<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, 1996

                                       OR

[ ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

For the transition period from ___________________ to ______________________

Commission file number 0-21635

                         GLOBAL DIAMOND RESOURCES, INC.
                 (NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)

        Nevada                                          33-0213535
--------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF            (I.R.S. EMPLOYER IDENTIFICATION NO.) 
 INCORPORATION OR ORGANIZATION)


    836 Prospect Street, Suite 2B
        La Jolla, California                                 92037
--------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                   (ZIP CODE)
                                        
                                

         ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE  (619) 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, $.001 par value
--------------------------------------------------------------------------------
                                (TITLE OF CLASS)
<PAGE>
 
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.  Yes   X      No  
              -----       -----     

Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K contained in this form, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [___]

The market value of the voting stock held by non-affiliates of the registrant as
of April 11, 1997, was approximately $3,037,750.

The number of shares of the Common Stock outstanding as of April 11, 1997 was
5,811,728.

                  DOCUMENTS INCORPORATED BY REFERENCE:   NONE.
<PAGE>
 
PART I

ITEM 1.   DESCRIPTION OF BUSINESS.


Business Development
--------------------

     Global Diamond Resources, Inc., a Nevada corporation ("Company"), was
formed under the laws of the State of Nevada on January 7, 1987 under the name
Lohengrin, Inc. for the purpose of conducting an unspecified offering of its
securities and then applying the net proceeds towards the acquisition of one or
more businesses. In March and April 1987, the Company conducted a public
offering of 34,667 shares of its Common Stock pursuant to an offering statement
on Form 1-A filed with the Securities and Exchange Commission. In that public
offering, the Company sold 24,267 shares at an offering price of $2.88 per
share. From April 1987 to March 1988, the Company's operations consisted solely
of the investigation of acquisition candidates.

     In March 1988, the Company entered into an Agreement of Merger and Plan of
Reorganization ("Western Capital Agreement") pursuant to which it acquired all
of the outstanding common shares of capital stock of Western Capital Leasing
Corporation, a California corporation engaged in the business of equipment
financing. At that time, the Company changed its corporate name to Western
Capital Financial Corporation. Pursuant to the Western Capital Agreement, the
Company issued to the stockholders of Western Capital Leasing Corporation 91,313
shares of the Common Stock of the Company. Between March 1988 and March 1992,
the Company acted as a holding corporation for its wholly-owned subsidiary,
Western Capital Leasing Corporation. However, as a result of declining interest
rates and an economic recession, Western Capital Leasing Corporation's business
became less profitable to the point that in 1992 Western Capital Leasing
Corporation discontinued active business operations. Between March 1992 and July
1995, the Company and Western Capital Leasing Corporation were both inactive.

     In July 1995, the Company acquired all of the outstanding shares of common
stock of Global Diamond Resources Inc. ("Global Diamond-BC"), a British Columbia
corporation. At the time, Global Diamond-BC served as a holding company for its
South African operations. Pursuant to a Securities Purchase Agreement and Plan
of Reorganization dated July 17, 1995, the Company acquired from the
shareholders of Global Diamond-BC all of the issued and outstanding capital
shares of that corporation in exchange for the Company's issuance of 4,415,000
shares of Common Stock of the Company (representing 95% of the issued and
outstanding shares of the Common Stock after giving effect to the
reorganization) and a warrant to purchase 550,000 shares of Common Stock, at
Canadian $.75 per share, expiring on December 31, 1997. The terms of the
reorganization were the result of arm's-length negotiations between management
of the Company and management of Global Diamond-BC. Prior to the consummation of
the reorganization, the Company divested itself of its interest in Western
Capital Leasing Corporation by selling all of the issued and outstanding shares
of the common stock of Western Capital Leasing Corporation to its founder,
Weston J. Coolidge, for $1.00. At the time of the divestiture, Western Capital
Leasing Corporation was a dormant corporation without assets or operations of
any kind. Subsequent to the reorganization, the Company changed its corporate
name to Global Diamond Resources, Inc.

     In September 1995, the Company sold in a private offering 100,000 shares of
Common Stock at $2.50 per share.  The purchaser was unaffiliated with the
Company and the proceeds of the offering were applied towards working capital.
During the period August through December of 1996, the Company completed a
private placement of 400,000 shares of its Common Stock at $2.50 per share
pursuant to Rule 504 under the Securities Act of 1933.  In that offering, the
Company sold 400,000 shares of Common Stock for the gross proceeds of
$1,000,000.  The net proceeds of $948,561 from the sale of the shares 

                                      -1-
<PAGE>
 
were applied towards the bulk sampling at the Caerwinning Deposit and working
capital. See "Business of the Issuer - The Caerwinning Deposit."

     In March 1997, the Company entered into separate agreements with three
parties ("Agreements") pursuant to which those parties agreed to purchase, at
prices ranging from $1.60 to $2.20 per share, 802,931 shares of Common Stock for
a total of $1,500,000. The offering was conducted pursuant to Regulation S under
the Securities Act of 1933. The transactions under the Agreements are expected
to close at various dates through April 29, 1997. Through April 11, 1997, 
subscriptions totaling $548,020 have been received by the Company in connection 
with these Agreements. The consideration received consists of $235,520 in cash 
and 100,000 shares of a publicly traded company with a market value as of April
11, 1997 of $312,500. Subject to the Company's receipt of the entire $1,500,000
of proceeds under the Agreements, the Company has agreed to issue to a finder
unaffiliated with the Company 60,000 shares of Common Stock and a common stock
purchase warrant entitling the holder to purchase 1,500,000 shares of Common
Stock at an exercise price of $.50 per share for three year period ending March
31, 2000.

     In March 1997, the Company entered into discussion with Kensington
Resource, Ltd. ("Kensington") concerning a strategic alliance between the two
companies.  Kensington is a diamond exploration and mining company with mining
properties in Canada and the Peoples Republic of China.  While the discussions
between the companies are at a preliminary stage, it is contemplated that
Kensington will assist the Company in obtaining additional capital to finance
its South African mining operations and, in return, the Company will provide
Kensington with management, technical and administrative assistance on a
contract basis.  Pending the negotiation and execution of formal agreements
between the companies, Mr. Donald Nicholson has been appointed to the Company's
Board of Directors to serve in that capacity as Kensington's nominee and
Kensington has nominated the Company's Chief Executive Officer, Mr. Johann de
Villiers, to serve as a member of Kensington's Board of Directors.  In addition,
Kensington has nominated John Tyson, a member of the Company's Board of
Directors, to serve as a member of the Board of Directors of Kensington, and has
nominated the Company's Chief Financial Officer, Mr. Mervyn McCulloch, to serve
as the Chief Financial Officer of Kensington.  There can be no assurance that
the parties will be able to conclude a definitive agreement.

     Unless the context otherwise requires, all references to the Company
include its wholly-owned subsidiaries, Global Diamond Resources Inc., a British
Columbia corporation, and Global Diamond Resources (SA) (Pty) Limited, a South
African corporation.  The Company's executive offices are located at 836
Prospect Street, Suite 2B, La Jolla, California  92037; Telephone (619) 459-
1928.

Business of the Issuer
----------------------

     GENERAL

     The Company was recently organized to engage in diamond exploration and
mining and has exercised an option to acquire one mining property, acquired an
option to purchase a second mining property and has acquired a 50% partnership
interest in a third property, all of which are located in the Republic of South
Africa.  The Company's current mine projects include:

     The Caerwinning Deposit.  The property is an alluvial deposit downstream of
the confluence of the Vaal and Harts Rivers in the Griqualand West area of the
Northern Cape Province.  The property is estimated to include 38.3 million
tonnes of in situ diamondiferous gravel.  During the period February 1989 to
October 1994, 3,685 carats of high quality large gemstones with an average value
of $488 per carat were recovered from this property.  The Company has exercised
an option to acquire the Caerwinning Deposit in June 1996 and completed a bulk
sample in September 1996 in which it recovered 60 diamonds with a combined
weight of 111.05 carats and a value of $642 per carat.  The Company intends to

                                      -2-
<PAGE>
 
commence full scale mining operations at the Caerwinning Deposit in the second
quarter of 1997 subject to the receipt of additional capital. See "Part II, Item
6. Management's Discussion and Analysis or Plan of Operations."

     The Montrose Kimberlite Pipe.  The property is located 30 kilometers east
of Pretoria in the Gauteng Province, and is part of the Pretoria Group
geological formation which includes the Premier Diamond Mine. Geological testing
and drilling evidences a diamondiferous kimberlite pipe with a surface dimension
of 4.25 hectares and a depth of 400 meters, which indicates a geological
resource in excess of 9 million tonnes.  The Company has acquired an option to
purchase the Montrose Pipe which expires on October 10, 1997 and intends to
commence bulk sampling at the site in the second quarter of 1997 subject to the
receipt of additional capital.  See "Part II, Item 6. Management's Discussion
and Analysis or Plan of Operations."

     The Grasdrif Deposit.  The property is an alluvial deposit on the inner
bank of the Orange River in the Northern Cape Province.  Based on previous
exploration, the deposit is estimated to contain 54 million tonnes of in situ
diamondiferous gravel.  Between 1973 and 1984, a previous producer recovered in
excess of 700,000 carats of high quality large gemstones from some 19 million
tonnes of gravel from properties in the area.  The Company owns the rights to
this property in partnership with the local surface right holders.  The Company
intends to complete site establishment, including the development of roads,
power, housing and water, and commence mining operation at the Grasdrif Deposit
in the second quarter of 1997 subject to the receipt of additional capital.  See
"Part II, Item 6. Management's Discussion and Analysis or Plan of Operations."

     The Company believes that historical mining data and the results of past
prospecting at its three mining properties to date suggest significant reserves
exist throughout the mine properties.  However, as of the date of this report,
the Company has not conducted sufficient drilling or bulk sampling at any of the
three mines for the purpose of establishing proven reserves.  Any estimate of
reserves is necessarily imprecise and would depend on statistical inferences
drawn from limited drilling or bulk sampling, which can prove unreliable.
Consequently, the Company is unable to estimate with any degree of assurance the
amount of reserves at any of its mine properties.

     The Company intends to conduct exploration and acquisitions of additional
diamond pipes and alluvial deposits and is continuously evaluating potential
property acquisitions.

     Certain mining and geological terms used below are defined in the section
"Glossary," below. The Company has entered into certain financial commitments
payable in Rand, the unit of currency of the Republic of South Africa. All Rand
based amounts are designated by the symbol R. As of April 7, 1997, the Rand-
Dollar exchange rate was 4.4285 Rand to 1 U.S. Dollar.

     DIAMOND MINING - GENERALLY

     Diamonds are chemically inert crystals formed by the subjection of carbon
to extraordinary heat and pressure.  Diamonds are believed to have been formed
more than 90 million years ago at a depth of 400 km below the surface of the
earth and then transported to the earth's surface by the movement of molten
rock.  The solidified rock is known as kimberlite pipes or fissures, and it is
from these kimberlite pipes or fissures that diamonds are generally mined.  Some
of the pipes and fissures have eroded over time, and the diamonds once contained
in such formations have been transported and deposited in ancient or existing
river beds, seas and beaches.  The Company's present projects include the mining
of kimberlite pipes and alluvial deposits.

                                      -3-
<PAGE>
 
     Diamond exploration typically begins with surface sampling and magnetic
surveys for purposes of locating kimberlite or geographical anomalies which may
indicate the presence of kimberlite. In the event a pipe is located, follow-up
prospecting, trenching or drilling is conducted to determine if it is
diamondiferous. If the pipe is determined to be diamondiferous, bulk sampling is
conducted to evaluate the grade of the prospect and, thereby, establish proven
or probable reserves. The exploration and evaluation of an alluvial diamond
deposit is typically more complex and less conclusive because of scarce and
irregular distribution of diamonds.

     Kimberlite pipes are mined through a combination of open pit excavation and
underground mining. The mining of a kimberlite pipe typically commences with an
open pit mine to a shallow depth, generally 30 meters.  Initially, a mining zone
is designed and then dozers are used to remove the topsoil which is set aside
for reclamation.  Dozers are then employed to excavate an open pit.  As the
mining operations expand, the open pit is enlarged by digging benches into the
pit wall.  Since kimberlite pipes are relatively narrow bodies, it becomes
impractical at a certain depth, approximately 30 to 50 meters, to continue
mining operations through open pit excavation.  At this point, shafts are sunk
away from and parallel to the ore body, and from these shafts adits to the ore
body are developed at various levels.  The kimberlite ore is hoisted to the
surface and hauled to a recovery plant by front-end loaders and trucks.

     MINING OPERATIONS

     The Company intends to construct at each mining prospect a state-of-the-art
recovery plant for purposes of processing ore.  Each recovery plant will consist
of a wash plant and associated screens, tables and separators that will employ
water, agitation, gravity and centrifugal force to separate the heavier
diamondiferous material from the lighter gravel.  In the case of ore from a
kimberlite pipe, the ore will be delivered to the plant in large chunks and
those chunks will initially be subjected to a primary crusher that will mill the
ore into smaller blocks five inches thick.  In the case of ore from an alluvial
deposit, the ore is initially passed over a grizzly that catches and rejects all
rocks six inches or greater in size.  From this point, the recovery process is
virtually the same in the case of pipe or alluvial ore.  The ore passes on a
covered conveyor belt through a Sortex machine.  The Sortex machine beams an X-
Ray over the ore, which will cause any freed diamonds to fluoresce.  When a
light detector identifies the fluorescent diamonds, the Sortex machine sends a
blast of air to knock the diamond off the conveyor belt and into a secured
recovery chamber.

     The ore is then sent to a crusher that will mill the ore to a size of one
and one-half inches in diameter. At this point water will be introduced, turning
the ore into a slurry.  The slurry passes through a dense medium separation
process through which gravity and centrifugal force are used to separate the
heavier diamondiferous ore from the lighter gravel.  The diamondiferous ore is
sent through a second Sortex machine and the lighter gravels are sent to a
tailing pile.  From the second Sortex machine, the slurry is run over a grease
table. Because water does not adhere to or "wet" diamonds, any freed diamonds
will stick to the grease table whereas the remainder of the slurry will slide
over the grease.  The ore from the grease table is sent through a ball mill and
the ore is reduced to pulp.  The ore from the ball mill is sifted through small
mesh screens to recover any remaining diamonds, and the residue is sent to the
tailing pile.

     The Company intends to sell its diamonds directly to private diamond
dealers and manufacturers. There are no formal rules by which the price of
diamonds are determined.  Sale prices are usually set by the diamond's weight,
color and clarity, and the evaluation process is generally subjective.  The
Company expects that its sale of diamonds will be transacted in U.S. dollars on
a cash basis.  The Company has engaged Weir International Limited ("Weir") to
market the Company's diamond production.  In exchange for Weir's services, the
Company shall pay Weir five percent (5%) of the gross amount of all diamond

                                      -4-
<PAGE>
 
sales. Weir is a stockholder of the Company and certain members of management,
including the Company's Chief Executive Officer, have a beneficial interest in
Weir. See "Part III, Item 12. Certain Relationships and Related Transactions."

     THE CAERWINNING DEPOSIT

     Property Rights.  The Company has acquired the exclusive rights to conduct
mining operations at the Caerwinning Deposit, a 2,333 hectare alluvial deposit
located in the Northern Cape Province.  The Caerwinning Deposit lies on
"alienated State land" pursuant to the Precious Stones Act of 1964 and,
therefore, the Republic of South Africa owns all rights to the precious stones
on the property.  In 1978, Lama Minerals CC acquired from the Minister of Mines
the necessary approvals to mine the surface and subsurface of the deposit.  In
June 1996, the Company exercised its option to acquire the mineral lease to the
alluvial deposit from Lama Minerals CC for R1.14 million.  The Company's
acquisition of the mineral lease is subject to government approval which is
expected by mid-1997. The Company believes that as a condition to the
governmental approval it will be required to pay the government between 2.5% to
5% of the gross selling price of the monthly production from the deposit.

     Pursuant to the mineral lease, the Company has the perpetual right to mine
the Caerwinning Deposit, subject to Lama Minerals CC's right to terminate the
mineral lease based on the Company's default thereunder. The Company's principal
obligations to Lama Minerals CC under the lease are to comply with all South
African mining regulations, restore disturbed land to the satisfaction of Lama
Minerals CC and to compensate Lama Minerals CC for lost farming profits to the
extent any mining operations disturb cultivated land.

     Geography. The Caerwinning Deposit is situated in the Griqualand area of
the Northern Cape province, approximately 70 kilometers west of Kimberley. It
borders to the east along the Vaal River, approximately 20 kilometers downstream
of the confluence of the Vaal and Hart Rivers. Ingress to and egress from the
Caerwinning property is available by way of public paved and gravel roads. The
property is serviced by the state electric utility.

     Geology.  The gravels of the Caerwinning Deposit are underlain by quartzite
and shale of the Schmidtsdrift formation of the Transvaal Sequence, as well as
carboniferous shale and tillite of the Dwyka Formation of the Karoo Sequence.
Rock types of both sequences found on the deposit are horizontally or near
horizontally bedded, and are not conducive to pothole formation.  Outcrops of
rocks of the Transvaal Sequence occur along the western and southern boundaries
of the deposit.  Rock types belonging to the Dwyka formation do not outcrop and
were only found in boreholes and excavations.

     The gravels occur in three distinct terraces of which the oldest is the
furthest removed from the present river bed.  Secondary calcification is rather
extensive in the oldest terraces but negligible in the later and recent
deposits.  The gravels mainly consist of cobble and pebble sized casts in a
sandy matrix.  Boulder sized particles are extremely rare except where local
tributaries have introduced large more or less angular boulders into the
mainstream deposits.

     Reserves.  Based on past exploration drilling and bulk sampling and recent
mining activities, the Company believes that the Caerwinning Deposit has 38.3
million tonnes of in situ diamondiferous gravel.

     Historical Production.  The Caerwinning Deposit has been mined sporadically
since 1969.  Over the years, various producers have recovered 4,539 carats. Over
the last six years, the most recent contractor, Mr. Pieter van Wyk, recovered
3,685 carats from 344,400 tonnes of ore, for an average grade of 1.07 carats per
100 tonnes.  A review of available production records indicates that 90 to 95%
of the 

                                      -5-
<PAGE>
 
diamonds recovered were of gem quality, and that the overall price during
the last six years of production was $488 per carat.  Mr. van Wyk has served as
Chief Consulting Geologist for the Company since July 1994.  In September 1996,
the Company conducted a bulk sampling of the property in which it recovered 60
diamonds with a combined weight of 111.05 carats and a value of $642 per carat.

     Mining Plan. The Company intends to commence production at the Caerwinning
Deposit in the second quarter of 1997 subject to the receipt of additional
capital. See "Part II, Item 6. Management's Discussion and Analysis or Plan of
Operations." The Company intends to conduct directly all mining and recovery
activities at the Caerwinning Deposit. However, in the event the Company
encounters calcified deposits that require blasting, it intends to engage
contractors for this purpose.

     THE MONTROSE KIMBERLITE PIPE

     Property Rights. The Company has acquired exclusive prospecting rights and
an option to purchase a farm in the Gauteng Province, which includes a mining
prospect known as the Montrose No. 3 (referred to herein as the "Montrose
Pipe"). Pursuant to a Notarial Prospecting Contract between Maria Anna Gobey and
Global Diamond Resources (SA) (Pty) Limited, the Company has acquired the
exclusive rights to prospect on the property until October 11, 1997 in
consideration of the Company's payment of R54,000 and 10% of the value of all
minerals recovered by the Company during the prospecting period. The Company
also has the exclusive option until October 10, 1997 to purchase the farm for
R2.5 million ($564,525 as of April 7, 1997).

     Geography.  The Montrose Pipe lies 500 meters north of Rayton and 30 km
east of Pretoria in the Gauteng Province. The area forms part of the temperate
eastern plateau and has an average elevation of 1,500 meters, with warm summers
and cool winters. Annual rainfall during the summer months averages 785
millimeters and year-round mining is undertaken in the vicinity.

     The region is accessible by the N4 Freeway and the Transnet Railway.
Ingress to and egress from the Montrose property is available by way of public
paved and gravel roads.  The property is serviced by the state electric utility
and water for mining purposes is available by pipeline from the Bronkhorstspruit
Dam, 20 kilometers to the east.

     Geology. The area of the Montrose Pipe is part of the Rayton Formation,
Pretoria Group. The area is underlain by a north-east succession of quartzite,
shale and subgraywacke of Precambrian time, and overlain by sandstone and
sandstone-shale The Pretoria Group has been intruded by a number of kimberlite
pipes and to a lesser extent by kimberlite fissures, the latter striking mainly
east-west. A total of ten kimberlite bodies are known to exist around Rayton,
six of which, the Montrose No.1, Montrose No.2, Montrose No. 3, Schuller-
Kaalfontein, National and Annex, have been prospected and exploited to a limited
extent.

     In November 1994, Geo Hydro Technologies ("Geo Hydro"), an independent
geological engineering firm located in Pretoria, was commissioned by the Company
to conduct a geophysical survey of the Montrose Pipe for purposes of detecting
and delineating the kimberlite pipe. Geo Hydro's written report stated that it
was able to map the position of the kimberlite through electromagnetic
profiling. Geo Hydro estimated that the kimberlite had a surface dimension of
4.25 hectares based on electromagnetic profiling; however, the magnetic
profiling suggested the presence of a fissure on the southeastern boundary of
the kimberlite, which, if present, would reduce the surface area of the pipe to
a minimum size of 1.25 hectares with the remaining area comprising fissure
material.

                                      -6-
<PAGE>
 
     Reserves. Drilling to date together with surface sampling and geological
mapping indicate a kimberlite resource with a surface area of 4.25 hectares and
a depth of at least 50 meters. For purpose of estimating the total ore body, the
Company has assumed the pipe has a depth of at least 400 meters based on the
results of the drilling program interpreted by Steffen, Robertson & Kirsten.
Based on a depth of 400 meters and a surface area of 4.25 hectares, the Company
estimates that the pipe contains in excess of 9 million tonnes of ore.

     Historical Production.  In the early part of this century a prospecting
shaft was sunk alongside the Montrose Pipe to a depth of 30 meters and two
exploratory adits excavated, one at nine meters and the other at 30 meters.
While production records are incomplete, it is known that surface and shallow
underground mining of the Montrose Pipe produced 6,952 carats between 1910 and
1925.  During this period average recovery grades varied from 3.19 carats per
100 tonnes from surface material to 15.08 carats per 100 tonnes from underground
ore.  In 1989, an unaffiliated mining company acquired prospecting rights to the
Montrose Pipe and between April and July 1990 the company recovered 24.52 carats
from 367 tonnes of surface ore, which were sold for $123 per carat.

     Mining Plan.  The Company intends to commence a bulk sampling program at
the Montrose Pipe in the second quarter of 1997 subject to the receipt of
additional capital.  See "Part II, Item 6. Management's Discussion and Analysis
or Plan of Operations."  Following successful results from the proposed bulk
sampling program, the Company will conduct open pit mining to a depth of 30
meters.  While final pit design will depend on exploration results, the Company
presently plans to excavate 10 meter benches at a pit slope angle of 55 degrees.
Based on a surface area of 4.25 hectares, the Company estimates that open pit
mining will result in the recovery of 1.06 million tonnes of ore and an
estimated life of the open pit of 1.77 years. Based on the high estimated
capital cost of open pit mining at the Montrose Pipe, the Company intends to
engage mine operators on a contract basis in order to take advantage of the
economies offered by a larger mine operator.

     The Company will commence underground mining activity upon the completion
of open-pit mining. During the initial phase of underground mining, the existing
shaft will be refurbished and enlarged to a depth of 100 meters.  A second shaft
for ventilation purposes will be developed to a depth of 100 meters.  Next, the
Company intends to excavate adits at the 33 meter level in order to carry out
bulk sampling.  The Company presently estimates that R13 million ($2,935,531 as
of April 7, 1997) in capital expenditures and two years of development will be
required in order to commence underground mining operations.

     THE GRASDRIF DEPOSIT

     Property Rights.  The Company has entered into a joint venture for purposes
of mining the Grasdrif Deposit, an alluvial diamond deposit located on the inner
bank of the Orange River in the Northern Cape Province. The deposit is currently
held by an unaffiliated South African corporation named Nabas Holdings (Pty)
Limited ("Nabas Holdings"). Nabas Holdings has acquired exclusive rights to
prospect the deposit from appropriate governmental agencies.

     Pursuant to a Shareholder Agreement, dated March 24, 1995, between Global
Diamond Resources (SA) (Pty) Limited and the promoters of Nabas Holdings, the
parties intend to form a South African corporation, Nabas Diamonds (Pty) Limited
("Nabas Diamonds"), to be owned 50/50 by the parties. The Company will
contribute R3 million to Nabas Diamonds and Nabas Holdings will assign the
mining rights to the Grasdrif Deposit. Thereafter, each party will contribute
additional capital to Nabas Diamonds in equal amounts as required by the
Company. In the event either party fails to make a required capital
contribution, the other party may make the contribution in return for an
increased proportional interest in 

                                      -7-
<PAGE>
 
its percentage ownership of Nabas Diamonds. The Company and Nabas Holdings will
appoint three directors and two directors, respectively, to the board of Nabas
Diamonds. The parties have granted each other the right of first refusal to
purchase each other's interest in Nabas Diamonds.

     Allocations and distributions of the income of Nabas Diamonds will be made
to Nabas Holdings and the Company based on their percentage ownership of Nabas
Diamonds. Initially, all allocations and distributions shall be 50/50, however,
in the event one party fails to make a required capital contribution, the other
party's percentage ownership in Nabas Diamonds shall increase proportionately.

     Geology. The Grasdrif Deposit is an alluvial gravel deposit situated on a
bedrock of Dwyka Tillites. The gravels of the Grasdrif Deposit have been
preserved in three distinct elevations, all of which seem to have been deposited
on the inner bank of the paleo and present Orange River. The upper terrace
(elevation 215 meters above sea level) seems to have been deposited as a point
bar of a channel incising to the west, while all other terraces are associated
with a gradual migration of channels towards its present situation in the east.

     Ingress to and egress from the Grasdrif Deposit is available by way of
public paved and gravel roads. At the present time, power is supplied to the
property by Company-owned generators.  Prior to commencement of full scale
mining, the Company intends to connect the Grasdrif Deposit to the state
electric utility.

     Reserves.  Based on previous exploration and production activity by Namex
(Pty) Limited ("Namex"), a South African mining company, the Company estimates
that the deposit contains approximately 54 million tonnes of in situ
diamondiferous gravel.  The management of Namex at the time of such production
included several individuals who presently serve as senior management of the
Company, including Johann de Villiers.

     Historical Production.  The Grasdrif Deposit was prospected for the first
time by Namex.  Between 1973 and 1984, Namex produced 706,607 carats from
19,613,759 tonnes of ore, for an average grade of 3.6 carats per 100 tonnes from
properties in the area.

     Mining Plan.  The Company intends to complete site establishment, including
the development of roads, power, housing and water, and commence mining
operations at the Grasdrif Deposit in the third quarter of 1997, subject to the
receipt of additional capital.  See "Part II, Item 6. Management's Discussion
and Analysis or Plan of Operations."  The Company intends to conduct all mining
and recovery activities directly. However, in the event the Company encounters
calcified deposits that require blasting, it intends to engage contractors for
this purpose.  The Company estimates that Nabas Diamonds will incur up to R9.5
million ($2,145,196 as of April 7, 1997) in expenses in developing and mining
the Grasdrif Deposit before it will commence the recovery of diamonds. While
Nabas Holdings has the right to contribute fifty percent (50%) of the required
capital in excess of the Company's initial R3 million capital contribution, the
Company assumes that Nabas Holdings will be unable to meet additional capital
contributions and the Company will be required to fund all costs until the
commencement of diamond recovery.

     COMPETITION

     The diamond mining industry is intensely competitive. The principle areas
of competition are the exploration and acquisition of mineral properties. A
large number of companies are engaged in the exploration and development of
diamond properties, many of which have substantially greater technical and
financial resources than the Company. Competition among the members of the
diamond mining 

                                      -8-
<PAGE>
 
industry also affect the marketing of the diamonds produced by the members,
including the price of cut and uncut diamonds.

     REGULATION

     The Company's mining and milling operations in the Republic of South Africa
and elsewhere are subject to various government regulations governing the
protection of the environment, prospecting, production, labor standards and mine
safety. Failure to comply with applicable laws and regulations may result in
orders being issued that may cause operations to cease or be curtailed, require
the installation of additional equipment and possibly the loss of mining rights.
Existing and future legislation and regulations could also cause restrictions
and delays in the development of the Company's properties and additional expense
and capital expenditures. The Company believes it is in substantial compliance
with all material laws and regulations applicable to it and its operations.

     The Company's mining operations are also subject to governmental
regulations regarding environmental considerations, including regulations
relating to air quality standards, pollution of stream and fresh water sources
and reclamation. The Company may be required to prepare and present to
governmental authorities data pertaining to the effect or impact that any
proposed exploration or mining may have upon the environment. As well, the
Company will be responsible for reclamation costs. Reclamation requirements may
vary depending on the location and the nature of the mining operations, however,
they are similar in that they aim to minimize long term effects of exploration
and mining disturbance by requiring the operating company to control possible
deleterious effluents and to re-establish to some degree predisturbance
landforms and vegetation. The environmental regulations of the Republic of South
Africa are not considered by the Company to be as stringent as the environmental
laws adopted in the U.S., and the Company does not consider the existing
environmental regulations in the Republic of South Africa to represent a
material cost or burden on the Company's proposed mining operations. However,
future legislation may significantly emphasize the protection of the environment
and, as a consequence, more closely regulate the Company's mining operations.
Any such legislation, as well as future interpretation of existing laws, may
require substantial increases in equipment and operating costs to the Company
and delays, interruptions, or a termination of operations, the extent of which
cannot be predicted.

     Mining rights in the Republic of South Africa are governed by the Minerals
Act No. 50 of 1991. Pursuant to the Minerals Act, the right to prospect or mine
is dealt with in terms of the common law, which entitles the holder of the right
to the minerals on his land to prospect and mine. This common law right is,
however, made subject to the provisions of the Minerals Act, which state that no
common law right to prospect or mine minerals may be exercised unless the
prescribed statutory authorization has been obtained in the form of a permit to
prospect or an authorization to mine. A prerequisite for the granting of the
authorization is that the applicant must be the holder of the common law right
to the minerals. Pursuant to assignments from the holders of the common law
mineral rights, the Company has obtained government authorization to prospect
the Grasdrif Deposit and the Montrose Kimberlite Pipe and government
authorization to prospect and mine the Caerwinning Deposit. The Company expects
to acquire the common law mineral rights and direct government authorization to
prospect and mine the Caerwinning Deposit by mid-1997. The Company believes it
will be granted the necessary authorization to mine the Grasdrif Deposit and the
Montrose Kimberlite Pipe in a timely manner.

EMPLOYEES

     The Company employs 37 persons, including three management level employees
in the U.S. and four managers and 30 laborers in the Republic of South Africa.
None of the Company's employees are 

                                      -9-
<PAGE>
 
unionized or otherwise subject to a collective bargaining agreement and the
Company believes that its relationship with its employees is excellent.

GLOSSARY

     Set forth below are definitions of certain mining and geological terms used
in this report.

<TABLE>
<CAPTION>
<C>                      <S> 
Adit                      A horizontal tunnel from a shaft to a kimberlite pipe
----                      through which the pipe is mined and the ore is
                          excavated.

Alluvial Deposit          A deposit of alluvium (deposits made by water) made by
----------------          a stream where it runs out onto a level plain or meets
                          a slower stream.

Bedrock                   The solid rock underlying mineral-bearing gravel,
-------                   sand, clay, etc. and upon which alluvial diamond
                          rests.

Bench Cuts                The excavation of a flat bench or dirt on a slope to
----------                stabilize the slope or to remove material of value in
                          open pit mining.

Bulk Sampling             Acquiring a large (often several thousand tons) sample
-------------             of rock obtained by mining, excavation, digging or
                          drilling large diameter holes. Bulk sampling is
                          necessary to determine the grade and value of diamonds
                          contained in a property.

Carat                     A small unit of weight for precious stones equal to
-----                     200 milligrams or 0.2 grams.

Diamondiferous            Containing diamonds.
--------------

Geophysical Surveys       Measuring and recording any geophysical properties
-------------------       over a specific area, e.g., gravity, magnetics,
                          electrical conductivity, acoustical velocities, etc.,
                          utilizing instruments on land, water or airborne.

Grade                     The number of carats (weight) in a physical unit of
-----                     ore, normally in carats per 100 tonnes.

Gravel                    A comprehensive term applied to the water-worn mass of
------                    broken down rocks making up an alluvial. Alluvial
                          gravels are sometimes arbitrarily described in terms
                          of size as "pebble" gravel, "cobble" gravel or
                          "boulder" gravel.

Hectare                   Unit of measurement of surface area. One hectare
-------                   approximates 2.47 acres.
</TABLE>

                                      -10-
<PAGE>
 
<TABLE>
<S>                      <C>
Kimberlite               One of two primary types of diamond-bearing rock and
----------               the most common, often characterized by a carrot-shaped
                         structure referred to as a kimberlite "pipe."

Magnetic Surveys         Measuring the magnetic variations in the Earth's
----------------         crustal rocks over a specified area by installing a
                         magnetometer within, or by towing a magnetometer behind
                         an aircraft and recording the variation in the Earth's
                         magnetic field. Useful in detecting kimberlite and
                         ilmenite bodies due to the presence of magnetite in
                         kimberlite.

Minerology               The science dealing with inorganic, solid, homogeneous
----------               crystalline, chemical elements or compounds (minerals),
                         their crystallography, physical and chemical
                         properties, classifications and distinguishing
                         characteristics.

Mining                   The making of any excavation for the purpose of
------                   recovering diamonds in commercial quantities. Of
                         primary importance in the Republic of South Africa
                         where mining laws draw a distinction between "mining"
                         and "prospecting." See "Prospecting."

Ore                      A mineral deposit containing one or more metals that
---                      can be mined or treated commercially. See"Reserves."

Petrology                The science that deals with the origin, history,
---------                occurrence, structure, chemical and mineralogical
                         composition and classification of rocks.

Probable Reserves        Reserves for which quantity and grade and/or quality
-----------------        are computed from information similar to that used for
                         proven reserves, but the sites for inspection,
                         sampling, and measurement are farther apart or are
                         otherwise less adequately spaced. The degree of
                         assurance, although lower than that for proven
                         reserves, is high enough to assume continuity between
                         points of observation. See "Reserves" and "Proven
                         Reserves."

Prospecting              Searching for diamonds by any means and the recovery of
-----------              diamonds through searching, but does not include
                         "mining" (i.e., excavation for purposes of recovering
                         diamonds in commercial amounts). See "Mining."

Proven Reserves          Reserves for which (a) quantity is computed from
---------------          dimensions revealed in outcrops, trenches, workings or
                         drill holes, grades and/or quality are computed from
                         the results of detailed sampling, and (b) the sites for
                         inspection, sampling and measurement are spaced so
                         closely and the geologic character is so well defined
                         that size, shape, depth and mineral content of reserves
                         are well-established. See "Reserves" and "Probable
                         Reserves."

Reserves                 That part of a mineral deposit that can be economically
--------                 and legally extracted or produced at the time of the
                         reserve determination. Reserves are customarily stated
                         in terms of "ore" when dealing with diamonds and other
                         metalliferous minerals.

Tailings                 The washed material that issues from a recovery plant
--------                 after the concentrate has been removed.
</TABLE>

                                      -11-
<PAGE>
 
ITEM 2.   DESCRIPTION OF PROPERTY.

     The Company's executive offices are located in La Jolla, California and
consist of approximately 485 square feet of leased premises.  The Company's
lease for these premises expires on March 31, 1999 and provides for monthly rent
of $1,050.  See "Item 1. Business and Properties - The Caerwinning Deposit; The
Montrose Kimberlite Pipe; and The Grasdrif Deposit" for a description of the
Company's mining properties.


ITEM 3.   LEGAL PROCEEDINGS.

     There are no pending legal proceedings to which the Company or the property
of the Company are subject.  In addition, no proceedings are known to be
contemplated by a governmental authority against the Company or any officer or
director of the Company.


ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     There were no matters submitted to the security holders of the Company
during the fourth quarter of fiscal year 1996.

PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.

     The Company's Common Stock has been listed on the OTC Bulletin Board under
the symbol "GDRS" since August 12, 1996. During the period August 12, 1996 to
December 31, 1996, the high and low last sale prices were $3.00 and $1.50,
respectively. The Company considers its Common Stock to be thinly traded and
that any reported bid or sale prices may not be a true market-based valuation of
the Common Stock. As of April 11, 1997, there were approximately 130 record
holders and 263 beneficial holders of the Company's Common Stock.

     The Company has not paid any cash dividends since its inception and does
not contemplate paying dividends in the foreseeable future.  It is anticipated
that earnings, if any, will be retained for the operation of the Company's
business.

     During the fiscal year ended December 31, 1996, the Company sold
unregistered shares of its Common Stock in the following transactions:

     A.   In September 1995, the Company sold 100,000 shares of Common Stock, at
$2.50 per share to one person pursuant to Section 4(2) of the Securities Act.
There were no underwriters involved in the transaction.

     B.   During the period from August through December of 1996, the Company
sold 400,000 shares of Common Stock, at $2.50 per share, to institutional
investors pursuant to Rule 504 under the Securities Act. There were no
underwriters involved in this transaction.

                                      -12-
<PAGE>
 
ITEM 6.   MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

     The Company is engaged in diamond exploration and mining. The Company has
exercised an option to acquire one mining property (the Caerwinning Deposit),
acquired an option to purchase a second mining property (the Montrose Kimberlite
Pipe) and has acquired a 50% partnership interest in the third property (the
Grasdrif Deposit), all of which are located in the Republic of South Africa. The
Company intends to conduct exploration and acquisitions of additional diamond
pipes and alluvial deposits and is continuously evaluating potential property
acquisitions. See "Part I, Item 1. Description of Business" for a further
description of the Company's mining properties.

     The Company has entered into certain financial commitments payable in Rand,
the unit of currency of the Republic of South Africa.  All Rand based amounts
are designated by the symbol R.  As of April 7, 1997, the Rand-Dollar exchange
rate was 4.4285 Rand to 1 U.S. Dollar.

     To date, the Company's activities have included the investigation and
acquisition of mining property interests and limited exploratory work.  The
Company has financed its activities to date through the sale of shares of its
Common Stock.  See "Item 7, Financial Statements."  As of the date of this
report, the Company is engaged in the pursuit of an additional $3.5 million of
capital, the proceeds of which will be used to complete exploration activities
and commence production, as described below.  As of the date of this report, the
Company is seeking to acquire the additional capital through the nonpublic
offering of shares of its Common Stock.  However, there are no firm commitments
or agreements on the part of any party at this time to provide any additional
capital to the Company and there can be no assurance that the Company will be
able to obtain sufficient additional capital in order to attain a meaningful
level of operations.  If the Company is unable to raise additional capital, the
Company may not be able to commence revenue producing operations or finance the
exercise of certain options to acquire mining properties prior to their
termination.  See "Part I, Item 1. Description of Business - Business of the
Issuer."

     The Company's plan of operations for the next 12 months include the
completion of exploratory work and the commencement of production at all three
of its present mining properties, subject to the receipt of additional
financing.  The Company intends to undertake the following activities at each of
its three properties, in the following order of priority.  The Company intends
to commence production at the Caerwinning Deposit, subject to its receipt of an
additional $1.4 million of capital to be applied towards this purpose.  The
Company intends to commence a bulk sampling program at the Montrose Pipe subject
to its receipt of an additional $500,000 in capital to be applied towards this
purpose.  If the results from the proposed bulk sampling program are successful,
the Company intends to conduct open pit mining to a depth of 30 meters which
would be followed by underground mining activity.  The Company estimates that it
will require R13 million ($2,935,531 as of April 7, 1997) in capital
expenditures and 2 years of development in order to commence underground mining
operations at the Montrose Pipe.  Subject to the Company's receipt of an
additional $1.2 million in capital to be applied towards such purpose, the
Company intends to complete site establishment, including the development of
roads, power, housing and water, and commence mining operations at the Grasdrif
Deposit. The Company believes that site establishment will take approximately 6
months, after which the Company would propose to commence production at the
Grasdrif Deposit.  The Company expects to incur R9.5 million ($2,145,196 as of
April 7, 1997) in expenses for the development and mining of Grasdrif Deposit
before it will commence the recovery of diamonds.

     In addition to the foregoing requirements, the Company will require
additional capital to finance the cost of development of its three mining
properties from banks and others or from the sale of equity securities. Because
the likelihood of discovery of an economically recoverable deposit and the
amount of funds required to finance the development of any particular project
cannot be predicted, it is impracticable 

                                      -13-
<PAGE>
 
to estimate the Company's requirements for additional financing for development
purposes at this time. Any such additional financing might involve a pledge or
mortgage of the Company's properties and of any production therefrom. There is,
of course, no assurance that satisfactory financing could be obtained therefor.
In addition to borrowings to finance individual development projects, the
Company may also borrow funds from time to time for working capital and other
general corporate purposes.

     This report contains various forward-looking statements that are based on
the Company's beliefs as well as assumptions made by and information currently
available to the Company.  When used in this report, the words "believe,"
"expect," "anticipate," "estimate" and similar expressions are intended to
identify forward-looking statements.  Such statements are subject to certain
risks, uncertainties and assumptions, including, without limitation, that as of
this date the Company has not commenced mining operations at any of its three
mines; the Company requires an additional $2 million of capital to achieve a
meaningful level of revenue producing operations; the lack of proven reserves at
any of the Company's three mines; mining risks generally; political risks
associated with the Company's operations in the Republic of South Africa;
general economic conditions; currency fluctuations; and estimates of costs of
production.  Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual results may vary
materially from those anticipated, estimated, or projected.  The Company
cautions potential investors not to place undue reliance on any such forward-
looking statements all of which speak only as of the date made.

                                      -14-
<PAGE>
 
ITEM 7.   FINANCIAL STATEMENTS

                         INDEX TO FINANCIAL STATEMENTS
<TABLE>

    <S>                                                                   <C>
     Independent Auditors' Report......................................... 16
     Consolidated Balance Sheets at December 31, 1996 and 1995............ 17
     Consolidated Statements of Operations for the years
       ended December 31, 1996, 1995 and 1994............................. 18
     Consolidated Statements of Stockholders' Equity
       for the years ended December 31, 1996, 1995 and 1994............... 19
     Consolidated Statements of Cash Flows for the years ended
       December 31, 1996, 1995 and 1994................................... 20
     Notes to Consolidated Financial Statements........................... 21
</TABLE>

                                      -15-
<PAGE>
 
INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Global Diamond Resources, Inc.:

We have audited the accompanying consolidated balance sheets of Global Diamond
Resources, Inc. and subsidiaries (the "Company") as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Global Diamond
Resources, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1996, in conformity with generally accepted
accounting principles.


San Diego, California
January 10, 1997, except as to
Note 9, which is as of April 11, 1997                     KPMG Peat Marwick LLP

                                      -16-
<PAGE>
 
                GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES

                          Consolidated Balance Sheets

                           December 31, 1996 and 1995
<TABLE>
<CAPTION>
 
                               ASSETS                                        1996                   1995
                                                                          -----------            ----------
<S>                                                                      <C>                    <C>          
Current assets:                                                                                              
  Cash and cash equivalents                                               $   334,387            $  390,439  
  Accounts receivable:                                                                                       
   Trade                                                                        6,538                 3,041  
   Officer (note 5)                                                            25,000                25,000  
  Inventory                                                                    64,208                    --  
  Prepaid expenses                                                             24,115                 6,877  
                                                                          -----------            ----------
                                                                              454,248               425,357  
                                                                                                             
Fixed assets, net (note 2)                                                    271,739                 9,828  
                                                                          -----------            ----------
                                                                          $   725,987               435,185  
                                                                          ===========            ==========
                                                                                                             
                            LIABILITIES 
                                                                                                             
Current liabilities:                                                                                         
 Accounts payable and accrued liabilities                                 $    86,258                20,517   
 Subscription to be refunded                                                       --                83,333   
                                                                          -----------            ----------
                                                                               86,258               103,850   
                                                                          -----------            ----------
                                                                                                             
                        STOCKHOLDERS' EQUITY 
                                                                                                             
Stockholders' equity:                                                                                        
 Preferred stock, $0.001 par value, 10,000,000 shares authorized,                                            
  no shares issued                                                                 --                    --   
 Common stock, $0.001 par value, 25,000,000 shares authorized,                                               
  5,500,054 and 5,100,054 shares issued and outstanding,                                                     
  respectively                                                                  5,500                 5,100   
 Additional paid-in capital                                                 2,199,234             1,199,073   
 Accumulated deficit                                                      ( 1,547,612)             (871,460)  
 Cumulative translation adjustment                                            (17,393)               (1,378)  
                                                                          -----------            ----------
                                                                              639,729               331,335   
                                                                          -----------            ----------
                                                                          $   725,987               435,185   
                                                                          ===========            ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                      -17-
<PAGE>
 
                GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES

                     Consolidated Statements of Operations

              For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
 
                                                      1996            1995             1994     
                                                   ---------        --------        ---------   
<S>                                                <C>              <C>              <C>        
Other Income:                                                                                   
  Interest income                                     10,017          15,242            4,650   
  Fee income                                       $  35,950               -                -   
                                                   ---------        --------        ---------   
                                                      45,967          15,242            4,650   
Expenses:                                                                                       
  Business development                                84,085          82,758          112,893   
  Site investigation, option costs and                                                          
    project costs written off                        100,031         117,218           46,883   
  Consulting fees                                     26,078          15,504           13,377   
  Depreciation                                         6,024           4,913               --   
  Foreign exchange transaction (gain) loss            (6,862)          2,228             (871)  
  Interest and bank charges                            2,783           1,510              557   
  Legal and accounting                               134,891         181,165           24,209   
  Management fees                                         --          38,855           17,500   
  Office and miscellaneous                            62,895          34,948            8,240   
  Office rent                                         14,134          20,062            5,576   
  Printing and graphics                               14,897          16,384           10,835   
  Salaries and benefits                              149,431          27,881               --   
  Telephone                                           18,111          16,716            4,581   
  Travel                                             113,997          80,072            7,358   
                                                   ---------        --------        ---------   
                                                     720,495         640,214          251,138   
                                                                                                
Operating loss                                      (674,528)       (624,972)        (246,488)  
Income taxes (note 3)                                  1,624              --               --   
                                                   ---------        --------        ---------   
    Net loss                                       $(676,152)       (624,972)        (246,488)  
                                                   =========        ========        =========   
                                                                                                
    Net loss per share                             $   (0.13)          (0.13)           (0.12)  
                                                   =========        ========        =========   
 </TABLE>

See accompanying notes to consolidated financial statements.

                                      -18-
<PAGE>
 
                GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES

                Consolidated Statements of Stockholders' Equity

              For the years ended December 31, 1996, 1995 and 1994

<TABLE>
<CAPTION>
                                  Preferred Stock         Common Stock         Additional   
                               --------------------   ---------------------      Paid-in     Accumulated    
                                Shares     Amount       Shares      Amount      Capital        Deficit      
                               --------   ---------   ---------   ---------    ---------     -----------
<S>                            <C>        <C>         <C>         <C>          <C>           <C>           
Balance at January 1, 1994            -   $       -           1   $       1            -              -   
Translation adjustment                -           -           -           -            -              -   
Issuance of common stock:                                                                                 
   June 1994                          -           -   3,350,000       3,350      658,433              -   
   October 1994                       -           -   1,065,000       1,065      211,325              -   
Cancellation of share                 -           -          (1)         (1)           -              -   
Net loss                              -           -           -           -            -       (246,488)  
                               --------   ---------   ---------   ---------    ---------     ----------
Balance at December 31, 1994          -           -   4,415,000       4,415      869,758       (246,488)  
Receipt of payment for                            
  receivable from stock sales         -           -           -           -            -              -   
Net effect of issuance of                                                                                 
  common stock to account for                                                                             
  reverse acquisition                 -           -     250,054         250         (250)             -   
Issue of shares for cash:                                                                                 
   July 1995                          -           -     335,000         335       79,665              -   
   September 1995                     -           -     100,000         100      249,900              -   
Translation adjustment                -           -           -           -            -              -   
Net loss                              -           -           -           -            -       (624,972)  
                               --------   ---------   ---------   ---------    ---------     ----------
Balance at December 31, 1995          -           -   5,100,054       5,100    1,199,073       (871,460)  
Issue of shares for cash, net                                                                             
  of issuance costs of                                                                                    
   $51,439:                                                                                               
   August 1996                        -           -     160,000         160      381,081              -   
   September 1996                     -           -     160,000         160      379,740              -   
   December 1996                      -           -      80,000          80      187,340              -   
Issuance of stock options                                                                                 
  to nonemployees                     -           -           -           -       52,000              -   
Translation adjustment                -           -           -           -            -              -   
Net loss                              -           -           -           -            -       (676,152)  
                               --------   ---------   ---------   ---------    ---------     ----------
Balance at December 31, 1996          -   $       -   5,500,054   $   5,500    2,199,234     (1,547,612)  
                               ========   =========   =========   =========    =========     ==========
<CAPTION> 

                                Receivable    Cumulative          Total
                                from stock    translation     Stockholders'
                                   sales      adjustment         equity
                                ----------    -----------     -----------------
<S>                             <C>           <C>             <C>
Balance at January 1, 1994               -              -                1
Translation adjustment                   -        (17,311)         (17,311)
Issuance of common stock:      
   June 1994                      (299,401)             -          362,382
   October 1994                          -              -          212,390
Cancellation of share                    -              -               (1)
Net loss                                 -              -         (246,488)
                                ----------    -----------     ------------
Balance at December 31, 1994      (299,401)       (17,311)         310,973
Receipt of payment for         
  receivable from stock sales      299,401              -          299,401
Net effect of issuance of                               
  common stock to account for                           
  reverse acquisition                    -              -                -
Issue of shares for cash:      
   July 1995                             -              -           80,000
   September 1995                        -              -          250,000
Translation adjustment                   -         15,933           15,933
Net loss                                 -              -         (624,972)
                                ----------    -----------     ------------
Balance at December 31, 1995             -         (1,378)         331,335
Issue of shares for cash, net  
  of issuance costs of         
   $51,439:                    
   August 1996                           -              -          381,241
   September 1996                        -              -          379,900
   December 1996                         -              -          187,420
Issuance of stock options      
  to nonemployees                        -              -           52,000
Translation adjustment                   -        (16,015)         (16,015)
Net loss                                 -              -         (676,152)
                                ----------    -----------     ------------
Balance at December 31, 1996             -        (17,393)         639,729
                                ==========    ===========     ============
</TABLE> 

See accompanying notes to consolidated financial statements.

                                     -19-
<PAGE>
 
                GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES

                     Consolidated Statements of Cash Flows

              For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
                                                        1996        1995        1994
                                                     ---------    --------    ---------
<S>                                                 <C>          <C>         <C>
Cash flows from operating activities:
  Net loss                                           $(676,152)   (624,972)   (246,488)
  Adjustments to reconcile net loss to net
    cash used in operating activities:
   Depreciation                                          6,024       4,913           -
   Increase in accounts receivable - trade              (3,497)    (26,164)     (1,877)
   Increase in inventory                               (64,208)          -           - 
   Increase in prepaid expenses                        (17,238)     (6,877)          - 
   Increase in accounts payable and accrued                                                
     liabilities                                        65,741      11,513       9,004
                                                     ---------    --------    --------
 
     Net cash used in operating activities            (689,330)   (641,587)   (239,361)
                                                     ---------    --------    --------
 
Cash flows from investing activities:
  Purchase of equipment, net                           (19,978)     (6,149)     (8,592)
  Mining properties                                   (247,957)          -           -
                                                     ---------    --------    --------
 
     Net cash used in investing activities            (267,935)     (6,149)     (8,592)
                                                     ---------    --------    --------
 
Cash flows from financing activities:
  Proceeds from issuance of common shares              948,561     330,000     574,771
  Subscriptions received (refunded)                    (83,333)     83,333           -
  Receipt of payment for receivable from stock
    sales                                                    -     299,401           -
   Issuance of stock options to nonemployees            52,000           -           -
                                                     ---------    --------    --------
 
     Net cash provided by financing activities         917,228     712,734     574,771
                                                     ---------    --------    --------
 
Effects of exchange rates on cash                      (16,015)     15,933     (17,311)
                                                     ---------    --------    --------
 
Net increase (decrease) in cash and                    (56,052)     80,931     309,507
  cash equivalents
 
Cash and cash equivalents, beginning of year           390,439     309,508           1
                                                     ---------    --------    --------
 
Cash and cash equivalents, end of year               $ 334,387     390,439     309,508
                                                     =========    ========    ========
</TABLE>
Supplemental disclosure of noncash investing and financing transactions:

During the year ended December 31, 1994, the Company sold 4,415,000 shares of
stock for gross proceeds of $874,173. Of these proceeds, cash of $574,772 was
received and a receivable of $299,401 was carried until repayment of the
receivable in cash during 1995.

See accompanying notes to consolidated financial statements.

                                      -20-
<PAGE>
 
                GLOBAL DIAMOND RESOURCES, INC. AND SUBSIDIARIES

                  Notes to Consolidated Financial Statements

             As of December 31, 1996 and 1995, and for each of the
            years in the three-year period ended December 31, 1996



(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

     DESCRIPTION OF BUSINESS

     Global Diamond Resources, Inc. (the "Company") was incorporated on January
     22, 1993 and commenced operations during 1994.  Operations prior to January
     1, 1994 were not significant.  The Company's operations have been directed
     primarily towards raising capital, developing business strategies,
     developing diamond mining opportunities, carrying out mining surveys,
     initial drilling and sampling, and recruiting personnel.

     PRINCIPLES OF CONSOLIDATION

     The consolidated financial statements include the financial statements of
     Global Diamond Resources, Inc. and its wholly-owned subsidiary, Global
     Diamond Resources Inc., a Canadian corporation ("Global BC") and Global
     BC's wholly-owned subsidiary, Global Diamond Resources (SA) (Pty) Limited
     ("Global SA") (formerly P.D.J. Mining (Pty) Limited), a South African
     corporation.  Prior to a reorganization in July 1995, the accompanying
     consolidated financial statements reflect only the accounts of Global BC
     and Global SA.  All amounts are in U.S. dollars unless otherwise indicated.
     All significant intercompany balances and transactions have been eliminated
     in consolidation.

     CASH EQUIVALENTS

     Cash equivalents include all highly liquid investments with an original
     maturity of three months or less.

     FOREIGN EXCHANGE TRANSLATION

     The financial position and results of operations of the Company's foreign
     subsidiaries are measured using local currency as the functional currency.
     Assets and liabilities of the subsidiaries are translated at the exchange
     rate in effect at each year-end. Income statement accounts are translated
     at the average rate of exchange prevailing during the year. Translation
     adjustments arising from differences in exchange rates from period to
     period are included in the cumulative translation adjustment account in
     stockholders' equity.

     INVENTORY

     Inventory consists of diamonds ready for sale and are valued at the lower
     of cost or estimated net realizable value. Diamonds are ready for sale when
     they have been separated from the alluvials or broken ore, processed and
     are in a deliverable form. No value is ascribed to diamonds in the
     alluvials or in the broken ore.

     FIXED ASSETS

     Fixed assets consist of mining properties under development and equipment
     (primarily computers) recorded at cost.  Depreciation is provided for
     equipment using the straight-line method over the estimated useful lives (3
     years) of such assets.  Costs capitalized for mining properties under
     development are depleted by the net realizable value of diamonds recovered
     from the underlying mining properties.

                                      -21-
<PAGE>
 
     MINING OPERATIONS

     Initial exploration and evaluation costs are expensed as incurred. Initial
     option payments and costs of acquiring options or other mineral or mining
     rights to properties, when not expected to be significant, are also
     expensed as incurred.

     The decision to develop or mine a property is based on an assessment of the
     viability of the property and the availability of financing. Once the
     decision to proceed with development is made, development and other
     expenditures relating to such property will be deferred and carried at cost
     with the intention of depleting such costs over the related reserves from
     such mining properties.

     STOCK OPTIONS AND WARRANTS

     Prior to January 1, 1996, the Company accounted for its stock options and
     warrants in accordance with the provisions of Accounting Principles Board
     ("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
     related interpretations.  As such, compensation expense would be recorded
     on the date of grant only if the current market price of the underlying
     stock exceeded the exercise price.  On January 1, 1996, the Company adopted
     Statement of Financial Accounting Standards ("SFAS") No. 123, Accounting
     for Stock-Based Compensation, which permits entities to recognize as
     expense over the vesting period the fair value of all stock-based awards on
     the date of grant.  Alternatively, SFAS No. 123 allows entities to continue
     to apply the provisions of APB Opinion No. 25 and provide pro forma net
     income and pro forma earnings per share disclosures for employee stock
     option and warrant grants made in 1995 and future years as if the fair-
     value-based method defined in SFAS No. 123 had been applied.  The Company
     has elected to continue to apply the provisions of APB Opinion No. 25 and
     provide the pro forma disclosure of SFAS No. 123.

     INCOME TAXES

     Income taxes are accounted for under the asset and liability method.
     Deferred tax assets and liabilities are recognized for the future tax
     consequences attributable to differences between the financial statement
     carrying amounts of existing assets and liabilities and their respective
     tax bases and operating losses.  Deferred tax assets and liabilities are
     measured using enacted tax rates expected to apply to taxable income in the
     years in which those temporary differences are expected to be recovered or
     settled.  The effect on deferred tax assets and liabilities of a change in
     tax rates is recognized in income in the period that includes the enactment
     date.

     FAIR VALUE OF FINANCIAL INSTRUMENTS

     SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
     requires that fair values be disclosed for the Company's financial
     instruments.  The carrying amounts of cash and cash equivalents, accounts
     receivable - trade, accounts receivable - officer, inventory and accounts
     payable and accrued liabilities approximate fair values due to the short-
     term nature of these instruments.

     NET LOSS PER SHARE

     Net loss per share for each period is computed based on the weighted
     average number of common and common equivalent shares outstanding.  When
     dilutive, stock options are included as share equivalents using the
     treasury stock method.  The weighted average shares outstanding for the
     years ended December 31, 1996, 1995 and 1994 were 5,210,054, 4,712,316 and
     2,036,458, respectively.

     USE OF ESTIMATES

     Management of the Company has made a number of estimates and assumptions
     relating to the reporting of assets and liabilities and disclosure of
     contingent assets and liabilities at the date of the consolidated financial
     statements and the reported amounts of revenue and expenses to prepare
     these consolidated financial statements in conformity with generally
     accepted accounting principles.  Actual results could differ from those
     estimates.

                                      -22-
<PAGE>
 
     IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

     The Company adopted the provisions of SFAS No. 121, Accounting for the
     Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
     Of, on January 1, 1996.  This Statement requires that long-lived assets and
     certain identifiable intangibles be reviewed for impairment whenever events
     or changes in circumstances indicate that the carrying amount of an asset
     may not be recoverable.  Recoverability of assets to be held and used is
     measured by a comparison of the carrying amount of an asset to future net
     cash flows expected to be generated by the asset.  If such assets are
     considered to be impaired, the impairment to be recognized is measured by
     the amount by which the carrying amount of the assets exceed the fair value
     of the assets.  Assets to be disposed of are reported at the lower of the
     carrying amount or fair value less costs to sell. Adoption of this
     Statement did not have a material impact on the Company's financial
     position, results of operations, or liquidity.

<TABLE>
<CAPTION>
 
(2)  FIXED ASSETS
                                                         DECEMBER 31,       DECEMBER 31,
                                                            1996               1995
                                                         ------------       ------------
<S>                                                      <C>                <C> 
Mining properties under development:
  Caerwinning deposit                                    $    209,553               -
  Grasdrif deposit                                             38,404               -
                                                         ------------       ------------
 
                                                              247,957               -
                                                         ------------       ------------
 
Equipment, at cost                                             34,320          14,741
Less accumulated depreciation                                 (10,538)         (4,913)
                                                         ------------       ------------
 
                                                               23,782           9,828
                                                         ------------       ------------
 
                                                         $    271,739           9,828
                                                         ============       ============
</TABLE>

     The Caerwinning Deposit costs include the bulk sample carried out in 1996
     and option costs incurred since July 1, 1996, less the net realizable value
     of the diamonds recovered in the bulk sample.  The Grasdrif Deposit costs
     include capital expenditures incurred to date on the property.

(3)  INCOME TAXES

     The Company has no significant taxable temporary differences which would
     require recognition of deferred tax liabilities, and due to the uncertainty
     of future realizability has not recognized any deferred tax assets for
     deductible temporary differences and tax operating loss carryforwards.

     At December 31, 1996, the Company had available net operating loss
     carryforwards of approximately $800,000 for federal income tax reporting
     purposes which begin to expire in 2010. The net operating loss
     carryforwards for state purposes, which begin to expire in 2000, are
     approximately 50% of federal amounts. The net operating loss carryforwards
     are subject to certain limitations under Section 382 of the Internal
     Revenue Code.

(4)  FOREIGN OPERATIONS

     The Company's wholly-owned subsidiary, Global SA, operates in the Republic
     of South Africa. During the year ended December 31, 1996, Global SA's
     revenue represented 1% of consolidated revenue, while Global SA's expenses
     represented 17% of consolidated expenses. At December 31, 1996, Global SA's
     total assets (primarily cash and mining properties under development)
     represented 39% of consolidated total assets. The Republic of South Africa
     has experienced and continues to experience political and economic
     instability. While current indications are such that instability appears to
     be diminishing, there can be no assurance that the Company's business or
     interests in mining properties and related options will not be materially
     adversely affected by local political or economic developments.

                                      -23-
<PAGE>
 
(5)  RELATED PARTY TRANSACTIONS

     The Company has engaged Weir International Limited ("Weir") to market and
     sell the Company's diamond production. The Company shall be responsible for
     all direct costs relating to the sale of the diamonds, such as insurance,
     freight, import and export duties, and all applicable taxes and levies.
     Weir shall be responsible for all sales and marketing expenses. In
     consideration of its services, the Company shall pay Weir a commission of
     five percent (5%) of the gross sale amount. Weir is a stockholder of the
     Company and certain members of the Company's management, including the
     Company's Chairman and Chief Executive Officer have a beneficial interest
     in Weir.

     As of December 31, 1996 and 1995, the Company had a $25,000 account
     receivable from the Chairman and Chief Executive Officer of the Company.
     The receivable is unsecured, is due on demand and bears no interest.

(6)  STOCK OPTIONS AND WARRANTS

     In July 1995, the Company granted its Chairman and Chief Executive Officer
     performance based options to purchase up to 1,000,000 shares of common
     stock at $4.80 per share. In June 1996, the Company adjusted the exercise
     price to $3.00 per share and removed the performance based vesting
     conditions. The options expire on July 25, 2000 and are exercisable at any
     time.

     In conjunction with the reorganization with Global BC in July 1995, the
     Company issued 550,000 common stock purchase warrants to certain
     stockholders of Global BC. The warrants were issued as part of the
     securities exchange under the securities exchange agreement and plan of
     reorganization in consideration of the recipient's cancellation of warrants
     of like number and terms previously granted to it by Global BC in 1994. The
     warrants are exercisable at Canadian $.75 per share and expire on December
     31, 1997.

     In September 1995, the Company granted the Chairman and Chief Executive
     Officer 100,000 common stock purchase warrants exercisable at $3.00, which
     expire on September 7, 1998.

     In December 1995, the Company granted a certain shareholder 100,000 common
     stock purchase warrants at $3.00 per share, exercisable at any time until
     they expire on December 30, 1998.

     In October 1996, the Company granted 250,000 common stock options to the
     Chief Financial Officer of the Company and 100,000 common stock options to
     another employee of the Company.  The options are exercisable at $2.50 per
     share and are exercisable at any time until they expire on October 2, 2001.

     In December 1996, the Company granted Lion Mining Corporation ("Lion
     Mining"), a mining financial and consulting firm located in London,
     England, 100,000 common stock purchase warrants at $2.50 per share,
     exercisable at any time until they expire on December 31, 2000 (See Note 8,
     Other Commitments).

     The per share weighted-average fair value of stock options and warrants
     granted during 1996 and 1995 was $.66 and $1.21, respectively, on the date
     of grant using the Black Scholes option-pricing model with the following
     weighted-average assumptions:  1996 - expected dividend yield 0%, risk-free
     interest rate of 6.54%, expected life of 3.5 years, and an expected
     volatility of the stock over the expected life of the options and warrants
     of 40%;  1995 - expected dividend yield 0%, risk-free interest rate of
     6.08%, expected life of 3.8 years, and an expected volatility of the stock
     over the expected life of the options and warrants of 40%.

     The Company applies APB Opinion No. 25 in accounting for its stock options
     and warrants and, accordingly, no compensation cost has been recognized for
     its stock options and warrants issued to employees or directors 

                                      -24-
<PAGE>
 
     of the Company in the consolidated financial statements. Had the Company
     determined compensation cost based on the fair value at the grant date for
     its stock options and warrants under SFAS No. 123, the Company's net loss
     and net loss per share would have been increased to the pro forma amounts
     indicated below:

<TABLE>
<CAPTION>
                                                     1996         1995    
                                                  ---------    -----------
          <S>                                    <C>         <C>        
          Net loss, as reported                   $(676,152)     (624,972)
          Net loss, pro forma                      (921,152)   (2,017,972)
                                                                          
          Net loss per share, as reported         $    (.13)         (.13)
          Net loss per share, pro forma                (.18)         (.43) 
</TABLE>

     Pro forma net loss and net loss per share reflects only options and
     warrants granted in 1996 and 1995. Therefore, the full impact of
     calculating compensation cost for stock options and warrants under SFAS No.
     123 is not reflected in the pro forma net loss and net loss per share
     amounts presented above because compensation cost for options and warrants
     granted prior to January 1, 1995 is not considered.

     Stock option and warrant activity during the periods indicated is as
     follows:

<TABLE>
<CAPTION>
                                                           WEIGHTED-   
                                        NUMBER OF           AVERAGE    
                                         SHARES          EXERCISE PRICE
                                       ----------        --------------
     <S>                               <C>                   <C> 
     Balance at December 31, 1994         550,000             $ 0.56    
       Granted                          1,200,000               4.50    
                                       ----------             ------    
                                                                        
     Balance at December 31, 1995       1,750,000               3.26    
       Granted                            450,000               2.50    
       Canceled                        (1,000,000)              4.80    
       Reissued                         1,000,000               3.00    
                                       ----------             ------    
                                                                       
     Balance at December 31, 1996       2,200,000             $ 2.28
                                       ==========             ======    
</TABLE>

     At December 31, 1996, the range of exercise prices and weighted-average
     remaining contractual life of outstanding options and warrants were $0.55 -
     $3.00 and 3.9 years, respectively.

     At December 31, 1996 and 1995, the number of options and warrants
     exercisable was 2,200,000 and 1,750,000, respectively, and the weighted-
     average exercise price of those options and warrants was $2.28 and $3.26,
     respectively.

(7)  PROPERTIES, PARTNERSHIP AND OTHER INVESTMENTS

     PROPERTIES

     The Company, through its wholly-owned subsidiary, Global SA, owns options
     to acquire two mining properties (the Caerwinning Deposit and the Montrose-
     Kimberlite Pipe) in South Africa and a 50% partnership interest in a third
     South African property (the Grasdrif Deposit, see Joint Venture below). The
     Caerwinning option allows for the transfer of the mineral lease to Global
     SA with governmental consent and provides for the right to mine alluvial
     deposits for 1,140,000 Rand (US $243,000 at December 31, 1996) and the
     right to mine the pipes or fissures that may be discovered for 8,000,000
     Rand (US $1,708,000 at December 31, 1996). This amount is payable only if
     and when such pipes or fissures are discovered and if management deems this
     deposit to be economically exploitable. The right to mine pipes or fissures
     discovered on the property could be granted to a third party if the option
     is not exercised. The Company exercised the alluvial deposit option for the
     Caerwinning Deposit in June 1996 and is waiting governmental consent for
     transfer of the mineral lease. Approval is expected by mid 1997. (See
     Caerwinning Option below.) The mineral lease and mining authorization for
     the Caerwinning Deposit also requires that the government receive
     approximately 5 percent of gross proceeds from mining. The mineral lease
     for the 

                                      -25-
<PAGE>
 
     Caerwinning Deposit will continue until the profitable, productive life of
     the related property is exhausted. It may be terminated by the Company with
     30 days notice. The Company is required to meet certain requirements to
     maintain good standing with the lessor. The option for the Montrose-
     Kimberlite Pipe expires on October 10, 1997. The contract for the Montrose-
     Kimberlite Pipe provides that the Company must pay the owner 10 percent of
     the recovery value of any minerals prospected and recorded during the
     option period. The option on the Montrose -Kimberlite Pipe property also
     includes the exclusive option to purchase the related land and mineral
     rights for 2,500,000 Rand (US $534,000 at December 31, 1996). A prospecting
     permit is required for the Montrose - Kimberlite Pipe from the local
     government and is renewable annually subject to government approval. The
     Company presently holds such a permit for the Montrose - Kimberlite Pipe,
     which expires on June 7, 1997. The Company has expensed all option
     payments, with the exception of the option payment on the Caerwinning
     Deposit, from July 1, 1996 because of uncertainty regarding recoverability
     or future benefit.

     JOINT VENTURE

     The Company has entered into a joint venture for purposes of mining the
     Grasdrif Deposit. Under the agreement, a new corporation will be formed and
     ownership will be split evenly between the entities. The Company will
     contribute 3,000,000 Rand (US $640,000 at December 31, 1996) and the other
     company will assign the exclusive mining rights of the Grasdrif Deposit to
     the new corporation. Each party will then be required to contribute equal
     amounts of capital to the new corporation as required. In the event either
     party fails to make the required capital contribution, the other party may
     make the contribution in return for an increased proportional interest in
     its percentage ownership of the new corporation. The Company will appoint
     three directors and the other company will appoint two directors. The
     parties have also granted each other first right of refusal to purchase
     each other's interest in the new corporation.

     CAERWINNING OPTION

     In June 1996, the Company exercised the option for the mineral lease for
     the alluvial deposits for 1,140,000 Rand (US $243,000 at December 31,
     1996). The mineral lease is issued upon governmental approval which is
     expected in mid 1997. The cost of the option and the related liability will
     be reported in the balance sheet upon receipt of the governmental approval.

(8)  COMMITMENTS AND CONTINGENCIES

     LEASE AGREEMENT

     As of December 31, 1996, the Company had a noncancelable operating lease
     commitment for the Company's corporate office expiring in March 1999. The
     monthly rent payment on this operating lease is $1,050. Additionally, the
     Company rents office space in South Africa and Canada on a month-to-month
     basis. Rent expense for the years ended December 31, 1996, 1995 and 1994
     was $14,134, $20,062 and $5,576, respectively.

     LEGAL MATTERS

     From time-to-time, the Company is subject to certain litigation in the
     ordinary course of business. At the present time, the Company is not party
     to any pending legal proceedings that it believes will have a material
     adverse effect on its financial position, results of operations or
     liquidity.

(9)  SUBSEQUENT EVENT

     During March 1997, the Company entered into agreements with three parties
     ("Agreements") whereby they would subscribe, at prices ranging from $1.60
     to $2.20 per share, for 802,931 common shares of the Company for a total of
     $1,500,000.  The offering was conducted pursuant to Regulation S under the
     Securities Act of 1933.  The transactions under the Agreements are to be
     closed at various dates through April 29, 1997. Through April 11, 1997,
     subscriptions totaling $548,020 have been received by the Company in
     connection with these Agreements. The consideration received consists of
     $235,520 in cash and 100,000 shares of a publicly traded company with a
     market value as of April 11, 1997 of $312,500.


                                      -26-

<PAGE>
 
ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
          FINANCIAL DISCLOSURE.

          Inapplicable.


PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
          COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.

Directors and Executive Officers
--------------------------------

     Set forth below are the directors and officers of the Company and its South
African subsidiary, Global Diamond Resources (SA)(Pty) Limited ("Global Diamond-
SA").  Unless otherwise indicated, each person holds the stated positions with
all companies.
<TABLE>
<CAPTION>
 
         Name            Age                       Position
         ----            ---                       --------
<S>                      <C>        <C>                                                
Johann de Villiers        44         Chairman of the Board and Chief Executive Officer  
                                                                                        
Mervyn McCulloch          53         Chief Financial Officer                            
                                     Secretary of the Company                           
                                                                                        
Kenneth MacLeod           45         Director of the Company                            
                                                                                        
John Tyson                49         Director of the Company                            
                                                                                        
Donald Nicholson          57         Director of the Company                            
                                                                                        
A. Richard Bullock        48         Director of the Company                            
                                                                                        
Charles MacDonald         43         Director of the Company                            
                                                                                        
Andries Janzen            53         Managing Director of Global Diamond-SA             
                                                                                        
Pierre de Jager           51         Financial Director of Global Diamond-SA            
                                                                                        
Pieter van Wyk            46         Chief Consulting Geologist of Global Diamond-SA    
                                                                                        
Anthony de la Harpe       52         Director of Global Diamond-SA                       
</TABLE>

     Mr. de Villiers founded the business of the Company in 1993 and has served
as Chairman and Chief Executive Officer since inception. From 1984 to 1990, Mr.
de Villiers served as Chief Executive Officer of Kensington Finance Corp., an
options trading firm and member of the American Stock Exchange. From 1990 to
1994, Mr. de Villiers acted as investment advisor to the Monitrend Gold Mutual
Fund. From 1976 to 1984, Mr. de Villiers was the managing director of the Octha
Group, a South Africa based international diamond mining, polishing and trading
company. As of the date of this report, Mr. de Villiers has been nominated to
serve as a director of Kensington Resource, Ltd.

     Mr. McCulloch has served as Chief Financial Officer and Secretary of the
Company since March 1995. Mr. McCulloch is a Certified Public Accountant and was
a partner of Deloitte, Haskins & Sells in South Africa from 1972 to 1984 and a
partner in Deloitte & Touche in the United States from 1985 to 1990. From 1990
to 1995, Mr. McCulloch was Executive Vice President and Chief Financial Officer
of Armor All Products Corporation, a 

                                      -27-
<PAGE>
 
NASDAQ/NMS public corporation located in California. As of the date of this
report, Mr. McCulloch has been nominated to serve as Chief Financial Officer of
Kensington Resource, Ltd.

     Mr. MacLeod has served as a director of the Company since its inception in
1993 and has served as a director of Global Diamond-SA since January 1995. In
September 1995, Mr. MacLeod was appointed President of International Panorama
Resource Corp., a British Columbia mining corporation that has its shares listed
on the Vancouver Stock Exchange. Mr. MacLeod served as Vice President of
International Panorama Resource Corp. from 1994 to September 1995. From 1983 to
1993, Mr. MacLeod served as President of Canadian & Overseas Management Corp., a
financial and management consulting firm.

     Mr. Tyson has served as director of the Company since 1994.  Since 1990,
Mr. Tyson has served as President of Tyson & Associates, an international
consulting firm headquartered in Washington, D.C. specializing in providing
investment, business development and promotional services to African countries.
As of the date of this report, Mr. Tyson has been nominated to serve as a
director of Kensington Resource, Ltd.

     Mr. Nicholson has served as director of the Company since March 1997.  From
1996 to date, Mr. Nicholson has been employed as an independent management
consultant to junior natural resource companies.  From 1991 to 1995, Mr.
Nicholson served as President and Chief Executive Officer of Yarrows Limited, a
Vancouver, British Columbia corporation engaged in the business of ship building
and repair.  Mr.  Nicholson is a director of Kensington Resource Ltd., a diamond
exploration and mining company traded on the Vancouver Stock Exchange.

     Mr. Bullock has served as director of the Company since March 1997.  Since
1979, Mr. Bullock has served as President of Quidquia Management Corporation, a
business consulting firm specializing in start-up and development stage
ventures.  Mr. Bullock serves as a director of Aurora Gold Corporation,
Bioflorescent Technology Corp., Attwood Gold Corporation, La Plata Gold Corp.
and Canamed Ventures.

     Mr. MacDonald has served as a director of the Company since July 1995.
Since 1990, Mr. MacDonald has been engaged in the practice of law in Cape Town,
South Africa.  Mr. MacDonald represents the interests of the Company's joint
venture partners involved in the Grasdrif Deposit.

     Mr. Janzen has served as Managing Director of Global Diamond-SA since July
1994.  Mr. Janzen is a qualified engineer with a degree in commerce, and a
shareholder and general manager of Elite Diamond Cutting Works (Pty) Ltd., a
South African based diamond cutting and trading company.  He was the general
manager of the Octha Group, having established the Johannesburg and Taiwan
diamond cutting factories.  In this position he was responsible for the
operations of five producing diamond mines, an active mine exploration program,
two diamond polishing factories, as well as the marketing organization of the
group that extended to Belgium, Switzerland and the United States.

     Mr. de Jager has served as Financial Director of Global Diamond-SA since
July 1994.  Mr. de Jager is a qualified chartered accountant with more than ten
years experience as financial director and general manager of a number of
Johannesburg Stock Exchange listed public companies.  In addition he is a
director and shareholder of companies involved in the transport, property
development, time share development and travel industries.

     Mr. van Wyk has served as Chief Consulting Geologist of Global Diamond-SA
since July 1994.  Mr. van Wyk holds a M.Sc. (Geology) and has lectured in
Sedimentology at the University of Pretoria and in Economic Geology at the Rand
Afrikaans University.  He was the Senior Field Geologist for Rand Mines before
operating his own diamond mining and exploration concern with interests in
southern Namibia (alluvials), south of Kimberley (kimberlite fissures), and west
of Kimberley along the Vaal River (alluvials) at Caerwinning.  He is the
published author of a number of articles.

     Mr. de la Harpe has served as a director of Global Diamond-SA since
September 1995.  Mr. de la Harpe is a former teacher in the Richtersveld, South
Africa.  He is also a representative of Nabas Holdings (Pty) Limited, the
Company's joint venture partner in the Grasdrif Deposit.  Since retiring as a
teacher, Mr. De La Harpe has served as member of the African National Congress
Land Commission for the Western Cape Region.

                                      -28-
<PAGE>
 
ITEM 10.  EXECUTIVE COMPENSATION.

     Cash Compensation of Executive Officers.  The following table sets forth
the cash compensation paid by the Company to its executive officers for services
rendered during the fiscal years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
 
 
                                            ANNUAL COMPENSATION                           LONG-TERM COMPENSATION
                                   --------------------------------------------    ---------------------------------------
                                                                                                   COMMON    
                                                                                                   SHARES    
                                                                                   RESTRICTED    UNDERLYING 
                                                                      OTHER          STOCK        OPTIONS                   
                                                                      ANNUAL         AWARDS       GRANTED       ALL OTHER  
NAME AND POSITION                  YEAR        SALARY      BONUS    COMPENSATION      ($)       (# SHARES)    COMPENSATION 
-----------------                  ----        ------      -----    ------------     ------       --------    ------------
<S>                             <C>         <C>           <C>        <C>            <C>           <C>             <C>         
Johann de Villiers, CEO(1)         1996       $60,000      5,000         -0-          -0-             -0-           -0-          
                                   1995        40,000        -0-         -0-          -0-       1,100,000(2)        -0-          
                                   1994        17,500        -0-         -0-          -0-             -0-           -0-          
Mervyn McCulloch, CFO(3)           1996       $42,000      3,000         -0-          -0-         250,000(3)        -0-          
                                   1995           -0-        -0-         -0-          -0-             -0-           -0-          
                                   1994           -0-        -0-         -0-          -0-             -0-           -0-          
</TABLE>

(1)  From June 1994 through August 1995, Mr. de Villiers was paid a salary of
     $2,500 per month.  Commencing September 1, 1995, Mr. de Villiers has been
     paid a salary of $5,000 per month.

(2)  On July 25, 1995, the Company granted its Chief Executive Officer, Johann
     de Villiers, a Nonqualified Stock Option which, as amended, allows Mr. de
     Villiers to purchase up to 1,000,000 shares of Common Stock at $3.00 per
     share.  The option is fully vested and may be exercised at any time, or
     from time to time, until July 25, 2000.  On September 7, 1995, the Company
     granted to Mr. de Villiers a Nonqualified Stock Option to purchase 100,000
     shares of Common Stock at an exercise price of $3.00 per share.  The option
     is fully vested, and immediately exercisable and expires on September 7,
     1998.

(3)  Commencing July 1, 1996, Mr. McCulloch has been paid a salary of $7,000 per
     month.  On October 2, 1996, the Company granted to Mr. McCulloch, a
     Nonqualified Stock Option to purchase 250,000 shares of Common Stock at an
     exercise price of $2.50 per share.  The option is fully vested and
     immediately exercisable and expires on October 2, 2001.

                     OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE> 
<CAPTION> 

INDIVIDUAL GRANTS
-------------------------------------------------------------------------------------------------------------
                         NUMBER OF SECURITIES                                                                 
                             UNDERLYING          % OF TOTAL OPTIONS/SARS      EXERCISE OR      
                         OPTIONS/SARS GRANTED    GRANTED TO EMPLOYEES IN           BASE                        
    NAME                         (#)                   FISCAL YEAR            PRICE ($/SH)    EXPIRATION DATE                      
----------------         --------------------    -----------------------      -----------     ---------------
<S>                          <C>                         <C>                    <C>              <C>
Mervyn McCulloch               250,000                     71%                    $2.50           10/02/01
 
</TABLE>

     Compensation of Directors.  All non-officer directors receive an attendance
fee of $1,000 per meeting of the Board of Directors.  All directors receive
reimbursement for out-of-pocket expenses in attending Board of Directors
meetings.  From time to time the Company may engage certain members of the Board
of Directors to perform services on behalf of the Company.  The Company will
compensate the members for their services at rates no more favorable than could
be obtained from unaffiliated parties.

                                      -29-
<PAGE>
 
ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     The following table sets forth certain information regarding the beneficial
ownership of the shares of Common Stock as of April 11, 1997 by (i) each person
who is known by the Company to be the beneficial owner of more than five percent
(5%) of the issued and outstanding shares of Common Stock, (ii) each of the
Company's directors and executive officers and (iii) all directors and executive
officers as a group.
<TABLE>
<CAPTION>
 
NAME AND ADDRESS                                  NUMBER OF SHARES               PERCENTAGE OWNED
                                                  ----------------               ----------------
<S>                                              <C>                                  <C>
Johann de Villiers(1)(2)                             1,200,000                          17.4%                
                                                                                                             
Mervyn McCulloch(1)(3)                                 250,000                           4.1%                
                                                                                                             
Kenneth MacLeod(1)                                         -0-                             -                 
                                                                                                             
John Tyson(1)                                           46,960                            (4)                
                                                                                                             
Donald Nicholson(1)                                     10,000                            (4)                
                                                                                                             
A. Richard Bullock(1)                                      -0-                             -                 
                                                                                                             
Charles MacDonald(1)                                       -0-                             -                 
                                                                                                             
Weir International Limited(5)                          703,323                          11.2%                
                                                                                                             
Pasca Estates, Road Town                                                                                     
                                                                                                             
Tortola, British Virgin Islands                                                                              
                                                                                                             
All officers and directors                           1,506,960                          21.0%                 
as a group(2)(3)
</TABLE> 
----------------------------------------------
 
(1)  Address is 836 Prospect, Suite 2B, La Jolla, California  92037.
 
(2)  Includes 1,100,000 shares of Common Stock underlying immediately
     exercisable options held by Mr. de Villiers. See "Part III, Item 10.
     Executive Compensation." Does not include Mr. de Villiers beneficial
     interest in any shares of Common Stock held by Weir International Limited,
     a British Virgin Islands corporation wholly-owned by a discretionary trust
     established for the benefit of Mr. de Villiers and his family. Pursuant to
     the terms of the trust agreement, Mr. de Villiers has no legal voting or
     dispositive control over the shares of Common Stock held by Weir
     International Limited.
 
(3)  Represents 250,000 shares of Common Stock underlying immediately
     exercisable options held by Mr. McCulloch. See "Part III, Item 10.
     Executive Compensation."

(4)  Less than one percent.
 
(5)  Includes 449,000 shares of Common Stock underlying immediately exercisable
     warrants held by Weir International Limited. Certain members of management
     of the Company, including Mr. de Villiers, have a beneficial interest in
     Weir.

                                      -30-
<PAGE>
 
ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     The Company has engaged Weir International Limited ("Weir") to market and
sell the Company's diamond production. The Company shall be responsible for all
direct costs relating to the sale of the diamonds, such as insurance, freight,
import and export duties, and all applicable taxes and levies. Weir shall be
responsible for all sales and marketing expenses. In consideration of its
services, the Company shall pay Weir a commission of five percent (5%) of the
gross sale amount. Weir is a stockholder of the Company and the Company's Chief
Executive Officer, Johann de Villiers, has a beneficial interest in Weir. See
"Item 11. Securities Ownership of Certain Beneficial Owners and Management." The
Company believes that the terms of its agreement with Weir are no less favorable
than could be obtained from an unaffiliated party.

     In 1994, the Company granted warrants entitling the holders to purchase
550,000 shares of Common Stock at C$.75. Of those warrants, Weir presently holds
warrants to purchase 349,000 shares of Common Stock and the balance of the
warrants are held by an unaffiliated party. The warrants are fully vested,
immediately exercisable and expire on December 31, 1997. In December 1995, the
Company granted to Weir additional warrants entitling the holder to purchase
100,000 shares of Common Stock at $3.00 per share. The warrants are fully
vested, immediately exercisable and expire on December 30, 1998.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

(a) 2.1*  Securities Purchase Agreement and Plan of Reorganization dated July
          17, 1995 between Western Capital Financial Corporation and Global
          Diamond Resources, Inc.
          
    3.1*  Articles of Incorporation of the Company
          
    3.2*  Bylaws of the Company
          
    4.1*  Specimen of Common Stock Certificate
          
    10.1* Notarial Prospecting Contract dated March 22, 1995 between Global
          Diamond Resources (SA)(Pty) Limited and Maria Anna Gobey (Montrose
          Kimberlite Pipe).
          
    10.2* Deed of Assignment between Lama Minerals CC and Global Diamond
          Resources (SA)(Pty) Limited (Caerwinning Deposit).
          
    10.3* Deed of Assignment dated March 25, 1995 between Global Diamond
          Resources (SA)(Pty) Limited and Nabas Holdings (Pty) Limited (Grasdrif
          Deposit).

    21.1  The Company's subsidiaries are Global Diamond Resources, Inc., a
          British Columbia corporation, and Global Diamond Resources (SA)(Pty)
          Limited, a South African corporation.
          
    27.1  Financial Data Schedule.

_______________

*    Previously filed as part of registration statement on Form 10-SB (SEC File
     No. 0-21635) filed with the Securities and Exchange Commission on October
     29, 1996.

(b)  REPORTS ON FORM 8-K.

     There were no reports on Form 8-K filed by the Company during the fiscal
year ended December 31, 1996.

                                      -31-
<PAGE>
 
                                   SIGNATURES


     In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.

                              GLOBAL DIAMOND RESOURCES, INC.


Date:  April 14, 1997         By: /s/ Johann de Villiers 
                                 --------------------------------------------
                                  Johann de Villiers, Chief Executive Officer


     In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
 
Signature                     Title                                   Date
---------                     -----                                   ----  
<S>                           <C>                                     <C>
 /s/ Johann de Villiers       Chairman of the Board and Chief         April 14, 1997
-------------------------     Executive Officer
JOHANN DE VILLIERS            
 

/s/ Mervyn McCulloch          Chief Financial Officer and             April 14, 1997
-------------------------     Principal Accounting Officer
MERVYN MCCULLOCH              
                              
 
/s/ Kenneth Macleod           Director                                April 14, 1997
-------------------------
KENNETH MACLEOD


/s/ John Tyson                Director                                April 14, 1997
-------------------------
JOHN TYSON


/s/ Donald Nicholson          Director                                April 14, 1997
-------------------------
DONALD NICHOLSON


/s/ A. Richard Bullock        Director                                April 14, 1997
-------------------------
A. RICHARD BULLOCK


/s/ Charles MacDonald         Director                                April 14, 1997
-------------------------
CHARLES MACDONALD
</TABLE>

                                      -32-