DIAMOND RECOVERY J.V.

Pinnacle entered into a joint venture with Mr. Chris Wilson's South African company Ocean Options, cc, which has been engaged in the recovery of diamonds from South Africa's west coast. Ocean Options has been operating for the past five years from a diamond boat rigged with gravel recovery equipment.

The expression "necessity is the mother of all inventions" may very well be applicable here. In an attempt to overcome the treacherous sea conditions present along the stormy west coast, Mr. Wilson designed and applied for patents on the AquaWalker™. His invention eliminates the need for a boat, as the AquaWalker platform stands and walks on telescoping metal legs that elevate the equipment platform above the often tumultuous wave tops. The vulnerability for both men and equipment is minimized.

Because of the difficult sea and weather conditions, a recovery boat may work only 60 days per year. With the AquaWalker™ design, Mr. Wilson predicts that we will enjoy 300 operating days per year. The AquaWalker™ should produce as much diamond bearing gravels as eight boats. Pinnacle's management was impressed by the potential offered by the AquaWalker™ and pursued a relationship with Ocean Options with a view to create near-term cash flow for the Company.

To exploit this opportunity, Pinnacle and Ocean Options formed a South African company called Diamonaire Exploration Pty Ltd., which is owned equally by both parties. Diamonaire will hold all patents and technology. Pinnacle agreed to loan US$500,000 to the holding company and Wilson contributed all of the equipment necessary to equip the first AquaWalker™ platform. In addition, Pinnacle provided 100,000 shares of restricted Pinnacle common stock to Mr. Wilson and the opportunity to receive more shares based upon cash flow performance. Diamonaire formed a wholly owned operating company, Ocean Exploration cc, to which the first AquaWalker™ was assigned. In November 2003 Ocean Exploration entered into a contract to recover diamond-bearing gravels from a Trans-Hex concession near the mouth of the Olifant River.

The AquaWalker produced its first gravels in January 2004. These gravels will be processed at Trans-Hex's nearby x-ray diamond sorting plant and the recovered diamonds will be split between Ocean Exploration and Trans-Hex.

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