**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION********Washington, D.C. 20549******

 

**FORM 10-KSB**

 
| **(Mark One)**                                        |
|-------------------------------------------------------|
| **ý**                                            | **ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
| **For the  fiscal year ended December 31, 2003** |
|                                                  |
| **OR**                                                |
| **o**                                                 | **TRANSITION REPORT PURSUANT TO SECTION 13  OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**For thetransition period from                            to                             **

 

**Commissionfile number: 000-31585**

 

**DIAMONDDISCOVERIES INTERNATIONAL CORP.**

(Name of Small Business Issuer)

 

| **Delaware**                                           |   | **06-1579927**                     |
|--------------------------------------------------------|--------|------------------------------------|
| (State or Other  Jurisdiction                          |   | (IRS Employer  Identification No.) |
| of Incorporation)                                      |   |                               |
|                                                   |   |                               |
| **804 – 750 West Pender St.**                     |   |                               |
| **Vancouver, B.C.**                                    |   | **V6C 2T7**                        |
| (Address of Principal  Executive Offices)              |   | (Zip Code)                         |
|                                                   |   |                               |
| **(604) 683-1368**                                     |
| (Issuer’s Telephone  Number, Including Area Code) |

 

Securitiesregistered under Section 12(b) of the Exchange Act:**None**

 

Securitiesregistered under Section 12(g) of the Exchange Act:**CommonStock**

 
| **Title of Each Class**        |   | **Name of  Each Exchange  on Which Registered** |   |
|--------------------------------|--------|-------------------------------------------------|--------|
| Common  Stock, par value $.001 |   | None                                            |   |

 

Check whether the issuer (1) filed all reportsrequired to be filed by Section 13 or 15(d) of the Exchange Act during thepast 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý    No o

 

Check if there is no disclosure of delinquent filersin response to Item 405 of Regulation S-B is not contained in this form,and no disclosure will be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference inPart III of this Form 10- KSB or any amendment to thisForm 10-KSB. o

 

Issuer’s revenues for its most recent fiscal yearwere: $0. 

 

The aggregate market value of the voting andnon-voting common equity held by non-affiliates computed by reference to theprice at which the common equity was sold as of April 13, 2004 is$7,400,697. 

 

The number of shares outstanding of theCompany’s common stock, as of April 14, is 69,227,123.

 

Transitional Small Business Disclosure Format(check one): Yes o    No ý

 

 

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**TABLE OF CONTENTS**

 
| DESCRIPTION OF BUSINESS                                                                                           |   |
|-------------------------------------------------------------------------------------------------------------------|--------|
| DESCRIPTION OF PROPERTY                                                                                           |   |
| LEGAL PROCEEDINGS                                                                                                 |   |
| SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                              |   |
| MARKET  FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS                                                         |   |
| MANAGEMENT’S  DISCUSSION AND ANALYSIS OR PLAN OF OPERATION                                                   |   |
| INDEX TO FINANCIAL  STATEMENTS                                                                                    |   |
| FINANCIAL STATEMENTS                                                                                              |   |
| CHANGES  IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                             |   |
| CONTROLS AND  PROCEDURES                                                                                          |   |
| DIRECTORS, EXECUTIVE  OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE  EXCHANGE ACT |   |
| EXECUTIVE  COMPENSATION                                                                                           |   |
| SECURITY  OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER  MATTERS                  |   |
| CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS                                                                   |   |
| EXHIBITS  AND REPORTS ON FORM 8-K                                                                                 |   |
| PRINCIPAL  ACCOUNTANT FEES AND SERVICES                                                                           |   |
| SIGNATURES                                                                                                        |   |
| APPENDIX A                                                                                                        |   |

 

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**PART I**

 

This Annual Report on Form 10-KSB and theinformation incorporated by reference includes “forward-looking statements”within the meaning of Section 27A of the Securities Act of 1933, as amended,and Section 21E of the Securities and Exchange Act of 1934, as amended.Various statements, estimates, predictions, and projections stated under “RiskFactors,” “Management’s Discussion and Analysis or Plan of Operations” and“Business,” and elsewhere in this Annual Report are “forward-lookingstatements” within the meaning of Section 27A of the Securities Act andSection 21E of the Exchange Act. These statements appear in a number ofplaces in this Annual Report and include statements regarding the intent,belief or current expectations of Diamond Discoveries International or ourofficers with respect to, among other things, the ability to successfullyimplement our acquisition and exploration strategies, including trendsaffecting our business, financial condition and results of operations. Whilethese forward-looking statements and the related assumptions are made in goodfaith and reflect our current judgment regarding the direction of the relatedbusiness, actual results will almost always vary, sometimes materially, fromany estimates, predictions, projections, assumptions, or other futureperformance suggested herein. These statements are based upon a number ofassumptions and estimates, which are inherently subject to significantuncertainties and contingencies, many of which are beyond our control andreflect future business decisions which are subject to change. Some of theseassumptions inevitably will not materialize, and unanticipated events willoccur which will affect our results. Some important factors (but notnecessarily all factors) that could affect our revenues, growth strategies,future profitability and operating results, or that otherwise could causeactual results to differ materially from those expressed in or implied by anyforward-looking statement, include the following: 

 

• our ability to successfully implement our acquisition and explorationstrategies; 

• the success or failure of our exploration activities and otheropportunities that we may pursue; 

• changes in the availability of debt or equity capital and increases inborrowing costs or interest rates; 

• changes in regional and national business and economic conditions,including the rate of inflation; 

• changes in the laws and government regulations applicable to us; and 

• increased competition. 

 

Stockholders and other users of this Annual Report onForm 10-KSB are urged to carefully consider these factors in connectionwith the forward-looking statements. We do not intend to publicly release anyrevisions to any forward-looking statements contained herein to reflect eventsor circumstances occurring after the date hereof or to reflect the occurrenceof unanticipated events. 

 

**Item1. Description of Business**

 

We were incorporated in the State of Delaware onApril 24, 2000. We are a exploration stage company that is engaged in theacquisition and exploration of mineral properties. Our initial focus is in thearea of the Torngat fields located in the province of Quebec, Canada. Otherthan contracting with a third party to conduct exploration and gather data onour behalf, we have conducted no operations to date and do not expect toreceive any revenues for at least two years. During these two years we plan toconcentrate our efforts on exploration and data gathering. During these twoyears we will be solely dependent on the availability of external financing tofund our operations. Our independent public accountants expressed substantialdoubt about our ability to continue as a going concern because such continuanceis dependent upon our ability to raise capital. If we are unable to secureadequate financing we will be unable to continue our exploration and datagathering efforts. Because we are an explorationstage company, we do not know if a commercially viable mineral deposit existson any of our properties. Further exploration will be required before theeconomic and legal feasibility of developing the properties can be determined. 

 

*AcquisitionAgreement*

 

On September 12, 2000, we entered into anAcquisition Agreement with Messrs. Peter Ferderber and Stanley G. Hawkins,and Tandem Resources Ltd., a Canadian mineral exploration company of whichMr. Hawkins is the President. Pursuant to such Agreement, we acquiredcertain mineral exploration permits covering an area of approximately 469.05square kilometers in the Torngat fields, which are located on the east coast ofUngava Bay, in the northwestern part of Quebec. The Torngat fields are one offour fields in Quebec that contain diamondiferous kimberlite formations. The Torngat

 

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fieldsare composed of a central plateau about 400 meters above sea level, and arebroken by steep-sided gorges and fjords along the coast. The largest of thesefeatures, Alluviaq Fjord, bisects the property covered by the permits. Severaldykes in the area are well exposed sub-vertical features in the Alluviaq Fjord,and display horizontal and vertical continuity. These traits result from rockbeing pushed up from below the surface, into a vertical position against otherhorizontal rocks. Geologists usually identify these rock formations as strongtargets for the presence of diamonds. 

 

The consideration paid under the Acquisition Agreementwas 1,000,000 shares of our common stock to each of Messrs. Ferderber andHawkins, and the payment of $Cdn35,000 to Mr. Hawkins and $Cdn25,000 toMr. Ferderber. We also assigned to Messrs. Ferderber and Hawkins aone per cent (1%) interest in the “Net Smelter Returns” of the property, onehalf of which is payable over the first $Cdn50 million in revenues fromthe property. (Net Smelter Returns are determined by the net amount of moneyreceived from the sale of ore, or ore concentrates or other products from aproperty to a smelter or other ore buyer.) Once Messrs. Ferderber andHawkins have received $Cdn10 million from these Net Smelter Returns, theirinterest terminates. Tandem Resources Ltd. received an option to purchase40% of the mineral rights on the properties. This option is conditioned on anumber of events occurring, which are: 

 

(1)The expenditure by us of $Cdn5 million on exploration of theproperty; 

(2)Tandem paying us $Cdn2 million; and 

(3)Tandem and us entering into a joint venture agreement to operate theproperty, within 60 days of a demonstration by us of the expenditure of$Cdn5 million on exploration of the property. 

 

In addition, we will have twenty-one (21) daysfrom the date we notify Tandem that we have made the $Cdn5 millionexploration expenditure, to negotiate a financing agreement with Tandem toprovide Tandem with the $Cdn2 million required to exercise the option.Should no agreement be reached in such 21-day period, our right to provide thisfinancing shall expire. 

 

Based upon an analysis ofsamples taken from these properties, we believe that the properties for whichwe have exploration permits contain kimberlite.  Kimberlite is a type of igneous rock that occasionally containstiny to extremely tiny diamonds, and on very rare occasions contains gemquality diamonds.  Certain samples takenfrom our properties have contained both macro diamonds and micro diamonds.  Samples from most of the dykes containdiamond fragments as well.

 

Prospecting Geophysics Ltd., a Quebec-based firmof which Mr. Ferderber is President, has provided us with a ProgressReport, dated August 29, 2000, which discusses these samples, which theyhad collected. Prospecting Geophysics Ltd. has been contracted to conductfurther surveys and exploration on this property. 

 

Mr. Ferderber is the record owner of the propertycovered by the permits, which he has transferred to us. He had originallyexecuted an agreement, as of June 20, 2000, transferring the right toexplore the properties covered by the permits to us. This June 20, 2000agreement was subsequently incorporated into theAcquisition Agreement discussed above. We have received an opinion of Lavery,de Billy, a firm of barristers and solicitors of Montreal, Canada, datedJuly 10, 2000, that Mr. Ferderber is the record owners of the permitsunder the Mining Act (Quebec), and that the permits are in good standing as ofJune 21, 2000. The opinion further states that at the date of examination,there were no liens, charges or encumbrances registered against any of thepermits. The opinion disclaimed any physical verification of the location ofthe properties covered by the permits, and states that no survey of the areacovered by the permits was conducted. 

 

The permits expire at dates ranging fromOctober 17, 2004 to March 30, 2005. These permits, once expired, maybe renewed for an additional five years at an annual license fee of $Cdn75 persquare kilometer. 

 

*ExplorationProgram*

 

We intend, in conjunction with Messrs. Ferderberand Hawkins (and their affiliated entities) to explore the properties fromearly-stage exploration through completion of the exploration phase.Prospecting Geophysics Ltd. will perform all exploration activities. Wewill be paying, pursuant to an agreement with Prospecting Geophysics Ltd.,an hourly rate to Mr. Ferderber and his staff for their services, as wellas reimbursement for expenses, including equipment, transportation, lodging andmeals. 

 

2

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Prospecting Geophysics Ltd. commissions crews ofworkers who gather samples of rock from the properties, and transport thesamples to a facility where they can be tested for properties which tend toindicate the presence of diamonds. We have established camp sites for theworkers at the location of the properties, in order to decrease the costs oflodging. In addition, we plan to use commercial supply boats, rather thancommissioning private boats, to transport the rock samples. Because theproperties are only accessible by air, we plan to rent helicopters as well asfixed wing aircraft known as “beavers” to transport workers and samples to andfrom the properties. 

 

Due to extremely cold temperatures and snowaccumulation caused by the inclement weather in the region during the periodfrom, approximately, November to March, there can be no exploration on theproperties covered by the permits during these months. 

 

Prospecting Geophysics Ltd. also identifiesspecific exploration targets in kimberlite dykes by examining maps of the area,and by using an airborne magnetometer. From the air, this magnetometer detectsmagnetic properties in the rock below. The data so gathered can be analyzed andused to focus the gathering process on areas of higher magnetism. Someunderground sites can be located using certain geochemistry tests. 

 

Thus far we have begun early stage explorationactivities, and have gathered samples from one property for analysis. Anexploration team of eight men gathered samples and data at this property. Thesamples are taken from dykes or “pipes” containing kimberlite. These sampleswere analyzed by Lakefield Research Limited, of Ontario, an independentlaboratory, which uses caustic dissolution to extract the diamonds from thesamples. This laboratory issued reports dated September 26 andSeptember 27, 2000, on two samples, one of which indicates that out of a24.65 kilogram sample, two diamonds were found weighing 0.015 carats in theaggregate. The second sample of 30.22 kilograms yielded eight diamonds, with atotal weight of 0.001 carats. 

 

During the second phase of our exploration stage, we,through Prospecting Geophysics Ltd., plan to find the extent of thekimberlite dykes that were located in phase one, and to gather larger mini-bulkand bulk samples. These next samples are expected to be up to 7,000 pounds.This should enable the Company to test for larger, and potentially moremarketable diamonds which may, or may not, exist in the kimberlite dykes. Thereis, of course, a substantial risk that we will not find such diamonds.Prospecting Geophysics Ltd. will, at the same time, be attempting tolocate additional kimberlite dykes and pipes, and sample them as well. Thesecond stage exploration tasks began in April of 2001, after the weatherin northwestern Quebec allowed for exploration activities. 

 

In 2002, we acquired permits for an additional 50,000acres adjacent to the property where we already have permits located in theTorngat mountain region of Quebec. We acquired the permits by staking theproperty and paying the requisite fees to the Quebec Department of Natural Resources.In addition to paying the fees, we must perform a certain amount of assessmentwork on each claim to keep them in good standing. We have successfullycompleted all assessment work related to this property. During our explorationfor the 2002 season, we continued to take large rock bulk samples from propertyincluded in the original 469.05 square kilometers. In addition, we began tofocus our efforts on the property included in the newly acquired 50,000 acres.We have been successful in locating four new kimberlite dyke systems thatcontain 27 new dykes, most of which have been sampled.  Reduced samples from the original fieldsamples were subject to micro-probed analysis and found to contain typicalkimberlite minerals, phologopite and olivine and the important indicatorminerals chrome diopside, pyrope garnet, picro-ilmenite and chromite. One 110pound sample containing an olivine xenolith was found to contain a largepopulation of indicator minerals including 243 G9 garnets, 65 chrome diopsides,and 143 spinels. This mineral assemblage is similar to the Arx Dyke which islocated on our permit property that contained the nine micro and one macrodiamonds. Phase two was suspended due to inclement weather during the wintermonths of 2002 and resumed in June 2003. 

 

The 2003 explorationprogram, managed by Prospecting Geophysics Ltd. of Val D'Or, Quebec consistedof geological mapping, rock sampling, stream geochemistry, ground magnetometersurveys and prospecting.  Analytical resultsare still being received.  The programdefined and evaluated four loosely bounded belts containing more than 50Kimberlite dykes, two kimberlite pipes and several suspected dykes.  Besides the two macro diamonds and 13 microdiamonds previously discovered in the "A" dyke in 2000, and therubies reported from the D, F and K dykes in 2001, SGS Lakefield Researchdiscovered diamond fragments from kimberlite/aillikite samples taken from theF, E, B, G, Yvon #2, Champagne pipe, Peter Lake, P, U, Bella, at eightlocations on the St. Pierre N. dyke and at five locations along the MJRkimberlite dyke in 2003.  Subsequentlyin 2003, diamond fragments have been verified at Mount Jacques Rousseau.

 

Geologist, Robert Dillman,consultant to Diamond Discoveries, received results from C.F. Mineral ResearchLimited of microprobe analysis of several picked mineral samples from variousdykes.  The January 2004 resultsindicated forsterite olivines and clinopyroxenes with diamond inclusioncompositions, some of which are associated with large diamonds were noted inthe Yvon #2, K16 and St. Pierre Southdykes. The February 2004 results determined the presence of chrome diopside andforsterite olivine (Diamond Indicator Minerals) from seven dykes named: St. Pierredyke, St. Pierre Extension, A Dyke, C Dyke Champagne, K dyke and K25 dyke.  Five of the dykes have an aillikitecomposition and the St. Pierre and St. Pierre extension have a kimberlitecomposition.  Using the C.F. Mineralsclassification, 100% of the olivine grains analyzed from the St. Pierre, St.Pierre Extension and the K dyke are classified as having diamond inclusioncompositions and there is potential for these dykes to host diamonds.

 

With these results in hand,Diamond Discoveries International Corp. is planning an aggressive program ofcore drilling and bulk sampling of the many targets that are presentlydefined.  The Company is budgeting $1.3million for further bulk sampling, core drilling and caustic fusion analysisfor 2004.

 

Prior to any decision to develop the properties, a diamonddeposit must be assessed to determine the total tonnage of diamond bearingmaterial, the average grade of the rock, the estimated size distribution of thediamonds in the deposit, and the average value, per carat, of the diamonds.Gathering this data usually takes, as noted above, at least two years. At thattime, we will decide whether, and, if so, how, to proceed. We may seek either ajoint venture partner or a senior partner that will undertake the explorationof the properties. It must be noted that there is a substantial risk that nocommercially viable diamond deposit will be found, and if that is the case, weare likely to have difficulty finding any partners to undertake furtherexploration. 

 

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Additionally, on March 27, 2001, the Gem TradeLaboratory of the Gemological Institute of America (“G.I.A.”), an independentlaboratory, issued a report in which they analyzed “random samples” of numeroustransparent pink crystal fragments that were obtained from the property coveredby our permits known as D.D.I #1 (See map at Appendix A on page 38 ofthis Annual Report) in October 2000, by our agent ProspectingGeophysics Ltd. These samples were taken from property located in the original469.05 square kilometers in the Torngat mountain region. The conclusion of thereport was that the samples that ranged in size from approximately 0.40 to 0.70MM consisted of natural corundum. Corundum is the hardest mineral afterdiamond. The samples obtained from the property covered by our permit weretransparent pink suggesting that they consist of the “ruby” gem. A ruby is ared variety of the mineral corundum. We expect to continue to collectadditional samples of this mineral during the 2004 exploration season. 

 

At the present time, we do not hold any interest in amineral property that is in production. Our viability and potential success liein our ability to successfully explore, exploit and generate revenue from ourproperties. There can be no assurance that such revenues will be obtained. Theexploration of mineral deposits involves significant risks over a long periodof time, which even a combination of careful evaluations, experience andknowledge may not eliminate. It is impossible to ensure that the current orproposed exploration programs on the exploration permits will be profitable orsuccessful. Our inability to locate a viable diamond deposit on our propertiescould result in a total loss of our business. We believe that the typical costto locate a diamond deposit can range from $US 5-10 million. 

 

Our exploration operations are subject to all of thehazards and risks normally incident to exploration of this type, any of whichcould result to damage to life or property, environmental damage, and possiblelegal liability for any or all damages. Our activities may be subject toprolonged disruptions due to weather conditions surrounding the location ofproperties over which we have permits. Difficulties, such as an unusual orunexpected rock formation encountered by workers but not indicated on a map, orother conditions may be encountered in the gathering of samples and data, andcould delay our exploration program. While we may obtain insurance againstcertain risks in such amounts as we deem adequate, the nature of these risksare such that liabilities could exceed policy limits or be excluded fromcoverage. We do not currently carry insurance to protect against these risksand there is no assurance that we will obtain such insurance in the future. Thereare also risks against which we cannot, or may not elect to, insure. Thepotential costs which could be associated with any liabilities not covered byinsurance or in excess of insurance coverage or compliance with applicable lawsand regulations may cause substantial delays and require significant capitaloutlays, adversely affecting our final position, future earnings, and/orcompetitive position. 

 

*GovernmentRegulation and Licensing*

 

Our operations require licenses and permits fromvarious governmental authorities. We believe that we presently hold allnecessary licenses and permits required to carry on with our intendedactivities under applicable laws and regulations, and we believe that we arecomplying at the present time in all material respects with the terms of suchlicenses and permits. However, our licenses and permits are subject to changesin regulations and in various operating circumstances. We may not be able toobtain all necessary licenses and permits required to carry out exploration activities.

 

We are currently subject to the environmentalregulations set forth under the Environmental Act (Quebec), the Mining Act(Quebec) and the Forest Act (Quebec). We believe that we are in compliance withall of these acts, and moreover, we believe that the environmental impact ofour exploration activities will be minimal. To the extent that we remove largeamounts of rock or soil from the properties, we will likely have to remediateany environmental disruption caused by our activities. It is impossible toassess with any certainty the cost of such replacement or remediationactivities, or the potential liability that we would face if we were to befound to have violated one, or more, of these Acts. 

 

*Employees*

 

We do not have any full time employees at the presenttime. We have two part time employees, Mr. John Kowalchuk, andMr. Edward C. Williams, both of whom are executive officers. We haveentered into a prospecting and survey agreement with ProspectingGeophysics Ltd. to act as an on-site project manager; they have four fulltime employees, and contract with other personnel on an as-needed basis. 

 

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*Competition*

 

The mineral exploration business is competitive in allof its phases. We expect to compete with numerous other exploration companiesand individuals, including competitors with greater financial, technical andother resources than us, for the resources required for exploration. Thegreater resources of other entities will likely position these competitors toconduct exploration within a shorter time frame than we can, giving them amarket advantage. 

 

*CurrencyFluctuation*

 

We also have exposure to currency fluctuations, sinceour properties are located in Canada, and thus our transactions are largely inCanadian dollars. Such fluctuations can materially affect our financialposition and other results of operations. References to the “dollar” or “$US”in this Registration Statement are to United States Dollars, and “Canadian” or“$Cdn” refers to Canadian dollars. Unless otherwise stated, the translations of$US to $Cdn and vice versa have been made at the average rate for the yearindicated. The following table sets forth the high and low exchange rate of theCanadian dollar per US dollar as of the latest praticable date and for each ofthe last six months: 

 
| **Period**          |   | **High** |   | **Low** |   |
|---------------------|--------|----------|--------|---------|--------|
| April 13, 2004 |   | 1.3300   |   | 1.3037  | (1)    |
| March 2004     |   | 1.3570   |   | 1.3055  |   |
| February, 2004      |   | 1.3512   |   | 1.3069  |   |
| January 2004   |   | 1.3360   |   | 1.2683  |   |
| December 2003  |   | 1.3420   |   | 1.2839  |   |
| November 2003  |   | 1.3410   |   | 1.2948  |   |
| October 2003   |   | 1.3518   |   | 1.3021  |   |

 

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(1)Represents the low rate onApril 6, 2004. 

 

**Item 2.Description of Property**

 

Please refer to Appendix A to this Annual Reportat page 34, which contains a map of our permit locations. 

 

The Company recently entered into a lease for officespace beginning February 1, 2004 and terminating on April 30, 2007.Under the terms of the lease, the Company pays approximately $Cdn 1,033 permonth. However, the Company is not obligated to pay rent for the period fromFebruary 1, 2004 to April 30, 2004.

 

We do not own real property, nor do we hold any otherreal property interest other than the lease describe above and the explorationpermits which we discuss above under the caption “Description of Business.” Asnoted above, we have engaged Prospecting Geophysics Ltd. as our on-siteproject manager for our exploration activities. 

 

In compliance with Guide 7 of Industry Guides underthe Securities Act of 1933 and the Securities Exchange Act of 1934, thefollowing information is provided, since we are engaged or to be engaged insignificant mining operations: 

 

(1)                                  The permits were acquired in theAcquisition Agreement cover 469.05 square kilometers of properties in northwestQuebec, Canada, on the eastern shore of Ungava Bay and by staking an additional50,000 acres adjacent to such properties and paying the requisite fees to theQuebec Department of Natural Resources. With the exception of the five(5) month period from November to March in which there isinclement weather in the area surrounding the properties, there is nothingpreventing access to the properties. However, hazardous weather conditionscould prevent us from accessing the properties in other months as well. Theproperties are only accessible by air via a helicopter or by boat. There are noroads that permit direct access to the properties. 

 

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(2)                                  Pursuant to an agreement between us andPeter Ferderber, Peter Ferderber has transferred to us six (6) permits forthe properties. The properties covered by the permits are indicated on the mappresented in Appendix A by the areas marked D.D.I. Further, pursuant tothe Acquisition Agreement, in consideration for the permits, we have issued1,000,000 shares of our common stock to Mr. Ferderber and have paid him$25,000 Canadian, and at Mr. Ferderber’s request, $35,000 Canadian toStanley G. Hawkins. We have obtained the opinion of Lavery, de Billy,Barristers and Solicitors of Montreal, Canada dated July 10, 2000, thatMr. Ferderber was the record owner of the permits under the Mining Act ofQuebec and that the permits were in good standing as of June 21, 2000. 

 

(3)                                  To our knowledge, Messrs. Ferderberand Hawkins staked the 469.05 square kilometer property in the Torngat fieldsin northwest Quebec, Canada, on the eastern shore of Ungava Bay in 1999, andthere were no previous owners, operators, or operations on the property. 

 

(4)                                  Although there can be no assurance ofsuccessful diamond development, initial progress reports of the property haveindicated that there are micro diamonds on the property. A 24.65 kilogramsample taken from the property, has yielded two diamonds weighing 0.015 caratsand a 30.22 kilogram sample has yielded eight diamonds weighing 0.001 carats. 

 

*Geology*

 

The Torngat Property, where the properties for whichwe have mineral permits are located, lies within the Torngat mountain province.The crust in the province is thickened because two continental plates werepushed, more than a billion years ago, one on top of the other. The predominantrock type on the properties are the Tasiuyak Gneiss, a northwest trending beltof gneissic rock. The gneisses are considered to be altered sedimentary rocks. 

 

The rocks of the Torngat mountain province strikenorthwest-southeast within the Torngat property. Cross-cutting the gneisses,there are a number of kimberlite dykes. The individual dykes are dark green andgenerally coarse grained across most of their width. 

 

The properties are in a location over an earlyPrecambrian bedrock segment which is bedrock dating back to the earliest era ofgeological history, called an “Archon.” An Archon is an immobile segment of theearth’s crust exceeding 1.5 billion years in age. Kimberlite, a form ofigneous rock, is widely regarded as the main source for diamonds, and isreported from postulated Archon called the “Baltic Shield.” Only in the pastdecade have diamond explorers recognized that these Baltic Shield rocks arepotentially viable for diamonds. 

 

*The Property is Without KnownReserves and our Proposed Program is Exploratory in Nature.*    Exploration fordiamonds on the properties began because the formation and layout of the rockson the properties indicated that some of the rocks had been pushed up throughthe earth’s crust. This is initially identified by geologists from the age andshape of the rocks. When these different or unexpected rock formations appear,geologist then consider the area surrounding these rocks as strong targets forexploration for diamonds. This is because, geologists believe, as the rocks arepushing up through the earth’s surface from great depths, the rocks travelthrough diamond fields located below the earth’s surface and therefore rockscontaining diamonds are forced to the surface. 

 

Rocks containing these characteristics were identifiedon the properties covered by our mineral permits. Once these rocks wereidentified, we then conducted a magnetometer survey. The magnetometer is asmall electronic device used by geologists to survey the land for areas of highmagnetism. This can be used in the air or on the ground. This test is conductedbecause, when the rocks are being pushed through the earth’s surface (asdescribed above), in addition to bringing rocks containing diamonds, iron frombelow the Earth’s surface is also forced to the surface. The magnetometer readsthe surface of the Earth for any magnetism created by the iron upon the beliefthat if a particular property contains a high concentration of iron that wasforced up from below the earth’s surface; the property may also containdiamonds that have been similarly forced up to the surface. 

 

An airborne magnetometer survey was conducted over theproperties for which we have mineral permits, and six (6) magnetic dykeswere discovered. This indicated to us that these properties were potentially asource for diamonds. In addition, samples of rock taken from the propertieshave yielded small diamonds. 

 

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We have hired Prospecting Geophysics Ltd. toconduct these exploration procedures. Mr. Peter Ferderber is the Presidentof Prospecting Geophysics Ltd. Mr. Ferderber has over forty years ofexperience in mining exploration. Prospecting Geophysics Ltd. plans toconduct the exploration of the property which is expected to last for the nexttwo years. The first phase involved identifying areas on the property fromwhich to take samples and gathering small samples from the properties foranalysis. This analysis to date has demonstrated the presence of 10 microdiamonds in two samples taken. The second phase involves determining the extentof any kimberlite dykes that were located in phase one and to gather mini-bulkand bulk samples. This will enable us to determine if there are larger and moremarketable diamonds on the properties. We began phase two exploration in April2001 and assuming adequate funding and reasonable weather conditions, thisphase is expected to take four (4) years to complete.  Operations are generally suspended from October to April becauseof inclement weather. The following is a breakdown of the estimated budget forparticular aspects of our exploration activities: 

 
| Prospecting  and geological mapping                 |   | $       | 190,000   |   |
|-----------------------------------------------------|--------|---------|-----------|--------|
| Helicopter  support                                 |   | 225,000 |      |
| Lodging and  food                                   |   | 110,000 |      |
| Airplane  support                                   |   | 100,000 |      |
| Mobilization  and Demobilization                    |   | 60,000  |      |
| Fuel for  helicopter, airplane and camps            |   | 40,000  |      |
| Fuel  transport by boat                             |   | 8,000   |      |
| Pick-up  truck rental                               |   | 15,000  |      |
| Drill  program                                      |   | 250,000 |      |
| Testing samples  for Diamonds                       |   | 150,000 |      |
| Property  Taxes (Quebec Dept. of Natural Resources) |   | 60,000  |      |
| Supervision                                         |   | 60,000  |      |
|                                                |   |    |      |
| Total                                               |   | $       | 1,268,000 |   |

 

(5)                                  In the Quebec sector of the Torngat belt,roughly fifteen dykes have been mapped. These dykes occupy fractures orientedat an approximately right angle to the country rocks, suggesting tensionsopened up by later scale folding. Two of these dykes on an adjacent propertyhave been sampled, confirming the presence of diamonds. However, to date, noproven reserves have been established and there can be no assurance that anysuch reserves will ever exist. 

 

**Item3. Legal Proceedings**

 

There are no legal proceedings pending or threatenedagainst us. 

 

**Item 4. Submission of Matters to a Vote ofSecurity Holders**

 

During the fourth quarter of calendar year 2003, nomatters were submitted to a vote of the security holders of the Company. 

 

7

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**PART II.**

 

**Item5. Market for Common Equity and Related Stockholder Matters.**

 

As of July 18, 2002 prices for the Common Stockwere quoted on the Over the Counter Bulletin Board operated by the NationalAssociation of Securities Dealers, Inc. under the symbol DMDD. Thefollowing table sets forth the high and low closing bid prices of the Company’sCommon Stock for the periods indicated as reported by the NASD. Thesequotations reflect inter-dealer prices without retail markup, markdown orcommissions and may not necessarily represent actual transactions. 

 
|                  |   | **High** |   | **Low** |   |
|-----------------------|--------|----------|--------|---------|--------|
| **Fiscal  Year 2002** |   |     |   |    |   |
| Third Quarter         |   | 1.500    |   | 0.250   |   |
| Fourth quarter        |   | 0.600    |   | 0.160   |   |
|                  |   |     |   |    |   |
| **Fiscal  Year 2003** |   |     |   |    |   |
| First Quarter         |   | 0.370    |   | 0.110   |   |
| Second Quarter        |   | 0.330    |   | 0.090   |   |
| Third Quarter         |   | 0.180    |   | 0.080   |   |
| Fourth Quarter        |   | 0.210    |   | 0.090   |   |
|                  |   |     |   |    |   |
| **Fiscal  Year 2004** |   |     |   |    |   |
| First Quarter         |   | 0.190    |   | 0.090   |   |

 

Of the 69,227,123 shares of our common stock issuedand outstanding as of April 13, 2004, 22,172,123 shares of our commonstock are currently considered “restricted securities” and in the future, maybe sold only in compliance with Rule 144 or in an exempt transaction underthe Act unless registered under the Act. 

 

As of April 13, 2004 the number of holders ofrecord of our common stock was approximately 72. 

 

We do not anticipate paying any cash dividends on our commonstock in the foreseeable future because we intend to retain our earnings tofinance the expansion of our business. Thereafter, the declaration of dividendswill be determined by the Board of Directors in light of conditions thenexisting, including, without limitation, our financial condition, capitalrequirements and business condition. We are prohibited from paying cashdividends on the common stock until any issued and outstanding preferred stockis converted into common stock. However, there were no shares of preferredstock outstanding as of December 31, 2003. 

 

**Recent Sales of Unregistered Securities**

 

On May 1, 2000, the Company sold 4,850,000 sharesof its common stock for $.001 per share to the following persons in the amountindicated opposite each person’s name: 

 
| TVP Capital  Corp.                  |   | 3,475,000 |   |
|-------------------------------------|--------|-----------|--------|
| Tom Franzone                        |   | 275,000   |   |
| Vasilik  Kalantzakos                |   | 100,000   |   |
| Tunku  Mudzaffar Bin Tunku Mustapha |   | 250,000   |   |
| Romeo  Dibatista Sr.                |   | 250,000   |   |
| JJAB, LLC                           |   | 500,000   |   |

 

8

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These shares were sold pursuant to Section 4(2)of the Act and were not issued in connection with any public offering. TeodosioV. Pangia is the sole shareholder of TVP Capital Corp. Tom Franzone was ourSecretary and principal accounting officer. We issued 150,000 shares of commonstock to Bondy & Schloss LLP, as payment for legal services valued at$3,750. Bondy & Schloss LLP was legal counsel to the Company. 

 

On May 20, 2000, pursuant to a private offering,we issued 10,000,000 shares of our common stock to Mr. Louis Lilling for$250,000. Mr. Lilling paid $25,000 of the purchase price of these sharesin cash and the remainder in the form of apromissory note payable by November 20, 2000. These shares were issuedpursuant to Rule 504 of Regulation D of the Securities Act and werenot issued in connection with any public offering. There were no underwritingcommissions in connection with the private offering. The promissory note wasextended for six months until May 20, 2001. Mr. Lilling has paid thefull amount of the outstanding principal and interest on the promissory note. 

 

Pursuant to the Acquisition Agreement datedSeptember 12, 2000, we issued 1,000,000 shares of our common stock to eachof Messrs. Ferderber and Hawkins in consideration for the acquisition ofthe exploration permits referred to in “Description of Business,” above. Theseshares were issued pursuant to Section 4(2) of the Act and were not issuedin connection with any public offering. 

 

On February 14, 2002, our Registration Statementon Form SB-2, as amended, (File No. 333-71962) was declared effective bythe SEC. We registered 1,835,000 shares of common stock, par value $.001 pershare, solely on behalf of selling shareholders and thus we did not receive anyproceeds from the sale of common stock offered through the RegistrationStatement. Until such time as our shares are traded on a market or securitiesexchange, the selling shareholders for whom shares were registered on theRegistration Statement must offer or sell our common stock at a price of $.90per share. Once traded on a market or securities exchange the offering price ofour common stock will be determined by market factors. The offering willconclude when all of the 1,835,000 shares of common stock have been sold, theshares no longer need to be registered to be sold or we decide to terminate theregistration of the shares. 

 

During the year ended December 31, 2002, theCompany received total cash consideration of $734,959 as a result of the saleof 1,633,242 units of common stock and warrants to purchase common stock at$.45 per unit through private placements intended to be exempt fromregistration under the Act. Each unit consisted of one share of common stockand one warrant to purchase one share of common stock exercisable at $.75 pershare for a two year period from the date of purchase. All of the warrantsremained outstanding as of December 31, 2002. The Company had alsoreceived subscriptions through the private placements for the purchase of51,758 units at $.45 per unit or a total of $23,291 as of December 31,2002. The notes receivable from the subscribers are non-interest bearing anddue six months from the respective dates of sale. 

 

In 2003, the Company issued 2.675,000 shares ofits common stock in exchange for services performed by various consultants.

 

In May 2003, the Company issued 1,500,000 sharesof its common stock in payment of accounts payable to Prospecting Geophysics,Ltd. of $148,423, which approximated the fair value of the shares.

 

From July 2003 to September 2003, theCompany issued 1,810,123 shares of its common stock in payment of 8% demandnotes payable of $126,708, which approximated the fair value of the shares.

 

In August 2003, in connection with aprivate placement of its common stock, the Company issued 2,000,000 shares ofits common stock for $150,000.

 

In September 2003, the Company issued5,000,000 shares of its common stock in payment of advances to shareholders of$525,000, which approximated the fair value of the shares.

 

In October 2003, the Company issued2,500,000 shares of its common stock in payment of advances from shareholdersof $250,000, which approximated the fair value of the shares.  In addition, in connection with a privateplacement of its common stock, the Company issued 4,000,000 shares of itscommon stock for $300,000, $281,250 of which represents a subscriptionreceivable at December 31, 2003. Also, the Company issued 540,000 shares of its common stock in payment foraccounts payable of $54,000, which approximated the fair value of the shares. 

 

9

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In December 2003, the Company issued960,000 shares of its common stock in payment for accounts payable of $96,000,which approximated the fair value of the shares.

 

The sale and issuance of the aforementionedshares were exempt transactions under Section 4(2) of the Securities Act of1933 as a transaction by an issuer not involving a public offering.  At the time of sale, the persons whoacquired these securities were all full, informed and advised about mattersconcerning us, including our business, financial affairs and othermatters.  The shareholders acquired thesecurities for their own account or their designees.

 

**Item6. Management’s Discussion and Analysis or Plan of Operation**

 

*The following discussion andanalysis should be read in conjunction with the financial statements and notesthereto included elsewhere in this Annual Report on Form 10-KSB.*The following discussion regarding us andour business and operations contains forward-looking statements. Suchstatements consist of any statement other than a recitation of historical fact,and can be identified by the use of such forward-looking terminology such as“may,” “expect,” “anticipate,” “estimate” or “continue” or the negative thereofor other variations thereon, or comparable terminology. The reader is cautionedthat all forward-looking statements are necessarily speculative, and there arecertain risks and uncertainties that could cause actual events or results todiffer materially from those referred to in such forward-looking statements. 

 

*Operationsto Date*

 

We were incorporated in the State of Delaware inApril of 2000, and do not have any significant operating history orfinancial results. We have begun our early stage exploration activities,including gathering samples from one of the properties for analysis, buildingan infrastructure and filing Registration statements on Forms 10-SB and SB-2 aswell as periodic filings with the Securities and Exchange Commission. 

 

*Going Concern*

 

In connection with their audit report on our financialstatements as of December 31, 2003, Rodefer & Moss, our independentpublic accountants, expressed substantial doubt about our ability to continueas a going concern because such continuance is dependent upon our ability toraise capital. 

 

We have explored, and continue to explore, all avenuespossible to raise the funds required. We have no revenue-producing activity. Wecannot continue our exploration efforts until we have raised sufficientcapital. We also need capital to fund overhead and administrative costs. Forthe fiscal years ended December 31, 2003 and 2002 and the period fromApril 24, 2000 (date of inception) to December 31, 2003 we incurred $690,490,$511,752 and $2,629,003 in exploration costs and $2,233,602, $365,986 and$2,907,633 in general and administrative expenses, respectively. General andadministrative expenses consisted primarily of professional fees related to ourcorporate filings and consulting and other expenses incurred in operating ourbusiness. We incurred a net loss of approximately $3,222,057 or $(.10) pershare based on 32,371,250 weighted average shares outstanding for the fiscalyear ended December 31, 2003 compared to a loss of approximately $878,000or $(.05) per share based on 18,001,044 weighted average shares outstanding forthe fiscal year ended December 31, 2002. We did not conduct any operationsof a commercial nature during the period from April 24, 2000 to December 31,2003. 

 

Ultimately, we must achieve profitable operations ifwe are to be a viable entity. Although we believe that there is a reasonablebasis to believe that we will successfully raise the needed funds to continueexploration, we cannot assure you that we will be able to raise sufficientcapital to continue exploration, or that if such funds are raised, thatexploration will result in a finding of commercially exploitable reserves, orthat if exploitable reserves exist on our properties, that extraction activitiescan be conducted at a profit. 

 

**Cash Flow and Capital Resources**

 

Through December 31, 2003 we have relied onadvances of approximately $885,000 from our principal stockholders, tradepayables of approximately $1,667,000 (including $1,619,241 owed to ProspectingGeophysics Ltd.), and proceeds of approximately $1,406,000 from the saleof common stock to support our limited operations. As of December 31,2003, we had approximately $700 of cash. 

 

10

----

 

We plan to seek additional equity or debt financing ofup to $1,500,000 which we plan to use for the next phase of our explorationprogram to be conducted through December 31, 2004, as well as workingcapital purposes. We currently have limited sources of capital, including thepublic and private placement of equity securities and the possibility ofissuance of debt securities to our stockholders. With virtually no assets, theavailability of funds from traditional sources of debt will be limited, andwill almost certainly involve pledges of assets or guarantees by officers,directors and stockholders. Stockholders have advanced funds to us in the past,but we cannot assure you that they will be a source of funds in the future. Ifwe do not get sufficient financing, we may not be able to continue as a goingconcern and we may have to curtail or terminate our operations and liquidateour business (see Note 1 to financial statements). 

 

**Plan of Operation**

 

Our business plan for the next year will consist offurther exploration on the properties over which we hold the mineralexploration permits as well as preliminary marketing efforts. We intend tocontinue retaining Prospecting Geophysics Ltd. to analyze the results ofphase one of our exploration program, and during phase two, to find the extentof the kimberlite dykes that were located in phase one and gather largermini-bulk and bulk samples. These next samples are expected to be up to 7,000lbs. Prospecting Geophysics, Ltd. will attempt to locate additional kimberlitedykes and pipes and sample them as well. They will attempt to conduct furthergeochemistry tests to locate underground dykes which are not visible at thesurface and magnetic surveys to trace them. Additionally, during phase two, weintend to continue to collect and analyze the transparent pink crystalfragments found on the properties covered by our permits that consists ofnatural corundum and which we believe contain rubies. This phase was suspendedduring the winter months due to inclement weather. This phase is expected toresume in May 2004. 

 

After consulting with ProspectingGeophysics Ltd., we estimate that it will require approximately $1,300,000to conduct our exploration program through December 31, 2004. This amountwill be used to pay for prospecting and geological mapping, helicopter andairplane support, lodging and food for workers, pick-up truck rentals, houserental in George River, assays, property taxes to the Quebec Department ofNatural Resources and supervision, including a salary payable to Mr. PeterFerderber of $500 per day, plus out of pocket expenses, for days he attends thesite. We plan to raise a minimum of $1,500,000 through one or more privateofferings pursuant to Rule 506 or Regulation D of through an offshoreoffering pursuant to Regulation S; however, nothing in this annual reportshall constitute an offer of any securities for sale. Such shares when soldwill not have been registered under the Act and may not be offered or sold inthe United States absent registration or an applicable exemption fromregistration requirements. If we are unable to raise this amount, we will mostlikely cease all activity related to our exploration program, or at the veryleast, proceed on a reduced scale. We have to date relied on a small number ofinvestors to provide us with financing for the commencement of our explorationprogram, including TVP Capital Corp., a principal stockholder. Amounts owed tothese individuals are payable upon demand. 

 

We do not expect to make any direct expenditure topurchase any equipment as all equipment necessary will be provided byProspecting Geophysics Ltd. pursuant to the Prospecting and SurveyAgreement dated November 14, 2000. However, we will reimburse ProspectingGeophysics, Ltd. for all of it’s out of pocket expenses includingequipment rental. 

 

We now employ two individuals on a part time basis,both of whom are executive officers. We do not expect any significant changesin the number of employees within the next twelve months. 

 

**Risk Factors**

 

**Operations—NewEntity/Startup Entity**

 

**We have no history running ourmineral exploration business.**

 

We are engaged in the exploration stage of ourbusiness. We have not engaged in any substantive business operations to date.More particularly, we have not engaged in any mining operations. We have onlyengaged in exploratory activities, feasibility studies and the establishment ofinitial exploration plans. Thus, we have no way to evaluate the likelihood thatwe will be able to operate our business successfully. You should consider ourbusiness future based on the risks associated with our early stage, and lack ofexperience. 

 

11

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**We expect to face many of the typicalchallenges of a startup business.**

 

A startup business like ours faces a number ofchallenges. For example, engaging the services of qualified support personneland related consultants and other experts is very important in the mineralexploration business, and there is keen competition for the services of theseexperts, consultants, and support personnel. Equally important in the mineralexploration business is establishing initial exploration plans for miningprospects, and analyzing relevant information efficiently. Establishing andmaintaining budgets and appropriate financial controls is also very importantto a startup business. We expect to incur substantial operating losses for theforeseeable future, as well. The failure to address one or more of theseactivities, or curb operating losses, may impair our ability to carry out ourbusiness plan. 

 

**Operations—Mineral ExplorationActivities**

 

**Mineral exploration has many inherentrisks of operations which may prevent ultimate success.**

 

Mineral exploration has significant risks. Mineralexploration companies (like us) are dependent on locating mineral reserves onthe properties over which it has mineral permits, and are also dependent on theskillful management of minerals, when and if found or located on theseproperties. These minerals, when found in deposits and mineralizations, canvary substantially in a prospect, rendering what was initially believed to be aprofitable deposit into one of little or no value. Unforeseen changes inregulations, the value of minerals, environmental regulations, miningtechnology, site conditions, and/or labor conditions can all have a negativeimpact on our operations, and each may impair our ability to carry out ourbusiness plan. 

 

**Our business future is dependent onfinding mineral deposits with sufficient mineralization and grade.**

 

Our business model depends on locating prospects witha sufficient amount of mineralization to justify surface and drilling sampling.No assurance can be given that our specific exploration target areas will bevaluable in locating mineralizations. Even if initial mineralization reportsare positive, subsequent activities may determine that deposits are notcommercially viable. Thus, at any stage in the exploration process, we maydetermine that there is no business reason to continue and, at that time, ourresources may not enable us to continue exploratory operations and will causeus to terminate our business. 

 

**We have no known mineral reserves,and if we cannot find any, we will have to cease operations.**

 

We have no mineral reserves. If we do not find amineral reserve containing diamonds, or if we cannot develop anydiamond-bearing mineral reserve, either because we do not have the money toeffect such a development, or because it will not be economically feasible todo it, we will have to cease operations, and you may lose your entireinvestment. 

 

**We are relying on geological reportsto locate potential mineral deposits, which may be inaccurate.**

 

We rely on geological reports to determine which ofthe properties, for which we have mineral permits, to explore. There is no suremethod of verifying the care and manner used to prepare these reports withoutfurther verification on our part, or on our agents’ part. Verification ofreports is expected to be costly, and may take a considerable period of time.Verification could result in our rejecting a potential mineral prospect;however, we will have borne the expense of this verification with no likelihoodof recovering the amounts expended. Decisions made without adequately checkingthe mining prospects could result in significant unrecoverable expenses.Mineral deposits initially thought to be valuable may, in fact, turn out to beof little value. Therefore, it is possible that investment funds will have beenused, with no value having been achieved from the operations based on thereports. 

 

**Regulatory compliance in the mineralexploration business is complex, and the failure to meet all of the variousrequirements could result in fines, or other limitations on the proposedbusiness.**

 

Our mineral exploration activities will be subject toregulation by numerous governmental authorities. We are subject toenvironmental regulations under the Environmental Act (Quebec), the Mining Act(Quebec), and the Forest Act

 

12

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(Quebec). The failure to comply fully with these orany other governmental regulations will adversely affect our ability to explorefor economic mineralization, and our subsequent business stages. The failure tocomply with any regulations or licenses may result in fines or other penalties.We expect compliance with these regulations to be substantial. Therefore,compliance with (or, conversely, the failure to so comply with) applicableregulations will affect our ability to succeed in our business plans and togenerate revenues and profits. 

 

**Mineral exploration is a hazardousbusiness, which entails risks for liability and/or damages.**

 

The search for valuable minerals involves numeroushazards. As a result, we may become subject to liability for such hazards,including pollution, cave-ins and other hazards against which we cannot insureagainst, or against which we may not elect to insure. We do not currently carryany insurance to protect against the potential liability of such hazards. Thepayment of any liabilities attributed to us may have a material adverse effecton our financial position and may cause us to cease operations. 

 

**We face intense competition, and ourcompetitors may have greater resources that we do and be better able to locateand explore mineral resources in a quicker and more cost efficient manner thanwe can.**

 

It is our belief that there are a significant numberof companies with greater resources than those available to us, to locate andexplore mineral resources. These companies may be able to reach productionstages sooner than we can, and obtain a share of the market for mineralproducts before we can. 

 

**Because our management has onlylimited experience in mineral exploration, we have a higher risk of failure.**

 

Our management has only limited experience in mineralexploration. As a result of this limited experience, there is a higher risk ofour being unable to complete our business plan in the exploration of ourmineral property. 

 

**CapitalIssues**

 

**We do not currently have sufficientcapital to engage in exploration activities.**

 

The cost of our planned exploration activities isapproximately $1,300,000. As of the date of this filing, we do not havesufficient capital to engage in exploration activities, and no sources forfinancing. The extent to which we will be able to implement our exploration forminerals will be determined by our ability to engage in offerings of equitysecurities and/or debt securities. Without additional capital, we will have toeither curtail our business plan, or abandon it altogether. 

 

**We do not have any identified sourcesof additional capital, the absence of which may prevent us from continuing ouroperations.**

 

We do not, presently, have any arrangements with anyinvestment banking firms or institutional lenders. Because we will needadditional capital, we will have to expend significant effort to raiseoperating funds. These efforts may not be successful. If not, we will have toeither curtail our business plan, or abandon it altogether. 

 

**CorporateGovernance Risks**

 

**Our officers and directors willdevote approximately one-third of their time to our operations.**

 

Our officers and directors have other interests.Because of these other interests, each will be devoting only one-third of theirtime to our operations, which could have a negative impact on the efficiency ofour operations. 

 

13

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**Our directors and officers will havesubstantial ability to control our business direction.**

 

Because our directors and officers own, directly andindirectly, 51.18% of our common stock, they are in a position to control, or,at the least, influence the election of our directors. Therefore, they are ableto influence our business operation. 

 

**Critical Accounting Policies and Estimates**

 

Our financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesof America. The preparation of these financial statements requires us to makeestimates and judgments that affect the reported amounts of assets,liabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities. On an on-going basis, we evaluate our estimates. We base ourestimates on historical experience and on other assumptions that are believedto be reasonable under the circumstances. Accordingly, actual results coulddiffer from these estimates under different assumptions or conditions. Thissection summarizes the critical accounting policies and the related judgmentsinvolved in their application. 

 

*Valuation of Deferred Tax Assets*

 

We regularly evaluate our ability to recover thereported amount of our deferred income taxes considering several factors,including our estimate of the likelihood that we will generate sufficienttaxable income in future years in which temporary differences reverse. Due tothe uncertainties related to, among other things, the extent and time of futuretaxable income and the potential changes in the ownership of the Company, whichcould subject our net operating loss carryforwards to substantial annuallimitations, we offset our net deferred tax assets by an equivalent valuationallowance as of December 31, 2003. 

 

*Valuation of Long-Lived Assets*

 

We assess the recoverability of long-lived assets,such as mining claims, whenever we determine that events or changes incircumstances indicate that their carrying amount may not be recoverable. Ourassessment is primarily based upon our estimate of future cash flows associatedwith these assets. If at some point in the future, we estimate that theundiscounted cash flows is less than the carrying value of the assets, thisdetermination could result in non-cash charges to income that could materiallyaffect our financial position or results of operations for that period. 

 

 

14

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**Item 7.Financial Statements**

 

**DIAMOND DISCOVERIES INTERNATIONAL CORP.(An Exploration Stage Company)**

 

**INDEX TOFINANCIAL STATEMENTS**

 
| Report of  Independent Public Accountants                                                                                                                                               |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                    |   |
| Balance  Sheet December 31, 2003                                                                                                                                                   |   |
|                                                                                                                                                                                    |   |
| Statements of Operations Years  Ended December 31, 2003 and 2002 and Period from April 24, 2000  (Date of Inception) to December 31, 2003                                |   |
|                                                                                                                                                                                    |   |
| Statements  of Changes in Stockholders’ Deficiency Years Ended December 31, 2003 and  2002 and Period from April 24, 2000 (Date of Inception) to  December 31, 2003 |   |
|                                                                                                                                                                                    |   |
| Statements of Cash Flows Years  Ended December 31, 2003 and 2002 and Period from April 24, 2000  (Date of Inception) to December 31, 2003                                |   |
|                                                                                                                                                                                    |   |
| Notes to Financial  Statements                                                                                                                                                          |   |

 

15

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**REPORTOF INDEPENDENT PUBLIC ACCOUNTANTS**

 

To theBoard of Directors and StockholdersDiamond Discoveries International Corp. 

 

We have audited the accompanying balance sheet ofDIAMOND DISCOVERIES INTERNATIONAL CORP. (An Exploration Stage Company) as ofDecember 31, 2003, and the related statements of operations, changes instockholders’ deficiency and cash flows for the year then ended. Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audit.

 

We conducted our audit in accordance with auditingstandards generally accepted in the United States of America. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audit provides a reasonable basis for our opinion. 

 

In our opinion, the financial statements referred toabove present fairly, in all material respects, the financial position ofDiamond Discoveries International Corp. as of December 31, 2003, and theresults of its operations and cash flows for the year then ended in conformitywith accounting principles generally accepted in the United States of America. 

 

The accompanying financial statements have beenprepared assuming that the Company will continue as a going concern. As furtherdiscussed in Note 1 to the financial statements, the Company had notgenerated any revenues from its operations and it had working capital andstockholders’ deficiencies as of December 31, 2003. Such matters raisesubstantial doubt about the Company’s ability to continue as a going concern.Management’s plans concerning these matters are also described in Note 1.The accompanying financial statements do not include any adjustments that mightresult from the outcome of these uncertainties. 

 

 
| /s/  Rodefer Moss & Co, PLLC |
|----------------------------------|
|                             |
| Knoxville,  Tennessee            |
| April  14, 2004                  |

 

16

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**REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS**

 

To theBoard of Directors and StockholdersDiamond Discoveries International Corp. 

 

We have audited the accompanying statements ofoperations, changes in stockholders’ deficiency and cash flows of DIAMONDDISCOVERIES INTERNATIONAL CORP. (An Exploration Stage Company) for the yearended December 31, 2002 and the period from April 24, 2000 (date ofinception) to December 31, 2002 (not presented herein). These financialstatements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits. 

 

We conducted our audits in accordance with auditingstandards generally accepted in the United States of America. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion. 

 

In our opinion, the financial statements referred toabove present fairly, in all material respects, the results of operations andcash flows of DIAMOND DISCOVERIES INTERNATIONAL CORP. (An Exploration StageCompany) for the year ended December 31, 2002 and the period fromApril 24, 2000 (date of inception) to December 31, 2002 (not presentedherein), in conformity with accounting principles generally accepted in theUnited States of America. 

 

The accompanying financial statements have beenprepared assuming that the Company will continue as a going concern. As furtherdiscussed in Note 1 to the financial statements, the Company had notgenerated any revenues from its operations. In addition, the Company hadworking capital and stockholders’ deficiencies as of December 31, 2002.Such matters raise substantial doubt about the Company’s ability to continue asa going concern. Management’s plans concerning these matters are also describedin Note 1. The accompanying financial statements do not include anyadjustments that might result from the outcome of these uncertainties. 

 

 
| /s/  J. H. Cohn LLP   |
|-----------------------|
|                  |
| Roseland,  New Jersey |
| April 11,  2003  |

 

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**DIAMONDDISCOVERIES INTERNATIONAL CORP.(An Exploration Stage Company)BALANCE SHEETDECEMBER 31, 2003**

 
| **ASSETS**                                                                                                       |   |       |   |
|------------------------------------------------------------------------------------------------------------------|--------|------------|--------|
| Current assets—cash                                                                                         |   | $          | 738    |   |
|                                                                                                             |   |       |   |
| **LIABILITIES AND STOCKHOLDERS’ DEFICIENCY**                                                                |   |       |   |
| Liabilities:                                                                                                     |   |       |   |
| 8% Demand notes payable                                                                                          |   | $          | 5,164  |   |
| Accounts payable:                                                                                                |   |       |   |
| Prospecting Geophysics Ltd.                                                                                      |   | 1,619,241  |   |
| Other                                                                                                            |   | 47,628     |   |
| Advances from stockholders                                                                                       |   | 110,198    |   |
| Accrued taxes and other expenses                                                                                 |   | 154,374    |   |
|                                                                                                             |   |       |   |
| Total liabilities                                                                                                |   | 1,936,605  |   |
|                                                                                                             |   |       |   |
| Commitments and contingencies                                                                                    |   |       |   |
|                                                                                                             |   |       |   |
| Stockholders’ deficiency:                                                                                   |   |       |   |
| Preferred stock, par value $.001 per share;  20,000,000 shares authorized; none issued                           |   | —     |   |
| Common stock, par value $.001 per share;  80,000,000 shares authorized; 53,760,123 shares issued and outstanding |   | 53,760     |   |
| Additional paid-in capital                                                                                       |   | 5,777,671  |   |
| Deficit accumulated during the exploration  stage                                                                |   | (5,834,601 | )      |
| Accumulated other comprehensive income  (loss)                                                                   |   | (360,900   | )      |
| Unearned compensation                                                                                            |   | (1,267,256 | )      |
| Subscriptions receivable for 4,051,758  shares                                                                   |   | (304,541   | )      |
|                                                                                                             |   |       |   |
| Total stockholders’ deficiency                                                                              |   | (1,935,867 | )      |
|                                                                                                             |   |       |   |
| Total                                                                                                            |   | $          | 738    |   |

 

See Notes to FinancialStatements. 

 

18

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**DIAMONDDISCOVERIES INTERNATIONAL CORP.(An Exploration Stage Company)STATEMENTS OF OPERATIONSYEARS ENDED DECEMBER 31, 2003 AND 2002 AND PERIOD FROMAPRIL 24, 2000 (DATE OF INCEPTION) TO DECEMBER 31, 2003**

 
|                                                                                  |   | **2003**   |       | **2002**   |   | **April 24,  2000 to  December 31,  2003** |   |
|---------------------------------------------------------------------------------------|--------|------------|------------|------------|--------|------------------------------------------------------|--------|
| Revenues                                                                              |   | $          | —     |       | $      | —                                               |   | $ | — |   |
|                                                                                  |   |       |       |       |   |                                                 |   |
| Operating expenses:                                                                   |   |       |       |       |   |                                                 |   |
| Exploration costs—charges by Prospecting Geophysics Ltd., net of  reimbursements |   | 690,490    |       | 511,752    |   | 2,629,003                                            |   |
| General and administrative expenses                                                   |   | 2,233,602  |       | 365,986    |   | 2,907,633                                            |   |
|                                                                                  |   |       |       |       |   |                                                 |   |
| Total operating expenses                                                              |   | 2,924,092  |       | 877,738    |   | 5,536,636                                            |   |
|                                                                                  |   |       |       |       |   |                                                 |   |
| Operating loss                                                                        |   | (2,924,092 | )          | (877,738   | )      | (5,536,636                                           | )      |
|                                                                                  |   |       |       |       |   |                                                 |   |
| Other expenses                                                                        |   |       |       |       |   |                                                 |   |
| Interest expense                                                                      |   | (297,965   | )          |       |   | (297,965                                             | )      |
|                                                                                  |   |       |       |       |   |                                                 |   |
|                                                                                  |   |       |       |       |   |                                                 |   |
| Net loss                                                                              |   | $          | (3,222,057 | )          | $      | (877,738                                             | )      | $ | (5,834,601 | ) |
|                                                                                  |   |       |       |       |   |                                                 |   |
| Basic net loss per common share                                                       |   | $          | (.10       | )          | $      | (.05                                                 | )      |   |   |
|                                                                                  |   |       |       |       |   |                                                 |   |
| Basic weighted average common shares outstanding                                      |   | 32,371,250 |       | 18,001,044 |   |                                                 |   |

 

See Notes to FinancialStatements. 

 

19

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**DIAMONDDISCOVERIES INTERNATIONAL CORP.(An Exploration Stage Company)STATEMENTS OF CHANGES INSTOCKHOLDERS’ DEFICIENCYYEARS ENDED DECEMBER 31, 2003 AND 2002 AND PERIOD FROM APRIL 24, 2000(DATE OF INCEPTION) TO DECEMBER 31, 2003**

 

 
|                                                                                 |   |                |   |             |   |           |       | **Deficit**     |   |              |   |              |      |         |   |       |   |       |     |
|--------------------------------------------------------------------------------------|--------|---------------------|--------|------------------|--------|----------------|------------|-----------------|--------|-------------------|--------|-------------------|-----------|--------------|--------|------------|--------|------------|----------|
|                                                                                 |   |                |   |             |   |           |       | **Accumulated** |   | **Accumulated**   |   |              |      |         |   |       |   |       |     |
|                                                                                 |   |                |   |             |   | **Additional** |       | **during the**  |   | **other**         |   | **Subscriptions** |      |         |   |       |   |
|                                                                                 |   | **Preferred stock** |   | **Common stock** |   | **Paid-in**    |       | **exploration** |   | **comprehensive** |   | **receivable**    |      | **Unearned** |   |       |   |
|                                                                                 |   | **Shares**          |   | **Amount**       |   | **Shares**     |       | **Amount**      |   | **capital**       |   | **stage**         |      | **income**   |   | **Shares** |   | **Amount** |     | **compensation** |   | **Total** |   |
| Issuance of shares to founders effective as of April 24, 2000                   |   | —              |   | $                | — |           | 4,850,000  |            | $      | 4,850             |   | $                 | —    |         | $      | —     |   | —     |     | — |   | $ | — |   | $ | — |   | $ | 4,850 |   |
| Issuance of shares as payment for legal services                                     |   | —              |   | —           |   | 150,000        |       | 150             |   | 3,600             |   | —            |      | —       |   | —     |   | —     |     | — |   | 3,750 |   |
| Issuance of shares in connection with acquisition of mineral permits                 |   | —              |   | —           |   | 2,000,000      |       | 2,000           |   | 48,000            |   | —            |      | —       |   | —     |   | —     |     | — |   | 50,000 |   |
| Subscription for purchase of 10,000,000 shares                                       |   | —              |   | —           |   | 10,000,000     |       | 10,000          |   | 240,000           |   | —            |      | —       |   | 10,000,000 |   | (250,000   | )        | — |   | — |   |
| Proceeds from issuance of common stock                                               |   | —              |   | —           |   | —         |       | —          |   | —            |   | —            |      | —       |   | (1,000,000 | )      | 25,000     |     | — |   | 25,000 |   |
| Net loss                                                                             |   | —              |   | —           |   | —         |       | —          |   | —            |   | (713,616          | )         | —       |   | —     |   | —     |     | — |   | (713,616 | ) |
| Balance, December 31, 2000                                                      |   | —              |   | —           |   | 17,000,000     |       | 17,000          |   | 291,600           |   | (713,616          | )         |         |   | 9,000,000  |   | (225,000   | )        | — |   | (630,016 | ) |
| Proceeds from issuance of common stock                                               |   | —              |   | —           |   | —         |       | —          |   | —            |   | —            |      | —       |   | (9,000,000 | )      | 225,000    |     | — |   | 225,000 |   |
| Net loss                                                                             |   | —              |   | —           |   | —         |       | —          |   | —            |   | (1,021,190        | )         | —       |   | —     |   | —     |     | — |   | (1,021,190 | ) |
| Balance, December 31, 2001                                                      |   | —              |   | —           |   | 17,000,000     |       | 17,000          |   | 291,600           |   | (1,734,806        | )         | —       |   | —     |   | —     |     | — |   | (1,426,206 | ) |
| Proceeds from private placements of units of common stock and  warrants              |   | —              |   | —           |   | 1,685,000      |       | 1,685           |   | 756,565           |   | —            |      | —       |   | 51,758     |   | (23,291    | )        | — |   | 734,959 |   |
| Net loss                                                                             |   | —              |   | —           |   | —         |       | —          |   | —            |   | (877,738          | )         | —       |   | —     |   | —     |     | — |   | (877,738 | ) |
| Balance, December 31, 2002                                                      |   | —              |   | —           |   | 18,685,000     |       | 18,685          |   | 1,048,165         |   | (2,612,544        | )         | —       |   | 51,758     |   | (23,291    | )        | — |   | (1,568,985 | ) |
| Issuance of shares as payment for accounts payable                                   |   | —              |   | —           |   | 3,000,000      |       | 3,000           |   | 295,423           |   | —            |      | —       |   | —     |   | —     |     | — |   | 298,423 |   |
| Issuance of shares as payment for services                                           |   | —              |   | —           |   | 6,715,000      |       | 6,715           |   | 1,368,235         |   | —            |      | —       |   | —     |   | —     |     | — |   | 1,374,950 |   |
| Issuance of stock options                                                            |   | —              |   | —           |   | —         |       | —          |   | 1,437,000         |   | —            |      | —       |   | —     |   | —     |     | (1,437,000 | ) | — |   |
| Issuance of shares as payment for advances from stockholders                         |   | —              |   | —           |   | 7,500,000      |       | 7,500           |   | 767,500           |   | —            |      | —       |   | —     |   | —     |     | — |   | 775,000 |   |
| Issuance of shares as payment for notes payable                                      |   | —              |   | —           |   | 1,810,123      |       | 1,810           |   | 124,898           |   | —            |      | —       |   | —     |   | —     |     | — |   | 126,708 |   |
| Proceeds from issuance of common stock                                               |   | —              |   | —           |   | 6,000,000      |       | 6,000           |   | 444,000           |   | —            |      | —       |   | 4,000,000  |   | (281,250   | )        | — |   | 168,750 |   |
| Proceeds from issuance of common stock in connection with exercise of  stock options |   | —              |   | —           |   | 10,050,000     |       | 10,050          |   | 292,450           |   | —            |      | —       |   | —     |   | —     |     | — |   | 302,500 |   |
| Amortization of unearned compensation                                                |   | —              |   | —           |   | —         |       | —          |   | —            |   | —            |      | —       |   | —     |   | —     |     | 169,744 |   | 169,744 |   |
| Net loss                                                                             |   | —              |   | —           |   | —         |       | —          |   | —            |   | (3,222,057        | )         | —       |   | —     |   | —     |     | — |   | (3,222,057 | ) |
| Foreign currency translation adjustment                                              |   | —              |   | —           |   | —         |       | —          |   | —            |   | —            |      | (360,900     | )      | —     |   | —     |     | — |   | (360,900 | ) |
| Total comprehensive loss ($3,582,957)                                                |   | —              |   | —           |   | —         |       | —          |   | —            |   | —            |      | —       |   | —     |   | —     |     | — |   | — |   |
| Balance, December 31, 2003                                                      |   | —              |   | $                | — |           | 53,760,123 |            | $      | 53,760            |   | $                 | 5,777,671 |         | $      | (5,834,601 | )      | $          | (360,900 | ) | 4,051,758 |   | $ | (304,541 | ) | $ | (1,267,256 | ) | $ | (1,935,867 | ) |
|                                                                                      |        |                     |        |                  |        |                |            |                 |        |                   |        |                   |           |              |        |            |        |            |          |  |  |  |  |  |  |  |  |  |  |  |  |

 

See Notes to FinancialStatements. 

 

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**DIAMONDDISCOVERIES INTERNATIONAL CORP.(An Exploration Stage Company)STATEMENTS OF CASH FLOWSYEARS ENDED DECEMBER 31, 2003 AND 2002 AND PERIOD FROMAPRIL 24, 2000 (DATE OF INCEPTION) TO DECEMBER 31, 2003**

 
|                                                                         |   | **2003**  |       | **2002** |   | **April 24,  2000 to  December 31,  2003** |   |
|------------------------------------------------------------------------------|--------|-----------|------------|----------|--------|------------------------------------------------------|--------|
| Operating activities:                                                        |   |      |       |     |   |                                                 |   |
| Net loss                                                                     |   | $         | (3,222,057 | )        | $      | (877,738                                             | )      | $ | (5,834,601 | ) |
| Adjustments to reconcile net loss to net cash used in operating  activities: |   |      |       |     |   |                                                 |   |
| Costs of services paid through issuance of common stock                      |   | 1,544,694 |       | —   |   | 1,548,444                                            |   |
| Cost of mineral permits paid through the issuance of common stock            |   | —    |       | —   |   | 50,000                                               |   |
| Changes in operating assets and liabilities:                                 |   |      |       |     |   |                                                 |   |
| Accounts payable                                                             |   | 618,123   |       | 128,059  |   | 1,604,392                                            |   |
| Accrued expenses                                                             |   | 154,374   |       | —   |   | 154,374                                              |   |
|                                                                         |   |      |       |     |   |                                                 |   |
| Net cash used in operating activities                                        |   | (904,866  | )          | (749,679 | )      | (2,477,391                                           | )      |
|                                                                         |   |      |       |     |   |                                                 |   |
| Financing activities:                                                        |   |      |       |     |   |                                                 |   |
| Advances from stockholders, net                                              |   | 299,142   |       | 17,719   |   | 885,198                                              |   |
| Proceeds from issuance of notes payable                                      |   | 186,872   |       | —   |   | 186,872                                              |   |
| Proceeds from issuance of common stock and warrants                          |   | 416,250   |       | 734,959  |   | 1,406,059                                            |   |
|                                                                         |   |      |       |     |   |                                                 |   |
| Net cash provided by financing activities                                    |   | 902,264   |       | 752,678  |   | 2,478,129                                            |   |
|                                                                         |   |      |       |     |   |                                                 |   |
| Net increase (decrease) in cash                                              |   | (2,602    | )          | 2,999    |   | 738                                                  |   |
| Cash, beginning of period                                                    |   | 3,340     |       | 341      |   | —                                               |   |
|                                                                         |   |      |       |     |   |                                                 |   |
| Cash, end of period                                                          |   | $         | 738        |     | $      | 3,340                                                |   | $ | 738 |   |

 

See Notes to FinancialStatements.

 

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** **

**DIAMOND DISCOVERIES INTERNATIONAL CORP.(An Exploration Stage Company)**

** **

**NOTESTO FINANCIAL STATEMENTS**

 

**Note 1—Business and basis of presentation:**

 

 Diamond Discoveries International Corp. (the“Company”) was incorporated in the State of Delaware on April 24, 2000.The Company is engaged in activities related to the exploration for mineralresources in Canada. It conducts exploration and related activities throughcontracts with third parties. 

 

As further explained in Note 3, the Companyacquired its mineral permits for property in the “Torngat Fields” located inthe Province of Quebec, Canada. The Company intends to develop the permits fromearly stage exploration through completion of the exploration phase. Prior toany further exploration decisions, a mineral deposit must be appropriatelyassessed. Gathering this data usually takes several years. Once the appropriatedata has been gathered, management will determine whether and how to proceed.The Company has discovered tiny diamonds in samples taken from the property andhas contracted with Prospecting Geophysics Ltd. (“PGL”) to conduct surveysand exploration at the property to begin to enable it to determine whether itcan extract and produce diamonds from this kimberlite (see Note 3). 

 

Other than contracting with PGL to conductexploration and gather data on its behalf, the Company had not conducted anyoperations or generated any revenues as of December 31, 2003. Accordingly,it is considered an “exploration stage company” for accounting purposes. 

 

The accompanying financial statements have beenprepared assuming the Company will continue as a going concern. However, inaddition to not generating any revenues, the Company had a working capital anda stockholders’ deficiency of approximately $1,936,000 as of December 31,2003. Management believes that the Company will not generate any revenuesduring the twelve month period subsequent to December 31, 2003 in which itwill be gathering and evaluating data related to the permits for the TorngatFields. Although the Company received total consideration of $734,959 as aresult of the completion of private placements of 1,685,000 units of commonstock and warrants to purchase common stock during the year endedDecember 31, 2002 and in 2003, the Company received $902,264  from proceeds of shareholder advances, theissuance of notes payable and the sales of common stock (see Note 5),management believes that the Company will still need total additional financingof approximately $1,300,000 to continue to operate as planned during the twelvemonth period subsequent to December 31, 2003. These conditions raisesubstantial doubt about the Company’s ability to continue as a going concern. 

 

Management plans to obtain such financing throughprivate offerings of debt and equity securities. However management cannotassure that the Company will be able to obtain any or all of the additionalfinancing it will need to continue to operate through at leastDecember 31, 2004 or that, ultimately, it will be able to generate anyprofitable commercial mining operations. If the Company is unable to obtain therequired financing, it may have to curtail or terminate its operations andliquidate its remaining assets and liabilities. 

 

The accompanying financial statements do not includeany adjustments related to the recoverability and classifications of assets orthe amounts and classification of liabilities that might be necessary shouldthe Company be unable to continue its operations as a going concern. 

 

**Note 2—Summary of significant accountingpolicies:**

 

Useof estimates: 

 

The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesof America requires management to make estimates and assumptions that affectcertain reported amounts and disclosures. Accordingly, actual results coulddiffer from those estimates. 

 

Miningcosts: 

 

Exploration and evaluation costs are expensed asincurred. Management’s decision to develop or mine a property will be based onan assessment of the viability of the property and the availability offinancing. The Company will capitalize

 

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mining exploration and otherrelated costs attributable to reserves in the event that a definitivefeasibility study establishes proven and probable reserves. Capitalized miningcosts will be expensed using the unit of production method and will also besubject to an impairment assessment. 

 

Concentrationsof credit risk: 

 

The Company maintains its cash in bank depositaccounts, the balances of which, at times, may exceed Federal insurance limits.Exposure to credit risk is reduced by placing such deposits with majorfinancial institutions and monitoring their credit ratings. 

 

Impairmentof long-lived assets: 

 

Impairment losses on long-lived assets, such asmining claims, are recognized when events or changes in circumstances indicatethat the undiscounted cash flows estimated to be generated by such assets areless than their carrying value and, accordingly, all or a portion of such carryingvalue may not be recoverable. Impairment losses are then measured by comparingthe fair value of assets to their carrying amounts. 

 

Incometaxes: 

 

The Company accounts for income taxes pursuant tothe asset and liability method which requires deferred income tax assets andliabilities to be computed annually for temporary differences between thefinancial statement and tax bases of assets and liabilities that will result intaxable or deductible amounts in the future based on enacted tax laws and ratesapplicable to the periods in which the differences are expected to affecttaxable income. Valuation allowances are established when necessary to reducedeferred tax assets to the amount expected to be realized. The income taxprovision or credit is the tax payable or refundable for the period plus orminus the change during the period in deferred tax assets and liabilities. 

 

Netearnings (loss) per share: 

 

The Company presents “basic” earnings (loss) pershare and, if applicable, “diluted” earnings per share pursuant to theprovisions of Statement of Financial Accounting Standards No. 128,“Earnings per Share”. Basic earnings (loss) per share is calculated by dividingnet income or loss by the weighted average number of common shares outstandingduring each period. The calculation of diluted earnings per share is similar tothat of basic earnings per share, except that the denominator is increased toinclude the number of additional common shares that would have been outstandingif all potentially dilutive common shares, such as those issuable upon theexercise of stock options and warrants, were issued during the period. 

 

Since the Company had a net loss for the years endedDecember 31, 2003 and 2002, the assumed effects of the exercise of thewarrants to purchase 1,685,000 shares of common stock that were issued during2002 and the application of the treasury stock method would have beenanti-dilutive.  Therefore, there is nodiluted per share amounts in the 2003 and 2002 statements of operations.

 

Foreigncurrency translation and transactions: 

 

The functional currency of the Company’s operationsis Canadian dollars.  The assets andliabilities arising from these operations are translated at current exchangerates and related revenues and expenses at average exchange rates in effectduring the year.  Resulting translationadjustments, if material, are recorded in the statement of changes instockholders' deficiency while foreign currency transaction gains and lossesare included in operations.

 

The Company recorded a loss of $3,222,057 and$5,834,601 during the year ended December 31, 2003 and the period from April 24, 2000 (Date of Inception) toDecember 31, 2003, respectively. During the year ended December 31, 2003, the Company

 

23

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recordeda net foreign currency translation adjustment of $360,900 in its interest inthe Torngat Mountains operations reflecting a strengthening of the Canadiandollar against the U. S. dollar which is included in accumulated othercomprehensive income (loss). Translation adjustments for prior periods have been immaterial.

 

Comprehensive loss

 

Comprehensive lossconsists of net loss for the period, unrealized hedging transactions andforeign currency translation adjustments.

 

Recentaccounting pronouncements: 

 

The Financial Accounting Standards Board had issuedcertain accounting pronouncements as of December 31, 2003 that will becomeeffective in subsequent periods; however, management of the Company does notbelieve that any of those pronouncements would have significantly affected theCompany’s financial accounting measurements or disclosures had they been ineffect during the period from April 24, 2000 to December 31, 2003,and it does not believe that any of those pronouncements will have anysignificant impact on the Company’s financial statements at the time theybecome effective. 

 

**Note 3—Permits:**

 

Pursuant to an agreement consummated onSeptember 12, 2000, the Company acquired certain permits in the TorngatFields from Peter Ferderber and S. G. Hawkins, who are key consultants andadvisors to the Company, for total consideration of $90,540, of which $40,540($60,000 Canadian) represents the amount paid in cash and $50,000 representsthe fair value of a total of 2,000,000 shares of the Company’s common stockissued to Messrs. Ferderber and Hawkins. The exchange of shares for thepermits was a non-cash transaction that is not reflected in the accompanyingstatement of cash flows for the period from April 24, 2000 to December 31,2003. 

 

In connection with the acquisition of these permits,the Company assigned to the sellers a 1% interest in the “net smelter returns”of the property, one-half of which is payable over the first $50,000,000(Canadian) of revenues produced from the property. Such interest wouldterminate once the sellers receive a total of $10,000,000 (Canadian) based onsuch interest. Net smelter returns are determined by the net amount receivedfrom the sale to a smelter or other buyer of ore, ore concentrates or otherproducts produced from the property. 

 

Mr. Hawkins owns Tandem Resources, Ltd.(“Tandem”). As part of the agreement for the purchase of the permits, theCompany granted Tandem an option to purchase a 40% interest in a joint venturethat would be formed between the Company and Tandem to conduct operationsrelated to the properties covered by the permits at such time as the Companyhas incurred expenditures related to such operations totaling $5,000,000(Canadian). The exercise price for the option will be $2,000,000 (Canadian).Mr. Ferderber also is the president of PGL (see Note 1). 

 

In 2002, the Company acquired additional permits for50,000 acres of adjacent property in the Torngat Fields by staking the propertyand paying the requisite fees to the Quebec Department of Natural Resources. 

 

**Note 4—Advances from stockholders:**

 

Advances from stockholders of $110,198 atDecember 31, 2003 were non-interest bearing and due on demand. 

 

Although management does not believe that there is apractical method that can be used to specifically determine the fair value ofthe advances from stockholders because of the relationship of the Company andits stockholders, it believes that the advances will be repaid on a short-termbasis and, accordingly, the carrying value of the advances approximated fairvalue as of December 31, 2003. 

 

24

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**Note 5—Stockholders’ equity:**

 

Preferredstock

 

As of December 31, 2003, the Company wasauthorized to issue up to 20,000,000 shares of preferred stock with a par valueof $.001 per share. The preferred stock may be issued in one or more serieswith dividend rates, conversion rights, voting rights and other terms andpreferences to be determined by the Company’s Board of Directors, subject tocertain limitations set forth in the Company’s Articles of Incorporation. Noshares of preferred stock had been issued by the Company as ofDecember 31, 2003. 

 

Common stock

 

During the period from April 24, 2000 toDecember 31, 2000, the Company issued 150,000 shares of common stock aspayment for legal services. Accordingly, general and administrative expenses inthe accompanying statement of operations, and common stock and additionalpaid-in capital in the accompanying statements of stockholders’ deficiency, forthe period from April 24, 2000 to December 31, 2003 was increased toreflect the estimated fair value of the shares of $3,750. 

 

On May 20, 2000, the Company completed the saleof 10,000,000 shares of common stock for $250,000, or $.025 per share, througha private placement intended to be exempt from registration under theSecurities Act of 1933 (the “Act”). Initially, the buyer paid $25,000 in cashand $225,000 through the issuance of a 10% promissory note. The exchange of sharesfor a note receivable was a noncash transaction that is not reflected in theaccompanying statement of cash flows for the period from April 24, 2000 toDecember 31, 2003. The 10% promissory note was paid on various datesthrough May 20, 2001. 

 

During the year ended December 31, 2002, theCompany received total cash consideration of $734,959 as a result of the saleof 1,633,242 units of common stock and warrants to purchase common stock at$.45 per unit through private placements intended to be exempt fromregistration under the Act. Each unit consisted of one share of common stockand one warrant to purchase one share of common stock exercisable at $.75 pershare for a two year period from the date of purchase. The Company had alsoreceived subscriptions through the private placements for the purchase of51,758 units at $.45 per unit or a total of $23,291 as of December 31,2002. The notes receivable from the subscribers are noninterest bearing andwere due six months from the respective dates of sale, but remained outstandingat December 31, 2003. All the warrants remained outstanding as of December 31,2003.

 

In 2003, theCompany issued 6,715,000 shares of its common stock in exchange for servicesperformed by various consultants and recorded a charge to general andadministrative expenses of $1,374,950, or $0.20 per share, for the fair valueof the shares.

 

InMay 2003, the Company issued 1,500,000 shares of its common stock inpayment of accounts payable to Prospecting Geophysics, Ltd. of $148,423, or $0.10per share, which approximated the fair value of the shares.

 

FromJuly 2003 to September 2003, the Company issued 1,810,123 shares ofits common stock in payment of 8% demand notes payable of $126,708, or $0.07per share, which approximated the fair value of the shares.

 

InAugust 2003, in connection with a private placement of its common stock,the Company issued 2,000,000 shares of its common stock for $150,000, or $0.08per share.  In addition, the Companyissued 6,500,000 shares of its common stock for $65,000, or $0.01 per share, inconnection with the exercise of stock options.

 

InSeptember 2003, the Company issued 5,000,000 shares of its common stock inpayment of advances from stockholders of $525,000, or $0.11 per share, whichapproximated the fair value of the shares.

 

InOctober 2003, the Company issued 2,500,000 shares of its common stock inpayment of advances from stockholders of $250,000, or $0.10 per share, whichapproximated the fair value of the shares. In addition, in connection with a private

 

25

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placement of its common stock,the Company issued 4,000,000 shares of its common stock for $300,000, or $0.08per share, $281,250 of which represents a subscription receivable atDecember 31, 2003.  Also, theCompany issued 540,000 shares of its common stock in payment for accountspayable of $54,000, or $0.10 per share, which approximated the fair value ofthe shares. Further, the Company issued 2,350,000 shares of its common stockfor $225,500, or $0.10 per share, in connection with the exercise of stockoptions.

 

In November 2003, the Company issued 1,200,000 sharesof its common stock for $12,000, or $0.01 per share, in connection with theexercise of stock options.

 

In December 2003, the Company issued 960,000 shares ofits common stock in payment for accounts payable of $96,000, or $0.10 pershare, which approximated the fair value of the shares.

 

The issuances of common stock for services and in payment ofaccounts payable, 8% demand notes payable and advances to stockholders werenon-cash transactions and, accordingly, they are not reflected in theaccompanying statements of cash flows for the year ended December 31, 2003 andthe period from April 24, 2000 (Date of Inception) to December 31, 2003.

 

StockOption Plan

 

On May 30, 2003, the Company adopted the DiamondDiscoveries International Corp. 2003 Stock Incentive Plan (the “Plan”).  Under the Plan, 15,000,000 shares of commonstock are reserved for issuance.  Thepurpose of the Plan is to provide incentives for officers, directors,consultants and key employees to promote the success of the Company, and toenhance the Company’s ability to attract and retain the services of suchpersons.  Options granted under the Planmay be either: (i) options intended to qualify as “incentive stock options”under Section 422 of the Internal Revenue Code of 1986; or (ii)non-qualified stock options.  Stockoptions may be granted under the Plan to all employees and consultants of theCompany, or employees of any present or future subsidiary or parent of theCompany.  The Plan is administered bythe Board of Directors.  TheCompensation Committee is empowered to interpret the Plan and to prescribe,amend and rescind the rules and regulations pertaining to the Plan.  Options granted under the Plan generallyvest over three years.  No option istransferable by the optionee other than by will or the laws of descent anddistribution and each option is exercisable, during the lifetime of theoptionee, only by the optionee.  TheCompensation Committee may not receive options.

 

Any incentive stock option that is granted under the Planmay not be granted at a price less than the fair market value of the Company’sCommon Stock on the date of grant (or less than 110% of the fair market valuein the case of holders of 10% or more of the total combined voting powerthrough all classes of stock of the Company or a subsidiary or parent of theCompany.)  Non-qualified stock options maybe granted at the exercise price established by the Compensation Committee,which may be less than the fair market value of the Company’s Common Stock onthe date of grant.

 

Each option granted under the Plan is exercisable for aperiod not to exceed ten years from the date of grant (or five years in thecase of an incentive option granted to a holder of more than 10% of the total combined voting power of allclasses of stock of the Company or a subsidiary or parent of the Company) andshall lapse upon expiration of such period, or earlier upon termination of therecipient’s employment with the Company, or as determined by the CompensationCommittee.

 

In 2003, the Company issued options to acquire 13,875,000shares of its common stock at a weighted average exercise price of $.04 pershare to consultants and other non-employees. The options had an aggregate fair market value of $1,437,000 at therespective dates of issuance as determined based on the Black-Scholesoptions-pricing model. Accordingly, the Company initially increased unearnedcompensation and additional paid-in capital by $1,437,000 to record the fairvalue of the options, of which $169,744 was amortized to compensation expensein the year ended December 31, 2003.

 

The following assumptions wereused to price the options, all of whose exercise price was less than market atthe date of grant: Risk free rate of return, 3%; expected life, 3 years;expected volatility, 200.25%; expected dividends, zero.

 
|                                                                |   | **Shares** |          | **Weighed Average  Exercise Price** |   |
|---------------------------------------------------------------------|--------|------------|---------------|-------------------------------------|--------|
|                                                                |   |       |          |                                |   |
| Options outstanding beginning of year                               |   | —     |          | NA                                  |   |
| Options canceled                                                    |   | —     |          | NA                                  |   |
| Options exercised                                                   |   | 10,050,000 |          | $                                   | 0.02   |   |
| Options granted                                                     |   | 13,875,000 |          | $                                   | 0.04   |   |
|                                                                |   |       |          |                                |   |
| Options outstanding end year                                        |   | 3,825,000  |          | $                                   | 0.11   |   |
|                                                                |   |       |          |                                |   |
| Options exercisable end of year                                     |   | 3,825,000  |          | $                                   | 0.11   |   |
|                                                                |   |       |          |                                |   |
| Options price range, end of year                                    |   | $          | 0.10 to $0.11 |                                |   |   |
| Options price range for exercised shares                            |   | $          | 0.01 to $0.11 |                                |   |   |
| Options available for grant at end of year                          |   | 1,125,000  |          |                                |   |
| Weighted average fair value of options  granted during the year     |   | $          | 0.10          |                                |   |   |
| Weighted average exercise price of options  granted during the year |   | $          | 0.04          |                                |   |   |

 

 

**Note 6—Income taxes:**

 

As of December 31, 2003, the Company had netoperating loss carryforwards of approximately $6,196,000 available to reducefuture Federal taxable income which will expire at various dates through 2022.The Company had no other material temporary differences as of that date. Due tothe uncertainties related to, among other things, the changes in the ownershipof

 

26

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the Company, which couldsubject those loss carryforwards to substantial annual limitations, and theextent and timing of its future taxable income, if any, the Company offset thedeferred tax assets of approximately $2,478,000 attributable to the potentialbenefits from the utilization of those net operating loss carryforwards by anequivalent valuation allowance as of December 31, 2003. 

 

The Company had also offset the potential benefitsfrom net operating loss carryforwards of approximately $1,045,000 and $694,000by equivalent valuation allowances as of December 31, 2002 and 2001. As aresult of the increases in the valuation allowance of $1,433,000 for the yearended December 31, 2003, $351,000 for the year ended December 31,2002 and $2,478,000 for the period from April 24, 2000 toDecember 31, 2003, the Company did not recognize any credits for incometaxes in the accompanying statements of operations to offset its pre-tax lossesin any of those periods. 

 

**Note 7—Guarantee:**

 

On March 14, 2003, the Company became aguarantor of a promissory note issued by one of its stockholders with anoutstanding balance of approximately $101,200 that was originally scheduled tomature on July 31, 2003. The maturity date of the promissory note and theguaranty have been extended to April 30, 2004.

 

**Note 8—Subsequent events:**

 

On January 2004, the Company entered intoagreements with various consultants for a period of one month beginning inJanuary 2004. The consultants shall provide services pertaining to thedevelopment and implementation of a sale and marketing plan, to office andadministrative functions and to provide advice to directors and officers of theCompany. The Company has agreed to compensate the consultants by issuing them atotal of 15,467,000 shares of its common stock which had an approximateaggregate fair value of $1,546,700 at the respective dates of issuance. 

 

*        *        *

 

**Item 8. Changes In and Disagreements With Accountants onAccounting and Financial Disclosure**

 

On November 17,2003, our Board of Directors dismissed J. H. Cohn, LLP (“Cohn”) as ourindependent accountants. Cohn was notified of this change on November 17,2003. Cohn served as our independent accountants from April 24, 2000through November 17, 2003.  Cohn’sreport on the Company’s financial statements for each of the two fiscal yearsended December 31, 2001 and 2002 did not contain an adverse opinion or adisclaimer of opinion, nor was any such report qualified or modified as toaudit scope or accounting principles.  However, the reports of Cohn forthese fiscal years included an emphasis paragraph related to the uncertainty asto our ability to continue as a going concern.

 

For each ofthe Company’s fiscal years ended December 31, 2001 and 2002 and the interimperiod through November 17, 2003, there were no disagreements with Cohn onany matter of accounting principles or practices, financial statementdisclosure, or auditing scope or procedure, which, if not resolved to thesatisfaction of Cohn, would have caused Cohn to make reference to the subjectmatter of the disagreements in connection with its report on the Company’sfinancial statements for such years. The Board of Directors of the Company engaged Rodefer Moss & Co PLLCas the Company’s independent accountants on November 17, 2003, to replaceCohn.

 

**Item8 A. Controls and Procedures**

 

Our chiefexecutive officer and our chief financial officer (the “Certifying Officers”)are responsible for establishing and maintaining disclosure controls and proceduresfor our Company. Such officers have concluded (based upon their evaluations ofthese controls and procedures as of the end of the period covered by thisreport) that our disclosure controls and procedures are effective to ensurethat information required to be disclosed by us in this report is accumulatedand communicated to management, including our principal executive officers asappropriate, to allow timely decisions regarding required disclosure.

 

There was nochange in our internal controls over financial reporting during the year endedDecember 31, 2003 that has materially affected, or that is reasonably likely tomaterially affect our internal control over financial reporting.

 

Ourmanagement, including the Certifying Officers, does not expect that ourdisclosure controls or our internal controls will prevent all error and allfraud. A control system, no matter how well conceived and operated, can provideonly reasonable, not absolute, assurance that the objectives of the controlsystem are met. In addition, the design of a control system must reflect thefact that there are resource constraints, and the benefits of controls must beconsidered relative to their costs. Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within a company have beendetected. These inherent limitations include the realities that judgments indecision-making can be faulty, and that breakdowns can occur because of simpleerror or mistake. Additionally, controls can be circumvented by the individualacts of some persons, by collusion of two or more people or by managementoverride of the control. The design of any systems of controls also is based inpart upon certain assumptions about the likelihood of future events, and therecan be no assurance that any design will succeed in achieving its stated goalsunder all potential future conditions. Over time, control may become inadequatebecause of changes in conditions, or the degree of compliance with the policiesor procedures may deteriorate. Because of these inherent limitations in acost-effective control system, misstatements due to error or fraud may occurand not be detected.

 

27

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**PART III**

 

**Item 9****. Directors, ExecutiveOfficers, Promoters and Control Persons; Compliance With Section 16(A) OfThe Exchange Act**

 

The following Table sets forth certain informationregarding the executive officers and directors of the Company as ofApril 13, 2004.  All officers anddirectors are elected for a term of one year and until their successors areelected.

 
| **Name**            |   | **Age** |   | **Company Position**     |
|---------------------|--------|---------|--------|--------------------------|
| Thomas  J. Kennedy  |   | 54      |   | Chairman/Director        |
| John  Kowalchuk     |   | 57      |   | President/CEO/  Director |
| Edward  C. Williams |   | 43      |   | Secretary/Director/CFO   |
| Peter  Ferderber    |   | 76      |   | Consultant               |

 

**THOMAS J. KENNEDY**

 

Mr. Kennedyhas been Chairman and a Director of the Company since in March 2004. Mr.Kennedy has been actively engaged as a Lawyer, Management Consultant andFinancial Consultant from 1991 to present. During this same time, he has been a Director/Officer of numerouspublicly traded companies. From September 1982 until January 1991,Mr. Kennedy was a Vice Chairman of The Worker’s Compensation Appeal Board ofBritish Columbia, responsible for hearing appeal cases and in addition providedadministrative management to certain Vancouver based venture companies.  Mr. Kennedy was engaged as Legal Counselwith the Federal Department of Justice, from 1975 to 1981. (Vancouver RegionalOffice, B.C.)  From 1974 until 1975, Mr.Kennedy was an articling student with Meredith & Company in Vancouver,B.C.  

 

**JOHN KOWALCHUK**

 

Mr. Kowalchukhas been President, Chief Executive Officer and a Director of the Company sincein March 2004. Mr. Kowalchuk has more than 33 years of mineral explorationexperience with both senior and junior mining companies working in Canada, US,Mexico and Chile. He was District Geologist for Placer Dome for over 6 yearsand was instrumental in the discovery of several world-class mineral depositsin Canada including the Howard’s Pass deposit on the Yukon/NWT border and theKerr Copper Gold Deposit at Eskay Creek, BC. Mr. Kowalchuk has also served as officer and director for several juniormining companies, including Admiral Bay and presently with Island Mountain GoldMining and Castillian Resources Corp.

 

**EDWARD C. WILLIAMS**

** **

Mr. Williams has served as President andChief Executive Officer of Williams Financial Group, Inc., a financial andbusiness consulting firm from December 1996 to present.  In addition, from May 1999 toDecember 1999, he was a director of iCommerce Group, Inc. and was ChiefFinancial Officer, Treasurer and Assistant Secretary. From September 1997to February 1999, Mr. Williams was the Chief Financial Officer ofCaribbean Cigar Company. He also served as Interim President fromJune 1998 to July 1998. He was a Director from November 1997 toFebruary 1999. Mr. Williams was Vice President - Finance of DenAmerica Corp.from April 1996 to July 1996, and he was Chief Financial Officer ofAmerican Family Restaurants, Inc. from February 1993 to March 1996,when American Family Restaurants, Inc. merged with DenWest Restaurant Corp.Both of such corporations operated restaurants. From 1987 untilJanuary 1993, Mr. Williams was employed by KPMG, most recently as a seniormanager.

 

**PETER FERDERBER**

 

Mr. Ferderber is not an employee of ours buthas been included here because we will rely heavily on his services andexpertise. He is a consultant to the Company. He has been involved in miningexploration for over forty years. He has been the President of ProspectingGeophysics Ltd., a mining geophysics company located in Quebec, Canada,since 1955 and was awarded the “Prospector of the Year,” the Prospectors andDevelopers Association award for Canada and the Province of Quebec in 1979. 

 

28

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*Conflicts of Interest*

 

Our management has other financial and businessinterests to which a significant amount of time is devoted which may poseconflicts of interest with regard to allocation of their time and efforts.Teodosio Pangia, our former president, director and CEO is also the soleprincipal of Epwort Trading, Ltd. and holder of 10.83% of our common stock andbeneficially owns and/or controls, either directly or indirectly, sevencompanies, Altea Investments, Ltd., Gata Investments, Ltd.,Baychester Investments, Ltd., TVP Capital Corp., BekemanInvestments, Ltd., Aester Investment Holdings Limited and S D Investments, Ltd.,which in the aggregate hold 8,365,000 shares or 12.09% of our shares of commonstock. There can be no assurance that management will resolve all conflicts ofinterest in favor of Diamond Discoveries. Failure of management to conductDiamond Discoveries’ business in its best interest may result in liability ofthe management to Diamond Discoveries. 

 

                **Committees**

 

                Theentire Board of Directors performs the functions of the audit committee andcompensation committee.  The Companydoes not have an audit committee financial expert serving on the auditcommittee.  The Company intends to addsuch persons to the Board of Directors and the Audit Committee at such time asthe Company has adequate funds to compensate such persons for their services.

 

**Section 16(a) Beneficial Ownership Reporting Compliance**

 

Section 16(a) of the Security Exchange Act of 1934requires directors, executive officers and 10% or greater shareholders of theCompany to file with the Securities and Exchange Commission initial reports ofownership (Form 3) and reports of changes in ownership of equity securities ofthe Company (Form 4 and Form 5) and to provide copies of all such Forms asfiled to the Company. Based solely on our review of the copies of these formsreceived by us or representations from certain reporting persons, we believethat SEC beneficial ownership reporting requirements for fiscal 2003, were metwith the following exceptions: 

 

Teodosio V. Pangia failed to timely file Form 3 anda Form 4 to report transactions in March 2003 and Thomas Franzone failed totimely file Form 3 and Forms 4 to report transactions in January, February andMarch 2004.  Due to the complexity ofthe reporting rules, we expect to institute procedures to assist our officersand directors with these obligations. 

 

**Code of Ethics**

 

We have a codeof ethics (the “Code”) that applies to members of our Board of Directors, ourofficers including our president (being our principal executive officer), andour chief financial officer (being our principal financial and accountingofficer).  The Code sets forth writtenstandards that are designed to deter wrongdoing and to promote: honest andethical conduct, full, fair, accurate, timely, and understandable disclosure inreports and documents that we file with, or submit to, the Securities andExchange Commission and in other public communications made by us; compliancewith applicable governmental laws, rules and regulations; prompt internalreporting of violations of the Code to an appropriate person or personsidentified in the Code; and accountability for adherence to the Code.

 

A copy of theCode is attached to this Form 10-KSB as an exhibit.

 

**Item 10****. Executive Compensation**

 

The tablebelow shows the annual, long-term and other compensation for services in allcapacities to the Company and its subsidiaries paid during the year endedDecember 31, 2003, to the Chief Executive Officer and the other four mosthighly compensated executive officers of the Company during the year endedDecember 31, 2003 (our “named executive officers”):

 

**SUMMARY COMPENSATION TABLE**

 
|                    |   |     |   | **Annual Compensation** |   | **Long Term Compensation** |   |                               |   |
|-------------------------|--------|----------|--------|-------------------------|--------|----------------------------|--------|------------------------------------|--------|
| **Name and  Position**  |   | **Year** |   | **Salary ($)**          |   | **Bonus ($)**              |   | **Other Annual Compen-sation ($)** |   | **Restricted Stock Awards ($)** |   | **Securities Under-lying Options/ SARS (#)** |   | **All Other Compen-sation ($)** |   |
| Teodosio V.  Pangia     |   | 2003     |   | $                       | 50,000 |                       |   |                               |   |   |   |   |   |   |   |   |
| Chief Executive Officer |   | 2002     |   | —                  |   |                       |   |                               |   |   |   |   |   |   |   |
|                    |   | 2001     |   | —                  |   |                       |   |                               |   |   |   |   |   |   |   |
|                         |        |          |        |                         |        |                            |        |                                    |        |  |  |  |  |  |  |  |

 

**Option/SAR Grants in Last Fiscal Year**

 

The tablebelow shows the number of options to purchase shares of our common stock thatwere granted to each of our named executive officers during fiscal 2003:

 
| **Name**            |   | **Number of Securities Underlying Options/SARs Granted (#)** |   | **Percent of Total Options/SARs Granted to Employees in  Fiscal Year** |   | **Exercise or Base Price ($/share)** |   | **Expiration Date** |   |
|---------------------|--------|--------------------------------------------------------------|--------|------------------------------------------------------------------------|--------|--------------------------------------|--------|---------------------|--------|
| Teodosio V.  Pangia |   |                                                         |   |                                                                   |   |                                 |   |                |   |

 

**Aggregated Option/SAR Exercises in LastFiscal Year and Fiscal Year-End Option/SAR Values**

 

The tablebelow shows the number of stock options held at the end of or exercised duringfiscal 2003 for each of our named executive officers:

 
|                |   |                                |   |               |   | **Number of Securities Underlying Unexercised Options/SARs at  Fiscal Year-End (#)** |   | **Value of Unexercised In-The-Money Options/SARs at Fiscal  Year-End ($) (1)** |   |
|---------------------|--------|-------------------------------------|--------|--------------------|--------|--------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------|--------|
| **Name**            |   | **Shares Acquired on Exercise (#)** |   | **Value Realized** |   | **Exercisable**                                                                      |   | **Unexercisable**                                                              |   | **Exercisable** |   | **Unexercisable** |   |
| Teodosio V.  Pangia |   |                                |   |               |   |                                                                                 |   |                                                                           |   |
|                     |        |                                     |        |                    |        |                                                                                      |        |                                                                                |        |  |  |  |  |

 

----

(1)           Based on $0.14 pershare, the closing price of our common stock as quoted on the Over-the-CounterBulletin Board on April 13, 2003.

 

**LongTerm Incentive Plans - Awards in Last Fiscal Year**

 

None.

 

**Compensationof Directors**

 

                StandardArrangements.

 

At present, the Company doesnot pay its directors for attending meetings of the Board of Directors,although the Company may adopt a director compensation policy in the future.The Company has no standard arrangement pursuant to which directors of theCompany are compensated for any services provided as a director or forcommittee participation or special assignments.

 

                OtherArrangements.

 

During the year ended December31, 2003, and except as disclosed elsewhere in this report, no director of theCompany received any form of compensation from the Company.

 

**EmploymentContracts and Termination of Employment, and Change-in-Control Arrangements.**

** **

We have notentered into employment agreements with any of our officers or directors. 

 

Mr. Kowalchukand Mr. Williams, our executive officers, have not yet received any annualsalary compensation for their

 

29

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services. However, theexecutive officers will likely receive an annual salary or other compensationin the future.  

 

To date, we have accrued, but not paid, $8,000 and$16,000 of compensation to Mr. Kowalchuk and Mr. Williams,respectively. 

 

**Item 11. Security Ownership of Certain Beneficial Owners andManagement**

 

The following table sets forth the name and addressof each officer and director of the Company and each person who ownsbeneficially more than five percent of the Common Stock of the Company, and thenumber of shares owned by each such person and by all officers and directors asa group as of April 14, 2004: 

 
| **Name and  Address of Beneficial Owner(1)**     |   | **Amount and Nature of Ownership** |   | **Approximate  % of Class(2)** |   |
|--------------------------------------------------|--------|------------------------------------|--------|--------------------------------|--------|
| Thomas  J. Kennedy  Chairman and Director        |   | 1,000,000                          | (3)    | 1.43                           | %      |
| John  Kowalchuk  President, CEO and Director     |   | 375,000                            | (4)    | *                              |   |
| Edward  C. Williams  Secretary, CFO and Director |   | 375,000                            | (5)    | *                              |   |
| Directors  and Officers as a Group(3)(4)(5)      |   | 2,750,000                          |   | 2.48                           | %      |
| Teodosio  V. Pangia                              |   | 15,865,000                         | (6)    | 22.92                          | %      |
| Epwort  Trading Ltd.(7)                          |   | 7,500,000                          |   | 10.83                          | %      |

 

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*Less than 1% 

(1)          Unlessotherwise indicated, the beneficial owner’s address is the same as theCompany’s principal office. 

(2)          Percentagescalculated on the basis of the amount of outstanding shares plus, for eachperson, any shares that person has the right to acquire within 60 dayspursuant to options or other rights. 

(3)          Includes500,000 shares of common stock that are issuable under a stock option.

(4)          Includes375,000 shares of common stock that are issuable under a stock option.

(5)          Includes375,000 shares of common stock that are issuable under a stock option.

(6)          Includesan aggregate of 8,365,000 shares held TVP Capital Corp., AlteaInvestments, Ltd., Gata Investments, Ltd., Bekeman Investments, Ltd.,SD Investments, Ltd., Baychester Investments Ltd., and AesterInvestments Holdings Limited, companies beneficially owned and/or controlled(directly or indirectly) by Mr. Pangia, and 7,500,000 shares held byEpwort Trading, Ltd. See footnote (7) below. 

(7)          TeodosioV. Pangia is the sole officer, director and shareholder of Epwort Trading, Ltd.

 

**Equity Compensation Plan Information:**

** **
|                                                        |   | **Number of securities to be issued upon exercise of  outstanding options, warrants and rights** | ****   | **Weighted-average exercise price of outstanding options,  warrants and rights** | ****   | **Number of securities available for future issuance under  equity compensation plans (excluding securities reflected in column   (a))** |      |
|-------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------|-----------|
|                                                        |   |                                                                                             |   |                                                                             |   |                                                                                                                                     |      |
|                                                        |   | (a)                                                                                              |   | (b)                                                                              |   | (c)                                                                                                                                      |      |
|                                                        |   |                                                                                             |   |                                                                             |   |                                                                                                                                     |      |
| Equity compensation plans approved by  security holders     |   |                                                                                             |   |                                                                             |   |                                                                                                                                     |      |
|                                                        |   |                                                                                             |   |                                                                             |   |                                                                                                                                     |      |
| Equity compensation plans not approved by  security holders |   | 15,000,000                                                                                       |   | $                                                                                | .04    |                                                                                                                                     | 1,125,000 |   |
|                                                        |   |                                                                                             |   |                                                                             |   |                                                                                                                                     |      |
| Total                                                       |   | 15,000,000                                                                                       |   | $                                                                                | .04    |                                                                                                                                     | 1,125,000 |   |

** **

 

On May 30,2003, the Company adopted the Diamond Discoveries International Corp. 2003Stock Incentive Plan (the **“Plan”**).  Under the Plan, 15,000,000 shares of commonstock are reserved for issuance.  Thepurpose of the Plan is to provide incentives for officers, directors,consultants and key employees to promote the success of the Company, and toenhance the Company’s ability to attract and retain the services of suchpersons.  The Plan orivudes for thegrant of incentive stock options and nonqualified stock options (**“Options”**) and restricted stock awards (**“Restricted Stock Awards”**) and StockAppreciation Rights, Performance Shares, Dividend Equivalent Payments, andOther Stock Based Awards (**“Options,”“RestrictedStock Awards,”** and **“StockAppreciation Rights,”** are collectively referred to herein as“Awards”). Options granted under the Plan may be either: (i) options intendedto qualify as “incentive stock options” under Section 422 of the InternalRevenue Code of 1986; or (ii) non-qualified stock options.  Stock options may be granted under the Planfor all employees and consultants of the Company, or employees of any presentor future subsidiary or parent of the Company. The Plan is administered by the Board of Directors.  The Compensation Committee is empowered tointerpret the Plan and to prescribe, amend and rescind the rules andregulations pertaining to the Plan. Options granted under the Plan generally vest over three years.  The Compensation Committee may not receiveoptions.

 

Any incentivestock option that is granted under the Plan may not be granted at a price lessthan the fair market value of the Company’s Common Stock on the date of grant(or less than 110% of the fair market value in the case of holders of 10% ormore of the total combined voting power through all classes of stock of theCompany or a subsidiary or parent of the Company.)  Non-qualified stock options may be granted at the exercise priceestablished by the Compensation Committee, which may be less than the fairmarket value of the Company’s Common Stock on the date of grant, but in no eventshall such exercise price be less than 55% of such fair market value.

 

Each optiongranted under the Plan is exercisable for a period not to exceed ten years fromthe date of grant (or five years in the case of an incentive stock optiongranted to a holder of more than 10% of the total combined voting power of allclasses of stock of the Company or a subsidiary or parent of the Company) andshall lapse upon expiration of such period, or earlier upon termination of therecipient’s employment with the Company, or as determined by the CompensationCommittee.

 

Awards aregenerally non-transferable other than by will or the laws of descent anddistribution or pursuant to a qualified domestic relations order.

 

The Company’sBoard of Directors may at any time, and from time to time, amend, terminate, orsuspend one or more of the Plan in any manner it deems appropriate, providedthat such amendment, termination or suspension cannot adversely affect rightsor obligations with respect to shares or options previously granted, unless theAward recipient consents to such changes in writing. The Board of Directors maynot, without shareholder approval: make any amendment which would materiallymodify the participation eligibility requirements for the 2004 Plan, to the extentthey require approval in order to satisfy the Internal Revenue Coderequirements; make other modifications requiring stockholder approval tosatisfy the Internal Revenue Code requirements, increase the total number ofshares of common stock which may be issued pursuant to the 2004 Plan, except inthe case of a reclassification of the Company’s capital stock or aconsolidation or merger of the Company.

 

30

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**Item 12. Certain Relationships and Related Transactions**. 

 

Teodosio Pangia, our former president, director andCEO, is the sole principal of Epwort Trading Ltd., which owns 7,500,000 sharesor 10.83% of our shares of common stock and beneficially owns and/or controls,either directly or indirectly, seven companies, TVP Capital Corp., AlteaInvestments, Ltd., Gata Investments, Ltd., BaychesterInvestments, Ltd., Bekeman Investments, Ltd., Aester InvestmentsHoldings Limited and S D Investments, Ltd., which in the aggregate hold 8,365,000shares or 12.09% of our shares of common stock. 

 

We entered into an Acquisition Agreement datedSeptember 12, 2000 with Mr. Ferderber, Mr. Hawkins and TandemResources Ltd. The Acquisition Agreement provides for us to purchasecertain mineral exploration permits from Messrs. Ferderber and Hawkins.Such permits cover 469.05 square kilometers in the Torngat fields in northwestQuebec, Canada, on the eastern shore of Ungava Bay. As consideration for theacquisition of these permits, we have issued 1,000,000 shares of our commonstock to each of Messrs. Ferderber and Hawkins and have paid $35,000Canadian to Mr. Hawkins and $25,000 Canadian to Mr. Ferderber. 

 

In addition, the Acquisition Agreement furtherprovides for an option to Tandem Resources Ltd., to purchase 40% of the propertiescovered by the permits conditioned on (i) the Company expending $5,000,000Canadian on exploration of the properties; (ii) Tandem paying us$2,000,000 Canadian and (iii) Tandem entering into a joint ventureagreement with us to operate the properties within 60 days of ourdemonstrating expenditure of $5,000,000 Canadian on exploration of theproperties. In addition, we will have twenty-one (21) days from the datewe notify Tandem that we have expended $5,000,000 Canadian on exploration ofthe properties, to negotiate a financing agreement with Tandem to provideTandem with the $2,000,000 Canadian required to exercise the option. Should noagreement be reached in the twenty-one (21) day period, our right toprovide this financing shall expire. Also, upon the closing of the acquisition,we assigned to Messrs. Ferderber and Hawkins a one (1%) percent interestin the Net Smelter Returns of the properties, half of which is payable over thefirst $50,000,000 Canadian in revenues from the properties. This interest inthe Net Smelter Returns terminates once Ferderber and Hawkins have received, inthe aggregate, $10,000,000 Canadian. 

 

In connection with the Acquisition Agreement,Mr. Ferderber has executed an agreement with us as of June 20, 2000which transfers mineral rights over all of the properties to us. 

 

We entered into a Prospecting and Survey Agreementwith Prospecting Geophysics Ltd. dated November 20, 2000, wherebyProspecting Geophysics Ltd. will act as the project manager for theCompany’s mineral exploration operations. Peter Ferderber is the President ofProspecting Geophysics Ltd. Under the agreement, we are to pay forMr. Ferderber’s services at a rate of $500 per day, on days that hepersonally attends the properties, in addition to reimbursing all expensesincurred by Prospecting Geophysics on behalf of the Company. Mr. Ferderberanticipates attending the properties approximately five to seven days everymonth. Prospecting Geophysics is required under the agreement to conductprospecting and surveying activities on our behalf. The agreement has a term ofeighteen (18) months with automatic renewal unless either party gives30 days’ notice of its intent to terminate. During the years endedDecember 31, 2002 and 2001 and the periods from April 24, 2000 (dateof inception) to December 31, 2003, we incurred exploration costs byProspecting Geophysics Ltd. of $690,490, $511,752 and $2,629,003,respectively. In addition, the Company owed Prospecting Geophysics Ltd.$1,619,241 at December 31, 2003. 

 

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**Item 13. Exhibits and Reports on Form 8-K.**

 

There were no Current Reports on Form 8-K filedby the Registrant during the fourth quarter of the calendar year endedDecember 31, 2003. 

 
| **Exhibit  Number** |   | **Description of Document**                                                                                                                 |
|---------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                 |   | Articles  of Incorporation as filed on April 24, 2000(1)                                                                               |
| 3.2                 |   | Bylaws  of Diamond Discoveries International Corp.(1)                                                                                       |
| 10.1                |   | Acquisition  Agreement dated September 12, 2000 between the Company and Peter  Ferderber, Stanley Hawkins and Tandem Resources Ltd.(2) |
| 10.2                |   | Prospecting  and Survey Agreement between Prospecting Geophysics Ltd and the Company dated  August 14, 2000.(1)                        |
| 10.3                |   | Transfer  of Mining Rights between Peter Ferderber and the Company dated June 20,  2000.(1)                                            |
| 10.4                |   | Option  Agreement between Diamond Discoveries International Corp. and Tandem  Resources Ltd. dated September 12, 2000.(2)              |
| 10.5                |   | Revised  Prospecting and Survey Agreement between Prospecting Geophysics Ltd. and the  Company dated November 20, 2000.(2)             |
| 14                  |   | Code of Ethics for the Chief Executive Officer and Chief Financial  Officer                                                                 |
| 31.1                |   | Certification by the Chief Executive Officer pursuant to Section 302  of the Sarbanes Oxley Act of 2002.                                    |
| 31.2                |   | Certification by the Chief Financial Officer pursuant to Section 302  of the Sarbanes Oxley Act of 2002.                                    |
| 32.1                |   | Certification by the Chief Executive Officer pursuant to 18 U.S.C.  1350, Section 906 of the Sarbanes Oxley Act of 2002.                    |
| 32.2                |   | Certification by the Chief Financial Officer pursuant to 18 U.S.C.  1350, Section 906 of the Sarbanes Oxley Act of 2002.                    |
| 99.1                |   | Title  opinion of Lavery, de Billy on the Mining Exploration Permits.(1)                                                                    |

 

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(1) Previously filed on September 21, 2000 as part of theCompany’s Registration Statement on Form 10-SB, File No. 0-31585. 

(2) Previously filed on December 1, 2000 as part of the Company’sAmended Registration Statement onForm 10-SB, File No. 0-31585. 

** **

**Item14.  Principal Accountant Fees andServices******During 2003 and 2002, the Company incurred the following fees for professionalservices rendered by the principal accountant: 
|                             |   | **2003** |   | **2002** |   |
|----------------------------------|--------|----------|--------|----------|--------|
| Fees for  audit services         |   | $        | 27,182 |     | $      | 20,238 |   |
| Fees for  audit-related services |   | $        | 3,486  |     | $      | 0 |   |
| Tax fees                         |   | $        | 0      |     | $      | 1,100 |   |
| All other  fees                  |   | $        | 0      |     | $      | 0 |   |

 

The Audit Committee pre-approves all auditand non-audit services to be performed by the Company’s independent auditors.

 

 

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**SIGNATURES**

 

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

 
|   | DIAMOND  DISCOVERIES INTERNATIONAL CORP. |
|--------|------------------------------------------|
|   |                                     |
|   |                                     |
|   | By:                                      | /s/  John Kowalchuk |   |
|   |                                     | John  Kowalchuk,*CEO* |
|   |                                     |
|   |                                     |
|   | Dated:  April 14, 2004              |

 

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

 
|   | By:                         | /s/  Thomas J. Kennedy                                                                 |   |
|--------|-----------------------------|----------------------------------------------------------------------------------------|--------|
|   |                        | Thomas  J. Kennedy,*Chairman and Director*                                             |
|   |                        |                                                                                   |
|   |                        |                                                                                   |
|   | Dated:  April 14, 2004 |
|   |                        |                                                                                   |
|   |                        |                                                                                   |
|   | By:                         | /s/  John Kowalchuk                                                                    |   |
|   |                        | John  Kowalchuk,*President, CEO and Director*                                          |
|   |                        |                                                                                   |
|   |                        |                                                                                   |
|   | Dated:  April 14, 2004 |
|   |                        |                                                                                   |
|   |                        |                                                                                   |
|   | By:                         | /s/  Edward C. Williams                                                                |   |
|   |                        | Edward  C. Williams,*Secretary, Treasure, Director and  Principal Accounting  Officer* |
|   |                        |                                                                                   |
|   |                        |                                                                                   |
|   | Dated:  April 14, 2004 |

 

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**APPENDIX A**

 

 

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