**UNITED
STATES**
 **SECURITIES
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, 2004****OR****o**
    **TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
      SECURITIES EXCHANGE ACT OF 1934**
 
 **For
the transition period from
                            
to**
 
 **Commission
file number: 000-31585**
 
 **DIAMOND
DISCOVERIES 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)
 
 Securities
registered under Section 12(b) of the Exchange Act: **None**
 
 Securities
registered under Section 12(g) of the Exchange Act: **Common
Stock**
 
 **Title
      of Each Class**
    
    **Name
      of Each Exchange**
      **on
      Which Registered**Common
      Stock, par value $.001
    
    None
 
 Check
whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days. Yes ý No o
 
 Check if
there is no disclosure of delinquent filers in 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, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10- KSB or any amendment to this Form 10-KSB. o
 
 Issuer’s
revenues for its most recent fiscal year were: $0.
 
 The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold as of April 12, 2005 is $3,450,485 .
 
 The
number of shares outstanding of the Company’s common stock, as of April 12,
is 107,127,123.
 
 Transitional
Small Business Disclosure Format (check one): Yes o No ý
 
 
 
  
  
 **TABLE
OF CONTENTS**
 
 DESCRIPTION
      OF BUSINESSDESCRIPTION
      OF PROPERTYLEGAL
      PROCEEDINGSSUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERSMARKET
      FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERSMANAGEMENT’S
      DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONINDEX
      TO FINANCIAL STATEMENTSFINANCIAL
      STATEMENTSCHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURECONTROLS
      AND PROCEDURESDIRECTORS,
      EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
      16(A) OF THE EXCHANGE ACTEXECUTIVE
      COMPENSATIONSECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERSCERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONSEXHIBITS
      AND REPORTS ON FORM 8-KPRINCIPAL
      ACCOUNTANT FEES AND SERVICESSIGNATURESAPPENDIX
      A
 
 2
  
 **PART
I**
 
 This
Annual Report on Form 10-KSB and the information 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 “Risk Factors,” “Management’s
Discussion and Analysis or Plan of Operations” and “Business,” and elsewhere in
this Annual Report are “forward-looking statements” within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act.
These statements appear in a number of places in this Annual Report and include
statements regarding the intent, belief or current expectations of Diamond
Discoveries International or our officers with respect to, among other things,
the ability to successfully implement our acquisition and exploration
strategies, including trends affecting our business, financial condition and
results of operations. While these forward-looking statements and the related
assumptions are made in good faith and reflect our current judgment regarding
the direction of the related business, actual results will almost always vary,
sometimes materially, from any estimates, predictions, projections, assumptions,
or other future performance suggested herein. These statements are based upon a
number of assumptions and estimates, which are inherently subject to significant
uncertainties and contingencies, many of which are beyond our control and
reflect future business decisions which are subject to change. Some of these
assumptions inevitably will not materialize, and unanticipated events will occur
which will affect our results. Some important factors (but not necessarily all
factors) that could affect our revenues, growth strategies, future profitability
and operating results, or that otherwise could cause actual results to differ
materially from those expressed in or implied by any forward-looking statement,
include the following:
 
 • our
ability to successfully implement our acquisition and exploration strategies;
 • the
success or failure of our exploration activities and other opportunities that we
may pursue;
 • changes
in the availability of debt or equity capital and increases in borrowing 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 on Form 10-KSB are urged to carefully
consider these factors in connection with the forward-looking statements. We do
not intend to publicly release any revisions to any forward-looking statements
contained herein to reflect events or circumstances occurring after the date
hereof or to reflect the occurrence of unanticipated events.
 
 **Item 1. Description of Business**
 
 We were
incorporated in the State of Delaware on April 24, 2000. We are a
exploration stage company that is engaged in the acquisition and exploration of
mineral properties. Our initial focus is in the area of the Torngat fields
located in the province of Quebec, Canada. Other than contracting with a third
party to conduct exploration and gather data on our behalf, we have conducted no
operations to date and do not expect to receive any revenues for at least two
years. During these two years we plan to concentrate our efforts on exploration
and data gathering. During these two years we will be solely dependent on the
availability of external financing to fund our operations. Our independent
public accountants expressed substantial doubt about our ability to continue as
a going concern because such continuance is dependent upon our ability to raise
capital. If we are unable to secure adequate financing we will be unable to
continue our exploration and data gathering efforts. Because we are an exploration
stage company, we do not know if a commercially viable mineral deposit exists on
any of our properties. Further exploration will be required before the economic
and legal feasibility of developing the properties can be determined.
 
 *Acquisition
Agreement*
 
 On
September 12, 2000, we entered into an Acquisition Agreement with
Messrs. Peter Ferderber and Stanley G. Hawkins, and Tandem
Resources Ltd., a Canadian mineral exploration company of which
Mr. Hawkins is the President. Pursuant to such Agreement, we acquired
certain mineral exploration permits covering an area of approximately 469.05
square kilometers in the Torngat fields, which are located on the east coast of
Ungava Bay, in the northwestern part of Quebec. The Torngat fields are one of
four fields in Quebec that contain diamondiferous kimberlite formations. The
Torngat fields are composed of a central plateau about 400 meters above sea
level, and are broken by steep-sided gorges and fjords along the coast. The
largest of these features, Alluviaq Fjord, bisects the property covered by the
permits. Several dykes in the area are well exposed sub-vertical features in the
Alluviaq Fjord, and display horizontal and vertical continuity. These traits
result from rock being pushed up from below the surface, into a vertical
position against other horizontal rocks. Geologists usually identify these rock
formations as strong targets for the presence of diamonds.
 
 The
consideration paid under the Acquisition Agreement was 1,000,000 shares of our
common stock to each of Messrs. Ferderber and Hawkins, and the payment of
$Cdn35,000 to Mr. Hawkins and $Cdn25,000 to Mr. Ferderber. We also
assigned to Messrs. Ferderber and Hawkins a one per cent (1%) interest in
the “Net Smelter Returns” of the property, one half of which is payable over the
first $Cdn50 million in revenues from the property. (Net Smelter Returns
are determined by the net amount of money received from the sale of ore, or ore
concentrates or other products from a property to a smelter or other ore buyer.)
Once Messrs. Ferderber and Hawkins have received $Cdn10 million from
these Net Smelter Returns, their interest terminates. Tandem Resources Ltd.
received an option to purchase 40% of the mineral rights on the properties. This
option is conditioned on a number of events occurring, which are:
 
 3
 (1) The
expenditure by us of $Cdn5 million on exploration of the property;
 (2)
Tandem paying us $Cdn2 million; and
 (3)
Tandem and us entering into a joint venture agreement to operate the property,
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) days from the date we notify Tandem
that we have made the $Cdn5 million exploration expenditure, to negotiate a
financing agreement with Tandem to provide Tandem with the $Cdn2 million
required to exercise the option. Should no agreement be reached in such 21-day
period, our right to provide this financing shall expire.
 
 Based
upon an analysis of samples taken from these properties, we believe that the
properties for which we have exploration permits contain kimberlite. Kimberlite
is a type of igneous rock that occasionally contains tiny to extremely tiny
diamonds, and on very rare occasions contains gem quality diamonds. Certain
samples taken from our properties have contained both macro diamonds and micro
diamonds. Samples from most of the dykes contain diamond fragments as
well.
 
 Prospecting
Geophysics Ltd., a Quebec-based firm of which Mr. Ferderber is
President, has provided us with a Progress Report, dated August 29, 2000,
which discusses these samples, which they had collected. Prospecting
Geophysics Ltd. has been contracted to conduct further surveys and
exploration on this property.
 
 Mr. Ferderber
is the record owner of the property covered by the permits, which he has
transferred to us. He had originally executed an agreement, as of June 20,
2000, transferring the right to explore the properties covered by the permits to
us. This June 20, 2000 agreement was subsequently incorporated
into the Acquisition Agreement discussed above. We have received an opinion of
Lavery, de Billy, a firm of barristers and solicitors of Montreal, Canada, dated
July 10, 2000, that Mr. Ferderber is the record owners of the permits
under the Mining Act (Quebec), and that the permits are in good standing as of
June 21, 2000. The opinion further states that at the date of examination,
there were no liens, charges or encumbrances registered against any of the
permits. The opinion disclaimed any physical verification of the location of the
properties covered by the permits, and states that no survey of the area covered
by the permits was conducted.
 
 The
permits, which were set to expire at dates ranging from October 17, 2004 to
March 30, 2005, were renewed by the Company for an additional five years at
an annual license fee of $Cdn75 per square kilometer.
 
 *Our
Exploration Program*
 
 Prior to
any decision to develop the properties, a diamond deposit must be assessed to
determine the total tonnage of diamond bearing material, the average grade of
the rock, the estimated size distribution of the diamonds 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 that time, we will decide whether,
and, if so, how, to proceed. We may seek either a joint venture partner or a
senior partner that will undertake the exploration of the properties. It must be
noted that there is a substantial risk that no commercially viable diamond
deposit will be found, and if that is the case, we are likely to have difficulty
finding any partners to undertake further exploration.
 
 At the
present time, we do not hold any interest in a mineral property that is in
production. Our viability and potential success lie in our ability to
successfully explore, exploit and generate revenue from our properties. There
can be no assurance that such revenues will be obtained. The exploration of
mineral deposits involves significant risks over a long period of time, which
even a combination of careful evaluations, experience and knowledge may not
eliminate. It is impossible to ensure that the current or proposed exploration
programs on the exploration permits will be profitable or successful. Our
inability to locate a viable diamond deposit on our properties could result in a
total loss of our business. We believe that the typical cost to locate a diamond
deposit can range from $US 5-10 million.
 
 We
intend, in conjunction with Messrs. Ferderber and Hawkins (and their
affiliated entities) to explore the properties from early-stage exploration
through completion of the exploration phase. Prospecting Geophysics Ltd.
will perform all exploration activities. We will be paying, pursuant to an
agreement with Prospecting Geophysics Ltd., an hourly rate to
Mr. Ferderber and his staff for their services, as well as reimbursement
for expenses, including equipment, transportation, lodging and meals.
 Prospecting
Geophysics Ltd. commissions crews of workers who gather samples of rock
from the properties, and transport the samples to a facility where they can be
tested for properties which tend to indicate the presence of diamonds. We have
established camp sites for the workers at the location of the properties, in
order to decrease the costs of lodging. In addition, we plan to use commercial
supply boats, rather than commissioning private boats, to transport the rock
samples. Because the properties are only accessible by air, we plan to rent
helicopters as well as fixed wing aircraft known as “beavers” to transport
workers and samples to and from the properties.
 
 4
 Prospecting
Geophysics Ltd. also identifies specific exploration targets in kimberlite
dykes by examining maps of the area, and by using an airborne magnetometer. From
the air, this magnetometer detects magnetic properties in the rock below. The
data so gathered can be analyzed and used to focus the gathering process on
areas of higher magnetism. Some underground sites can be located using certain
geochemistry tests.
 
 Due to
extremely cold temperatures and snow accumulation caused by the inclement
weather in the region during the period from, approximately, November to
March, there can be no exploration on the properties covered by the permits
during these months.
 
 Our
exploration operations are subject to all of the hazards and risks normally
incident to exploration of this type, any of which could result to damage to
life or property, environmental damage, and possible legal liability for any or
all damages. Our activities may be subject to prolonged disruptions due to
weather conditions surrounding the location of properties over which we have
permits. Difficulties, such as an unusual or unexpected rock formation
encountered by workers but not indicated on a map, or other conditions may be
encountered in the gathering of samples and data, and could delay our
exploration program. While we may obtain insurance against certain risks in such
amounts as we deem adequate, the nature of these risks are such that liabilities
could exceed policy limits or be excluded from coverage. We do not currently
carry insurance to protect against these risks and there is no assurance that we
will obtain such insurance in the future. There are also risks against which we
cannot, or may not elect to, insure. The potential costs which could be
associated with any liabilities not covered by insurance or in excess of
insurance coverage or compliance with applicable laws and regulations may cause
substantial delays and require significant capital outlays, adversely affecting
our final position, future earnings, and/or competitive position.
 
 *FY
2000 Activities*
 
 During
2000, we began early stage exploration activities, and gathered samples from one
property for analysis. An exploration team of eight men gathered samples and
data at this property. The samples are taken from dykes or “pipes” containing
kimberlite. These samples were analyzed by Lakefield Research Limited, of
Ontario, an independent laboratory, which uses caustic dissolution to extract
the diamonds from the samples. This laboratory issued reports dated
September 26 and September 27, 2000, on two samples, one of which
indicates that out of a 24.65 kilogram sample, two diamonds were found weighing
0.015 carats in the aggregate. The second sample of 30.22 kilograms yielded
eight diamonds, with a total weight of 0.001 carats.
 
 On
March 27, 2001, the Gem Trade Laboratory of the Gemological Institute of
America (“G.I.A.”), an independent laboratory, issued a report in which they
analyzed “random samples” of numerous transparent pink crystal fragments that
were obtained from the property covered by our permits known as D.D.I #1 (See
map at Appendix A on page 38 of this Annual Report) in
October 2000, by our agent Prospecting Geophysics Ltd. These samples
were taken from property located in the original 469.05 square kilometers in the
Torngat mountain region. The conclusion of the report was that the samples that
ranged in size from approximately 0.40 to 0.70 MM consisted of natural corundum.
Corundum is the hardest mineral after diamond. The samples obtained from the
property covered by our permit were transparent pink suggesting that they
consist of the “ruby” gem. A ruby is a red variety of the mineral corundum.
 
 *FY
2001 Activities*
 
 During
April 2001, we began the second phase of our exploration, after the weather in
northwestern Quebec allowed for exploration activities. We, through Prospecting
Geophysics Ltd., began to determine the extent of the kimberlite dykes that
were located in phase one, and gathered larger mini-bulk and 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 more marketable diamonds which may,
or may not, exist in the kimberlite dykes. There is, of course, a substantial
risk that we will not find such diamonds. Prospecting Geophysics Ltd. will,
at the same time, be attempting to locate additional kimberlite dykes and pipes,
and sample them as well. .
 
 *FY
2002 Activities*
 
 In 2002,
we acquired permits for an additional 50,000 acres adjacent to the property
where we already have permits located in the Torngat mountain region of Quebec.
We acquired the permits by staking the property 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 assessment work on each claim to keep them in
good standing. We have successfully completed all assessment work related to
this property.
 
 We,
through Prospecting Geophysics Ltd., continued exploration during the 2002
season, taking large rock bulk samples from property included in the original
469.05 square kilometers and commenced exploration in the newly acquired 50,000
acres. We located four new kimberlite dyke systems that contain 27 new dykes,
most of which have been sampled. Reduced samples from the original field samples
were subject to micro-probed analysis and found to contain typical kimberlite
minerals, phologopite and olivine and the important indicator minerals chrome
diopside, pyrope garnet, picro-ilmenite and chromite. One 110 pound sample
containing an olivine xenolith was found to contain a large population of
indicator minerals including 243 G9 garnets, 65 chrome diopsides, and 143
spinels. This mineral assemblage is similar to the Arx Dyke which is located on
our permit property that contained the nine micro and one macro diamonds.
 
 5
 *FY
2003 Activities*
 
 The 2003
exploration program, managed by Prospecting Geophysics Ltd. of Val D'Or, Quebec
consisted of geological mapping, rock sampling, stream geochemistry, ground
magnetometer surveys and prospecting. Analytical results are still being
received. The program defined and evaluated four loosely bounded belts
containing more than 50 Kimberlite dykes, two kimberlite pipes and several
suspected dykes. Besides the two macro diamonds and 13 micro diamonds previously
discovered in the "A" dyke in 2000, and the rubies reported from the D, F and K
dykes in 2001, SGS Lakefield Research discovered diamond fragments from
kimberlite/aillikite samples taken from the F, E, B, G, Yvon #2, Champagne pipe,
Peter Lake, P, U, Bella, at eight locations on the St. Pierre N. dyke and at
five locations along the MJR kimberlite dyke in 2003. Subsequently in 2003,
diamond fragments have been verified at Mount Jacques Rousseau.
 
 Geologist,
Robert Dillman, consultant to Diamond Discoveries, received results from C.F.
Mineral Research Limited of microprobe analysis of several picked mineral
samples from various dykes. The January 2004 results indicated forsterite
olivines and clinopyroxenes with diamond inclusion compositions, some of which
are associated with large diamonds were noted in the Yvon #2, K16 and St. Pierre
Southdykes. The February 2004 results determined the presence of chrome diopside
and forsterite olivine (Diamond Indicator Minerals) from seven dykes named: St.
Pierre dyke, St. Pierre Extension, A Dyke, C Dyke Champagne, K dyke and K25
dyke. Five of the dykes have an aillikite composition and the St. Pierre and St.
Pierre extension have a kimberlite composition. Using the C.F. Minerals
classification, 100% of the olivine grains analyzed from the St. Pierre, St.
Pierre Extension and the K dyke are classified as having diamond inclusion
compositions and there is potential for these dykes to host
diamonds.
 
 *FY
2004 Activities*
  During
the 2004 exploration program, the Company was able to complete one hole for a
total of 100 feet of the total 10,000 foot program prior to the onset of severe
winter weather. The Company has received the caustic fusion analyses from the
first hole in the scheduled 10,000 foot drill program on Diamond Discoveries'
Torngat Mountains diamond project in Northeastern Quebec. The 34.7 kilogram
sample from 22 feet of kimberlite core was sent to Saskatchewan Research Council
Labs where it was analyzed for diamond content. No macro or microdiamonds were
found in the core.
   The
Company purchased the drill and left it on the property and has the camp and
fuel in place to get an early start on the following exploration season. The
Company will resume the scheduled drill program in the spring of 2005 focusing
on its main targets the Round Lake Structure and Champagne Pipe. Earlier surface
sampling located macrodiamonds and microdiamonds in dykes proximal to the Round
Lake structure.
   The
Company’s geologists have noted rubies and pink corundums in several places
across the property. They also noted pink corundum in the broken core from the
first drill hole. Along with the search for diamond bearing kimberlite pipes the
geologists will begin evaluating the size and gem potential of the many ruby
occurrences.
  *Planned
FY 2005 Activities*
 
 We are
planning to continue our exploration with an aggressive program of core drilling
and bulk sampling of the many targets that are presently defined. The Company is
budgeting $1.1 million for further bulk sampling, core drilling and caustic
fusion analysis for 2005.
 
 *Government
Regulation and Licensing*
 
 Our
operations require licenses and permits from various governmental authorities.
We believe that we presently hold all necessary licenses and permits required to
carry on with our intended activities under applicable laws and regulations, and
we believe that we are complying at the present time in all material respects
with the terms of such licenses and permits. However, our licenses and permits
are subject to changes in regulations and in various operating circumstances. We
may not be able to obtain all necessary licenses and permits required to carry
out exploration activities.
 
 We are
currently subject to the environmental regulations set forth under the
Environmental Act (Quebec), the Mining Act (Quebec) and the Forest Act (Quebec).
We believe that we are in compliance with all of these acts, and moreover, we
believe that the environmental impact of our exploration activities will be
minimal. To the extent that we remove large amounts of rock or soil from the
properties, we will likely have to remediate any environmental disruption caused
by our activities. It is impossible to assess with any certainty the cost of
such replacement or remediation activities, or the potential liability that we
would face if we were to be found to have violated one, or more, of these Acts.
 
 6
 *Employees*
 
 We do not
have any full time employees at the present time. We have two part time
employees, Mr. John Kowalchuk, and Mr. Edward C. Williams, both of
whom are executive officers. We have entered into a prospecting and survey
agreement with Prospecting Geophysics Ltd. to act as an on-site project
manager; they have four full time employees, and contract with other personnel
on an as-needed basis.
 
 *Competition*
 
 The
mineral exploration business is competitive in all of its phases. We expect to
compete with numerous other exploration companies and individuals, including
competitors with greater financial, technical and other resources than us, for
the resources required for exploration. The greater resources of other entities
will likely position these competitors to conduct exploration within a shorter
time frame than we can, giving them a market advantage.
 
 *Currency
Fluctuation*
 
 We also
have exposure to currency fluctuations, since our properties are located in
Canada, and thus our transactions are largely in Canadian dollars. Such
fluctuations can materially affect our financial position and other results of
operations. References to the “dollar” or “$US” in this Form 10KSB are to United
States Dollars, and “Canadian” or “$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 year indicated. The following table sets forth the
high and low exchange rate of the Canadian dollar per US dollar as of the latest
practicable date and
for each of the last six months:
 
 **Period**
    
    **High**
    
    **Low**April 12,
      2005
    
    1.2422
    
    1.2065
    (1)March 2005
    
    1.2494
    
    1.1978February,
      2005
    
    1.2584
    
    1.2241January 2005
    
    1.2470
    
    1.1948December 2004
    
    1.2467
    
    1.1796November 2004
    
    1.2274
    
    1.1746October 2004
    
    1.2755
    
    1.2158
 
 (1)
Represents the low rate on April 1, 2005.
 
 **Item 2. Description of Property**
 
 Please
refer to Appendix A to this Annual Report at page 35, which contains a map
of our permit locations.
 
 The
Company entered into a lease for office space beginning February 1, 2004
and terminating on April 30, 2007. Under the terms of the lease, the
Company pays approximately $Cdn 1,033 per month. However, the Company was not
obligated to pay rent for the period from February 1, 2004 to
April 30, 2004.
 
 We do not
own real property, nor do we hold any other real property interest other than
the lease describe above and the exploration permits which we discuss above
under the caption “Description of Business.” As noted above, we have engaged
Prospecting Geophysics Ltd. as our on-site project manager for our
exploration activities.
 
 In
compliance with Guide 7 of Industry Guides under the Securities Act of 1933 and
the Securities Exchange Act of 1934, the following information is provided,
since we are engaged or to be engaged in significant mining operations:
 
 (1)  The
permits were acquired in the Acquisition Agreement cover 469.05 square
kilometers of properties in northwest Quebec, Canada, on the eastern shore of
Ungava Bay and by staking an additional 50,000 acres adjacent to such properties
and paying the requisite fees to the Quebec Department of Natural Resources.
With the exception of the five (5) month period from November to
March in which there is inclement weather in the area surrounding the
properties, there is nothing preventing access to the properties. However,
hazardous weather conditions could prevent us from accessing the properties in
other months as well. The properties are only accessible by air via a helicopter
or by boat. There are no roads that permit direct access to the properties.
 
 (2)  Pursuant
to an agreement between us and Peter Ferderber, Peter Ferderber has transferred
to us six (6) permits for the properties. The properties covered by the
permits are indicated on the map presented in Appendix A by the areas
marked D.D.I. Further, pursuant to the Acquisition Agreement, in consideration
for the permits, we have issued 1,000,000 shares of our common stock to
Mr. Ferderber and have paid him $25,000 Canadian, and at
Mr. Ferderber’s request, $35,000 Canadian to Stanley G. Hawkins. We have
obtained the opinion of Lavery, de Billy, Barristers and Solicitors of Montreal,
Canada dated July 10, 2000, that Mr. Ferderber was the record owner of
the permits under the Mining Act of Quebec and that the permits were in good
standing as of June 21, 2000.
 
 7
 (3)  To our
knowledge, Messrs. Ferderber and Hawkins staked the 469.05 square kilometer
property in the Torngat fields in northwest Quebec, Canada, on the eastern shore
of Ungava Bay in 1999, and there were no previous owners, operators, or
operations on the property.
 
 (4)  Although
there can be no assurance of successful diamond development, initial progress
reports of the property have indicated that there are micro diamonds on the
property. A 24.65 kilogram sample taken from the property, has yielded two
diamonds weighing 0.015 carats and a 30.22 kilogram sample has yielded eight
diamonds weighing 0.001 carats.
 
 *Geology*
 
 The
Torngat Property, where the properties for which we have mineral permits are
located, lies within the Torngat mountain province. The crust in the province is
thickened because two continental plates were pushed, more than a billion years
ago, one on top of the other. The predominant rock type on the properties are
the Tasiuyak Gneiss, a northwest trending belt of gneissic rock. The gneisses
are considered to be altered sedimentary rocks.
 
 The rocks
of the Torngat mountain province strike northwest-southeast within the Torngat
property. Cross-cutting the gneisses, there are a number of kimberlite dykes.
The individual dykes are dark green and generally coarse grained across most of
their width.
 
 The
properties are in a location over an early Precambrian bedrock segment which is
bedrock dating back to the earliest era of geological history, called an
“Archon.” An Archon is an immobile segment of the earth’s crust exceeding
1.5 billion years in age. Kimberlite, a form of igneous rock, is widely
regarded as the main source for diamonds, and is reported from postulated Archon
called the “Baltic Shield.” Only in the past decade have diamond explorers
recognized that these Baltic Shield rocks are potentially viable for diamonds.
 
 *The
Property is Without Known Reserves and our Proposed Program is Exploratory in
Nature.* Exploration
for diamonds on the properties began because the formation and layout of the
rocks on the properties indicated that some of the rocks had been pushed up
through the earth’s crust. This is initially identified by geologists from the
age and shape of the rocks. When these different or unexpected rock formations
appear, geologist then consider the area surrounding these rocks as strong
targets for exploration for diamonds. This is because, geologists believe, as
the rocks are pushing up through the earth’s surface from great depths, the
rocks travel through diamond fields located below the earth’s surface and
therefore rocks containing diamonds are forced to the surface.
 
 Rocks
containing these characteristics were identified on the properties covered by
our mineral permits. Once these rocks were identified, we then conducted a
magnetometer survey. The magnetometer is a small electronic device used by
geologists to survey the land for areas of high magnetism. This can be used in
the air or on the ground. This test is conducted because, when the rocks are
being pushed through the earth’s surface (as described above), in addition to
bringing rocks containing diamonds, iron from below the Earth’s surface is also
forced to the surface. The magnetometer reads the surface of the Earth for any
magnetism created by the iron upon the belief that if a particular property
contains a high concentration of iron that was forced up from below the earth’s
surface; the property may also contain diamonds that have been similarly forced
up to the surface.
 
 An
airborne magnetometer survey was conducted over the properties for which we have
mineral permits, and six (6) magnetic dykes were discovered. This indicated
to us that these properties were potentially a source for diamonds. In addition,
samples of rock taken from the properties have yielded small diamonds.
 
  8
  
 We have
hired Prospecting Geophysics Ltd. to conduct these exploration procedures.
Mr. Peter Ferderber is the President of Prospecting Geophysics Ltd.
Mr. Ferderber has over forty years of experience in mining exploration.
Prospecting Geophysics Ltd. plans to conduct the exploration of the
property which is expected to last for the next two years. The first phase
involved identifying areas on the property from which to take samples and
gathering small samples from the properties for analysis. This analysis to date
has demonstrated the presence of 10 micro diamonds in two samples taken. The
second phase involves determining the extent of any kimberlite dykes that were
located in phase one and to gather mini-bulk and bulk samples. This will enable
us to determine if there are larger and more marketable diamonds on the
properties. We began phase two exploration in April 2001 and assuming adequate
funding and reasonable weather conditions, this phase is expected to take four
(4) years to complete. Operations are generally suspended from October to April
because of inclement weather. The following is a breakdown of the estimated
budget for particular aspects of our exploration activities:
 
 Helicopter
      and airplane support
    
    $
    200,000Crew,
      lodging and food
    
    
    150,000Drill
      program
    
    
    600,000Testing
      samples for Diamonds
    
    
    150,000Total
    
    $
    1,100,000
 
 (5)  In the
Quebec sector of the Torngat belt, roughly fifteen dykes have been mapped. These
dykes occupy fractures oriented at an approximately right angle to the country
rocks, suggesting tensions opened up by later scale folding. Two of these dykes
on an adjacent property have been sampled, confirming the presence of diamonds.
However, to date, no proven reserves have been established and there can be no
assurance that any such reserves will ever exist.
 
 **Item 3. Legal Proceedings**
 
 There are
no legal proceedings pending or threatened against us.
 
 **Item 4. Submission of Matters to a Vote of Security Holders**
 
 During
the fourth quarter of calendar year 2004, no matters were submitted to a vote of
the security holders of the Company.
 
  9
  
 **PART
II.**
 
 **Item 5. Market for Common Equity and Related Stockholder Matters.**
 
 As of
July 18, 2002 prices for the Common Stock were quoted on the Over the
Counter Bulletin Board operated by the National Association of Securities
Dealers, Inc. under the symbol DMDD. The following table sets forth the
high and low closing bid prices of the Company’s Common Stock for the periods
indicated as reported by the NASD. These quotations reflect inter-dealer prices
without retail markup, markdown or commissions and may not necessarily represent
actual transactions.
 
 **High**
    
    **Low****Fiscal
      Year 2003**First
      Quarter
    
    0.370
    
    0.110Second
      Quarter
    
    0.330
    
    0.090Third
      Quarter
    
    0.180
    
    0.080Fourth
      Quarter
    
    0.210
    
    0.090**Fiscal
      Year 2004**First
      Quarter
    
    0.190
    
    0.080Second
      Quarter
    
    0.140
    
    0.060Third
      Quarter
    
    0.090
    
    0.040Fourth
      Quarter
    
    0.070
    
    0.030**Fiscal
      Year 2005**First
      Quarter
    
    0.050
    
    0.030
 
 Of the
107,127,123 shares of our common stock issued and outstanding as of
April 12, 2005, 41,792,123 shares of our common stock are currently
considered “restricted securities” and in the future, may be sold only in
compliance with Rule 144 or in an exempt transaction under the Act unless
registered under the Act.
 
 As of
April 12, 2005 the number of holders of record of our common stock was
approximately 88.
 
 We do not
anticipate paying any cash dividends on our common stock in the foreseeable
future because we intend to retain our earnings to finance the expansion of our
business. Thereafter, the declaration of dividends will be determined by the
Board of Directors in light of conditions then existing, including, without
limitation, our financial condition, capital requirements and business
condition. We are prohibited from paying cash dividends on the common stock
until any issued and outstanding preferred stock is converted into common stock.
However, there were no shares of preferred stock outstanding as of December 31,
2004.
 
 **Recent
Sales of Unregistered Securities**
 
 In
December 2003, the Company issued 960,000 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 aforementioned shares were exempt transactions under Section
4(2) of the Securities Act of 1933 as a transaction by an issuer not involving a
public offering. At the time of sale, the persons who acquired these securities
were all full, informed and advised about matters concerning us, including our
business, financial affairs and other matters. The shareholders acquired the
securities for their own account or their designees.
 
 **Item 6. Management’s Plan of Operation**
 
 *The
following discussion and analysis should be read in conjunction with the
financial statements and notes thereto included elsewhere in this Annual Report
on Form 10-KSB.* The
following discussion regarding us and our business and operations contains
forward-looking statements. Such statements 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 thereof or other variations thereon, or comparable
terminology. The reader is cautioned that all forward-looking statements are
necessarily speculative, and there are certain risks and uncertainties that
could cause actual events or results to differ materially from those referred to
in such forward-looking statements.
 
 *Operations
to Date*
 
 We were
incorporated in the State of Delaware in April of 2000. We have not engaged
in commercial operations since inception, and therefore have not realized any
revenues from operations since inception. We do not expect to commence
commercial operations in the foreseeable future and do not expect to generate
revenue in calendar year 2005.
 
 For the fiscal years ended December 31, 2004 and 2003
and the period from April 24, 2000 (date of inception) to December 31, 2004
we incurred $(369,314), $690,490 and $2,259,689 in exploration costs, net of
reimbursements and $3,838,082, $2,233,602 and $6,745,715 in general and
administrative expenses, respectively. General and administrative expenses
consisted primarily of professional fees related to our corporate filings and
consulting and other expenses incurred in operating our business. We incurred a
net loss of approximately $3,724,106 or $(.05) per share based on 76,140,137
weighted average shares outstanding for the fiscal year ended December 31, 2004
compared to a loss of $3,222,057 or $(.10) per share based on 32,371,250
weighted average shares outstanding for the fiscal year ended December 31,
2003.
  10
 *Going
Concern*
 
 In
connection with their audit report on our financial statements as of December
31, 2004, Rodefer & Moss, our independent public accountants, expressed
substantial doubt about our ability to continue as a going concern because such
continuance is dependent upon our ability to raise capital.
 
 We have
explored, and continue to explore, all avenues possible to raise the funds
required. Continuation of our exploration efforts is dependent on our
ability to raise sufficient capital.
  Ultimately,
we must achieve profitable operations if we are to be a viable entity. Although
we believe that there is a reasonable basis to believe that we will successfully
raise the needed funds to continue exploration, we cannot assure you that we
will be able to raise sufficient capital to continue exploration, or that if
such funds are raised, that exploration will result in a finding of commercially
exploitable reserves, or that if exploitable reserves exist on our properties,
that extraction activities can be conducted at a profit.
 
 **Cash
Flow and Capital Resources**
 
 Through
December 31, 2004 we have relied on advances of approximately $1,057,000 from
our principal stockholders, trade payables of approximately $1,948,000
(including $1,926,540 owed to Prospecting Geophysics Ltd.), and proceeds of
approximately $2,160,000 from the sale of common stock to support our limited
operations. As of December 31, 2004, we had approximately $174,000 of cash.
 
 We plan
to seek additional equity or debt financing of up to $1,100,000 which we plan to
use for the next phase of our exploration program to be conducted through
December 31, 2005, as well as working capital purposes. We currently have
limited sources of capital, including the public and private placement of equity
securities and the possibility of issuance of debt securities to our
stockholders. With virtually no assets, the availability of funds from
traditional sources of debt will be limited, and will 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. If we do not get sufficient
financing, we may not be able to continue as a going concern and we may have to
curtail or terminate our operations and liquidate our business (see Note 1
to financial statements).
 
 **Plan
of Operation**
 
 Our
business plan for the next year will consist of further exploration on the
properties over which we hold the mineral exploration permits as well as
preliminary marketing efforts. We intend to continue retaining Prospecting
Geophysics Ltd. to analyze the results of phase one of our exploration
program, and during phase two, to find the extent of the kimberlite dykes that
were located in phase one and gather larger mini-bulk and bulk samples. These
next samples are expected to be up to 7,000 lbs. Prospecting
Geophysics, Ltd. will attempt to locate additional kimberlite dykes and
pipes and sample them as well. They will attempt to conduct further geochemistry
tests to locate underground dykes which are not visible at the surface and
magnetic surveys to trace them. Additionally, during phase two, we intend to
continue to collect and analyze the transparent pink crystal fragments found on
the properties covered by our permits that consists of natural corundum and
which we believe contain rubies. This phase was suspended during the winter
months due to inclement weather. This phase is expected to resume in
May 2005.
 
 After
consulting with Prospecting Geophysics Ltd., we estimate that it will
require approximately $1,100,000 to conduct our exploration program through
December 31, 2005. This amount will be used to pay for prospecting and
geological mapping, helicopter and airplane support, lodging and food for
workers, pick-up truck rentals, house rental in George River, assays, property
taxes to the Quebec Department of Natural Resources and supervision, including a
salary payable to Mr. Peter Ferderber of $500 per day, plus out of pocket
expenses, for days he attends the site. We plan to raise a minimum of $1,100,000
through one or more private offerings pursuant to Rule 506 or
Regulation D of through an offshore offering pursuant to Regulation S;
however, nothing in this annual report shall constitute an offer of any
securities for sale. Such shares when sold will not have been registered under
the Act and may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements. If we are unable to
raise this amount, we will most likely cease all activity related to our
exploration program, or at the very least, proceed on a reduced scale. We have
to date relied on a small number of investors to provide us with financing for
the commencement of our exploration program, including TVP Capital Corp., a
principal stockholder. Amounts owed to these individuals are payable upon
demand.
 
 11
 While we
have recently contracted to purchase drill equipment for approximately $180,000,
we do not expect to make any other direct expenditure to purchase any equipment
as all equipment necessary will be provided by Prospecting Geophysics Ltd.
pursuant to the Prospecting and Survey Agreement dated November 14, 2000.
However, we will reimburse Prospecting Geophysics, Ltd. for all of it’s out
of pocket expenses including equipment rental.
 
 We now
employ two individuals on a part time basis, both of whom are executive
officers. We do not expect any significant changes in the number of employees
within the next twelve months.
 
 **Risk
Factors**
 
 **Operations—New
Entity/Startup Entity**
 
 **We
are a mineral exploration business.**
 
 We are
engaged in the exploration stage of our business. We have not engaged in any
substantive commercial operations to date. More particularly, we have not
engaged in any mining operations. We have only engaged in exploratory
activities, feasibility studies and the establishment of initial exploration
plans. Thus, we have no way to evaluate the likelihood that we will be able to
operate our business successfully. You should consider our business future based
on the risks associated with our early stage, and lack of experience.
 
 **We
expect to face many of the typical challenges of a startup business.**
 
 A startup
business like ours faces a number of challenges. For example, engaging the
services of qualified support personnel and related consultants and other
experts is very important in the mineral exploration business, and there is keen
competition for the services of these experts, consultants, and support
personnel. Equally important in the mineral exploration business is establishing
initial exploration plans for mining prospects, and analyzing relevant
information efficiently. Establishing and maintaining budgets and appropriate
financial controls is also very important to a startup business. We expect to
incur substantial operating losses for the foreseeable future, as well. The
failure to address one or more of these activities, or curb operating losses,
may impair our ability to carry out our business plan.
 
 **Operations—Mineral
Exploration Activities**
 
 **Mineral
exploration has many inherent risks of operations which may prevent ultimate
success.**
 
 Mineral
exploration has significant risks. Mineral exploration companies (like us) are
dependent on locating mineral reserves on the properties over which it has
mineral permits, and are also dependent on the skillful management of minerals,
when and if found or located on these properties. These minerals, when found in
deposits and mineralizations, can vary substantially in a prospect, rendering
what was initially believed to be a profitable deposit into one of little or no
value. Unforeseen changes in regulations, the value of minerals, environmental
regulations, mining technology, site conditions, and/or labor conditions can all
have a negative impact on our operations, and each may impair our ability to
carry out our business plan.
 
 **Our
business future is dependent on finding mineral deposits with sufficient
mineralization and grade.**
 
 Our
business model depends on locating prospects with a sufficient amount of
mineralization to justify surface and drilling sampling. No assurance can be
given that our specific exploration target areas will be valuable in locating
mineralizations. Even if initial mineralization reports are positive, subsequent
activities may determine that deposits are not commercially viable. Thus, at any
stage in the exploration process, we may determine that there is no business
reason to continue and, at that time, our resources may not enable us to
continue exploratory operations and will cause us 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 a mineral reserve containing diamonds, or
if we cannot develop any diamond-bearing mineral reserve, either because we do
not have the money to effect such a development, or because it will not be
economically feasible to do it, we will have to cease operations, and you may
lose your entire investment.
 
  12
  **We
are relying on geological reports to locate potential mineral deposits, which
may be inaccurate.**
 
 We rely
on geological reports to determine which of the properties, for which we have
mineral permits, to explore. There is no sure method of verifying the care and
manner used to prepare these reports without further verification on our part,
or on our agents’ part. Verification of reports 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 likelihood of recovering the amounts expended.
Decisions made without adequately checking the mining prospects could result in
significant unrecoverable expenses. Mineral deposits initially thought to be
valuable may, in fact, turn out to be of little value. Therefore, it is possible
that investment funds will have been used, with no value having been achieved
from the operations based on the reports.
 
 **Regulatory
compliance in the mineral exploration business is complex, and the failure to
meet all of the various requirements could result in fines, or other limitations
on the proposed business.**
 
 Our
mineral exploration activities will be subject to regulation by numerous
governmental authorities. We are subject to environmental regulations under the
Environmental Act (Quebec), the Mining Act (Quebec), and the Forest Act
(Quebec). The failure to comply fully with these or any other governmental
regulations will adversely affect our ability to explore for economic
mineralization, and our subsequent business stages. The failure to comply 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) applicable regulations will
affect our ability to succeed in our business plans and to generate revenues and
profits.
 
 **Mineral
exploration is a hazardous business, which entails risks for liability and/or
damages.**
 
 The
search for valuable minerals involves numerous hazards. As a result, we may
become subject to liability for such hazards, including pollution, cave-ins and
other hazards against which we cannot insure against, or against which we may
not elect to insure. We do not currently carry any insurance to protect against
the potential liability of such hazards. The payment of any liabilities
attributed to us may have a material adverse effect on our financial position
and may cause us to cease operations.
 
 **We
face intense competition, and our competitors may have greater resources that we
do and be better able to locate and explore mineral resources in a quicker and
more cost efficient manner than we can.**
 
 It is our
belief that there are a significant number of companies with greater resources
than those available to us, to locate and explore mineral resources. These
companies may be able to reach production stages sooner than we can, and obtain
a share of the market for mineral products before we can.
 
 **Because
our management has only limited experience in mineral exploration, we have a
higher risk of failure.**
 
 Our
management has only limited experience in mineral exploration. As a result of
this limited experience, there is a higher risk of our being unable to complete
our business plan in the exploration of our mineral property.
 
 **Capital
Issues**
 
 **We
do not currently have sufficient capital to engage in exploration
activities.**
 
 The cost
of our planned exploration activities is approximately $1,100,000. As of the
date of this filing, we do not have sufficient capital to engage in exploration
activities, and no sources for financing. The extent to which we will be able to
implement our exploration for minerals will be determined by our ability to
engage in offerings of equity securities and/or debt securities. Without
additional capital, we will have to either curtail our business plan, or abandon
it altogether.
 
 **We
do not have any identified sources of additional capital, the absence of which
may prevent us from continuing our operations.**
 
 We do
not, presently, have any arrangements with any investment banking firms or
institutional lenders. Because we will need additional capital, we will have to
expend significant effort to raise operating funds. These efforts may not be
successful. If not, we will have to either curtail our business plan, or abandon
it altogether.
 
 **Corporate
Governance Risks**
 
 **Our
officers and directors will devote 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 their time to our operations, which
could have a negative impact on the efficiency of our operations.
 
 13
 
 **Critical
Accounting Policies and Estimates**
 
 Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. On an on-going basis, we
evaluate our estimates. We base our estimates on historical experience and on
other assumptions that are believed to be reasonable under the circumstances.
Accordingly, actual results could differ from these estimates under different
assumptions or conditions. This section summarizes the critical accounting
policies and the related judgments involved in their application.
 
 *Valuation
of Deferred Tax Assets*
 
 We
regularly evaluate our ability to recover the reported amount of our deferred
income taxes considering several factors, including our estimate of the
likelihood that we will generate sufficient taxable income in future years in
which temporary differences reverse. Due to the uncertainties related to, among
other things, the extent and time of future taxable income and the potential
changes in the ownership of the Company, which could subject our net operating
loss carryforwards to substantial annual limitations, we offset our net deferred
tax assets by an equivalent valuation allowance as of December 31, 2004.
 
 *Valuation
of Long-Lived Assets*
 
 We assess
the recoverability of long-lived assets, such as mining claims, whenever we
determine that events or changes in circumstances indicate that their carrying
amount may not be recoverable. Our assessment is primarily based upon our
estimate of future cash flows associated with these assets. If at some point in
the future, we estimate that the undiscounted cash flows is less than the
carrying value of the assets, this determination could result in non-cash
charges to income that could materially affect our financial position or results
of operations for that period.
  *Off
Balance Sheet Arrangements*
 
 We have no financing arrangements of the type described
in Item 303(c) of Regulation S-B.
 **Item 7. Financial Statements**
 
 **DIAMOND
DISCOVERIES INTERNATIONAL CORP.**
 **(An
Exploration Stage Company)**
 
 **INDEX
TO FINANCIAL STATEMENTS**
 
 Report
      of Independent Public AccountantsBalance
      Sheet December 31, 2004Statements
      of Operations Years Ended December 31, 2004 and 2003 and Period from
      April 24, 2000 (Date of Inception) to December 31,
      2004Statements
      of Changes in Stockholders’ Deficiency Years Ended December 31, 2004 and
      2003 and Period from April 24, 2000 (Date of Inception) to December
      31, 2004Statements
      of Cash Flows Years Ended December 31, 2004 and 2003 and Period from
      April 24, 2000 (Date of Inception) to December 31,
      2004Notes
      to Financial Statements
 
  14
  
 **REPORT
OF INDEPENDENT PUBLIC ACCOUNTANTS**
 
 To the
Board of Directors and Stockholders
 Diamond
Discoveries International Corp.
 
 We have
audited the accompanying balance sheets of DIAMOND DISCOVERIES INTERNATIONAL
CORP. (An Exploration Stage Company) as of December 31, 2004 and 2003, and the
related statements of operations, changes in stockholders’ deficiency and cash
flows for the years then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits.
 
 We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Diamond Discoveries International
Corp. as of December 31, 2004 and 2003, and the results of its operations and
cash flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As further discussed in Note 1 to the
financial statements, the Company had not generated any revenues from its
operations and it had working capital and stockholders’ deficiencies as of
December 31, 2004. Such matters raise substantial 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 might result from the outcome of these
uncertainties.
 
 
 /s/
      Rodefer Moss & Co, PLLCKnoxville,
      TennesseeApril
      12, 2005
 
  15
  
 **DIAMOND
DISCOVERIES INTERNATIONAL CORP.**
 **(An
Exploration Stage Company)**
 **BALANCE SHEET**
 **DECEMBER 31,
2004**
 
 **ASSETS**Current
      assets—cash
    
    $
    173,974Furniture
      and fixtures, net
    
    
    18,231192,205**LIABILITIES
      AND STOCKHOLDERS’ DEFICIENCY**Liabilities:8%
      Demand notes payable
    
    $
    55,081Accounts
      payable:Prospecting
      Geophysics Ltd.
    
    
    1,926,540Other
    
    
    21,254Advances
      from stockholders
    
    
    236,524Accrued
      taxes and other expenses
    
    
    323,302Total
      liabilities
    
    
    2,562,701Commitments
      and contingenciesStockholders’
      deficiency:Preferred
      stock, par value $.001 per share; 20,000,000 shares authorized; none
      issued
    
    
    —Common
      stock, par value $.001 per share; 230,000,000 shares authorized;
      107,127,123 shares issued and outstanding
    
    
    107,127Additional
      paid-in capital
    
    
    9,450,086Deficit
      accumulated during the exploration stage
    
    
    (9,558,707
    )Accumulated
      other comprehensive income (loss)
    
    
    (492,169
    )Unearned
      compensation
    
    
    (1,876,833
    )Total
      stockholders’ deficiency
    
    
    (2,370,496
    )Total
    
    $
    192,205
 
 See Notes
to Consolidated Financial Statements.
 
  16
  
 **DIAMOND
DISCOVERIES INTERNATIONAL CORP.**
 **(An
Exploration Stage Company)**
 **STATEMENTS OF OPERATIONS**
 **YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND PERIOD FROM**
 **APRIL 24,
2000 (DATE OF INCEPTION) TO DECEMBER 31, 2004**
 
 **2004**
    
    **2003**
    
    **April 24,**
      **2000
      to**
      **December 31,**
      **2004**Revenues
    
    $
    —
    
    $
    —
    
    $
    —Operating
      expenses:Exploration
      costs
    
    
    468,475
    
    
    690,490
    
    
    3,097,478Reimbursements
      of exploration costs
    
    
    (837,789
    )
    
    —
    
    
    (837,789
    )Exploration
      costs, net of reimbursements
    
    
    (369,314
    )
    
    690,490
    
    
    2,259,689General
      and administrative expenses
    
    
    3,838,082
    
    
    2,233,602
    
    
    6,745,715Total
      operating expenses
    
    
    3,468,768
    
    
    2,924,092
    
    
    9,005,404Operating
      loss
    
    
    (3,468,768
    )
    
    (2,924,092
    )
    
    (9,005,404
    )Other
      expensesInterest
      expense
    
    
    (255,338
    )
    
    (297,965
    )
    
    (553,303
    )Net
      loss
    
    $
    (3,724,106
    )
    $
    (3,222,057
    )
    $
    (9,558,707
    )Basic
      net loss per common share
    
    $
    (.05
    )
    $
    (.10
    )Basic
      weighted average common shares outstanding
    
    
    76,140,137
    
    
    32,371,250
 
 See Notes
to Consolidated Financial Statements.
 
  17
  
 **DIAMOND
DISCOVERIES INTERNATIONAL CORP.**
 **(An
Exploration Stage Company)**
 **STATEMENTS OF CHANGES IN STOCKHOLDERS’
DEFICIENCY**
 **YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND PERIOD FROM APRIL 24,
2000**
 **(DATE
OF INCEPTION) TO DECEMBER 31, 2004**
 
 
 **Additional**
      **paid-in**
      **capital**
    
    **Deficit**
      **Accumulated**
      **during
      the**
      **exploration**
      **stage**
    
    **Accumulated**
      **other**
      **comprehensive**
      **income**
      **(loss)**
    
    
    
    **Unearned**
      **compensation**
    
    **Total****Preferred
      stock**
    
    **Common
      stock**
    **Subscriptions**
      **receivable****Shares**
    
    **Amount**
    
    **Shares**
    
    **Amount**
    **Shares**
    
    **Amount**Issuance
      of shares to founders effective as of April 24, 2000
    
    —
    
    $
    —
    
    4,850,000
    
    $
    4,850
    
    $
    —
    
    $
    —
    
    —
    
    —
    
    $
    —
    
    $
    —
    
    $
    4,850Issuance
      of shares as payment for legal services
    
    —
    
    —
    
    150,000
    
    150
    
    3,600
    
    —
    
    —
    
    —
    
    —
    
    —
    
    3,750Issuance
      of shares in connection with acquisition of mineral
permits
    
    —
    
    —
    
    2,000,000
    
    2,000
    
    48,000
    
    —
    
    —
    
    —
    
    —
    
    —
    
    50,000Subscription
      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
    
    —
    
    25,000Net
      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
    
    —
    
    225,000Net
      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
    )
    —
    
    734,959Net
      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
    
    —
    
    —
    
    —
    
    —
    
    —
    
    298,423Issuance
      of shares as payment for services
    
    —
    
    —
    
    6,715,000
    
    6,715
    
    1,368,235
    
    —
    
    —
    
    —
    
    —
    
    —
    
    1,374,950Issuance
      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
    
    —
    
    —
    
    —
    
    —
    
    —
    
    775,000Issuance
      of shares as payment for notes payable
    
    —
    
    —
    
    1,810,123
    
    1,810
    
    124,898
    
    —
    
    —
    
    —
    
    —
    
    —
    
    126,708Proceeds
      from issuance of common stock
    
    —
    
    —
    
    6,000,000
    
    6,000
    
    444,000
    
    —
    
    —
    
    4,000,000
    
    (281,250
    )
    —
    
    168,750Proceeds
      from issuance of common stock in connection with exercise of stock
      options
    
    —
    
    —
    
    10,050,000
    
    10,050
    
    292,450
    
    —
    
    —
    
    —
    
    —
    
    —
    
    302,500Amortization
      of unearned compensation
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    169,744
    
    169,744Net
      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
    )Issuance
      of shares as payment for services
    
    —
    
    —
    
    16,842,000
    
    16,842
    
    1,614,858
    
    —
    
    —
    
    —
    
    —
    
    —
    
    1,631,700Proceeds
      from issuance of common stock
    
    —
    
    —
    
    4,000,000
    
    4,000
    
    384,832
    
    —
    
    —
    
    524,207
    
    (56,754
    )
    —
    
    332,078Issuance
      of shares as payment for accounts payable
    
    —
    
    —
    
    1,400,000
    
    1,400
    
    138,600
    
    —
    
    —
    
    —
    
    —
    
    —
    
    140,000Issuance
      of stock options
    
    —
    
    —
    
    —
    
    —
    
    1,139,000
    
    —
    
    —
    
    —
    
    —
    
    (1,139,000
    )
    —Proceeds
      from issuance of common stock in connection with exercise of stock
      options
    
    —
    
    —
    
    31,125,000
    
    31,125
    
    395,125
    
    —
    
    —
    
    —
    
    —
    
    —
    
    426,250Forgiveness
      of stock subscriptions
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    (4,575,965
    )
    361,295
    
    —
    
    361,295Amortization
      of unearned compensation
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    529,423
    
    529,423Net
      loss
    
    —
    
    —
    
    —
    
    —
    
    —
    
    (3,724,106
    )
    —
    
    —
    
    —
    
    —
    
    (3,724,106
    )Foreign
      currency translation adjustment
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    (131,269
    )
    —
    
    —
    
    —
    
    (131,269
    )Total
      comprehensive loss ($3,855,375)
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —
    
    —Balance,
      December 31, 2004
    
    —
    
    $
    —
    
    107,127,123
    
    $
    107,127
    
    $
    9,450,086
    
    $
    (9,558,707
    )
    $
    (492,169
    )
    —
    
    $
    —
    
    $
    (1,876,833
    )
    $
    (2,370,496
    )
  See Notes
to Consolidated Financial Statements.
 
  18
  
 **DIAMOND
DISCOVERIES INTERNATIONAL CORP.**
 **(An
Exploration Stage Company)**
 **STATEMENTS OF CASH FLOWS**
 **YEARS
ENDED DECEMBER 31, 2004 AND 2003 AND PERIOD FROM**
 **APRIL 24,
2000 (DATE OF INCEPTION) TO DECEMBER 31, 2004**
 
 **2004**
    
    **2003**
    
    **April 24,**
      **2000
      to**
      **December 31,**
      **2004**Operating
      activities:Net
      loss
    
    $
    (3,724,106
    )
    $
    (3,222,057
    )
    $
    (9,558,707
    )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Costs
      of services paid through issuance of common stock
    
    1,631,700
    
    1,374,950
    
    3,015,250Amortization
      of unearned compensation
    
    529,423
    
    169,744
    
    699,167Forgiveness
      of stock subscriptions
    
    361,295
    
    —
    
    361,295Cost
      of mineral permits paid through the issuance of common
    stock
    
    —
    
    —
    
    50,000Depreciation
    
    2,972
    
    —
    
    2,972Changes
      in operating assets and liabilities:Accounts
      payable
    
    244,656
    
    618,123
    
    1,849,048Accrued
      expenses
    
    168,928
    
    154,374
    
    323,302Net
      cash used in operating activities
    
    (785,132
    )
    (904,866
    )
    (3,257,673
    )Investing
      activities - net cash used for additions to furniture and
      fixtures
    
    (21,203
    )
    —
    
    (21,203
    )Financing
      activities:Advances
      from stockholders, net
    
    171,326
    
    299,142
    
    1,056,524Proceeds
      from issuance of notes payable, net
    
    49,917
    
    186,872
    
    236,789Proceeds
      from issuance of common stock and warrants
    
    758,328
    
    416,250
    
    2,159,537Net
      cash provided by financing activities
    
    979,571
    
    902,264
    
    3,452,850Net
      increase (decrease) in cash
    
    173,236
    
    (2,602
    )
    173,974Cash,
      beginning of period
    
    738
    
    3,340
    
    —Cash,
      end of period
    
    $
    173,974
    
    $
    738
    
    $
    173,974
 
 See Notes
to Consolidated Financial Statements.
 
  19
  
 **DIAMOND
DISCOVERIES INTERNATIONAL CORP.**
 **(An
Exploration Stage Company)**
 
 **NOTES TO CONSOLIDATED 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 mineral resources in Canada. It conducts exploration and
related activities through contracts with third parties.
 
 As
further explained in Note 3, the Company acquired its mineral permits for
property in the “Torngat Fields” located in the Province of Quebec, Canada. The
Company intends to develop the permits from early stage exploration through
completion of the exploration phase. Prior to any further exploration decisions,
a mineral deposit must be appropriately assessed. Gathering this data usually
takes several years. Once the appropriate data has been gathered, management
will determine whether and how to proceed. The Company has discovered tiny
diamonds in samples taken from the property and has contracted with Prospecting
Geophysics Ltd. (“PGL”) to conduct surveys and exploration at the property
to begin to enable it to determine whether it can extract and produce diamonds
from this kimberlite (see Note 3).
 
 Other
than contracting with PGL to conduct exploration and gather data on its behalf,
the Company had not conducted any operations or generated any revenues as of
December 31, 2004. Accordingly, it is considered an “exploration stage company”
for accounting purposes. In addition to exploration costs, the Company incurs
general and administrative expenses which consist primarily of professional fees
relating to corporate filings and consulting and other expenses incurred in
operating our business.
 
 The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. However, in addition to not generating any
revenues, the Company had a working capital and a stockholders’ deficiency of
approximately $2,370,000 as of December 31, 2004. Management believes that the
Company will not generate any revenues during the twelve month period subsequent
to December 31, 2004 in which it will be gathering and evaluating data related
to the permits for the Torngat Fields. Since its inception, the Company has
received total consideration of $3,452,850 as a result of proceeds of
shareholder advances, the issuance of notes payable and the sales of common
stock, management believes that the Company will still need total additional
financing of approximately $1,100,000 to continue to operate as planned during
the twelve month period subsequent to December 31, 2004. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern.
 
 Management
plans to obtain such financing through private offerings of debt and equity
securities. However management cannot assure that the Company will be able to
obtain any or all of the additional financing it will need to continue to
operate through at least December 31, 2004 or that, ultimately, it will be
able to generate any profitable commercial mining operations. If the Company is
unable to obtain the required financing, it may have to curtail or terminate its
operations and liquidate its remaining assets and liabilities.
 
 The
accompanying financial statements do not include any adjustments related to the
recoverability and classifications of assets or the amounts and classification
of liabilities that might be necessary should the Company be unable to continue
its operations as a going concern.
 
 **Note 2—Summary
of significant accounting policies:**
 
 Use of
estimates:
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
 
 Mining
costs:
 
 Exploration
and evaluation costs are expensed as incurred. Management’s decision to develop
or mine a property will be based on an assessment of the viability of the
property and the availability of financing. The Company will capitalize mining
exploration and other related costs attributable to reserves in the event that a
definitive feasibility study establishes proven and probable reserves.
Capitalized mining costs will be expensed using the unit of production method
and will also be subject to an impairment assessment.
 
  20
  Concentrations
of credit risk:
 
 The
Company maintains its cash in bank deposit accounts, the balances of which, at
times, may exceed Federal insurance limits. Exposure to credit risk is reduced
by placing such deposits with major financial institutions and monitoring their
credit ratings.
 
 Impairment
of long-lived assets:
 
 Impairment
losses on long-lived assets, such as mining claims, are recognized when events
or changes in circumstances indicate that the undiscounted cash flows estimated
to be generated by such assets are less than their carrying value and,
accordingly, all or a portion of such carrying value may not be recoverable.
Impairment losses are then measured by comparing the fair value of assets to
their carrying amounts.
 
 Income
taxes:
 
 The
Company accounts for income taxes pursuant to the asset and liability method
which requires deferred income tax assets and liabilities to be computed
annually for temporary differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible amounts in
the future based on enacted tax laws and rates applicable to the periods in
which the differences are expected to affect taxable income. Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. The income tax provision or credit is the tax
payable or refundable for the period plus or minus the change during the period
in deferred tax assets and liabilities.
 
 Net
earnings (loss) per share:
 
 The
Company presents “basic” earnings (loss) per share and, if applicable, “diluted”
earnings per share pursuant to the provisions of Statement of Financial
Accounting Standards No. 128, “Earnings per Share”. Basic earnings (loss)
per share is calculated by dividing net income or loss by the weighted average
number of common shares outstanding during each period. The calculation of
diluted earnings per share is similar to that of basic earnings per share,
except that the denominator is increased to include the number of additional
common shares that would have been outstanding if all potentially dilutive
common shares, such as those issuable upon the exercise of stock options and
warrants, were issued during the period.
 
 Since the
Company had a net loss for the years ended December 31, 2004 and 2003, the
assumed effects of the exercise of the warrants to purchase 2,000,000 shares of
common stock that were issued during 2003 and the application of the treasury
stock method would have been anti-dilutive. Therefore, there is no diluted per
share amounts in the 2004 and 2003 statements of operations.
 
 Foreign
currency translation and transactions:
 
 The
functional currency of the Company’s operations is Canadian dollars. The assets
and liabilities arising from these operations are translated at current exchange
rates and related revenues and expenses at average exchange rates in effect
during the year. Resulting translation adjustments, if material, are recorded in
the statement of changes in stockholders' deficiency while foreign currency
transaction gains and losses are included in operations.
 
 The
Company recorded a loss of $3,724,106, $3,222,057 and $9,558,707 during the
years ended December 31, 2004 and 2003 and the period from April 24, 2000
(Date of Inception) to December 31, 2004, respectively. During the years ended
December 31, 2004 and 2003, the Company recorded a net foreign currency
translation adjustment of $131,269 and $360,900, respectively, in its interest
in the Torngat Mountains operations reflecting a strengthening of the Canadian
dollar against the U. S. dollar which is included in accumulated other
comprehensive income (loss). Translation adjustments for prior periods have been
immaterial.
 
 Comprehensive
loss
 
 Comprehensive
loss consists of net loss for the period, unrealized hedging transactions and
foreign currency translation adjustments.
 
 Recent
accounting pronouncements:
 
 The
Financial Accounting Standards Board had issued certain accounting
pronouncements as of December 31, 2004 that will become effective in subsequent
periods; however, management of the Company does not believe that any of those
pronouncements would have significantly affected the Company’s financial
accounting measurements or disclosures had they been in effect during the period
from April 24, 2000 to December 31, 2004, and it does not believe that any
of those pronouncements will have any significant impact on the Company’s
financial statements at the time they become effective.
 
  21
  **Note 3—Permits:**
 
 Pursuant
to an agreement consummated on September 12, 2000, the Company acquired
certain permits in the Torngat Fields from Peter Ferderber and S. G. Hawkins,
who are key consultants and advisors 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 represents the fair value of a total of 2,000,000 shares of the
Company’s common stock issued to Messrs. Ferderber and Hawkins. The
exchange of shares for the permits was a non-cash transaction that is not
reflected in the accompanying statement of cash flows for the period from
April 24, 2000 to December 31, 2004.
 
 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 would terminate once the sellers receive a total of
$10,000,000 (Canadian) based on such interest. Net smelter returns are
determined by the net amount received from the sale to a smelter or other buyer
of ore, ore concentrates or other products produced from the property.
 
 Mr. Hawkins
owns Tandem Resources, Ltd. (“Tandem”). As part of the agreement for the
purchase of the permits, the Company granted Tandem an option to purchase a 40%
interest in a joint venture that would be formed between the Company and Tandem
to conduct operations related to the properties covered by the permits at such
time as the Company has 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 for 50,000 acres of adjacent property in
the Torngat Fields by staking the property and paying the requisite fees to the
Quebec Department of Natural Resources.
 
 **Note 4—Advances
from stockholders:**
 
 Advances
from stockholders of $236,524 at December 31, 2004 were non-interest bearing and
due on demand.
 
 Although
management does not believe that there is a practical method that can be used to
specifically determine the fair value of the advances from stockholders because
of the relationship of the Company and its stockholders, it believes that the
advances will be repaid on a short-term basis and, accordingly, the carrying
value of the advances approximated fair value as of December 31, 2004.
 
 **Note 5—Stockholders’
equity:**
 
 Preferred
stock
 
 As of
December 31, 2004, the Company was authorized to issue up to 20,000,000 shares
of preferred stock with a par value of $.001 per share. The preferred stock may
be issued in one or more series with dividend rates, conversion rights, voting
rights and other terms and preferences to be determined by the Company’s Board
of Directors, subject to certain limitations set forth in the Company’s Articles
of Incorporation. No shares of preferred stock had been issued by the Company as
of December 31, 2004.
 
 Common
stock
 
 During
the period from April 24, 2000 to December 31, 2000, the Company
issued 150,000 shares of common stock as payment for legal services.
Accordingly, general and administrative expenses in the accompanying statement
of operations, and common stock and additional paid-in capital in the
accompanying statements of stockholders’ deficiency, for the period from
April 24, 2000 to December 31, 2004 was increased to reflect the estimated
fair value of the shares of $3,750.
 
 On
May 20, 2000, the Company completed the sale of 10,000,000 shares of common
stock for $250,000, or $.025 per share, through a private placement intended to
be exempt from registration under the Securities Act of 1933 (the “Act”).
Initially, the buyer paid $25,000 in cash and $225,000 through the issuance of a
10% promissory note. The exchange of shares for a note receivable was a noncash
transaction that is not reflected in the accompanying statement of cash flows
for the period from April 24, 2000 to December 31, 2004. The 10% promissory
note was paid on various dates through May 20, 2001.
 
 During
the year ended December 31, 2002, the Company received total cash
consideration of $734,959 as a result of the sale of 1,633,242 units of common
stock and warrants to purchase common stock at $.45 per unit through private
placements intended to be exempt from registration under the Act. Each unit
consisted of one share of common stock and one warrant to purchase one share of
common stock exercisable at $.75 per share for a two year period from the date
of purchase. The Company had also received subscriptions through the private
placements for the purchase of 51,758 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 and were due six months from the respective dates of
sale, but remained outstanding at December 31, 2004. All the warrants remained
outstanding as of December 31, 2004.
 
 22
 In 2003,
the Company issued 6,715,000 shares of its common stock in exchange for services
performed by various consultants and recorded a charge to general and
administrative expenses of $1,374,950, or $0.20 per share, for the fair value of
the shares.
 
 In
May 2003, the Company issued 1,500,000 shares of its common stock in
payment of accounts payable to Prospecting Geophysics, Ltd. of $148,423, or
$0.10 per share, which approximated the fair value of the shares.
 
 From
July 2003 to September 2003, the Company issued 1,810,123 shares of
its common stock in payment of 8% demand notes payable of $126,708, or $0.07 per
share, which approximated the fair value of the shares.
 
 In
August 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 $0.08
per share. In addition, the Company issued 6,500,000 shares of its common stock
for $65,000, or $0.01 per share, in connection with the exercise of stock
options.
 
 In
September 2003, the Company issued 5,000,000 shares of its common stock in
payment of advances from stockholders of $525,000, or $0.11 per share, which
approximated the fair value of the shares.
 
 In
October 2003, the Company issued 2,500,000 shares of its common stock in
payment of advances from stockholders of $250,000, or $0.10 per share, which
approximated the fair value of the shares. In addition, in connection with a
private placement of its common stock, the Company issued 4,000,000 shares of
its common stock for $300,000, or $0.08 per share, $281,250 of which represents
a subscription receivable at December 31, 2004. Also, the Company issued 540,000
shares of its common stock in payment for accounts payable of $54,000, or $0.10
per share, which approximated the fair value of the shares. Further, the Company
issued 2,350,000 shares of its common stock for $225,500, or $0.10 per share, in
connection with the exercise of stock options.
 
 In
November 2003, the Company issued 1,200,000 shares of its common stock for
$12,000, or $0.01 per share, in connection with the exercise of stock
options.
 
 In
December 2003, the Company issued 960,000 shares of its common stock in
payment for accounts payable of $96,000, or $0.10 per share, which approximated
the fair value of the shares.
 
 In 2004,
the Company issued 15,467,000 shares of its common stock in exchange for
services performed by various consultants and recorded a charge to general and
administrative expenses of $1,546,700 in the three months ended March 31, 2004
for the fair value of the shares.
 
 In March
2004, in connection with a private placement of its common stock, the Company
issued 2,500,000 shares of its common stock for $238,832.
 
 In March
2004, the Company issued 450,000 shares of its common stock in payment of
$45,000 of accounts payable, which approximated the fair value of the
shares.
 
 In May
2004, in connection with a private placement of its common stock, the Company
issued 125,000 shares of its common stock valued at $12,500 as payment for the
commission associated with the private placement.
 
 In May
2004, the Company issued 950,000 shares of its common stock in payment of
$95,000 of accounts payable, which approximated the fair value of the
shares.
 
 In July
2004, in connection with a private placement of its common stock, the Company
issued 1,500,000 shares of its common stock for $150,000. In addition, the
Company issued 1,250,000 shares of its common stock in exchange for services
performed by various consultants and recorded a charge to general and
administrative expenses of $99,750 in the three months ended September 30, 2004
for the fair value of the shares. Further, the Company issued 1,250,000 shares
of its common stock in connection with the exercise of stock
options.
 
 In
December 2004, the Company issued 29,875,000 shares of its common stock in
connection with the exercise of stock options.
 
 The
issuances of common stock for services and in payment of accounts payable, 8%
demand notes payable and advances to stockholders were non-cash transactions
and, accordingly, they are not reflected in the accompanying statements of cash
flows for the years ended December 31, 2004 and 2003 and the period from April
24, 2000 (Date of Inception) to December 31, 2004.
 
 23
 Stock
Option Plans
 
 2004
Plan
 
 On
September 30, 2004, the Company adopted the Diamond Discoveries International
Corp. 2004 Stock Incentive Plan (the “2004 Plan”). Under the 2004 Plan,
35,000,000 shares of common stock are reserved for issuance. The purpose of the
2004 Plan is to provide incentives for officers, directors, consultants and key
employees to promote the success of the Company, and to enhance the Company’s
ability to attract and retain the services of such persons. Options granted
under the 2004 Plan may 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. Stock options may be granted under the 2004 Plan
for all employees and consultants of the Company, or employees of any present or
future subsidiary or parent of the Company. The 2004 Plan is administered by the
Board of Directors. The Compensation Committee is empowered to interpret the
2004 Plan and to prescribe, amend and rescind the rules and regulations
pertaining to the 2004 Plan. Options granted under the 2004 Plan generally vest
over three years. No option is transferable by the optionee other than by will
or the laws of descent and distribution and each option is exercisable, during
the lifetime of the optionee, only by the optionee. The Compensation Committee
may not receive options.
 
 Any
incentive stock option that is granted under the 2004 Plan may not be granted at
a price less than 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% or more of the total combined voting power through all classes of stock
of the Company or a subsidiary or parent of the Company.) Non-qualified stock
options may be 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 on the date of grant.
 
 Each
option granted under the 2004 Plan is exercisable for a period not to exceed ten
years from the date of grant (or five years in the case of a holder of more than
10% of the total combined voting power of all classes of stock of the Company or
a subsidiary or parent of the Company) and shall lapse upon expiration of such
period, or earlier upon termination of the recipient’s employment with the
Company, or as determined by the Compensation Committee.
 
 2003
Plan
 
 On
May 30, 2003, the Company adopted the Diamond Discoveries International
Corp. 2003 Stock Incentive Plan (the “Plan”). Under the Plan, 15,000,000 shares
of common stock are reserved for issuance. The purpose of the Plan is to provide
incentives for officers, directors, consultants and key employees to promote the
success of the Company, and to enhance the Company’s ability to attract and
retain the services of such persons. Options granted under the Plan may 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. Stock options may be granted under the Plan to all employees and
consultants of the Company, or employees of any present or future subsidiary or
parent of the Company. The Plan is administered by the Board of Directors. The
Compensation 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 generally vest over three years. No option is
transferable by the optionee other than by will or the laws of descent and
distribution and each option is exercisable, during the lifetime of the
optionee, only by the optionee. The Compensation Committee may not receive
options.
 
 Any
incentive stock option that is granted under the Plan may not be granted at a
price less than 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% or more of the total combined voting power through all classes of stock of
the Company or a subsidiary or parent of the Company.) Non-qualified stock
options may be 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 on the date of grant.
 
 Each
option granted under the Plan is exercisable for a period not to exceed ten
years from the date of grant (or five years in the case of an incentive option
granted to a holder of more than 10% of the total combined voting power of all
classes of stock of the Company or a subsidiary or parent of the Company) and
shall lapse upon expiration of such period, or earlier upon termination of the
recipient’s employment with the Company, or as determined by the Compensation
Committee.
 
 In 2003,
the Company issued options to acquire 13,875,000 shares of its common stock at a
weighted average exercise price of $.04 per share to consultants and other
non-employees. The options had an aggregate fair market value of $1,437,000 at
the respective dates of issuance as determined based on the Black-Scholes
options-pricing model. Accordingly, the Company initially increased unearned
compensation and additional paid-in capital by $1,437,000 to record the fair
value of the options, of which $169,744 was amortized to compensation expense in
the year ended December 31, 2003.
 
 In
February 2004, the Company issued options to acquire 1,000,000 shares of its
common stock at an exercise price of $.10 per share to consultants and other
non-employees. The options had an aggregate fair market value of $90,000 at the
date of issuance as determined based on the Black-Scholes options-pricing model.
Accordingly, the Company initially increased unearned compensation and
additional paid-in capital by $90,000 to record the fair value of the options.
 
 24
 In
December 2004, the Company issued options to acquire 33,975,000 shares of its
common stock at an exercise price of $.01 per share to consultants and other
non-employees. The options had an aggregate fair market value of $1,049,000 at
the date of issuance as determined based on the Black-Scholes options-pricing
model. Accordingly, the Company initially increased unearned compensation and
additional paid-in capital by $1,049,000 to record the fair value of the
options.
 
 The
Company recorded a charge of $529,423 and $169,744 to compensation expense to
amortize unearned compensation for the years ended December 31, 2004 and 2003,
respectively.
 
 The
following assumptions were used to price options granted during the year ended
December 31, 2004, all of whose exercise price was less than market at the date
of grant: Risk free rate of return, 4%; expected life, 3 years; expected
volatility, 184.87%; expected dividends, zero.
 
 The
following table summarizes information with respect to options granted under the
2004 Plan and the 2003 Plan as of and for the years ended December 31, 2004 and
2003.
 
 **2004**
    
    **2003****Shares**
    
    **Weighed
      Average**
      **Exercise
      Price**
    
    **Shares**
    
    **Weighted**
      **Average**
      **Exercise**
      **Price**Options
      outstanding beginning of year
    
    
    3,825,000
    
    $
    0.11
    
    
    —
    
    
    NAOptions
      canceled
    
    
    —
    
    
    —
    
    
    —
    
    
    NAOptions
      exercised
    
    
    31,125,000
    
    $
    0.01
    
    
    10,050,000
    
    $
    0.02Options
      granted
    
    
    34,975,000
    
    $
    0.01
    
    
    13,875,000
    
    $
    0.04Options
      outstanding end year
    
    
    7,675,000
    
    $
    0.06
    
    
    3,825,000
    
    $
    0.11Options
      exercisable end of year
    
    
    7,675,000
    
    $
    0.06
    
    
    3,825,000
    
    $
    0.11Options
      price range, end of year
    
    $
    0.01
      to $0.11
    
    
    
    
    $
    0.10
      to $0.11Options
      price range for exercised shares
    
    $
    0.01
      to $0.10
    
    
    
    
    $
    0.01
      to $0.11Options
      available for grant at end of year
    
    
    1,150,000
    
    
    
    
    
    1,125,000Weighted
      average fair value of options granted during the year
    
    $
    0.03
    
    
    
    
    $
    0.10Weighted
      average exercise price of options granted during the year
    
    $
    0.01
    
    
    
    
    $
    0.04
 
 **Note 6—Income
taxes:**
 
 As of
December 31, 2004, the Company had net operating loss carryforwards of
approximately $10,051,000 available to reduce future Federal taxable income
which will expire at various dates from 2015 through 2019. The Company had no
other material temporary differences as of that date. Due to the uncertainties
related to, among other things, the changes in the ownership of the Company,
which could subject those loss carryforwards to substantial annual limitations,
and the extent and timing of its future taxable income, if any, the Company
offset the deferred tax assets of approximately $4,020,000 attributable to the
potential benefits from the utilization of those net operating loss
carryforwards by an equivalent valuation allowance as of December 31, 2004.
 
 The
Company had also offset the potential benefits from net operating loss
carryforwards of approximately $2,478,000 and $1,045,000 by equivalent valuation
allowances as of December 31, 2003 and 2002. As a result of the increases
in the valuation allowance of approximately $1,542,000 for the year ended
December 31, 2004, $1,433,000 for the year ended December 31, 2003 and
$4,020,000 for the period from April 24, 2000 to December 31, 2004, the
Company did not recognize any credits for income taxes in the accompanying
statements of operations to offset its pre-tax losses in any of those periods.
 
 **Note 7—Lease:**
 
 The
Company entered into a lease for office space beginning February 1, 2004 and
terminating on April 30, 2007. Under the terms of the lease, the Company pays
approximately $1,033 Canadian per month. However, the Company was not obligated
to pay rent for the period from February 1, 2004 to April 30, 2004.
 
 **Note 8—Guarantee:**
 
 On
March 14, 2003, the Company became a guarantor of a promissory note issued
by one of its stockholders with an outstanding balance of approximately $101,200
that was originally scheduled to mature on July 31, 2003. The maturity date
of the promissory note and the guaranty have been extended to April 30,
2005.
 
 25
 *        *        *
 
 **Item 8. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure**
 
 None
 
 **Item 8 A. Controls and Procedures**
 
 Our chief
executive officer and our chief financial officer (the “Certifying Officers”)
are responsible for establishing and maintaining disclosure controls and
procedures for our Company. Such officers have concluded (based upon their
evaluations of these controls and procedures as of the end of the period covered
by this report) that our disclosure controls and procedures are effective to
ensure that information required to be disclosed by us in this report is
accumulated and communicated to management, including our principal executive
officers as appropriate, to allow timely decisions regarding required
disclosure.
 
 There was
no change in our internal controls over financial reporting during the year
ended December 31, 2004 that has materially affected, or that is reasonably
likely to materially affect our internal control over financial
reporting.
 
 Our
management, including the Certifying Officers, does not expect that our
disclosure controls or our internal controls will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. In addition, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within a company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people or by management
override of the control. The design of any systems of controls also is based in
part upon certain assumptions about the likelihood of future events, and there
can be no assurance that any design will succeed in achieving its stated goals
under all potential future conditions. Over time, control may become inadequate
because of changes in conditions, or the degree of compliance with the policies
or procedures may deteriorate. Because of these inherent limitations in a
cost-effective control system, misstatements due to error or fraud may occur and
not be detected.
 
  26
  
 **PART
III**
 
 **Item
9****.
Directors, Executive Officers, Promoters and Control Persons; Compliance With
Section 16(A) Of The Exchange Act**
 
 The
following Table sets forth certain information regarding the executive officers
and directors of the Company as of April 13, 2004. All officers and
directors are elected for a term of one year and until their successors are
elected.
 
 **Name**
    
    **Age**
    
    **Company
      Position**Thomas
      J. Kennedy
    
    55
    
    Chairman/DirectorJohn
      Kowalchuk
    
    58
    
    President/CEO/
      DirectorEdward
      C. Williams
    
    44
    
    Secretary/Director/CFOPeter
      Ferderber
    
    77
    
    Consultant
 
 **THOMAS
J. KENNEDY**
 
 Mr. Kennedy
has been Chairman and a Director of the Company since in March 2004. Mr.
Kennedy has been actively engaged as a Lawyer, Management Consultant and
Financial Consultant from 1991 to present. During this same time, he has been a
Director/Officer of numerous publicly traded companies. From September 1982
until January 1991, Mr. Kennedy was a Vice Chairman of The Worker’s
Compensation Appeal Board of British Columbia, responsible for hearing appeal
cases and in addition provided administrative management to certain Vancouver
based venture companies. Mr. Kennedy was engaged as Legal Counsel with the
Federal Department of Justice, from 1975 to 1981. (Vancouver Regional Office,
B.C.) From 1974 until 1975, Mr. Kennedy was an articling student with Meredith
& Company in Vancouver, B.C.
 
 **JOHN
KOWALCHUK**
 
 Mr. Kowalchuk
has been President, Chief Executive Officer and a Director of the Company since
in March 2004. Mr. Kowalchuk has more than 33 years of mineral exploration
experience with both senior and junior mining companies working in Canada, US,
Mexico and Chile. He was District Geologist for Placer Dome for over 6 years and
was instrumental in the discovery of several world-class mineral deposits in
Canada including the Howard’s Pass deposit on the Yukon/NWT border and the Kerr
Copper Gold Deposit at Eskay Creek, BC. Mr. Kowalchuk has also served as officer
and director for several junior mining companies, including Admiral Bay and
presently with Island Mountain Gold Mining and Castillian Resources
Corp.
 
 **EDWARD
C. WILLIAMS**
 
 Mr.
Williams has served as President and Chief Executive Officer of Williams
Financial Group, Inc., a financial and business consulting firm from
December 1996 to present. In addition, from May 1999 to
December 1999, he was a director of iCommerce Group, Inc. and was Chief
Financial Officer, Treasurer and Assistant Secretary. From September 1997
to February 1999, Mr. Williams was the Chief Financial Officer of Caribbean
Cigar Company. He also served as Interim President from June 1998 to
July 1998. He was a Director from November 1997 to February 1999.
Mr. Williams was Vice President - Finance of DenAmerica Corp. from
April 1996 to July 1996, and he was Chief Financial Officer of
American 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 until January 1993,
Mr. Williams was employed by KPMG, most recently as a senior
manager.
 
 **PETER
FERDERBER**
 
 Mr. Ferderber
is not an employee of ours but has been included here because we will rely
heavily on his services and expertise. He is a consultant to the Company. He has
been involved in mining exploration for over forty years. He has been the
President of Prospecting Geophysics Ltd., a mining geophysics company
located in Quebec, Canada, since 1955 and was awarded the “Prospector of the
Year,” the Prospectors and Developers Association award for Canada and the
Province of Quebec in 1979.
 
 *Conflicts
of Interest*
 
 Our
management has other financial and business interests to which a significant
amount of time is devoted which may pose conflicts of interest with regard to
allocation of their time and efforts. Teodosio Pangia, our former president,
director and CEO is also the sole principal of Epwort Trading, Ltd. and holder
of 10.83% of our common stock and beneficially owns and/or controls, either
directly or indirectly, seven companies, Altea Investments, Ltd., Gata
Investments, Ltd., Baychester Investments, Ltd., TVP Capital Corp.,
Bekeman Investments, 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 common stock. There can be no assurance that management will
resolve all conflicts of interest in favor of Diamond Discoveries. Failure of
management to conduct Diamond Discoveries’ business in its best interest may
result in liability of the management to Diamond Discoveries.
 
 27
 **Committees**
 
 The
entire Board of Directors performs the functions of the audit committee and
compensation committee. The Company does not have an audit committee financial
expert serving on the audit committee. The Company intends to add such persons
to the Board of Directors and the Audit Committee at such time as the 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 1934 requires directors, executive
officers and 10% or greater shareholders of the Company to file with the
Securities and Exchange Commission initial reports of ownership (Form 3) and
reports of changes in ownership of equity securities of the Company (Form 4 and
Form 5) and to provide copies of all such Forms as filed to the Company. Based
solely on our review of the copies of these forms received by us or
representations from certain reporting persons, we believe that SEC beneficial
ownership reporting requirements for fiscal 2004, were met with the following
exceptions:
 
 Our
former CEO Teodosio V. Pangia failed to timely file Form 3 and a Form 4 to
report transactions in March 2003 and has not yet filed these reports. Messrs.
Kowalchuk, Kennedy, and Williams failed to timely file a Form 3 when they became
directors of the Company in March 2004, these reports were subsequently
filed.
 
 Due to
the complexity of the reporting rules, we expect to institute procedures to
assist our officers and directors with these obligations.
 
 **Code
of Ethics**
 
 We have a
code of ethics (the “Code”) that applies to members of our Board of Directors,
our officers including our president (being our principal executive officer),
and our chief financial officer (being our principal financial and accounting
officer). The Code sets forth written standards that are designed to deter
wrongdoing and to promote: honest and ethical conduct, full, fair, accurate,
timely, and understandable disclosure in reports and documents that we file
with, or submit to, the Securities and Exchange Commission and in other public
communications made by us; compliance with applicable governmental laws, rules
and regulations; prompt internal reporting of violations of the Code to an
appropriate person or persons identified in the Code; and accountability for
adherence to the Code.
 
 A copy of
the Code is attached to as an exhibit to the Form 10-KSB filed on April 14,
2004.
 
 **Item
10****.
Executive Compensation**
 
 The table
below shows the annual, long-term and other compensation for services in all
capacities to the Company and its subsidiaries paid during the year ended
December 31, 2004, to the Chief Executive Officer and the other four most highly
compensated executive officers of the Company during the year ended December 31,
2004 (our “named executive officers”):
 
 **SUMMARY
COMPENSATION TABLE**
 
 **Annual
      Compensation**
    
    **Long
      Term Compensation****Name
      and Position**
    
    **Year**
    
    **Salary
      ($)**
    
    **Bonus
      ($)**
    
    **OtherAnnualCompen-sation
      ($)**
    
    **Restricted
      Stock Awards ($)**
    
    **Securities
      Under-lying Options/ SARS (#)**
    
    **All
      Other Compen-sation ($)**John
      Kowalchuk
    
    2004
    
    $
    18,446Chief
      Executive Officer
    
    2003
    
    —2002
    
    —Edward
      C. Williams
    
    2004
    
    $
    72,500
    (1)Chief
      Financial Officer
    
    2003
    
    —2002
    
    —
 
 (1)  Includes
$22,500 accrued but not paid to Mr. Williams at December 31, 2004.
 
  28
  **OPTION/SAR
GRANTS IN LAST FISCAL YEAR**
 
 The table
below shows the number of options to purchase shares of our common stock that
were granted to each of our named executive officers during fiscal
2004:
 
 **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**John
      Kowalchuk
 
 **AGGREGATED
OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR
VALUES**
 
 The table
below shows the number of stock options held at the end of or exercised during
fiscal 2004 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**John
      Kowalchuk
    
    
    
    
    
    375,000Edward
      C. Williams
    
    
    
    
    
    375,000
 
 (1)
    Based
      on $0.04 per share, the closing price of our common stock as quoted on the
      Over-the-Counter Bulletin Board on April 12, 2005, the options exercisable
      by Mssrs. Kowalchuk and Williams are not
In-the-Money.
 
 **Long
Term Incentive Plans - Awards in Last Fiscal Year**
 
 None.
 
 **Compensation
of Directors**
 
 Standard
Arrangements.
 
 At
present, the Company does not 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 the Company are compensated for any services provided as a director
or for committee participation or special assignments.
 
 Other
Arrangements.
 
 During
the year ended December 31, 2004, and except as disclosed elsewhere in this
report, no director of the Company received any form of compensation from the
Company.
 
 **Employment
Contracts and Termination of Employment, and Change-in-Control
Arrangements.**
 
 We have
not entered into employment agreements with any of our officers or directors.
 
 29
 **Item 11. Security Ownership of Certain Beneficial Owners and
Management**
  
 The
following table sets forth the name and address of each officer and director of
the Company and each person who owns beneficially more than five percent of the
Common Stock of the Company, and the number of shares owned by each such person
and by all officers and directors as a group as of April 12, 2005:
 
 **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)
    *
    %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)
    
    1,750,000
    
    1.6
    %Teodosio
      V. Pangia
    
    20,365,000
    (6)
    19.0
    %Epwort
      Trading Ltd.(7)
    
    7,500,000
    
    7.5
    %
 
 * Less
than 1%
 (1)
    Unless
      otherwise indicated, the beneficial owner’s address is the same as the
      Company’s principal office.
 (2)
    Percentages
      calculated on the basis of the amount of outstanding shares plus, for each
      person, any shares that person has the right to acquire within
      60 days pursuant to options or other rights.
 (3)
    Includes
      500,000 shares of common stock that are issuable under a stock
      option.
 (4)
    Includes
      375,000 shares of common stock that are issuable under a stock
      option.
 (5)
    Includes
      375,000 shares of common stock that are issuable under a stock
      option.
 (6)
    Includes
      an aggregate of 8,365,000 shares held TVP Capital Corp., Altea
      Investments, Ltd., Gata Investments, Ltd., Bekeman
      Investments, Ltd., SD Investments, Ltd., Baychester
      Investments Ltd., and Aester Investments Holdings Limited, companies
      beneficially owned and/or controlled (directly or indirectly) by
      Mr. Pangia, 4,500,000 shares held by Mr. Pangia and 7,500,000 shares
      held by Epwort Trading, Ltd., see footnote (7) below.
 (7)
    Teodosio
      V. 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
    
    4,100,000
    
    $
    0.01
    
    1,025,000Equity
      compensation plans not approved by security holders
    
    3,575,000
    
    $
    0.11
    
    125,000Total
    
    7,675,000
    
    $
    0.06
    
    1,150,000
 
 
 Stock
Option Plans
 
 2004
Plan
 
 On
September 30, 2004, the Company adopted the Diamond Discoveries International
Corp. 2004 Stock Incentive Plan (the “2004 Plan”). Under the 2004 Plan,
35,000,000 shares of common stock are reserved for issuance. The purpose of the
2004 Plan is to provide incentives for officers, directors, consultants and key
employees to promote the success of the Company, and to enhance the Company’s
ability to attract and retain the services of such persons. Options granted
under the 2004 Plan may 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. Stock options may be granted under the 2004 Plan
for all employees and consultants of the Company, or employees of any present or
future subsidiary or parent of the Company. The 2004 Plan is administered by the
Board of Directors. The Compensation Committee is empowered to interpret the
2004 Plan and to prescribe, amend and rescind the rules and regulations
pertaining to the 2004 Plan. Options granted under the 2004 Plan generally vest
over three years. No option is transferable by the optionee other than by will
or the laws of descent and distribution and each option is exercisable, during
the lifetime of the optionee, only by the optionee. The Compensation Committee
may not receive options.
 
 30
 Any
incentive stock option that is granted under the 2004 Plan may not be granted at
a price less than 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% or more of the total combined voting power through all classes of stock
of the Company or a subsidiary or parent of the Company.) Non-qualified stock
options may be 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 on the date of grant.
 
 Each
option granted under the 2004 Plan is exercisable for a period not to exceed ten
years from the date of grant (or five years in the case of a holder of more than
10% of the total combined voting power of all classes of stock of the Company or
a subsidiary or parent of the Company) and shall lapse upon expiration of such
period, or earlier upon termination of the recipient’s employment with the
Company, or as determined by the Compensation Committee.
 
 
 2003
Plan
 
 On May
30, 2003, the Company adopted the Diamond Discoveries International Corp. 2003
Stock Incentive Plan (the “Plan”). Under the Plan, 15,000,000 shares of common
stock are reserved for issuance. The purpose of the Plan is to provide
incentives for officers, directors, consultants and key employees to promote the
success of the Company, and to enhance the Company’s ability to attract and
retain the services of such persons. The Plan provides for the grant of
incentive stock options and nonqualified stock options (“Options”) and
restricted stock awards (“Restricted Stock Awards”) and Stock Appreciation
Rights, Performance Shares, Dividend Equivalent Payments, and Other Stock Based
Awards (“Options,” “Restricted Stock Awards,” and “Stock Appreciation Rights,”
are collectively referred to herein as “Awards”). Options granted under the Plan
may 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. Stock options may be granted under the Plan for all employees and
consultants of the Company, or employees of any present or future subsidiary or
parent of the Company. The Plan is administered by the Board of Directors. The
Compensation 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 generally vest over three years. The Compensation
Committee may not receive options.
 
 Any
incentive stock option that is granted under the Plan may not be granted at a
price less than 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% or more of the total combined voting power through all classes of stock of
the Company or a subsidiary or parent of the Company.) Non-qualified stock
options may be 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 on the date of grant, but in no event shall such exercise price be less
than 55% of such fair market value.
 
 Each
option granted under the Plan is exercisable for a period not to exceed ten
years from the date of grant (or five years in the case of an incentive stock
option granted to a holder of more than 10% of the total combined voting power
of all classes of stock of the Company or a subsidiary or parent of the Company)
and shall lapse upon expiration of such period, or earlier upon termination of
the recipient’s employment with the Company, or as determined by the
Compensation Committee.
 
 Awards
are generally non-transferable other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order.
 
 The
Company’s Board of Directors may at any time, and from time to time, amend,
terminate, or suspend one or more of the Plan in any manner it deems
appropriate, provided that such amendment, termination or suspension cannot
adversely affect rights or obligations with respect to shares or options
previously granted, unless the Award recipient consents to such changes in
writing. The Board of Directors may not, without shareholder approval: make any
amendment which would materially modify the participation eligibility
requirements for the 2004 Plan, to the extent they require approval in order to
satisfy the Internal Revenue Code requirements; make other modifications
requiring stockholder approval to satisfy the Internal Revenue Code
requirements, increase the total number of shares of common stock which may be
issued pursuant to the 2004 Plan, except in the case of a reclassification of
the Company’s capital stock or a consolidation or merger of the
Company.
 
 **Item
12. Certain Relationships and Related Transactions**.
 
 Teodosio
Pangia, our former president, director and CEO, is the sole principal of Epwort
Trading Ltd., which owns 7,500,000 shares or 10.83% of our shares of common
stock and beneficially owns and/or controls, either directly or indirectly,
seven companies, TVP Capital Corp., Altea Investments, Ltd., Gata
Investments, Ltd., Baychester Investments, Ltd., Bekeman
Investments, Ltd., Aester Investments Holdings Limited and S D
Investments, Ltd., which in the aggregate hold 8,365,000 shares or 12.09%
of our shares of common stock.
 
 31
 We
entered into an Acquisition Agreement dated September 12, 2000 with
Mr. Ferderber, Mr. Hawkins and Tandem Resources Ltd. The
Acquisition Agreement provides for us to purchase certain mineral exploration
permits from Messrs. Ferderber and Hawkins. Such permits cover 469.05
square kilometers in the Torngat fields in northwest Quebec, Canada, on the
eastern shore of Ungava Bay. As consideration for the acquisition of these
permits, we have issued 1,000,000 shares of our common stock to each of
Messrs. Ferderber and Hawkins and have paid $35,000 Canadian to
Mr. Hawkins and $25,000 Canadian to Mr. Ferderber.
 
 In
addition, the Acquisition Agreement further provides for an option to Tandem
Resources Ltd., to purchase 40% of the properties covered by the permits
conditioned on (i) the Company expending $5,000,000 Canadian on exploration
of the properties; (ii) Tandem paying us $2,000,000 Canadian and
(iii) Tandem entering into a joint venture agreement with us to operate the
properties within 60 days of our demonstrating expenditure of $5,000,000
Canadian on exploration of the properties. In addition, we will have twenty-one
(21) days from the date we notify Tandem that we have expended $5,000,000
Canadian on exploration of the properties, to negotiate a financing agreement
with Tandem to provide Tandem with the $2,000,000 Canadian required to exercise
the option. Should no agreement be reached in the twenty-one (21) day
period, our right to provide this financing shall expire. Also, upon the closing
of the acquisition, we assigned to Messrs. Ferderber and Hawkins a one (1%)
percent interest in the Net Smelter Returns of the properties, half of which is
payable over the first $50,000,000 Canadian in revenues from the properties.
This interest in the Net Smelter Returns terminates once Ferderber and Hawkins
have received, in the aggregate, $10,000,000 Canadian.
 
 In
connection with the Acquisition Agreement, Mr. Ferderber has executed an
agreement with us as of June 20, 2000 which transfers mineral rights over
all of the properties to us.
 
 We
entered into a Prospecting and Survey Agreement with Prospecting
Geophysics Ltd. dated November 20, 2000, whereby Prospecting
Geophysics Ltd. will act as the project manager for the Company’s mineral
exploration operations. Peter Ferderber is the President of Prospecting
Geophysics Ltd. Under the agreement, we are to pay for Mr. Ferderber’s
services at a rate of $500 per day, on days that he personally attends the
properties, in addition to reimbursing all expenses incurred by Prospecting
Geophysics on behalf of the Company. Mr. Ferderber anticipates attending
the properties approximately five to seven days every month. Prospecting
Geophysics is required under the agreement to conduct prospecting and surveying
activities on our behalf. The agreement has a term of eighteen (18) months
with automatic renewal unless either party gives 30 days’ notice of its
intent to terminate. During the years ended December 31, 2004 and 2003 and
the periods from April 24, 2000 (date of inception) to December 31, 2004,
we incurred exploration costs by Prospecting Geophysics Ltd. of
approximately $277,039 Canadian, $671,394 Canadian and $3,992,022 Canadian,
respectively. In addition, the Company owed Prospecting Geophysics Ltd.
$1,926,540 at December 31, 2004.
 **Item 13. Exhibits and Reports on Form 8-K.**
 
 There
were no Current Reports on Form 8-K filed by the Registrant during the
fourth quarter of the calendar year ended December 31, 2004.
 
 **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
      (3)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)
 
 (1)
Previously filed on September 21, 2000 as part of the Company’s
Registration Statement on Form 10-SB, File No. 0-31585.
 (2)
Previously filed on December 1, 2000 as part of the Company’s Amended
Registration Statement on
Form 10-SB, File No. 0-31585.
 (3) Previously filed on April 14, 2004 as an exhibit to
Form 10-KSB.
 
 32
 **Item 14. Principal Accountant Fees and
Services**
 
 During
2004 and 2003, the Company incurred the following fees for professional services
rendered by the principal accountant:
 
 **2004**
    
    **2003**Fees
      for audit services
    
    $
    20,347
    
    $
    27,182Fees
      for audit-related services
    
    $
    8,670
    
    $
    3,486Tax
      fees
    
    $
    0
    
    $
    0All
      other fees
    
    $
    0
    
    $
    0
 
 The Audit
Committee pre-approves all audit and non-audit services to be performed by the
Company’s independent auditors.
 
  33
  
 **SIGNATURES**
 
 In
accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
 
 DIAMOND
      DISCOVERIES INTERNATIONAL CORP.By:
    /s/
      John KowalchukJohn
      Kowalchuk,
      *CEO*Dated:
      April 13, 2005
 
 In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
 
 By:
    /s/
      Thomas J. KennedyThomas
      J. Kennedy,
      *Chairman
      and Director*Dated:
      April 13, 2005By:
    /s/
      John KowalchukJohn
      Kowalchuk,
      *President,
      CEO and Director*Dated:
      April 13, 2005By:
    /s/
      Edward C. WilliamsEdward
      C. Williams,
      *Secretary,
      Treasure, Director and Principal Accounting*
      *Officer*Dated:
      April 13, 2005
 
   34
  
 **APPENDIX A**
 
 
  35