Before agreeing to sell its assets to Adamas One, lab-grown diamond company Scio tried without success to strike deals with conventional diamond companies, according to a preliminary proxy statement it filed on Feb. 8 with the Securities and Exchange Commission (SEC).
Following Scio’s 2014 board takeover, the Greenville, S.C.–based company found itself saddled with more than $3 million in debt, as well as investigations by the SEC and Justice Department. And while it subsequently raised another $5.7 million in capital, it failed to gain much traction for its core product, colored lab-grown diamonds.
In 2017, it engaged a New York City investment firm to explore its options and held meetings with 14 diamond companies. One proposal called for the formation of a special purchase vehicle, which would offer discounts on Scio’s synthetic gems in exchange for a capital infusion. That didn’t pan out, though two discussions progressed to “deeper levels.”
That fall, it considered a strategic licensing deal with an unnamed diamond producer, but determined the deal didn’t meet the company’s needs.
After trying to restructure its debts, Scio fielded offers from an investment group with experience in crystalline materials, a public company involved in advanced materials, and Adamas, which it describes as an “investment group with experience in turning around distressed companies.”
It November, Scio’s board agreed to sell the company to Adamas, in exchange for $3.35 million in cash to secured lenders, a group that includes company directors; payment of half its factory’s past-due rent; the assumption of certain trade payables; and issuance of 1.2 million Adamas shares, representing 7.6 percent of its common stock.
Currently, Adamas’ sole director is John “Jay” Grdina, whose eclectic résumé includes stints as an adult film actor and director, a vice president for Playboy Enterprises, and serving as CEO of Club Jenna, Ammo Inc., and hangover cure NoHo. Grdina, who spoke with JCK last month, plans to run the company from his Arizona home.
The new Adamas will be a private company, though it hopes to list publicly sometime this year. It says it will inject the company with $5 million in capital and resources.
Like its predecessor company Scio—and that company’s forerunner, Apollo—Adamas will target both the gemstone and industrial markets. Unlike other companies in the gem sector, it wants to sell gemstones using the term cultured, because of the Federal Trade Commission’s changes to its guidance on lab-grown diamonds last summer.
“[The FTC’s] wide-ranging ruling is a welcome relief to the man-made diamond industry and a migraine-size headache for the mined-diamond industry,” the prospectus says. “Without a doubt, the most significant change for marketing lab-grown diamonds is now the man-made diamond industry can call its products cultured. This has been the term the mined-diamond industry has fought hardest against, since it drew direct references from something consumers clearly understand—cultured pearls.”
(The FTC’s new language on cultured advises marketers to qualify use of that term “by disclosing clearly and conspicuously that the product is not a mined stone.”)
As of Jan. 1, Adamas had issued 15.1 million shares to 24 shareholders, for $15.1 million in cash. Grdina lays claim to 11.6 million of Adamas’ common stock, which represents 76 percent of outstanding shares. That includes 9.5 million shares held by Diamond Technologies LLC, a company he controls, and 1.5 million shares held by his children.
Scio shareholders will vote whether to approve the sale at a special shareholder meeting on March 8. A letter signed by executive board chairman Bernard McPheely warns that “if the sale transaction is not approved, it is likely the company will be unable to continue operations going forward.”
(Top image courtesy of Scio Diamond)
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