Diamond Discoveries International, Inc. (OTCBB: DMDD) may soon be looking for a new President, Chief Executive Officer and director. Teodosio Pangia, who currently occupies those positions, could be on shaky ground. The Securities and Exchange Commission wants to bar him from serving as an officer or director of any public company. On August 9, 2002. the SEC filed a lawsuit charging that Pangia and his cohorts engineered a $15 million “pump and dump” scheme involving shares of Environmental Solutions Worldwide, Inc.
As we saw in Part I of this series, this is not Pangia’s first run-in with regulators. In December 2001, the Ontario Securities Commission alleged that Pangia orchestrated the sale of unregistered shares of EPA Enterprises, Inc. See Diamonds And Dust – Teodosio Pangia’s Journey From Environmental Solutions Worldwide, Inc. To Diamond Discoveries International Corp.
Even without the Pangia problems, Diamond Discoveries would be operating under some serious handicaps. The Company has no track record, no marketable diamonds and no expectation of near-term revenues. At last report, the Company had a meager $276 in cash – which is not enough to buy a diamond (other than the ones that come in Cracker Jacks boxes), much less mine for them.
Investors may have a hard time finding a diamond in that rough.
Cold Comfort
Diamond Discoveries claims that it wants to look for diamonds in the frigid Torngat Mountain region of Quebec, Canada – where it is too cold to explore between November and March. How cold is it? So cold that the SEC might not need a Court Order if it wants to freeze Pangia’s assets.That means that exploration operations will be idle about half the year because of the nasty weather. Based upon the Company’s latest financial statements, they could remain idle the rest of the year because of the lack of funding.
While marketable diamonds have been found in the Torngat Mountains, they have yet to be found by the Company on its property. Here is how Diamond Discoveries described its operations in a Form SB-2 Registration Statement filed in February 2002:
We are engaged in the business of mineral exploration in Canada…We do not expect to receive any revenues for at least two years; however, since we may never discover commercially exploitable reserves, we may never receive any revenues…To date, no commercially exploitable mineral reserves have been found on our property, and we can provide investors with no assurance that any such reserves will be found.
It’s not as though the Company has not been trying. The same Form SB-2 noted that the Company’s exploration efforts had discovered several diamonds of microscopic proportions; two diamonds weighing a total of .015 carats and another eight diamonds weighing in at an aggregate of .001 carats.
How did Diamond Discoveries wind up in icy Torngat? The Company says it acquired the mineral exploration permits for the property from a Canadian company called Tandem Resources, Ltd, in exchange for one million shares of Diamond Discoveries stock, $60,000 (Canadian) in cash, and a portion of future revenues. Tandem shares trade on the Canadian Venture Exchange (TDM).
Tandem also has reserved the right to buy back 40% of the properties covered by the permits for $2 million (Canadian) once Diamond Discoveries has expended $5 million (Canadian) on exploration. Judging from the financial condition of both companies, that day could be a long way off. Tandem, like Diamond Discoveries, has no revenues from operations, and it is only marginally more solvent, with $626 (Canadian) in the bank as of March 31, 2002. That equals about $398 in U.S. dollars, at current conversion rates.
In order to take advantage of the Torngat permits, Diamond Discoveries will have to get moving – weather permitting. Those mineral rights permits expire between October 2004 and March 2005. According to the Company they can be renewed for an additional five years, at an annual rate of $75 (Canadian) per kilometer. Diamond Discoveries does not say what happens at the end of the additional five year period.
Let The Hype Begin
Diamond Discoveries shares began trading on the OTC Bulletin Board on July 18, 2002. A month earlier, on June 4th, the Company had issued a press release claiming that its explorers had uncovered “60 ruby-red corundums and over 900 pink corundums.” The Company did not offer any opinion at that time on the quality or value of those stones, but they certainly sound tiny. The press release said that “[t]wenty of the red-ruby corundum grains have two dimensions of at least 2 mm,” while the “remaining red and pink corundum grains measured 0.5 mm to 1.0 mm.”Was the discovery meaningful? Was it likely to lead to larger, marketable stones? The press release did not say.
A month later, after the OTC Bulletin Board listing, the story had changed, ever so slightly – but significantly. On July 26th, the Company issued a press release, stating that those recent samples had yielded “more than 900 ruby corundums” – dropping the distinction between the ruby-red and pink stones. This time, the Company did not indicate either the size or the quality of those corundums.
The July 26th press release also proclaimed that “indicator materials” found in “kimberlite dykes” on the Torngat property “are comparable to kimberlite minerals found in the Lac de Gras region of the Northwest Territories in Canada where a large diamond mine has been developed.” The Company went on to claim that the “Torngat indicator minerals also are comparable to most kimberlite minerals found worldwide. Numerous diamond-bearing dykes also have been located as part of the Torngat project.”
That certainly implies that diamond discoveries are a possibility, but how far is the leap from possibility to probability? Just as important, will this Company ever have enough money to complete the exploration process? Diamond Discoveries conceded, in its Form 10-Q for the quarter ended March 31, 2002, that it would need at least another $1 million to conduct explorations on the existing Torngat property through March 31, 2003.
Despite such financial concerns, however, the Company recently announced that it had expanded its efforts in Torngat by acquiring permits for the exploration of an additional 50,000 acres. That makes a total of 130,000 acres waiting to be searched – seven months out of every year. It certainly seems like a lot of frozen territory to cover, particularly for a Company with such meager funds.
The July 31st press release announcing this latest acquisition did not say how the Company acquired, or paid for, the additional permits. Nor did it indicate from whom they were acquired. Diamond Discoveries ignored such details, choosing instead to emphasize the possibility of future diamond discoveries. Consequently, the press release pointed out that several diamonds (and minerals containing rubies) had been found in the region – although it is not clear which, if any, of those discoveries resulted from the Company’s efforts. Emphasizing the potential upside, Peter Ferderber, whose Prospecting Geophysics is heading up the Company’s exploration efforts, opined that “[i]ndicator minerals found on the newly acquired property are comparable to kimberlite minerals in this region which have led to the discovery of diamonds.”
But just what does “comparable” mean?
The Pangia Factor
Lack of money, adverse working conditions, and iffy prospects may be the least of this Company’s concerns. There is also the Pangia problem.According to an Amended Form SB-2, as of February 2002, Pangia owned or controlled at least 8,425,000 shares of Diamond Discoveries common stock – approximately 50% of the outstanding shares. 3,475,000 of those shares had been issued to his New York-based consulting firm TVP Capital Corp., for $3475, when Diamond Discoveries was formed.
The remaining 4,950,000 shares were held by Altea Investments, Ltd., Gata Investments, Ltd., Bekeman Investments, Ltd., SD Investments, Ltd., Baychester Investments, Ltd. and Aester Investments Holdings Limited, all of which are controlled, or owned, by Pangia.
Diamond Discoveries provides little information about any of these companies. It does not state where they are incorporated, how (with the exception of TVP Capital) they obtained their shares, or what they paid for the stock. Are these entities simply offshore nominees used by Pangia to hold and sell stock, as the recent SEC complaint against Pangia would suggest? According to the SEC, Altea and Gata, are both Guernsey corporations that Pangia used to further the scheme to “pump and dump” Environmental Solutions shares.
How did those companies accumulate almost 5 million shares of Diamond Discovery common stock? They could not have purchased the shares in the marketplace since the Company did not register any stock until it filed its Amended Form SB-2 to register 1,835,000 shares in February 2002. By then, the Pangia companies already held their shares.
Perhaps they bought the shares from an East Brunswick, New Jersey man named Louis Lilling. The Company says it sold 10 million shares of common stock to Lilling in May 2000 through a Rule 504 private offering, for $250,000. It states that Lilling paid $25,000 of that sum in cash and delivered a six month promissory note for the balance. That promissory note was eventually extended until November 2001, giving Lilling an opportunity to hold the shares for more than one year before he was required to make payment. That way, the stock would be eligible for resale under Rule 144 (which requires a one year holding period) before the note came due.
Did Lilling turn around and sell some of those shares, and then use the proceeds to pay off that note? Did he sell any of the shares to companies controlled by Pangia, and, if so, how much did he receive? The Diamond Discoveries public filings offer no further details on Lilling’s background or these transactions. They do indicate, however, that by February 2002 he held only 1,725,000 shares of Diamond Discoveries stock.
Shares To Sell
What had become of Lilling’s remaining 8,275,000 shares? We have been unable to find any Form 144 filings reflecting sales by Lilling, but the Company now boasts a lengthy list of stockholders, including Pangia’s offshore companies. In February 2002, Diamond Discoveries filed an Amended Form SB-2 to register stock for many of those shareholders, including the Pangia sextet of Gata, Altea, Baychester, SD Investments, Aester Investment and Bekeman, each of which held slightly less than 5% of the Company’s outstanding shares.Other selling shareholders listed in the Form SB-2 included Lynx Enterprises, Inc., Rival Enterprises, Inc. and EnviroTechnical Products, Ltd., which held, in the aggregate, 1.2 million shares. Diamond Discoveries provided no detailed information about those corporate shareholders, other than to say that “voting power” over the three companies was held by Mr. Gaye Knowles. The Form SB-2 provided an address for Mr. Knowles in Nassau, Bahamas, but it didn’t indicated whether he owned any of the selling shareholder companies. Who actually owns those entities? Is Mr. Knowles simply a nominee designated to “vote the shares?” How did Lynx, Rival and Enviro Technical get their shares in the first place? Diamond Discoveries did not say.
Was Pangia involved with those companies, or any of the other selling shareholders? Nothing in the prospectus suggests that he was, but the name of one of the companies, EnviroTechnical Products, suggests a curious coincidence.
Since July 2000, Pangia has been a director and CEO of Enviro Industrial Technologies, Inc., a company that says it plans to enter the industrial mining business. Thomas Franzone, Diamond Discoveries’ Secretary and director, is also a director and shareholder of Enviro Industrial.
Once again, Pangia has been trying to combine Canadian and U.S. companies –as he did with Environmental Solutions and BBL, and with Diamond Discoveries and Tandem. Since early 2001, Enviro Industrial has been contemplating a merger with a Canadian mineral exploration company called Hedman Resources, Ltd. which is listed on the Canadian Venture Capital Exchange. On July 31, 2002 Enviro Industrial filed a Form S-4 to register 21 million shares in connection with that merger. That Form S-4 lists Pangia and TVP Capital as the owners of 2.96 million and 1.16 million Enviro Industrial shares, respectively. It also lists an individual named Romeo DiBattista as Enviro Industrial’s largest shareholder, with more than 5.6 million shares. Mr. DiBattista, a founding shareholder of Diamond Discoveries, also owns 3.9 million shares (9%) of Hedman.
The Form S-8 contemplates that Pangia will be “Chairman and director” of the surviving Company after the merger. That plan certainly will change if the SEC gets its way and Pangia is barred from serving as a director of any public company.
Enviro Industrial has at least one other thing in common with Diamond Discoveries (and Infotopia, Inc., Ives Health, and a lengthy roster of Pangia-related businesses). Its attorneys are Jeffrey Rinde, and Mr. Rinde’s law firm, Bondy & Schloss. Bondy & Schloss also is listed as a selling shareholder (150,000 shares) on the February 2002 Diamond Discoveries Form SB-2 Registration Statement.
Diamond Discoveries isn’t finished selling stock. On May 1, 2002 the Company sold 1.1 million units for $495,000 under Regulation S, which permits the sale of unregistered shares to non-U.S. citizens. Each of those units consisted of one share of common stock and one warrant to buy one share of common stock for 75 cents.
The Company has not said who bought the units, but the fact that they were sold under Reg. S suggests that the purchasers were offshore entities or individuals. Did they include any companies owned or controlled by Pangia or his cronies? The buyers have not been identified.
Whoever bought those shares must already be smiling. At the current market price of $1.50 a share, those 1.1 million shares are worth $1,650,000. And that’s not even counting the warrants. Not a bad return on a $495,000 investment.
Meanwhile, the Company says there will be more private placements or Reg. S sales to fund exploration efforts in the frozen tundra. First, however, it could get even chillier for Diamond Discoveries. The SEC has made it clear that Pangia is on the regulatory radar screen.
And the SEC is working more than seven months out of the year.
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