SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER
30,1998.
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO
_________
Commission file number: 1-355
DRAGON DIAMOND CORPORATION
(Exact name of registrant as specified in its charter)
Utah 87-0128639
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
107 West Wade, Suite 7, P.O. Box 9, Payson, Arizona 85547-0009
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(520) 474-9151
DRAGON MINING CORPORATION
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
the filing requirements for the past 90 days. Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
4,423,983 shares of common stock, $.001 par value, as of November 10, 1998
Traditional Small Business Disclosure Format (Check One): YES ____ NO __X__
Exhibit index on page 11 Page 1 of 22
<PAGE>
DRAGON DIAMOND CORPORATION
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Condensed Balance Sheet, September 30, 1998 and December 31, 1997...3
Condensed Statement of Operations,
Nine and Three Months Ended September 30, 1998 and 1997.............4
Condensed Statements of Cash Flow,
Nine Months Ended September 30, 1998 and 1997.......................5
Condensed Statements of Shareholder's Equity,
September 30, 1998 and December 31, 1997............................6
Notes to Condensed Financial Statements.............................7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................9
Item 2. Changes in Securities...............................................9
Item 3. Defaults Upon Senior Securities.....................................9
Item 4. Submission of Matters to a Vote of Security Holders.................9
Item 5. Other Information...................................................10
Item 6. Exhibits and Reports on Form 8-K.....................................11
SAFE HARBOR STATEMENT
This report contains both historical and prospective statements concerning the
Company and its operations. Historical statements are based on events that have
already happened; examples included the reported financial and operating
results, descriptions of pending and completed transactions, and management and
compensation matters. Prospective statements, on the other hand, are based on
events that are reasonably expected to happen in the future; examples include
the timing of projected operations, contingencies or other foreseeable events,
and projected operating results. Prospective statements (which are known as
"forward-looking statements" under the Private Securities Litigation Reform Act
of 1995) may or may not prove true with the passage of time because of the
future risks and uncertainties.
2
<PAGE>
DRAGON DIAMOND CORPORATION
(FORMERLY KNOWN AS DRAGON MINING CORPORATION)
<TABLE>
<CAPTION>
BALANCE SHEETS-UNAUDITED
September December 31
ASSETS 1998 1997
---- ----
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 258 $ 6,538
---------------- --------------
Total current assets 258 6,538
---------------- --------------
Plant and equipment, net 0 0
Mineral Properties, net 30,000 0
---------------- --------------
Total assets $ 30,258 $ 6,538
================ ==============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable 142,214 5,633
Note Payable-Related Party 0 2,100,000
---------------- -------------
Total current liabilities 142,214 2,105,633
---------------- -------------
Shareholders' Equity (Deficit)
Common stock, $.01 par value, authorized
50,000,000, of which 4,423,983 and 2,314,383
were issued and outstanding as of
September 30, 1998 and 1997, respectively. 44,240 23,144
Additional Paid-in Capital 5,192,393 3,103,889
Accumulated Deficit ( 5,348,589) (5,230,445)
Total shareholders' equity
(deficit) (111,956) (2,095,764)
Total liabilities and shareholders'
equity $ 30,258 $ 6,538
================ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
<TABLE>
DRAGON DIAMOND CORPORATION
(FORMERLY KNOWN AS DRAGON MINING CORPORATION)
<CAPTION>
CONDENSED STATEMENT OF OPERATIONS-UNAUDITED
For the three months ended: For the nine months ended:
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating Expenses:
General and Administrative $ 113,108 $ 1,550 $ 118,212 $ 6,598
Exploration 0 0 0 0
---------- ----------- ---------- ---------
Operating (Loss) (113,108) (1,550) (118,212) (6,598)
---------- ----------- ---------- ---------
Other Income
Interest Income 7 39 68 126
---------- ----------- ---------- ---------
Net (Loss) $(113,101) $(1,511) $(118,144) $ (6,724)
========== =========== ========== =========
Net Loss per common share $ (.03) $ (.01) $ (.04) $ (.01)
========== =========== ========== =========
Weighted average common
Shares outstanding 3,720,783 2,314,383 2,783,182 2,314,383
========== =========== ========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
<TABLE>
DRAGON DIAMOND CORPORATION
(FORMERLY KNOWN AS DRAGON MINING CORPORATION)
<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS-UNAUDITED
For the nine months ended:
September 30, September 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) $ (118,144) $ (6,724)
Adjustments to reconcile net (loss) to net cash provided by operating activities:
Increase in liabilities 111,864 3,933
Net cash used in operating activities (6,280) (2,791)
Cash flows from investing activities:
Mineral properties (30,000) 0
----------- ----------
Net cash used in investing activities (30,000) 0
Cash flows from financial activities:
Proceeds from issuance of common stock 2,109,600 0
Increase in debt 30,000 0
Payment of debt (2,109,600) 0
----------- ----------
Net cash provided by financing activities 30,000 0
----------- ----------
Net increase (decrease) in cash (6,280) (2,791)
Cash and cash equivalents at beginning of period 6,538 9,869
----------- ----------
Cash and cash equivalents at end of period $ 258 $ 7,078
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
<TABLE>
DRAGON DIAMOND CORPORATION
(FORMERLY KNOWN AS DRAGON MINING CORPORATION)
<CAPTION>
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE PERIODS ENDED DECEMBER 31, 1997 AND SEPTEMBER 30, 1998
Common Stock Additional
Number of Paid-In Accumulated
Shares Amount Capital Deficit Total
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 23,143,826 $23,144 $3,103,889 $(5,222,797) $(2,095,764)
Net (loss) year ended
December 31, 1997 (7,648) (7,648)
---------- ------- ---------- ------------ ------------
Balance, December 31, 1997 23,143,826 23,144 3,103,889 (5,230,445) (2,103,412)
---------- ------- ---------- ------------ ------------
Reverse stock split ten-for-one (20,829,443)
Stock issued for debt 2,109,600 21,096 2,088,504 2,109,600
Net (loss) period ended
September 31, 1998 (118,144) (118,144)
---------- ------- ---------- ------------ ------------
Balance, September 30, 1998 4,423,983 $44,240 $5,192,393 $(5,348,589) $ (111,956)
========== ======= ========== ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
DRAGON DIAMOND CORPORATION
(FORMERLY KNOWN AS DRAGON MINING CORPORATION)
Notes to Condensed Financial Statements
GOING CONCERN-The Company has continued to incur net losses. At September 30,
1998 the Company had a working capital deficiency of $ 141,956 and a
stockholders' deficiency of $111,956. The Company requires funds for its future
operations and will attempt to meet its obligations by raising additional funds
through the sale of equity. There can be no assurance that the Company will be
able to raise funds to meet its obligations.
DISCLOSURES-The unaudited condensed financial statements have been prepared by
the Company in accordance with generally accepted accounting principles for
interim financial information with the instructions to Form 10-QSB and Rule
10-01 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Company's management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the nine-month
period ended September 30, 1998 are not necessarily indicative of the results
that may be expected for the full year ending December 31, 1998.
For further information refer to the financial statements and footnotes thereto
in the Company's Annual Report on Form 10-K for the year ended December 31,
1997.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, REPORTING COMPREHENSIVE INCOME, and
SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. SFAS No. 130 requires that an enterprise report, by major
components and as a single total, the change in its net assets during the period
from nonowner sources; and SFAS 131 establishes annual and interim reporting
standards for an enterprise's operating segments and related disclosures about
its products, services, geographic areas and major customers. Adoption of these
statements will not impact the Company's financial
position, results of operations or cash flows and any effect will be limited to
the form and content of its disclosures. Both statements are effective for
fiscal years beginning after December 15, 1997, with earlier application
permitted.
7
<PAGE>
Item 2. Management's Discussion And Analysis of Financial Condition And Results
of Operations.
RESULTS OF OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 1998.
Nine months ended September 30, 1998 compared to nine months ended September 30,
1997.
General and Administrative costs increased significantly due to the increased
activity of the Company. The activity resulted in a focus on diamonds for the
Company, a name change, reverse stock split and other changes approved by the
shareholders. In addition a significant amount of travel and other costs were
incurred which ultimately resulted in the acquisition of a significant mineral
property which was completed subsequent to the end of the quarter.
Three months ended September 30, 1998 compared to three months ended September
30, 1997
General and Administrative costs increased significantly due to the increased
activity of the Company. The activity resulted in a focus on diamonds for the
Company, a name change, reverse stock split and other changes approved by the
shareholders. In addition a significant amount of travel and other costs were
incurred which ultimately resulted in the acquisition of a significant mineral
property which was completed subsequent to the end of the quarter.
LIQUIDITY AND CAPITAL RESOURCES.
The Company is an exploration stage mining company and for financial reporting
purposes has been categorized as a development stage company since its
inception. At September 30, 1998, it had no recurring sources of revenue and
negative working capital. The Company had incurred losses and experienced
negative cash flows from operations in every year since inception.
The Company expects to meet its 1998 obligations from funds from the sale of its
common stock.
YEAR 2000 PROBLEM
The Company is aware of the issues associated with the programing code in
existing computer systems as the year 2000 approaches. The "year 2000" problem
is pervasive and complex as virtually every computer operation will be affected
in some way by the rollover of the two digit year value to 00. The issue is
whether computer systems will properly recognize date sensitive information when
the year changes to 2000. Systems that do not properly recognize such
information could generate erroneous data or cause a system to fail. As the
Company's records are kept by hardware and software consist of recently
purchased year 2000 compliant products, the year 2000 problem is not anticipated
to a significant direct impact on the Company's operations.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings (Item 103)
Not Applicable.
Item 2. Changes in Securities
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on July 31, 1998.
A total of 23,143,826 shares were entitled to vote at the
annual meeting. Of those shares 21,055,836 were represented at
the meeting, and all 21,055,836 shares were voted in favor of,
and approved, the following actions:
1) Elected four directors: Thomas J. Ian Wright, Larry
N. Lorenz, Aubrey McGinnis and Thomas L. Crom;
2) Amended the Articles of Incorporation to increase the
number of authorized shares from 25,000,000 to
50,000,000;
3) Ratified the issuance of 15,000,000 shares (prior to
the reverse-split) to Marbella Capital Corp.;
4) Approved the issuance of 21,000,000 shares (prior to
the reverse-split) to Marbella Capital Corp to retire
debt of $2,100,000;
5) Approved a 1-for-10 reverse stock split;
6) Approved an amendment to the Articles of
Incorporation to change the name of the Company from
"Dragon Mining Corporation" to "Dragon Diamond
Corporation";
7) Approved the Company's 1998 Stock Option Plan; and
8) Approved the Company's 1998 Restricted Stock Plan.
9
<PAGE>
Item 5. Other Information
Subsequent to the end of the quarter the Company signed an
agreement with South African Diamond Holding Corp. ("SADIA")
for the joint development of the Natal I and Natal II diamond
concessions, 65 miles southeast of the city of Caicara, in the
Guaniamo Diamond district of southern Venezuela. Venezuela has
traditionally been a significant diamond producer, with the
Guaniamo Diamond District alone producing approximately
1,000,000 carats in diamonds per year for over two decades.
Mr. Thomas Crom, an officer, director and shareholder of the
Company, is also an officer, director and beneficial
shareholder of SADIA.
The Natal I and Natal II concessions are two adjacent
concessions with a total area of approximately 15,735 acres,
in which remote sensing has located three significant
exploration targets. The targets are: (i) fourteen possible
kimberlitic bodies with surface areas that range in size from
four acres to as large as 40 acres; (ii) Quaternary alluvial
deposits located along the principal water courses and the
tributaries of Quebrada Grande and Quebrada Resbalon del
Diablo, (iii) the paleolithic alluvial remnants of Tertiary
age. At the present time small scale alluvial diamond
production by local Venezuelans is taking place within the two
concessions along the Quebrada Resbalon del Diablo.
The two Natal concessions are located immediately to the
north-northwest of several known diamondiferous kimberlite
occurrences including one which is already producing diamonds.
Targets identified to date have surface characteristics
similar to diamondiferous kimberlites found elsewhere in the
world and the diamondiferous potential of these kimberlites is
supported by the observation that the area of economic
alluvial diamond deposits is considerably more extensive that
the currently identified area of kimberlite bodies. The small
scale diamond production by local Venezuelans along the
Quebrada Resbalon del Diablo indicates that some, if not all
of the kimberlites located within the concessions are
diamondiferous.
The combination of a favorable location on projection of both
structural and alluvial diamond trends, and the potential for
economic kimberlites within the concessions indicates the
potential for a successful lode diamond exploration and
development program in conjunction with alluvial diamond
production.
The Company can earn a 50% interest in the concessions by
spending $250,000 on the property and by issuing 250,000
shares of its common stock to SADIA, both over a three period.
The Company can increase its interest to 75% by spending a
total of $750,000 within the three year period.
The Company is continuing discussions on a number of producers
and holders of African diamond properties with plans of
acquiring additional diamond properties and production.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
<TABLE>
<CAPTION>
Regulation S-B Consecutive
Number Exhibit Page Number
<S> <C>
10 Agreement on Exploration of Natal I and Natal II 13
Concessions.
27 Financial Data Schedule 21
</TABLE>
b) Reports on Form 8-K: None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DRAGON DIAMOND CORPORATION
(Registrant)
November 14, 1998 BY:/s/Thomas L. Crom
- - -----------------
Thomas L. Crom,
Chief Financial Officer
(Principal Financial
and Accounting Officer)
12
<PAGE>
AGREEMENT ON
EXPLORATION OF NATAL I & NATAL II CONCESSIONS
13
<PAGE>
AGREEMENT ON
EXPLORATION OF NATAL I & NATAL II CONCESSIONS
This Agreement is made as of this 12th day of October, 1998 ("Effective
Date") between Dragon Diamond Corporation ("Dragon")
and
South African Diamond Holding Corp. ("SADIA") together with its wholly owned
United States and Venezuelan subsidiaries, namely Adamantine Mining Corp.
(U.S.A.) ("Adamantine U.S.A."), and Compania Minera Adamantine, C.A.
("Adamantine Venezuela"), all hereunder referred to collectively as "SADIA
Group"
RECITALS
A. South African Diamond Mining Corp. wholly owns Adamantine Mining
Corp. (U.S.A.), and Adamantine Mining Corp. (U.S.A.) wholly owns Minera
Adamantine, C.A., and Minera Adamantine C.A. has exclusively contractual rights
(the "Contract Rights") to carry out such activities consisting of exploration
for, and development and exploitation of, gold-bearing ores, alluvial diamonds,
and diamond-bearing veins throughout the territory that makes up the Guayana
Region, in the Capital District of Cedeno in the State of Bolivar, Venezuela,
known as Natal I and II (the "Properties") totally approximately 6,378.17
hectares.
B. Dragon wishes to acquire an interest in the Contract Rights
exclusively for the Properties, and SADIA Group is willing to grant any and all
of the Contract Rights to Dragon.
ARTICLE I 1.1 General. Dragon and SADIA Group hereby enter into this
Agreement for the purposes hereinafter stated. All of the rights and obligations
of the Participants in connection with the Properties and all Operations shall
be subject to and governed by this Agreement. SADIA Group hereby grants to
Dragon exclusively any and all of the Contract Rights for the exploration, and
development and exploitation of, gold-bearing ores, alluvial diamonds, and
diamond-bearing veins throughout the Properties according to the terms of this
Agreement.
1.2 Purposes. This agreement is entered into for the purpose of
establishing diamond operations within the Properties, which may include the
following:-
a) to establish alluvial exploration and exploitation programs;
b) to establish central and field diamond buying offices;
c) to establish a Miner's Small Tools Program;
d) to evaluate existing and explore new kimberlite locations;
e) to evaluate the possible development and mining by exploration
and, if justified, to engage in development and mining;
f) to conduct further exploration within the Properties;
g) to perform any other activity necessary, appropriate, or
incidental to any of the foregoing included in the Contract Rights within the
Properties.
Page 1 of 7
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1.3 Term. The term of this Agreement shall be for a term of three
(3) years from the Effective Date unless the contract is earlier terminated as
herein provided.
ARTICLE II
REPRESENTATIONS AND WARRANTIES; TITLE TO ASSETS; INDEMNITIES
2.1 Representations and Warranties of Both Participants. As of the
Effective Date, each Participant warrants and represents to the other that:-
a) it is a corporation duly organized and in good standing in its
state of incorporation and is qualified to do business and is in good standing
in those states where necessary in order to carry out the purposes of this
Agreement;
b) it has the capacity to enter into and perform this Agreement and
all transactions contemplated herein and that all corporate, board of Directors,
shareholder, surface and mineral rights owner, lessor, lessee and other actions
required to authorize it to enter into and perform this Agreement have been
properly taken;
c) it will not breach any other agreement or arrangement by entering
into or performing this Agreement;
d) it is not subject to any governmental order, judgment, decree,
debarment, sanction or Laws that would preclude the permitting or implementation
of Operations under this Agreement; and
e) this Agreement has been duly executed and delivered by it and is
valid and binding upon it in accordance with its terms.
2.2 Representations of SADIA Group. As of the Effective Date, SADIA
Group makes the following representations to Dragon:
a) With respect to those Properties SADIA Group has the Contract
Rights in the Properties free and clear of all encumbrances or defects in title.
b) With respect to those Properties in which SADIA Group holds an
interest under the Contract Rights to the Properties:
(i) SADIA Group has the exclusive Contract Rights of such
Properties;
(ii) SADIA Group is not and has not received any notice of
default of any of the terms or provisions of such Contract Rights;
(iii) SADIA Group has the authority under the Contract Rights
to perform fully its obligations under this Agreement;
(iv) to SADIA Group's knowledge, the Contract Rights are valid
and in good standing;
(v) SADIA Group shall not sell or transfer any or all of its
Contract Rights in the Properties nor lease, mortgage or otherwise encumber the
Properties during the term of this Agreement without the prior written consent
of Dragon, such consent
Page 2 of 7
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not to be unreasonably withheld by Dragon. SADIA Group hereby grants Dragon
first right of refusal on any sale or transfer or it's interest or Contract
Rights in the Properties. Dragon must exercise it's right of first refusal
within 15 days of notice from SADIA Group's intent to sell or transfer any or
all of it's Contract Rights in the Properties. In the event SADIA sells the
Contract Rights to a third party, then such Contract Rights shall be subject to
the rights and interests conferred to Dragon by this Agreement
(c) SADIA Group provides to Dragon exclusively the Contract
Rights to carry out such activities consisting of exploration for, and
development and exploitation of, gold-bearing ores, alluvial diamonds, and
diamond-bearing veins throughout the territory that makes up the Guayana Region,
in the Capital District of Cedeno in the State of Bolivar, Venezuela, known as
Natal I and II (the "Properties") totally approximately 6,378.17 hectares, for
the term of this Agreement.
ARTICLE III
RELATIONSHIP OF THE PARTICIPANTS
3.1 No Partnership. Nothing contained in this Agreement shall be
deemed to constitute any participant the partner or the venture of the other,
or, except as otherwise herein expressly provided, to constitute any Participant
the agent or legal representative of the other, or to create any fiduciary
relationship between them.
ARTICLE IV
CONTRIBUTIONS BY PARTICIPANTS
4.1 Dragon will carry out exploration programs on the Properties as
follows:-
a) To target diamond producing areas ("Target Area") according to
Dragon's engineer's recommendations;
b) To pursue the purposes set out in section1.2 herein;
4.2 Dragon agrees to:
a) issue to SADIA: -
(i) 60,000 shares of Dragon as set out in section 4.8;
(ii) 80,000 shares of Dragon on the first anniversary of this
agreement;
(iii) 110,000 shares of Dragon on the second anniversary of
this agreement;
b) spend $250,000 in exploration on the Properties as follows:
(i) $50,000 during the first year of this agreement;
(ii) $80,000 during the second year of this agreement;
(iii) $120,000 during the third year of this agreement.
(c) In the event that Dragon shall spend funds in excess of that
stated in 4.2(b)(i)(ii) in any year of this agreement, then, that excess shall
be carried forward to the next year.
Page 3 of 7
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4.3 This Agreement is subject to the approval of the authorities
having jurisdiction and Dragon agrees to instruct its attorneys to apply for the
approval and issuance of 60,000 Dragon shares to SADIA that within five working
days of the effective date of this agreement.
4.4 In the event that Dragon shall: -
(i) issue the 250,000 shares of Dragon to SADIA;
(ii) spend U.S.$250,000 as stated in clause 4.2(b) herein; then
SADIA shall cause SADIA Group to grant and transfer to Dragon a 50% interest in
the Properties. If in addition to issuing the above mentioned 250,000 shares to
SADIA, Dragon shall spend a total of $750,000 in exploration on the Properties
within three (3) years of the effective date of this Agreement, then SADIA shall
cause SADIA Group to grant and transfer to Dragon a 75% interest in the
Properties.
4.5 In the event Dragon's explorations indicates the presence of
such quantities of diamonds that, in Dragon's sole judgment, it is economically
feasible to mine, Dragon and SADIA Group will form a joint venture company
("Joint Venture Company") dedicated to mining that Target Area of the Property.
4.6 Each Joint Venture Company will be owned and controlled equally
by SADIA Group and Dragon and the Joint Venture Company's function will be to:
a) engage in alluvial, fluvial and kimberlite mining of the
target area;
b) continue development of the target area, which would include
test-mining, pilot plant recovery of diamonds and negotiating with major
partners and financial institutions.
Notwithstanding the foregoing, if in addition to spending the
funds as set out in section 4.2(b) herein, Dragon spends an additional $500,000
on the Properties then Dragon shall have a 75% interest in any Joint Venture
Company and SADIA Group shall have a 25% interest in any Joint Venture Company.
4.7 To accomplish and comply with Sections 4.4, 4.5 and 4.6 above,
the Corporacion Venezolana de Guayana ("C.V.G.") will be requested by SADIA
Group to allow assignment of all or part of SADIA Group's interest in the
Properties to the Joint Venture company or companies or to Dragon as the case
may be. Should the C.V.G. not allow any such assignment, then SADIA Group and
Dragon will enter into whatever inter-corporate arrangements through the
transfer of the common stock of Adamantine U.S.A. or Adamantine Venezuela or
other means that are mutually agreeable to the Participants, that:
a) in regard to Section 4.4 will accomplish an effective
assignment to Dragon of either:
(i) 50% interest in the Properties; or
(ii) 75% interest in the Properties in the event that Dragon
spends an additional $500,000 on the Properties, as the case may be.
b) in regard to Section 4.6 will accomplish an effective
assignment to Dragon of either:
Page 4 of 7
17
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(i) a 50% interest in the subject target area as contemplated
in section 4.4 herein; or
(ii) a 75% interest in the subject target area in the event
that Dragon spends an additional $500,000 on the Properties within the term of
the Agreement.
4.8 Notwithstanding section 4.5 herein, if either party elects not
to participate in an individual Joint Venture company, then that party shall
have no further interest in or right to that specific target area and the other
party shall have the right to proceed unilaterally with the further development
of the target area.
4.9 On each Target Area where Dragon elects not to proceed to the
next step (hereinafter called "SADIA Site"), Dragon will provide SADIA with the
exploration data on that SADIA Site and Dragon will have no further interest in
or rights to each SADIA Site. On each Target Area that SADIA elects not to
proceed to the next step (hereinafter called "Dragon Site"), SADIA will assign
all of its interest in the Dragon Site to Dragon, and should C.V.G. not allow
such assignment then SADIA Group and Dragon shall enter into whatever
inter-corporate arrangements that will accomplish an effective assignment to
Dragon of a 100% interest in each Dragon Site.
4.10 SADIA will provide to Dragon a Notice of Intent to sell the
Dragon shares issued to SADIA pursuant to this Agreement, at which time Dragon
shall have the right to purchase the said shares issued to SADIA at a price
equal to the greater of the market value of the shares or $1.00 per share,
within 30 clear days of receiving the said Notice of Intent to sell.
4.11 Notwithstanding the foregoing, in the event that Dragon fails
to issue the shares or fails to spend the funds as stated in clause 4.2 herein,
then this agreement shall be null and void, and neither party hereto shall have
any recourse against the other to enforce the terms of this agreement.
ARTICLE V
GENERAL PROVISIONS
5.1 Notices All notices, payments and other required or permitted
communications ("Notices") to either participant shall be in writing, and shall
be addressed respectively as follows:
If to SADIA Group:- South African Diamond Holding Corp.
P.O. BOX 9
Payson Arizona 85541
Attention Thomas L. Crom III
Telephone (520) 474-9151
Facsimile (520) 474-8354
Page 5 of 7
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If to Dragon:- Dragon Diamond Corporation
P.O. BOX 34007
Vancouver, B.C. Canada, V6J 4M1
Attention Larry N. Lorenz
Telephone (604) 737-8597
Facsimile (604) 737-8593
5.2 Currency. All references to dollars or $ herein shall mean
lawful currency of the United States of America.
5.3 Force Majeure Except for the obligation to make payments when
due hereunder, the obligations of a Participant shall be suspended to the extent
and for the period that performance if prevented by any cause, whether
foreseeable or unforeseeable, beyond its reasonable control, including, without
limitation, labor disputes (however arising and whether or not employee demands
are reasonable or within the power of the Participant to grant); Acts of God;
Laws, instructions or requests of any government or governmental entity;
judgments or orders of any Court; inability to obtain on reasonably acceptable
terms any public or private license, permit or other authorization; curtailment
or suspension of activities to remedy or avoid an actual or alleged, present or
prospective violation of Environmental Laws; action or inaction by any federal,
state or local authority that delays or prevents the issuance or granting of any
approval or authorization required to conduct Operations beyond the reasonable
expectations of the Participant seeking the approval or authorization
(including, without limitation, a failure to complete any review and analysis
required by a National Environmental Policy Act or any similar Venezuelan law
within one month of initiation of that process); acts of war or conditions
arising out of or attributable to war, whether declared or undeclared; riot,
civil strife, insurrection or rebellion; fire, explosion, earthquake, storm,
flood, sink holes, drought or other adverse weather condition; delay or failure
by suppliers or transporters of materials, parts, supplies, services or
equipment or by contractors' or subcontractors' shortage of, or inability to
obtain, labor, transportation, materials, machinery, equipment, supplies,
utilities or services; accidents; breakdown of equipment, machinery or
facilities; actions by native rights groups, environmental groups, or other
similar special interest groups; or any other similar special interest groups;
or any other cause whether similar or dissimilar to the foregoing. The affected
Participant shall promptly give notice to the other participant of the
suspension of performance, stating therein the nature of the suspension, the
reasons therefor, and the expected duration thereof. The affected Participant
shall resume performance as soon as reasonably possible. The term of this
Agreement shall be extended by an amount of time equal to a period or periods of
suspension.
19
<PAGE>
5.4 Further Assurances Each of the Participants shall take, from
time to time and without additional consideration, such further actions and
execute such additional instruments as may be reasonably necessary or convenient
to implement and carry out the intent and purpose of this Agreement or as may be
reasonably required by lenders in connection with project financing.
5.5 Counterparts This Agreement may be executed by any number of
counterparts, and it shall not be necessary that the signatures of all
Participants be contained in any counterpart. Each counterpart shall be deemed
an original, but all counterparts together shall constitute one and the same
instrument.
Page 6 of 7
20
<PAGE>
Signed by South African Diamond Holding Corp. this ______ day of September, 1998
by:
/s/Thomas L. Crom III
Thomas L. Crom III
President
Signed by Adamantine Mining Corp. this _______ day of September, 1998 by:
/s/Thomas L. Crom III
Thomas L. Crom III
Signed by Compania Minera Adamantine C.A. this _____ day of September, 1998 by:
/s/Thomas L. Crom III
Thomas L. Crom III
Signed by Dragon Diamond Corporation this _______ day of September, 1998 by:
/s/Larry N. Lorenz /s/Aubrey L. McGinnis
Larry N. Lorenz Aubrey L. McGinnis
President Secretary-Treasurer
21
<PAGE>
Exhibit 27
Financial Data Schedule
21
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS,CONDENSED STATEMENT OF OPERATIONS, CONDENSED STATEMENT OF CASH FLOWS, AND
THE NOTES THERETO, WHICH MAY BE FOUND ON PAGES 3 THROUGH 8 OF THE COMPANY'S FORM
10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 1998, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 258
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 258
<PP&E> 30,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 30,258
<CURRENT-LIABILITIES> 142,214
<BONDS> 0
0
0
<COMMON> 44,240
<OTHER-SE> (156,196)
<TOTAL-LIABILITY-AND-EQUITY> 30,258
<SALES> 0
<TOTAL-REVENUES> 68
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 118,212
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (118,212)
<INCOME-TAX> 0
<INCOME-CONTINUING> (118,212)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (118,212)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
