ($.07) (.12) (.14)
Basic and diluted loss per
share, pro forma $ (.07) (.13) (.19)
25
<PAGE>
Stock option and warrant activity during the periods indicated is as
follows:
Weighted-
Number of Average
Shares Exercise Price
---------------- ----------------
Balance at December 31, 1996 4,400,000 1.14
Granted 5,860,838 0.46
Exercised (1,100,000) 0.26
Canceled (3,100,000) 1.43
Reissued 3,100,000 .75
---------------- ----------------
Balance at December 31, 1997 9,160,838 0.57
Granted 1,075,000 0.50
Exercised (172,286) 0.27
Canceled (1,363,572) 0.41
Reissued 1,363,572 0.41
Lapsed (200,000) 0.75
---------------- ----------------
Balance at December 31, 1998 9,863,552 0.57
Granted 2,716,641 0.30
Exercised -0-
Canceled (1,713,572) 0.47
Reissued -0-
Lapsed -0-
---------------- ----------------
Balance at December 31, 1999 10,866,621 $ 0.52
================ ================
At December 31, 1999, the range of exercise and the weighted-average
remaining contractual life of outstanding options and warrants were $0.01 to
$1.25 and 3 years, respectively.
At December 31, 1999, 1998 and 1997, the number of options and warrants
exercisable was 10,866,621, 9,838,552 and 9,160,838, respectively, and the
weighted-average exercise price of those options and warrants was $0.52, $0.57
and $0.57, respectively.
(12) Properties
The Company, through its wholly-owned subsidiary, Global SA owns two mining
properties (the Grasdrif Deposit and the Caerwinning Deposit) and an option to
acquire a mining property (the Montrose Kimberlite Pipe). All properties are in
the Republic of South Africa.
Grasdrif Deposit
The Company had entered into a joint venture for purposes of mining the
Grasdrif Deposit. In December 1997, the Company purchased the 50 percent of the
joint venture not already owned by it for R800,000 ($164,000), 1,000,000 common
shares and 500,000 common stock purchase warrants, which expired in 1999. The
Company owns the exclusive mining rights to the Grasdrif Deposit. A royalty of
5 percent is payable to the surface owner. A prospecting permit is required
from the local government and is renewable subject to government approval. The
Company presently holds such a permit, which expires August 4, 2003.
Caerwinning Deposit
In April 1998, the Company acquired the mineral lease which provides for
the right to mine alluvial deposits for R1,140,000 ($226,000). In addition, the
Company owns the option for the right to mine pipes or fissures that may be
discovered for R8,000,000 ($1,300,813 at December 31, 1999). This amount is
payable only if and when such pipes or fissures are discovered and if
management deems this deposit to be economically exploitable. The right to mine
pipes or fissures discovered on the property could be granted to a third party
if the option is not exercised. The mineral lease and mining authorization
requires that the government receive
26
<PAGE>
5% of gross proceeds from mining. The mineral lease has an initial ten year
term with a ten year renewal option, subject to the original lease holders
right to terminate the mineral lease based on the Company's default thereunder.
The Company is required to meet certain standards to maintain good standing
with the original lease holder. It may be terminated by the Company with 30
days notice. A mining permit is required from the local government and is
renewable subject to government approval. The Company presently holds such a
permit, which expires on March 31, 2008.
Montrose Kimberlite Pipe
The Company owns an option to acquire a mining property (the Montrose
Kimberlite Pipe) which was extended to October 10, 2000 for a payment of
R60,000 ($9,900 at September 10, 1999. The contract provides that the Company
must pay the owner 10 percent of the recovery value of any minerals prospected
and recovered, during the option period. The option includes the exclusive
option to purchase the related land and mineral rights for $600,000. The
Company is in the process of finalizing the legal agreements in respect of the
extension. A prospecting permit is required from the local government and is
renewable annually subject to government approval. The present prospecting
permit expired October 10, 1999. The Company is presently preparing an
environmental rehabilitation plan for submission to the local government. Upon
acceptance of the plan the prospecting permit will be issued with the same
expiration date as the option. The Company has expensed the cost of the
drilling program carried out in 1998 amounting to $127,200 as well as all
option payments in 1999 and 1998. The Company did not incur drilling costs
during 1999.
(13) Commitments and Contingencies
Lease Agreement
As of December 31, 1999, the Company had a noncancelable 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 ($278 at March 27, 2000)
which is cancelable on demand. In addition, Global SA had a noncancelable
operating lease commitment for the South African corporate office expiring in
March 2003. The monthly rent payment on this operations lease is R1,496 ($231
at March 27, 2000). Rent expense for the years ended December 31, 1999, 1998
and 1997 was $20,356, $17,961 and $14,272, respectively.
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.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
KPMG LLP was previously the principal accountants for the Company. On
December 1, 1999, that firm resigned.
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
27
<PAGE>
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 reports of KPMG LLP on the consolidated financial statements of
the Company as of 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 as
follows:
KPMG LLP's auditors' report on the consolidated financial statements of the
Company as of and for the years ended December 31, 1998 and 1997, 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."
28
<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.
Name Age Position
- ---- ---- --------
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
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.
29
<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.
Paulus 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, 1998 and 1997.
30
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
--------------------------------------------- -------------------------------
Year Salary Bonus Other Restricted Common Shares All Other
($) ($) Annual Stock Underlying Compensation
Name and Position Compensation Awards Options Granted ($)
($) ($) (# 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-
1997 127,500 12,500 -0- -0- 1,300,000(2) -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(6)
Vice Chairman(5) 1997 0 0 -0- -0- -0- -0-
Mervyn McCulloch, CFO(3) 1999 90,000 -0- -0- -0- -0- -0-
1998 175,000 -0- -0- -0- -0- -0-
1997 121,000 10,000 -0- -0- 700,000(4) -0-
</TABLE>
_______________
(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) On August 11, 1997, the Company granted Mr. de Villiers a Nonqualified
Stock Option which allows Mr. de Villiers to purchase up to 100,000 shares
of Common Stock at $.75 per share. The option is fully vested and may be
exercised at any time, or from time to time, until December 31, 2000. On
November 26, 1997, the Company granted to Mr. de Villiers a Nonqualified
Stock Option which allows Mr. de Villiers to purchase up to 1,200,000
shares of Common Stock at $.75 per share. The option is fully vested and
may be exercised at any time, or from time to time, until November 26,
2002.
(3) The Company has 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.
(4) On October 10, 1997, the Company granted to Mr. McCulloch a Nonqualified
Stock Option which allows Mr. McCulloch to purchase up to 100,000 shares of
Common Stock at $.75 per share. The option is fully vested and may be
exercised at any time, or from time to time, until December 31, 2000. On
November 26, 1997, the Company granted to Mr. McCulloch a Nonqualified
Stock Option which allows Mr. McCulloch to purchase up to 600,000 shares of
Common Stock at $.75 per share. The option is fully vested and may be
exercised at any time, or from time to time, until November 26, 2002.
(5) 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.
(6) 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.
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. No fees were paid in 1997. 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 Beneficial Owners and Management.
The following table sets forth certain information regarding the beneficial
ownership of the shares of Common Stock as of February 29, 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 directors and executive officers and (iii) all directors and
executive officers as a group.
31
<PAGE>
Name and Address Number of Shares Percentage Owned
----------------- ---------------- ----------------
Johann de Villiers(1)(2) 1,822,333 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) 532,540 1.2%
International PCM Holdings 11,732,392 25.7%
Limited(7)(16)
New Diamond Holdings Limited(11) 9,238,096 20.3%
LIWA Diamond Company Limited(13) 9,238,096 20.3%
All officers and directors 5,383,013 11.8%
as a group
_______________
(1) Address is 836 Prospect, Suite 2B, La Jolla, California 92037.
(2) Includes 1,633,333 shares of Common Stock underlying immediately
exercisable options.
(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.
32
<PAGE>
Item 12. Certain Relationships and Related Transactions.
During the years ended December 31, 1997 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 years ended December 31, 1998 and 1997. 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
$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.
In December 1997, the Company entered into a consulting agreement with a
director of the Company. The Agreement provides for consulting fees of $5,000
per month. It was terminated in 1998. The Company paid consulting fees of
$43,000 during the year ended December 31, 1998 and $5,000 during the year ended
December 31, 1997.
33
<PAGE>
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
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.
34
<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 13, 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.
Signature Title Date
- --------- ----- ----
/S/ JOHANN DE VILLIERS Chairman of the Board, Director, April 13, 2000
- ------------------------- Chief Executive Officer and Chief
JOHANN DE VILLIERS Financial Officer
/S/ PIETER VAN WYK Director April 13, 2000
- -------------------------
PIETER VAN WYK
/S/ JOHN TYSON Director April 13, 2000
- -------------------------
JOHN TYSON
/S/ CHARLES MACDONALD Director April 13, 2000
- -------------------------
CHARLES MACDONALD
/S/ SAID H. GHACHEM Director April 13, 2000
- -------------------------
SAID H. GHACHEM
/S/ AHMED M. BASODAN Director April 13, 2000
- -------------------------
AHMED M. BASODAN
/S/ YASSINABDUALLAH KADI Director April 13, 2000
- -------------------------
YASSIN ABDUALLAH KADI
/S/ MATTAR ABDULLA Director April 13, 2000
AL MUHAIRY
- -------------------------
MATTAR ABDULLA
AL MUHAIRY
April 13, 2000
/S/ AMIN KOUDSI Director
- -------------------------
AMIN KOUDSI
/S/ ANDRIES JANZEN Director April 13, 2000
- -------------------------
ANDRIES JANZEN
/S/ GASEM S. AL-SHAIKH Director April 13, 2000
- -------------------------
GASEM S. AL-SHAIKH
35
