---

|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

T A B L E   O F   C O N T E N T S

|1.1    | DATE                                                                        | 2 
|------ | --------------------------------------------------------------------------- | --
|       |                                                                             |   
|1.2    | OVERVIEW                                                                    | 2 
|       |                                                                             |   
|1.3    | SELECTED
      ANNUAL INFORMATION                                           | 22
|       |                                                                             |   
|1.4    | SUMMARY
      OF QUARTERLY RESULTS                                          | 23
|       |                                                                             |   
|1.5    | RESULTS
      OF OPERATIONS                                                 | 24
|       |                                                                             |   
|1.6    | LIQUIDITY                                                                   | 25
|       |                                                                             |   
|1.7    | CAPITAL
      RESOURCES                                                     | 26
|       |                                                                             |   
|1.8    | OFF-BALANCE
      SHEET ARRANGEMENTS                                        | 28
|       |                                                                             |   
|1.9    | TRANSACTIONS
      WITH RELATED PARTIES                                     | 28
|       |                                                                             |   
|1.10   | FOURTH
      QUARTER                                                        | 31
|       |                                                                             |   
|1.11   | PROPOSED
      TRANSACTIONS                                                 | 31
|       |                                                                             |   
|1.12   | CRITICAL
      ACCOUNTING ESTIMATES                                         | 32
|       |                                                                             |   
|1.13   | CHANGES
      IN ACCOUNTING POLICIES INCLUDING INITIAL ADOPTION             | 34
|       |                                                                             |   
|1.14   | FINANCIAL
      INSTRUMENTS AND RISKS AND UNCERTAINTIES                     | 40
|       |                                                                             |   
|1.15   | OTHER
      MD&A REQUIREMENTS                                               | 43
|       |                                                                             |   
|1.15.1 | ADDITIONAL
      DISCLOSURE FOR VENTURE ISSUERS WITHOUT SIGNIFICANT REVENUE | 43
|       |                                                                             |   
|1.15.2 | DISCLOSURE
      OF OUTSTANDING SHARE DATA                                  | 43
|       |                                                                             |   
|1.15.3 | INTERNAL
      CONTROLS OVER FINANCIAL REPORTING PROCEDURES                 | 43
|       |                                                                             |   
|1.15.4 | DISCLOSURE
      CONTROLS AND PROCEDURES                                    | 45

1

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

1.1        Date

This Management Discussion and Analysis ("MD&A") should be
read in conjunction with the audited Consolidated Financial Statements of
Rockwell Diamonds Inc. ("Rockwell", or the "Company") for the year ended
February 28, 2010, the year ended February 28, 2009, and the nine months ended
February 29, 2008, prepared in accordance with Canadian generally accepted
accounting principles (Canadian GAAP), and publicly available on SEDAR at
www.sedar.com.

This MD&A is prepared as of May 28, 2010 for the three months
  and twelve months ended February 28, 2010. All dollar figures stated herein
  are expressed in Canadian dollars, unless otherwise specified.

This discussion includes certain statements that may be
      deemed "forward-looking statements". All statements in this discussion,
      other than statements of historical facts, that address future production,
      reserve potential, exploration drilling, exploitation activities and
      events or developments that the Company expects are forward-looking
      statements. Although the Company believes the expectations expressed in
      such forward-looking statements are based on reasonable assumptions, such
      statements are not guarantees of future performance and actual results or
      developments may differ materially from those in the forward-looking
      statements. Factors that could cause actual results to differ materially
      from those in forward-looking statements include market prices,
      exploitation and exploration successes, continued availability of capital
      and financing and general economic, market or business conditions.
      Investors are cautioned that any such statements are not guarantees of
      future performance and that actual results or developments may differ
      materially from those projected in the forward-looking statements.


Information Concerning Estimates of Indicated and Inferred
      ResourcesThis management discussion also uses the terms indicated
      resources and inferred resources. Rockwell Diamonds Inc. advises
      investors that although these terms are recognized and required by
      Canadian regulations (under National Instrument 43-101 Standards of
      Disclosure for Mineral Projects), the U.S. Securities and Exchange
      Commission does not recognize them. Investors are cautioned not to assume
      that any part or all of the mineral deposits in these categories will ever
      be converted into reserves. In addition, inferred resources have a great
      amount of uncertainty as to their existence, and economic and legal
      feasibility. It cannot be assumed that all or any part of an Inferred
      Mineral Resource will ever be upgraded to a higher category. Under
      Canadian rules, estimates of Inferred Mineral Resources may not form the
      basis of feasibility or pre-feasibility studies, or economic studies
      except for Preliminary Assessment as defined under 43-101. Investors are
      cautioned not to assume that part or all of an inferred resource exists,
      or is economically or legally mineable.


1.2        Overview

Rockwell is engaged in the business of operating and developing
alluvial diamond deposits which will allow it to become a mid-tier diamond
mining company. The Company has three existing operations which it is
progressively optimizing and has a promising pipeline of other advanced projects
that it is looking to develop.

2

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Rockwell is also in the process of considering and pursuing
merger and acquisition opportunities in order to extend the mineral resources of
the Company and to develop additional production to provide accretive value to
Rockwell.

1.2.1    Summary

Operations

During fiscal 2010, Rockwell operated three alluvial diamond
mines: Holpan, Klipdam and Saxendrift.

During the latter part of the Companys 2009 fiscal year, the
diamond market was significantly impacted by the world financial crisis. In
February 2009, the Company placed its Wouterspan operation on care and
maintenance. The Company commissioned its Saxendrift operation during the first
quarter of fiscal 2010.

Following a 50% decline in diamond prices in the last quarter
of fiscal 2009, rough diamond prices have showed an improvement in price during
the last two quarters of fiscal 2010. The Company sold parcels of diamonds in
March, May, June, July, August/September and November 2009, and January/February
2010.

The average price per carat received was US$531.43 in March,
US$584.69 in May, US$699.75 in June, US$807.20 in early July, US$1,090.55 on
July 27, US$862.36 in August/September, US$1,416.40 in the November tenders and
US$1,154.11 in the January/February tenders . The average price received from
sales in the fourth quarter of fiscal 2010 was US$1,154.11 per carat, a decrease
of 9% from the average price of US$1,268.83 per carat received in the third
quarter of fiscal 2010. The decrease was due to a parcel of moderate-quality
stones being tendered in February compared to the previous quarter which
included several large, high-quality gems.

A combination of relatively high operating costs and the
collapse in the demand for high value stones resulted in suspension of the
Wouterspan operations at the end of the third quarter of 2009. Plans are
currently being made to upgrade and re-commission Wouterspan in the latter part
of fiscal 2011.

During fiscal 2010, the Company raised $8.6 million from
private placements. Subsequent to year end, the Company raised $4.6 million from
a fully subscribed rights issue and a further $3.4 million was received from
Daboll Consultants Limited by means of a private placement in terms of a Standby
Agreement related to the rights offer.

A portion of the funds raised through the combined private
placement and rights offer were utilized by the Company to strengthen its
balance sheet, settle short term liabilities including a financing facility
(overdraft), to pay legal and corporate fees expended on an unsolicited hostile
bid and proxy contest instituted by Pala Investments Limited (Pala), and to
repay a four month payment holiday on equipment leases negotiated with Komatfin
during fiscal 2010.

The majority of the funds raised by Rockwell will be utilized
  during fiscal 2011 to undertake plant improvements and optimization at existing
  operations, and to initiate the modernization and re-commissioning of the Wouterspan
  processing plant into a high volume low cost mining and processing operation
  similar to Saxendrift. Management believes that this, together with ongoing
  operational improvements, reduction in operating costs, and increasing prices
  and demand for diamonds will improve the Companys financial performance.

3

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               



In the three month period ended February 28, 2010:

- 4,995.9 carats were produced at the Holpan, Klipdam and Saxendrift
  operations.
- 5,886.7 carats were sold at an average price of US$1,154.11 per carat.
- Tender sales of US$5.5 million plus US$1.4 million returns from
  beneficiation profit share (the joint venture with the Steinmetz Group, where
  rough stones are polished and sold and the profit shared) resulted in diamond
  revenues for the quarter of $7.3 million (US$6.9 million).
- Cost of sales including amortization, depletion and impairment charges
  totalled $8.1 million. During the period in which Wouterspan has been placed
  on care and maintenance, the rate of depreciation of the plant and equipment
  was reduced, but still allowed for impairment. An impairment charge of $0.2
  million was recognized in the quarter. This resulted in a combined
  amortization, depletion and impairment charge of $1.5 million for the quarter.
- An operating loss of $0.6 million was realized for the period.
- Net general and administrative expenses amounted to $2.4 million, interest
  expenses amounted to $0.2 million and future income taxation recovery was $1.0
  million.
- A loss of $0.7 million or 0.006 cents per share was realized for the
  period.

In the twelve months ended February 28, 2010:

- 24,915.9 carats were produced from operations at Holpan, Klipdam,
  Wouterspan and Saxendrift.
- 26,532.4 carats were sold at an average price of US$1,010.21 per carat.
- Tender sales of US$26.4 million, plus returns from beneficiation profit
  share of US$1.9 million resulted in diamond revenue for the year of $29.8
  million (US$28.3 million).
- Cost of diamond sales was $22.9 million and amortization and depletion was
  $9.5 million for total operating expenses of $32.4 million.
- An operating loss of $2.7 million was realized for the year.
- Net general and administrative expenses amounted to $8.7 million, and net
  interest expenses were $1.5 million, offset by a net tax recovery of $2.6
  million.
- A loss of $7.0 million or $0.03 per share was realized for the year.
- Diamond inventories at February 28, 2010 totalled 1,909.66 carats.

4

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Potential Acquisition

In March 2010, the Company announced that it has signed a term
sheet with Etruscan Diamonds Limited whereby the Company proposes to purchase
Etruscans Blue Gum diamond operation in the Ventersdorp region, South Africa.
The acquisition is for 74% of the operation with the balance owned pursuant to
South Africas Black Economic Empowerment regime. The price to be paid to
Etruscan is an amount not exceeding ZAR33.5 million (approximately $4.65
million) payable in Rockwell shares valued at $0.068 each. The Company will also
assume certain non-material property maintenance obligations effective
immediately and other financial obligations upon completion of the
acquisition.

The Blue Gum alluvial diamond deposit hosts estimated mineral
resources of 25 million cubic meters (indicated) with a grade of 2.37 carats/100
cubic metres and 15 million cubic meters (inferred) with a grade of 2.37
carats/100 cubic metres as at October 2009. Tania Marshall, PhD., Pr.Sci.Nat.,
an independent Qualified Person, is responsible for the resource estimate. A
technical report has been filed on the Companys profile at www.sedar.com.

Completion of the acquisition is subject to a number of
conditions including South African mining ministry consent, securities
regulatory approvals including TSX, satisfactory due diligence and project
development financing and electric power negotiations. The Rockwell shares to be
issued will be subject to escrow, resale and voting restrictions and will not
materially affect control. Completion is targeted for the third calendar
quarter.

Corporate

On April 29, 2009, Pala Investments Holdings Limited (Pala)
called a special shareholders meeting of the Company. The meeting was called to
remove certain directors of the Company, to appoint and elect certain new
directors and to amend and terminate the Companys shareholders rights plan.
The special shareholders meeting was held on June 17, 2009 and the proposed
resolutions to reconstitute the Board and amend and terminate the shareholders
rights plan were not approved by the shareholders. Subsequently, two of the
Companys independent directors and Audit Committee members, Messers G. Radke
and T. Janes resigned from the Board.

During the third quarter of fiscal 2010, Messers W. Jacobs and
R. Linnell were appointed to the Board of Directors.

In the fourth quarter, Mr W. Fisher resigned from the board and
Mr G. Yong was appointed to the Rockwell Board of Directors.

The current Audit Committee is comprised of Messers W. Jacobs
and R. Linnell. The Company is in the process of identifying and appointing
additional independent directors to the Company and to the Audit Committee.

In addition, the Company appointed Graham Chamberlain as its
Chief Operating Officer as of November 1, 2009.

5

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

1.2.2Financing

During the fourth quarter of fiscal 2010, the Company raised
$8.6 million from a private placement to new and existing shareholders. Of this
amount, $6.0 million was utilised in fiscal 2010 to strengthen the Companys
balance sheet and was allocated as follows:

- Repayment of a four month payment deferral (capital portion of lease
  payments) from Komatfin, the institution that finances the Mobile Production
  Vehicles (yellow fleet). This deferral had run from July until November 1,
  2009, and provided short term financing of $2.2 million.
- Repayment of the short term, partially secured, borrowing facility of $3.8
  million.

Subsequent to February 28, 2010, the Company raised
approximately $4.6 million through a fully subscribed rights offering. Further
to the rights offering and a Standby Agreement entered into at the outset of the
rights offer, funds of $3.4 million were received from Daboll Consultants
Limited by way of a private placement.

Overall in fiscal 2010 and to the date of this MD&A, the
Company successfully raised a total amount of $16.6 million through the combined
private placements and rights offer. As noted above, some $6.0 million was
utilized in fiscal 2010 to strengthen the Companys balance sheet. Funds were
also utilized to pay fees associated with the fund raising, settle short term
debt, and pay costs incurred in fiscal 2010 due to unsolicited corporate
activity by Pala.

The majority of the funds raised by Rockwell will be allocated
to further optimise existing operations and to modernize and re-commission
Wouterspan. Growth and expansion to take advantage of the recovering diamond
market is a key priority for Rockwell.

1.2.3    Agreements

Black Economic Empowerment Holdings (BEE) in Rockwell
Properties

During the year ended May 31, 2007, Africa Vanguard Resources
(Pty) Limited (AVR), the holding Company of Richtrau No 136 (Pty) Limited
(Richtrau), purchased through Richtrau a 15% interest in Van Wyk Diamond Group
(VWDG) from the Van Wyk Trust for an amount of ZAR22.5 million ($3.4 million).
The holdings of the VWDG comprised the mining projects known as Holpan, Klipdam,
and Wouterspan purchased by Rockwell through its wholly owned South African
subsidiary Rockwell Resources RSA (Pty) Limited (Rockwell RSA) from H C Van
Wyk Diamonds Limited. Subsequently on November 30, 2008, AVR indicated its
commitment to increase its shareholding in the VWDG to 26% by subscribing for an
additional 11% of the shares in each of the entities comprising VWDG. The
additional 11% stake was acquired by another subsidiary of AVR, Georgia Avenue
Investments (Pty) Limited (Georgia), at a subscription price of ZAR17.5
million. The AVR group was also contractually committed to inject ZAR10.5
million in working capital into the VWDG.

As a result of the world wide credit contraction and economic
  recession, depressed market conditions and decline in diamond prices, the AVR
  group indicated to the Board of Directors of Rockwell RSA (the holding company
  of the entities in VWDG) during the fourth quarter of fiscal 2009 that it was
  unable to make outstanding payments to complete its financial obligations, and
  that it was pursuing other funding mechanisms to meet its obligations.

6

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

As at February 28, 2009, AVR owed Rockwell approximately ZAR19
  million to conclude the Georgia transactions; this amount is still outstanding
  at February 28, 2010. The contractually committed ZAR10.5 million due to VWDG
  has also not been received from AVR at this point in time.

Rockwell RSA has, in conjunction with AVR, endeavoured to
identify alternate sources of funding to assist AVR to complete its investment
in the VWDG projects, and currently negotiations are being progressed with the
Industrial Development Corporation (IDC) of South Africa. Rockwell RSA is in
on-going discussions with AVR, and has also engaged with the Department of
Mineral Resources with the assistance of its legal counsel to address the
completion of the BEE participation in the share capital of the entities
comprising VWDG. The shares for the outstanding equity purchases are held in
trust by legal firm Tabacks pending conclusion of the transaction.

Effective October 2, 2008, AVR via Liberty Lane Investments
(Pty) Limited, acquired a shareholding of an effective 26% in the Saxendrift
project by subscribing for shares in Saxendrift Mines (Pty) Limited for an
amount of approximately ZAR26 million. This transaction was also conducted in
respect of the Minerals and Petroleum Resources Development Act and has been
structured via a loan structure underwritten by Rockwell Resources RSA (Pty)
Limited. As of February 28, 2010, AVR has only paid an initial deposit of ZAR3
million in respect of this transaction which is structured over a two year
period. Rockwell is also in discussion with AVR regarding the funding for the
outstanding amount of this transaction.

7

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

1.2.4    Production Properties

Production and Sales  Quarter Comparison

The following is a comparison of the current quarter (ended
February 28, 2010) with the quarter ended February 28, 2009.

PRODUCTIONOperation
      3 months ended February 28, 2010
      3 months ended February 28, 2009Volume (cubic meters)
      Carats
      Average grade (carats per 100
        cubic meters)
      Volume (cubic meters)
      Carats
      Average grade (carats per 100
        cubic meters)Holpan
      151,933
      1,484.7
      0.98
      49,073
      259.8
      0.53Klipdam
      158,300
      1,724.6
      1.09
      43,250
      523.2
      1.21Saxendrift
      310,921
      1,786.6
      0.57
      21,171
      165.8
      0.78Total
      621,154
      4.995.9
      0.80
      113,494
      948.8
      0.84


SALES, REVENUE AND INVENTORIESOperation
      3 months ended February 28, 2010
      3 months ended February 28, 2009Sales (carats)
      Value of Sales (US$)
      Average value (US$
        per carat)
      Inventories (carats)
      Sales (carats)
      Value of Sales (US$)
      Average value (US$
        per carat)
      Inventories (carats)Holpan
      1,206.0
      1,114,246
      926.99
      780.3
      704.7
      134,633
      191.04
      839.8Klipdam
      2,182.9
      1,191,596
      545.88
      595.4
      832.1
      111,576
      134.09
      1,742.3Wouterspan
      -
      -
      -
      -
      957.0
      340,738
      356.03
      576.9Saxendrift
      2,497.8
      4,488,199
      1,796.86
      533.9
      549.4
      381,784
      694.95
      367.2Total
      5,886.7
      6,794,041
      1,154.13
      1,909.6
      3,043.2
      968,731
      318.32
      3,526.2


INVENTORIES (carats)Operation
      Rough Diamond Inventories
        November 30, 2009
      Production
      Rough Diamond Sales
      Rough Diamond Inventories
        February 28, 2010Holpan
      501.7
      1,484.7
      1,206.0
      780.4Klipdam
      1,053.7
      1,724.6
      2,182.9
      595.4Wouterspan
      -
      -
      -
      -Saxendrift
      1,245.1
      1,786.6
      2,497.8
      533.9Total
      2,800.5
      4,995.90
      5,886.7
      1,909.7


8

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Production and Sales  Twelve Month
Comparison

The following is a comparison of the twelve months of fiscal
2010 (ended February 28, 2010) with the twelve months ended February 28, 2009.

PRODUCTIONOperation
      12 months ended
        February 28, 2010
      12 months ended February 28,
        2009Volume (cubic
        meters)
      Carats
      Average grade (carats
        per 100 cubic meters)
      Volume (cubic
        meters)
      Carats
      Average grade (carats
        per 100 cubic meters)Holpan
      805,925
      6,398.2
      0.79
      561,583
      4,127.4
      0.73Klipdam
      895,669
      9,669.8
      1.08
      711,924
      7,041.8
      0.99Wouterspan
      -
      14.1
      -
      552,293
      3,897.1
      0.71Saxendrift
      1,216,503
      8,833.8
      0.73
      194,287
      2,436.7
      1.18Total
      2,918,097
      24,915.9
      0.85
      2,020,087
      17,503.0
      0.87


SALES, REVENUE AND INVENTORIESOperation
      12 months ended February 28, 2010
      12 months ended February 28, 2009Sales(carats)
      Value of Sales
        (US$)
      Average value
        (US$ per carat)
      Inventories (carats)
      Sales (carats)
      Value of Sales
        (US$)
      Average value
        (US$ per carat)
      Inventories (carats)Holpan
      6,457.7
      3,166,842
      492.09
      780.3
      3,741.1
      4,272,511
      1,142.05
      839.8Klipdam *
      10,816.7
      6,301,240
      581.26
      595.4
      5,657.0
      18,954,292
      3,350.61
      1,742.3Wouterspan
      591.0
      280,193
      475.32
      -
      3,640.8
      4,698,121
      1,290.41
      576.9Makoenskloof
      -
      -
      -
      -
      212.0
      1,500,119
      7,076.03
      -Saxendrift
      8,667.1
      17,055,281
      1,967.81
      533.9
      2,069.5
      3,656,268
      1,766.71
      367.2Total
      26,532.5
      26,803,556
      1,010.21
      1,909.6
      15,320.4
      33,081,311
      2,159.30
      3,526.2


*Included in the Klipdam sales are 322.02 carats at $122,973
from ERF-1 Windsorton, a prospecting right within the Holpan-Klipdam mining area

INVENTORIES (carats)Operation
      Rough Diamond Inventories
        Beginning of Period*
      Production
      Rough Diamond Sales
      Rough Diamond Inventories
        End of PeriodHolpan
      839.8
      6,398.16
      6,457.7
      780.32Klipdam
      1,742.3
      9,669.82
      10,816.7
      595.43Wouterspan
      576.9
      14.08
      591.0
      -Saxendrift
      367.2
      8,833.84
      8,667.1
      533.91Total
      3,526.2
      24,915.90
      26,532.5
      1,909.66


*Included in the Klipdam inventories are 322.02 carats from
ERF-1 Windsorton, a prospecting right within the Holpan-Klipdam mining area.

Holpan/Klipdam

The Holpan/Klipdam Property is located 45 km from Kimberley,
South Africa. It consists of the contiguous Holpan 161, Klipdam 157 and Erf-1
Windsorton, covering a total area of 4,019.9 hectares.

9

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

The production from Holpan and Klipdam is accounted for
separately because they are separate operating entities.

Three months ended February 28, 2010 compared to three
months ended February 28, 2009

Production at Holpan in the quarter was 1,484.7 carats from
151,933 cubic meters (281,076 tonnes) of gravel processed, compared with 259.8
carats from 49,073 cubic meters (90,785 tonnes) of gravel processed in the
quarter ended February 28, 2009.

Sales from Holpan were 1,206.0 carats at an average value of
US$926.99 per carat, an increase in carats and in value from the 704.7 carats at
an average value per carat of US$191.04 sold in the quarter ended February 28,
2009.

Production at Klipdam was 1,724.6 carats from 158,300 cubic
meters (292,855 tonnes) of gravel, compared to 523.2 carats from 43,250 cubic
meters (80,013 tonnes) of gravel produced in the quarter ended February 28,
2009.

Sales from Klipdam were 2182.9 carats at an average value of
US$545.88 per carat, an increase in carats and value compared to 832.1 carats at
an average value per carat of US$134.04 in the quarter ended February 28,
2009.

Twelve months ended February 28, 2010 compared to twelve
months ended February 28, 2009

Production at Holpan over the twelve months was 6,398.2 carats
from 805,925 cubic meters (1,490,961 tonnes) of gravel processed, compared with
4,127.4 carats from 561,583 cubic meters (1,038,929 tonnes) of gravel processed
in the twelve months ended February 28, 2009.

Sales from Holpan were 6,457.7 carats at an average value of
US$492.09 per carat, an increase in carat sales and decrease in value per carat
sold from 3,741.1 carats at an average value of US$1,142.05 per carat in the
twelve months ended February 28, 2009.

Inventories at Holpan are 780.4 carats.

In the twelve months of the 2010 fiscal year, production at
Klipdam was 9,669.8 carats from 895,669 cubic meters (1,656,987 tonnes) of
gravel, compared to 7,041.8 carats from 711,924 cubic meters (1,317,059) of
gravel produced in the twelve months ended February 28, 2009.

Sales from Klipdam were 10,816.7 carats at an average value of
US$581.26 per carat, an increase in carats sold but a decrease in value per
carat sold from 5,657.0 carats at an average value of US$3,350.6 per carat in
the quarter ended February 28, 2009.

Inventories at Klipdam are 595.4 carats.

10

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|ROCKWELL DIAMONDS INC.                         
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|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Wouterspan

The Wouterspan Property is located near Douglas, South Africa.
It comprises portions, totalling 7,409.4 hectares, of the Lanyon Vale 376 farm.
Operations were taking place on three portions of the property called the
Farhom, Okapi, and Stofdraai farms, exploiting the Rooikoppie and Primary gravel
units. Wouterspan was placed on care and maintenance during February 2009.

Three months ended February 28, 2010 compared to three
months ended February 28, 2009

Wouterspan remains on care and maintenance hence no production
was reported.

There were no sales for the quarter compared to 957.0 carats at
an average price of US$356.03 per carat in the quarter ended February 28, 2009.

Twelve months ended February 28, 2010 compared to twelve
months ended February 28, 2009

During the twelve months of the fiscal 2010 year, Wouterspan
produced 14.1 carats from the retreatment of concentrate, a decrease from
3,897.1 carats produced and 552,293 cubic meters (1,159,815 tonnes) of gravel
processed in the twelve months ended February 28, 2009.

Sales from Wouterspan were 591.0 carats from inventories which
received an average price of US$475.32 per carat. This is a decrease in carats
and value per carat sold from 3,640.8 carats at an average value of US$1,290.4
per carat in the twelve months ended February 28, 2009.

The inventories at Wouterspan are zero (0) carats.

Saxendrift

The Saxendrift mine totalling 5,141.52 hectares is located on
the south bank of the Middle Orange River and adjacent to the Wouterspan diamond
operation. The Company acquired and re-commissioned an existing small pan plant
on the property in the first quarter of fiscal 2009. Full commissioning of the
new high-volume wet rotary pan plant took place in the first quarter of fiscal
2010 and production was increased in subsequent quarters of fiscal 2010.

Three months ended February 28, 2010 compared to three
months ended February 28, 2009

Production at Saxendrift in the quarter was 1,786.6 carats from
310,921 cubic meters (652,934 tonnes) of gravel processed, compared with 165.8
carats from 21,171 cubic meters (44,459 tonnes) of gravel processed in the
quarter ended February 28, 2009.

Sales from Saxendrift during the three months ended February
28, 2010 were 2,497.7 carats at an average price of US$1,796.91 per carat. This
represents an increase in carats and value per carat sold from 549.4 carats sold
at an average price of US$694.95 per carat in the quarter ended February 28,
2009.

11

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|ROCKWELL DIAMONDS INC.                         
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|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Twelve months ended February 28, 2010 compared to twelve
months ended February 28, 2009.

Production at Saxendrift over the twelve months was 8,833.8
carats from 1,216,503 cubic meters (2,554,656 tonnes) of gravel processed,
compared with 2,436.7 carats from 194,287 cubic meters (408,003 tonnes) of
gravel processed in the twelve months ended February 28, 2009.

Sales from Saxendrift were 8,667.1 carats at an average price
of US$1,967.81 per carat, an increase in carats and value per carat sold from
2,069.54 carats at an average value of US$1,766.71 per carat in the twelve
months ended February 28, 2009.

The inventories at Saxendrift are 533.9 carats.

Production Costs

Production at the three operations steadily increased, reaching
873,431 cubic metres in the third quarter and in the short fourth quarter with
the traditional seasonal shutdown and excessively rainy season, maintained
621,154 cubic metres. The Companys overall increase in production has been
significantly influenced by the expanded capacity of the Saxendrift plant.

The Companys drive to cut costs and optimize its operations
continues to yield results. The average operating cost over twelve months for
the three operations was US$3.11 per tonne, a decrease from US$5.23 per tonne in
the twelve months ended February 28, 2009 and within the US$3.00  US$3.50 per
tonne range that was forecasted for fiscal 2010. This is a measure of the cash
costs of operations, and consists predominantly of expenditures for fuel and
oil, power, maintenance and replacements, operational salaries as well as direct
mine operating costs.

Mining costs for each operation were: Holpan US$3.27 per tonne;
Klipdam US$3.63per tonne; and Saxendrift US$2.61 per tonne.

The average total cost for all the operations over the twelve
months of fiscal 2010, including rehabilitation, lease payments and royalties
over the twelve months of fiscal 2010 was US$5.20 per tonne.

Mineral Resources Estimates

The Company completed technical reports on all of its material
mineral properties with an effective date of February 28, 2009. The Company has
not performed any further technical analysis in fiscal 2010. As a result, the
mineral resource estimates disclosed in this document are as at February 28,
2009 and have not been adjusted for 2010 production disclosed elsewhere in this
report.

Holpan/Klipdam

The mineral resources at February 28, 2009 were estimated by
Rockwells Manager, Resources, G. Norton, Pr.Sci.Nat. a qualified person who is
not independent of the Company, and reviewed by T. Marshall, PhD, Pr.Sci.Nat., a
qualified person who is independent of the Company. A technical report by
Marshall and Norton has been filed on www.sedar.com.

12

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Holpan and Klipdam Mineral Resources

INFERRED RESOURCES
    INDICATED RESOURCESDescription ofGravel
      Resource
    Volume(cubic
      meters)
    Volume (cubic
      meters)
    Grade
      (carats/100 cubic meters)
    Value
      (US$/carat)Holpan Fluvial- alluvial Gravel
    294,000
    -
    0.74
    2008 -1,157
      2009#- 671Holpan Rooikoppie gravel
    5,643,000
    1,137,273Klipdam Fluvial- alluvial Gravel
    1,504,163
    -
    0.91
    2008 - 3,892
      2009#- 915Klipdam Rooikoppie gravel
    1,312,000
    1,135,229TOTAL
    8,753,163
    2,272,502
    0.84


# Modelled values for 2009 (by Rockwell, 2009)

Saxendrift

Mineral resources at February 28, 2009 were estimated by
Rockwells Manager, Resources, G. Norton, Pr.Sci.Nat., a qualified person who is
not independent of the Company and reviewed by T. Marshall, PhD, Pr.Sci.Nat., a
qualified person who is independent of the Company. A technical report by
Marshall and Norton has been filed on www.sedar.com.

Saxendrift Mineral Resources

MINING AREA
      RESOURCE CLASSIFICATION
      Volume (cubic
        meters)
      Grade (carats/100
        
        cubic meters)
      Value (US$/carat)Saxendrift Terrace A
      INDICATED 1
      804,945
      1.32
      2,154INDICATED 2
      2,483,494
      0.8Saxendrift Terrace B
      INDICATED
      1,774,660
      1.15
      1,075TOTAL INDICATED
      5,063,099
      1.01Saxendrift Terrace A
      INFERRED
      3,629,127
      0.8
      1,075Saxendrift Terrace B
      INFERRED
      86,476
      0.68
      1,075Stockpiles
      INFERRED
      642,540
      0.29
      2,154TOTAL INFERRED
      4,358,143
      0.72


During 2008 Rockwell re-modelled the resources according to the
Companys standards, and identified differences in volumes based on an
incomplete dataset supplied to Rockwell by the Trans Hex Group, and different to
that supplied to Venmyn in 2006/7. Overall, the indicated resources have
increased and the inferred resources have decreased from the previous estimate.

13

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|ROCKWELL DIAMONDS INC.                         
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|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

During May through to October 2008, some 1,520.17 carats of
diamonds were sold from Saxendrift Terrace A for an average value of
US$2,154.02/carat. These diamonds were recovered from (primarily) in-situ
gravels and (minor) bantams. Although no diamonds were recovered from Terrace B
gravels, the model value for these stones was some US$1,540/carat. The sale of
some 500 carats at end February 2009 for only ZAR695/carat is indicative of the
weakness of the diamond market in early fiscal 2010. In order to account for the
current depressed market, Rockwell utilized a modelled value of US$1,075/carat
for the short term (2009) for Terrace A stones and US$1,075/carat for Terrace B
stones were used in the 2009 estimates.

Wouterspan

Mineral resources at February 28, 2009 were estimated by
Rockwells Manager, Resources, G. Norton, Pr.Sci.Nat. a qualified person who is
not independent of the Company reviewed by T. Marshall, PhD, Pr.Sci.Nat., a
qualified person who is independent of the Company. A technical report by
Marshall and Norton has been filed on www.sedar.com with Rockwells year
end materials.

Wouterspan Mineral Resources

INFERRED RESOURCES
    INDICATED RESOURCESDescription of Gravel
      Resource
    Volume (cubic
      meters)
    Volume (cubic
      meters)
    Grade1
      (carats/100 cubic meters)
    Value2
      (US$/carat)Rooikoppie
    5,911,000
    716,769
    0.70
    1,511Fluvial-alluvial
    31,863,000
    4,311,167TOTAL
    37,774,000
    5,027,9361
    0.70
    1,511


Notes to table: 
  Total figure rounded off.

|1 | Although the volumes of Rooikoppie and Fluvial-Alluvial
      gravels are estimated separately, the processing combines them, so
      separate grade determinations are not possible.                                       
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2 | The average diamond value given are to October 2008, as
      this is the figure that prices will have to achieve before the new process
      plant will be constructed and the mine is put back into full
      production.

The Wouterspan operation was placed on care and maintenance
during February, 2009.

Kwartelspan

A single terrace was identified by TransHex to exist on the
Kwartelspan prospect area. Based on drilling and bulk-sampling of Rooikoppie
gravels an inferred resource was estimated.

Kwartelspan Mineral Resources

RESOURCE CLASSIFICATION
    Volume (cubic
      meters)
    Grade (carats/100
      cubic meters)
    Value
      (US$/carat)INFERRED
    1,384,577
    1.50
    793


14

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|ROCKWELL DIAMONDS INC.                         
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|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

The Mineral Resources as of March 2007 at Kwartelspan were
estimated by the South African consulting company Venmyn. C.A. Telfer,
Pr.Sci.Nat., of Venmyn is an independent qualified person as defined by National
Instrument 43-101.

1.2.5    Exploration and Development
Properties

Middle Orange River Properties

In addition to the Saxendrift mine and adjacent Kwartelspan
prospect (see above), the MORO properties include the past producing
Niewejaarskraal mine and Vieglandsput, Zwemkuil-Mooidraai Holsloot projects,
totalling approximately 12,155.4 hectares.

The Niewejaarskraal Mine was operated from 2002-2006 by Trans
Hex. It has been on care and maintenance since late 2006.

Trans Hex also conducted exploration and evaluation work on
several large alluvial gravel terraces on the Kwartelspan property, located to
the north-east of Saxendrift, and on the Vieglandsput, Zwemkuil- Mooidraai and
Holsloot properties, located to the south-west of Niewejaarskraal. The
exploration work included reverse circulation drilling, trenching and bulk
sampling. Rockwell has also remodelled the gravel at Niewejaarskraal and
commissioned a re-estimate of the mineral resources.

Niewejaarskraal

Rockwell and its consultant re-processed the Trans Hex drilling
data according to Companys operating procedures. The estimated resources have
increased, overall, but have re-classified as Inferred due to the lack of
confidence in the original data  due primarily to the length of time lapsed
since the last diamond valuation (and the uncertainties surrounding current and
short-term diamond prices) and the improvements made in diamond
processing/recovery procedures which will change the available diamond grade
values. The current estimates also represent volumes available in the ground,
fully depleted of material removed by the THO bulk-sampling program.

Mineral resources at February 28, 2009 were estimated by
Rockwells Manager, Resources, G. Norton, Pr.Sci.Nat., a qualified person who is
not independent of the Company and reviewed T. Marshall, PhD, Pr.Sci.Nat., a
qualified person who is independent of the Company. A technical report by
Marshall and Norton was filed on www.sedar.com.

15

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|ROCKWELL DIAMONDS INC.                         
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|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Niewejaarskraal Mineral Resources

**AREA**
    GRAVEL TYPE
    RESOURCE
      CLASSIFICATION
    Volume (cubic
      meters)
    Grade
      (carats/100 cubic meters)
    Value
      (US$/carat)Terrace A
    Fluvial-alluvial Rooikoppie
    INFERRED
    11,831,500 1,840,000
    0.84
    1,075Terrace B
    Fluvial-alluvial Rooikoppie
    INFERRED
    5,990,000969,000
    0.84
    1,075**Total**
      
    INFERRED
    20,630,500
    0.84
    1,075


Niewejaarskraal Project

The Niewejaarskraal Project, located on the Middle Orange River
area of South Africa, was a past producer of alluvial diamonds.

In terms of the Sale of Shares and Claims Agreement entered
into between, among others, Rockwell Resources RSA (Proprietary) Limited
(Rockwell) and Trans Hex Operations (Proprietary) Limited (Trans Hex) on
March 3, 2007, Rockwell indirectly acquired the mining and prospecting rights
to, among other areas, Portion 6 of the Farm Niewejaarskraal 40 in the
magisterial district of Prieska (Niewejaarskraal). In terms of the same
agreement, Rockwell also indirectly acquired, among other things, certain mining
equipment situated on Niewejaarskraal, including a dense media separation plant
previously erected and operated by Trans Hex.

As at February 28, 2009, the Company was committed to pay Trans
Hex for the acquisition of the remaining Niewejaarskraal mining rights. The
Company had placed $2.7 million in trust toward application of the remaining
payment, to be released to Trans Hex upon the anticipated grant of Ministerial
Consent to the cession of each of the Outstanding Mining Rights to the Company
and registration of cession of such rights in its name. Cession of the
Niewejaarskraal mining right occurred on March 4, 2009.

On April 11, 2009 all the conditions precedent were met and the
Company paid ZAR17.9 million ($2.4 million)in cash to Trans Hex for the
remaining Niewejaarskraal mining rights of which ZAR 12.3 million ($1.7 million)
was capitalized.

The Company has continued to review the geological and diamond
characteristics of the Niewejaarskraal deposit and considers this to be an
important project in the long term development of Rockwells assets and
production plan. It is likely that once the Wouterspan operation has been
re-commissioned that the Company will develop a project plan for the commission
of a mining operation on this deposit.

16

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|ROCKWELL DIAMONDS INC.                         
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|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Other MORO Exploration Prospects

The Mineral Resources as of March 2007 were estimated by the
South African consulting company Venmyn. C.A. Telfer, Pr.Sci.Nat., of Venmyn is
an independent qualified person as defined by National Instrument 43-101.

Other MORO Prospects Mineral Resources

PROJECT
    RESOURCE CLASSIFICATION
    Volume (cubic
      meters)
    Grade (carats/100
      cubic meters)Zwemkuil-Mooidraai
    INFERRED
    1,640,000
    0.95


Additional Alluvial Diamond Prospects in the MORO Area

In August 2008, the Company acquired eight new prospecting
permits from the Department of Mineral and Energy (DME). These new prospecting
permits are located in the Middle Orange River area in the Northern Cape
Province of South Africa, and include a number of permits which are adjacent to
the Companys Wouterspan and Saxendrift properties.

Project Areas
    Farm Name
    Portion
    Size (Ha)
    Type of RightLanyonvale
    Lanyonvale 376
    Ptn 16 (Ptn of Ptn 9)
    240.4480
    Prospecting PermitLanyonvale 376
    Rem of Ptn 18 (Ptn of Ptn 10)
    271.5347
    Prospecting PermitLanyonvale 376
    Ptn 7 & 11
    2917.4437
    Prospecting PermitDouglas
    Zweet Fontein 76
    Rem of Ptn 1; Ptn 2 (Ptn of Ptn
      1)
    2045.1312
    Prospecting PermitBlaaubosch Drift 78
    Rem of Ptn 1 & Ptn 3Makoenskloof
    Reads Drift 74
    Ptn 20 & 38 (Ptn of Ptn 18)
    2226.9832
    Prospecting PermitDiamond Valley
    Diamond Valley 29
    R/E; Ptn 1 & 2
    2679.9832
    Prospecting PermitSaxendrift
    Saxendrift 20
    Ptn 12,13,16,24 &25
    1873.6890
    Prospecting Permit


Ptn = Portion; R/E = Remaining Extent

Lanyonvale Project: The Lanyonvale properties are
situated adjacent to and downstream of Rockwells Wouterspan Mine on the Middle
Orange River.

Douglas Project Area:These properties are located
upstream of the confluence of the Vaal and Orange Rivers, outside of the town of
Douglas. There have been alluvial operations around the town of Douglas for the
last 100 years.

Makoenskloof Area:This property is situated on the
north bank of the Middle Orange River, downstream of Makoenskloof where Rockwell
performed bulk sampling in 2007, producing some diamonds.

17

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|ROCKWELL DIAMONDS INC.                         
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|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Diamond Valley:This property is located some 10
kilometers south of the modern day Orange River and at the same general
elevation as the Companys Saxendrift project located about 15 kilometers to the
west.

Saxendrift: These properties are adjacent to the lower
(Terrace C) of the three terraces that are located on the contiguous mineral
right portions that collectively comprise the Saxendrift property package. The
Company already holds rights to the property that hosts the upper terraces A and
B which have a history of historical diamond production. With the granting of
this new right, Rockwell now has access to the three main terraces contained
within the Saxendrift project area, with the potential to add further gravel
resources at Saxendrift. Terrace C is located approximately 20 to 40 meters
above the current river, whereas Terrace A is some 120 meters above the present
day river, and Terrace B is situated between A and C. Rockwell is currently
constructing a new processing plant on Terrace A.

1.2.6    Mineral Rights Conversions

In respect of the requirements of the Minerals and Petroleum
Resources Development Act, old order mineral rights shall be converted to new
order rights provided that all the relevant documentation has been lodged before
the requisite date of May 1, 2009. Provided that these conditions are met then
the conversion of mineral Rights shall be granted by the Department of Minerals
and Energy.

Rockwell has lodged its documentation for the conversion of its
mineral rights in a timely manner and is confident that those rights (namely
Rietputs) not yet converted shall be converted in due course, allowing for
backlogs given the large number of rights that were submitted to the Department
of Minerals and Energy by the due date and which are being processed by the
Department.

1.2.7    Litigation

Kwango River Project, Democratic Republic of Congo

Rockwells subsidiary, Durnpike Investments (Proprietary)
Limiteds (Durnpike) interest in the Kwango River Project was constituted by
an agreement (Midamines Agreement) concluded during 2006 with Midamines SPRL
(Midamines), the holder of the exploration permit on the Kwango River Project,
to act as independent contractor on behalf of Midamines to manage and carry out
exploration activities and potentially, mining activities. Durnpike was entitled
to an 80% share of the net revenue from the sale of any diamonds produced from
the contract area.

Under the Midamines Agreement, Durnpike agreed to certain
minimum royalty payments being made to Midamines, and Midamines undertook
several obligations in favour of Durnpike, including that of procuring and
facilitating Durnpikes access to the Kwango River Project site. The royalties
took the form of a series of recurring annual minimum royalty payments of US$1.2
million per annum (commencing on December 31, 2007). During the first quarter of
2008, pursuant to an amendment to the Midamines Agreement, Durnpike paid
consideration of US$600,000 to Midamines as compensation for access to the
entire concession area (Permit 331), as opposed to the limited contract area. As
part of such amendment, Midamines waived its right to payment of the
abovementioned US$1.2 million royalty payment due on December 31, 2007.

18

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Subsequently, and pursuant to Midamines persistent breach of
material provisions of the Midamines Agreement (coupled with its failure to
remedy such instances of breach notwithstanding notice to do so), Durnpike
and/or Rockwell cancelled the Midamines Agreement. Midamines thereafter disputed
the entitlement of Durnpike and/or Rockwell to cancel the Midamines Agreement.
It has referred to arbitration a dispute against Durnpike and Rockwell, in which
it claims payment of an estimated and provisional amount of $41.8 million.
Durnpike and/or Rockwell have, in turn, instituted a counter-claim in the
estimated and provisional amounts of approximately ZAR25.4 million for equipment
purchased by Rockwell to undertake exploration and feasibility work, $1.6
million for start-up and acquisition costs in the DRC, and US$20 million (while
reserving the right to increase the counter-claim to at least $164.9 million) as
an initial estimate of possible lost earnings.

Comprehensive documentation has been filed by the parties and
arbitration proceedings are pending in Belgium. The Company remains of the view
that the claim against it is without merit and will vigorously defend against
it.

Niewejaarskraal

During the course of 2008 and prior to the prospecting and
mining rights having been transferred from Trans Hex to Rockwell, a
representative of the land owner of Niewejaarskraal asserted a claim of
ownership over the equipment located on Niewejaarskraal. This claim was
ostensibly based on a surface rights agreement entered into between Trans Hex
and the owner of Niewejaarskraal and an allegation that Trans Hex had abandoned
the mining equipment concerned. This Contract expired prior to Rockwell
receiving the Niewejaarskraal mining rights. Since the transfer of the
prospecting and mining rights associated with and the mining equipment located
on Niewejaarskraal to Rockwell, it has not received any formal approach from the
land owner of Niewejaarskraal to progress this claim.

Discussions with the landowner have indicated that he would be
happy to enter into amenable and workable landowner agreements with Rockwell,
subject to appropriate land use agreements being entered into between the
Parties. In addition, Rockwell has had sight of the legal advice provided by
external legal counsel to Trans Hex to the effect that the merits of this claim
are limited. In the event that a claim were to be made by the owner of
Niewejaarskraal against Rockwell in respect of this mining equipment, Rockwell
will vigorously defend its ownership of that equipment and will also seek to
rely on certain protective warranties and indemnities that were given to it by
Trans Hex in the Sale of Shares and Claims Agreement.

1.2.8    Other - Insurance

Rockwell has adopted a policy that includes insurance cover for
all equipment that is purchased on an instalment plan (called Hire Purchase in
South Africa) or leases but it does not carry full coverage for other equipment
that is paid off or which has been acquired in respect of its acquisitions of
Trans Hex mineral rights and equipment. The Company also has coverage on small
vehicles, busses, road trucks, Flow-sort X-ray equipment and some of its fixed
properties and assets.

19

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|ROCKWELL DIAMONDS INC.                         
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|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

1.2.9    Diamond Market Trends

The Diamond Market Update

Following the drastic decline in international diamond prices
in late 2008 and the negative impact of the world economic recessions, the
prices of rough diamonds have returned to mid 2008 values. During the first two
quarters of fiscal 2010, the market experienced shortages due to limited supply
of rough diamonds from the larger producers. Subsequently De Beers increased the
prices on their boxes and further to this increase sight holders were selling
their DTC boxes (Diamond Trading Company) for a premium of single and low
double digit percentages; this will result in producers increasing their prices
until such time as the premiums have been absorbed. The demand for larger stones
has improved.

Following a drastic 50% decline in diamond prices in the last
quarter of fiscal 2009, rough diamond prices have showed an improvement in price
during the last two quarters of fiscal 2010. The effects of the diamond price
decline in the first part of fiscal 2009, and the subsequent improvement in
prices during the last two quarters are reflected in prices achieved by Rockwell
over the fiscal year. The Company sold parcels of diamonds in March, May, June,
July, August/September and November 2009, and January/February 2010.

Prices were weak in the first two quarters of fiscal 2010 and
strengthened in the last two quarters as indicated in the following average
sales prices. The average price per carat received was US$531.43 in March,
US$584.69 in May, US$699.75 in June, US$807.20 in early July, US$1,090.55 on
July 27, US$862.36 in the August/September, US$1,416.40 in the November, and
US$1,154.11 in the January/February sales. The average price received from sales
in the fourth quarter of fiscal 2010 was US$1,154.11 per carat, a decrease of 9%
from the average price of US$1,268.83 per carat received in the third quarter of
fiscal 2010. The decrease was due to a parcel of moderate-quality stones being
tendered in February compared to the previous quarter which included several
large, high quality gems.

Polished prices showed increases in the latter part of fiscal
2010, although at smaller percentages compared to rough price increases, but
these prices are expected to show larger increases consistently throughout the
year as the demand at retail level increases. The retail sector has shown year
on year increase in trade but still has to show further strengthening to reach
the levels from 2008. Margins on polished are still small as a result of the
high prices paid for rough diamonds. Credit terms have been reduced in the
industry from the exceptional high credit levels that existed prior to the
credit crisis of late 2008 which is positive for the business.

The downstream sector of the diamond trade is presently seeing
increased activity from Indian traders which are becoming the largest buyers of
rough diamonds on the market. This is a result of support from their banks as
well as the government which appreciates the importance of supporting their
diamond industry. The caution is that speculation on rough diamonds continues to
drive the prices of rough, which although a positive for producers in the short
term, could possibly be detrimental to the market in the long term.



20

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Overall rough diamond prices showed a strong rebound in the latter
  half of fiscal 2010 which was important for Rockwell and its financial performance.
  This situation has persisted into the early part of fiscal 2011. The view of
  most diamond market analysts, including the likes of Des Kilalea at Royal Bank
  of Canada (RBC) Capital Markets and Ed Sterck of Bank of Montreal
  (BMO), is that the diamond market will continue to show improvement
  and resilience during 2010 and that in the long term declining supply, and increasing
  demand related to improvement in world economic conditions, diamond prices will
  rise to their previous strong levels and show long term growth.

21

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

1.3        Selected Annual
Information

The consolidated financial statements have been prepared in
accordance with Canadian generally accepted accounting principles, and are
expressed in Canadian dollars except weighted average number of common shares
outstanding.

|                                                     |  | As at             |  |  | As at             |  |  | As at             | 
|---------------------------------------------------- |  | ----------------- |  |  | ----------------- |  |  | ----------------- | 
|Balance Sheet                                        |  | February 28, 2010 |  |  | February 28, 2009 |  |  | February 29, 2008 | 
|Current assets                                       |  | 11,875,714        |  |  | 15,099,971        |  |  | 38,596,562        | 
|Mineral properties                                   |  | 30,850,998        |  |  | 28,894,477        |  |  | 25,247,937        | 
|Other assets                                         |  | 62,516,674        |  |  | 62,367,968        |  |  | 69,848,625        | 
|Total assets                                         |  | 105,243,386       |  |  | 106,362,416       |  |  | 133,693,124       | 
|                                                     |  |                   |  |  |                   |  |  |                   | 
|                                                     |  |                   |  |  |                   |  |  |                   | 
|Current liabilities                                  |  | 11,577,472        |  |  | 14,462,800        |  |  | 12,502,301        | 
|Other liabilities and non-controlling
      interest |  | 16,471,823        |  |  | 21,478,590        |  |  | 34,076,016        | 
|Shareholders equity                                 |  | 77,194,091        |  |  | 70,421,026        |  |  | 87,114,807        | 
|Total liabilities and shareholders equity           |  | 105,243,386       |  |  | 106,362,416       |  |  | 133,693,124       | 

|                                                           |  | Year ended        |   |  | Year ended        |   |  | Nine months ended |  
|---------------------------------------------------------- |  | ----------------- | - |  | ----------------- | - |  | ----------------- | -
|Statement of Operations                                    |  | February 28, 2010 |   |  | February 28, 2009 |   |  | February 29, 2008 |  
|Revenue                                                    |  | 29,776,933        |   |  | 34,330,078        |   |  | 36,083,106        |  
|Mine site operating costs                                  |  | (22,913,999       | ) |  | (25,113,363       | ) |  | (22,730,271       | )
|Amortization and depletion                                 |  | (9,545,727        | ) |  | (11,287,197       | ) |  | (6,533,941        | )
|Operating (loss) profit                                    |  | (2,682,793        | ) |  | (2,070,482        | ) |  | 6,773,894         |  
|Expenses                                                   |  |                   |   |  |                   |   |  |                   |  
|Accretion of reclamation obligation                        |  | 481,932           |   |  | 1,072,389         |   |  | 464,316           |  
|Exploration                                                |  | 97,805            |   |  | 498,739           |   |  | 604,169           |  
|Foreign exchange loss (gain)                               |  | 483,902           |   |  | (350,485          | ) |  | (751,315          | )
|Legal, accounting and audit                                |  | 1,389,272         |   |  | 1,863,261         |   |  | 790,725           |  
|Office and administration                                  |  | 3,411,990         |   |  | 3,489,460         |   |  | 2,697,077         |  
|Shareholder communications                                 |  | 506,482           |   |  | 453,489           |   |  | 198,985           |  
|Stock-based compensation                                   |  | 335,358           |   |  | 1,834,422         |   |  | 1,826,315         |  
|Travel and conference                                      |  | 194,544           |   |  | 605,812           |   |  | 654,705           |  
|Transfer agent filings                                     |  | 246,866           |   |  | 250,878           |   |  | 544,232           |  
|Subtotal                                                   |  | 7,148,151         |   |  | 9,717,965         |   |  | 7,029,209         |  
|                                                           |  |                   |   |  |                   |   |  |                   |  
|Loss on disposal of equipment                              |  | 36,720            |   |  | 364,918           |   |  | 402,411           |  
|Loss on disposal or write down of mineral
      properties |  | 657,634           |   |  | 203,339           |   |  |                  |  
|Interest (income)                                          |  | (466,688          | ) |  | (2,672,021        | ) |  | (1,118,396        | )
|Interest on capital leases                                 |  | 969,530           |   |  | 1,592,001         |   |  | 1,289,385         |  
|Interest expense                                           |  | 576,272           |   |  | 3,009,680         |   |  | 270,976           |  
|Other income                                               |  | (513,338          | ) |  | (303,399          | ) |  | (111,202          | )
|Write down of assets                                       |  | 23,862            |   |  | 2,590,958         |   |  |                  |  
|Write-off of amounts receivable                            |  | 167,414           |   |  | 291,063           |   |  | 18,360            |  
|Subtotal                                                   |  | 1,451,406         |   |  | 5,076,539         |   |  | 751,534           |  
|                                                           |  |                   |   |  |                   |   |  |                   |  
|Loss before income
      taxes                             |  | 11,282,350        |   |  | 16,864,986        |   |  | 1,006,849         |  
|Income tax expense                                         |  | 18,946            |   |  | 7,000             |   |  | 179,290           |  
|Future income tax (recovery) expense                       |  | (2,645,000        | ) |  | (3,347,000        | ) |  | 2,261,110         |  
|Loss before non-controlling interest                       |  | 8,656,296         |   |  | 13,524,986        |   |  | 3,447,249         |  
|Non-controlling interest                                   |  | (1,618,603        | ) |  | (549,024          | ) |  | 5,955,779         |  
|Loss for the period                                        |  | 7,037,693         |   |  | 12,975,962        |   |  | 9,403,028         |  
|Other comprehensive loss (income)                          |  | (5,429,700        | ) |  | 13,409,383        |   |  |                  |  
|Total comprehensive loss                                   |  | 1,607,993         |   |  | 26,385,345        |   |  | 9,403,028         |  
|                                                           |  |                   |   |  |                   |   |  |                   |  
|Basic and diluted loss per common share                    |  | 0.03              |   |  | 0.05              |   |  | 0.05              |  
|Weighted average number of common shares outstanding       |  | 267,164,309       |   |  | 237,924,152       |   |  | 196,428,551       |  

22

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

1.4        Summary of
Quarterly Results

Expressed in thousands of Canadian dollars (000), except
per-share amounts. Minor differences are due to rounding.

|Balance Sheet                                    |  | Feb 28  |  |  | Nov 30  |   |  | Aug 31  |   |  | May 31  |   |  | Feb 28  |  |  | Nov 30  |  |  | Aug 31  |  |  | May 31  | 
|------------------------------------------------ |  | ------- |  |  | ------- | - |  | ------- | - |  | ------- | - |  | ------- |  |  | ------- |  |  | ------- |  |  | ------- | 
|                                                 |  | 2010    |  |  | 2009    |   |  | 2009    |   |  | 2009    |   |  | 2009    |  |  | 2008    |  |  | 2008    |  |  | 2008    | 
|Current assets                                   |  | 11,876  |  |  | 9,150   |   |  | 7,785   |   |  | 8,986   |   |  | 15,100  |  |  | 22,830  |  |  | 21,757  |  |  | 27,190  | 
|Mineral properties                               |  | 30,851  |  |  | 34,333  |   |  | 34,654  |   |  | 34,219  |   |  | 28,894  |  |  | 36,831  |  |  | 37,386  |  |  | 36,592  | 
|Other assets                                     |  | 62,516  |  |  | 63,390  |   |  | 65,217  |   |  | 65,100  |   |  | 62,368  |  |  | 85,330  |  |  | 80,146  |  |  | 74,621  | 
|Total
      assets                               |  | 105,243 |  |  | 106,873 |   |  | 107,656 |   |  | 108,305 |   |  | 106,362 |  |  | 144,991 |  |  | 139,289 |  |  | 138,403 | 
|                                                 |  |         |  |  |         |   |  |         |   |  |         |   |  |         |  |  |         |  |  |         |  |  |         | 
|                                                 |  |         |  |  |         |   |  |         |   |  |         |   |  |         |  |  |         |  |  |         |  |  |         | 
|Current liabilities                              |  | 11,577  |  |  | 13,291  |   |  | 15,970  |   |  | 15,623  |   |  | 14,463  |  |  | 14,814  |  |  | 17,369  |  |  | 15,353  | 
|Other liabilities                                |  | 16,472  |  |  | 19,441  |   |  | 19,404  |   |  | 20,773  |   |  | 21,478  |  |  | 32,171  |  |  | 28,941  |  |  | 28,194  | 
|Shareholders equity                             |  | 77,194  |  |  | 74,141  |   |  | 72,282  |   |  | 71,909  |   |  | 70,421  |  |  | 98,006  |  |  | 92,979  |  |  | 94,856  | 
|Total
      liabilities and shareholders' equity |  | 105,243 |  |  | 106,873 |   |  | 107,656 |   |  | 108,305 |   |  | 106,362 |  |  | 144,991 |  |  | 139,289 |  |  | 138,403 | 
|                                                 |  |         |  |  |         |   |  |         |   |  |         |   |  |         |  |  |         |  |  |         |  |  |         | 
|Working capital
      (deficit)                  |  | 299     |  |  | (4,141  | ) |  | (8,185  | ) |  | (6,637  | ) |  | 637     |  |  | 8,016   |  |  | 4,388   |  |  | 11,837  | 

|Statement of Operations                              |  | Feb 28 |   |  | Nov 30 |   |  | Aug 31 |   |  | May 31 |   |  | Feb 28  |   |  | Nov 30 |   |  | Aug 31 |   |  | May 31 |  
|---------------------------------------------------- |  | ------ | - |  | ------ | - |  | ------ | - |  | ------ | - |  | ------- | - |  | ------ | - |  | ------ | - |  | ------ | -
|                                                     |  | 2010   |   |  | 2009   |   |  | 2009   |   |  | 2009   |   |  | 2009    |   |  | 2008   |   |  | 2008   |   |  | 2008   |  
|Revenue                                              |  | 7,327  |   |  | 12,775 |   |  | 5,802  |   |  | 3,873  |   |  | 936     |   |  | 16,226 |   |  | 9,917  |   |  | 7,251  |  
|Mine site operating costs                            |  | (6,681 | ) |  | (7,092 | ) |  | (4,589 | ) |  | (4,552 | ) |  | (9,143  | ) |  | (3,710 | ) |  | (7,651 | ) |  | (4,609 | )
|Amortization and depletion                           |  | (1,295 | ) |  | (3,293 | ) |  | (3,139 | ) |  | (1,819 | ) |  | (3,177  | ) |  | (2,864 | ) |  | (2,673 | ) |  | (2,574 | )
|Operating profit (loss)                              |  | (649   | ) |  | 2,390  |   |  | (1,926 | ) |  | (2,498 | ) |  | (11,384 | ) |  | 9,652  |   |  | (407   | ) |  | 68     |  
|                                                     |  |        |   |  |        |   |  |        |   |  |        |   |  |         |   |  |        |   |  |        |   |  |        |  
|Expenses                                             |  |        |   |  |        |   |  |        |   |  |        |   |  |         |   |  |        |   |  |        |   |  |        |  
|Accretion of reclamation obligation                  |  | 383    |   |  | 81     |   |  | 32     |   |  | (14    | ) |  | 809     |   |  | 95     |   |  | 99     |   |  | 69     |  
|Exploration                                          |  | 4      |   |  | 34     |   |  | 2      |   |  | 58     |   |  | 132     |   |  | 96     |   |  | (33    | ) |  | 304    |  
|Foreign exchange (gain) loss                         |  | (131   | ) |  | 66     |   |  | 2      |   |  | 546    |   |  | (72     | ) |  | (903   | ) |  | 831    |   |  | (206   | )
|Legal, accounting and audit                          |  | 545    |   |  | 351    |   |  | 160    |   |  | 334    |   |  | 408     |   |  | 678    |   |  | 640    |   |  | 137    |  
|                                                     |  |        |   |  |        |   |  |        |   |  |        |   |  |         |   |  |        |   |  |        |   |  |        |  
|Office and administration                            |  | 1,103  |   |  | 853    |   |  | 800    |   |  | 656    |   |  | 960     |   |  | 689    |   |  | 868    |   |  | 972    |  
|Shareholder communications                           |  | 70     |   |  | 105    |   |  | 212    |   |  | 119    |   |  | 81      |   |  | 173    |   |  | 119    |   |  | 80     |  
|Stock-based compensation                             |  | 189    |   |  | 12     |   |  | 18     |   |  | 116    |   |  | 276     |   |  | 499    |   |  | 373    |   |  | 686    |  
|Travel and conference                                |  | 42     |   |  | 76     |   |  | 41     |   |  | 36     |   |  | 147     |   |  | 139    |   |  | 108    |   |  | 212    |  
|Transfer agent                                       |  | 151    |   |  | 16     |   |  | 58     |   |  | 22     |   |  | 178     |   |  | 28     |   |  | 35     |   |  | 10     |  
|Subtotal                                             |  | 2,356  |   |  | 1,594  |   |  | 1,325  |   |  | 1,873  |   |  | 2,919   |   |  | 1,494  |   |  | 3,040  |   |  | 2,264  |  
|Write-off of amounts receivable                      |  | 167    |   |  |       |   |  |       |   |  |       |   |  | 291     |   |  |       |   |  |       |   |  |       |  
|Loss (gain) on disposal of equipment                 |  |       |   |  |       |   |  | 11     |   |  | 26     |   |  | 66      |   |  | (6     | ) |  | 284    |   |  | 21     |  
|Loss on disposal or write-down of mineral properties |  |       |   |  |       |   |  |       |   |  | 658    |   |  | 203     |   |  |       |   |  |       |   |  |       |  
|Interest income                                      |  | (232   | ) |  |       |   |  | (92    | ) |  | (143   | ) |  | (191    | ) |  | (357   | ) |  | (743   | ) |  | (1,381 | )
|Interest on capital leases                           |  | 285    |   |  | 89     |   |  | 252    |   |  | 343    |   |  | 354     |   |  | 335    |   |  | 440    |   |  | 463    |  
|Interest expense                                     |  | (80    | ) |  | 176    |   |  | 73     |   |  | 407    |   |  | 2,309   |   |  | 452    |   |  | 163    |   |  | 86     |  
|Other income                                         |  | (245   | ) |  | (95    | ) |  | (117   | ) |  | (56    | ) |  | (72     | ) |  | 100    |   |  | (251   | ) |  | (80    | )
|Write down of assets                                 |  | 24     |   |  |       |   |  |       |   |  | -      |   |  | 2,591   |   |  |       |   |  |       |   |  |       |  
|Profit (loss) before income taxes                    |  | (2,924 | ) |  | 626    |   |  | (3,378 | ) |  | (5,606 | ) |  | (19,854 | ) |  | 7,634  |   |  | (3,340 | ) |  | (1,305 | )
|Future income tax( recovery) expense                 |  | (1,036 | ) |  | 475    |   |  | (719   | ) |  | (1,346 | ) |  | (2,089  | ) |  | (134   | ) |  | (703   | ) |  | (414   | )
|Profit (loss) before non-controlling interest        |  | (1,888 | ) |  | 151    |   |  | (2,659 | ) |  | (4,260 | ) |  | (17,765 | ) |  | 7,768  |   |  | (2,637 | ) |  | (891   | )
|Non-controlling interest                             |  | (1,194 | ) |  | 368    |   |  | (338   | ) |  | (454   | ) |  | 2,015   |   |  | (3,241 | ) |  | 589    |   |  | 88     |  

23

---

|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

|Profit (loss) for the
      period                                     |  | (694    | ) |  | (217    | ) |  | (2,321  | ) |  | (3,806  | ) |  | (19,780 | ) |  | 11,009  |  |  | (3,226  | ) |  | (979    | )
|---------------------------------------------------------------------- |  | ------- | - |  | ------- | - |  | ------- | - |  | ------- | - |  | ------- | - |  | ------- |  |  | ------- | - |  | ------- | -
|                                                                       |  |         |   |  |         |   |  |         |   |  |         |   |  |         |   |  |         |  |  |         |   |  |         |  
|Basic and diluted profit (loss) per share                              |  | (0.006  | ) |  | 0.002   |   |  | (0.011  | ) |  | (0.017  | ) |  | (0.08   | ) |  | 0.05    |  |  | (0.01   | ) |  | (0.003  | )
|Weighted average number of common shares outstanding
      (thousands) |  | 267,164 |   |  | 238,042 |   |  | 238,042 |   |  | 238,042 |   |  | 237,924 |   |  | 238,537 |  |  | 238,537 |   |  | 237,731 |  

1.5        Results of
Operations

The Company realized a loss of $7.0 million for the twelve
month period ended February 28, 2010 compared to a loss of $13.0 million for the
prior year. The loss was due to the collapse in the diamond market and
precipitous decline in diamond prices that commenced in the fourth quarter of
fiscal 2009 due to the ongoing global credit crisis and economic recession. This
resulted in on-going weakness of diamond prices through the first two quarters
of fiscal 2010 and the slow recovery in the third and fourth quarters. Though
prices remained weak during this period there has been an overall improvement in
prices of about 49% from the initial sharp fall in prices of about 50% in the
last quarter of fiscal 2009. Operations at the Wouterspan Mine are still on care
and maintenance in order to preserve the Companys cash reserves. Proceeds from
the capital raise will be used to upgrade the plant at Wouterspan, the
re-commissioning of which will coincide with the current recovery of the demand
for high quality stones in the final quarter of fiscal 2011.

During the twelve months ended February 28, 2010, the Company
realized rough diamond sales of $29.8 million compared to $34.3 million for the
comparable period in the prior year. Sales in March 2009 were at US$531.43 per
carat, 35% of the pre-October 2008 average sales prices achieved of about
US$1,800 per carat. Prices have gradually recovered, climbing to US$1,090.55 per
carat in July 2009, US$862.36 per carat in August/September 2009 tenders,
US$1,434.33 in November 2009 and US$1,154.11 in the January/February 2010
tender. The lower price per carat received in August and January/February was
related to lower grade mixes of stones sold in July and November 2009.

As noted above, the credit crunch and ensuing recession
resulted in diamond prices falling sharply in late calendar 2008 (fourth quarter
of fiscal 2009). Sales prices achieved in the first quarter of fiscal 2010 were
below the cost of production; however, prices achieved in the second quarter
covered the cost of production, but were not sufficient to cover fixed overheads
in full and lease payments. As the Company was required to maintain liquidity,
sales were made below production cost. This resulted in the Company invoking the
payment deferral with Komatfin, which ended on November 1.

Income generated in November 2009 was sufficient to cover all
the third quarter costs and significant arrear creditors, including ZAR11.4
million ($1.6 million) for outstanding royalties. The November income resulted
in a third quarter operating profit. The operating profit in the fourth quarter
covered the cost of operations.

Mining costs for the twelve months ended February 28, 2010
amounted to $22.9 million (twelve months ended February 28, 2009 - $25.1
million), which excludes amortization and depletion charges of $9.5 million
(twelve months ended February 28, 2009  $11.3 million). The Wouterspan mine was
placed on care and maintenance, and this resulted in less costs being incurred
in the current year.

24

---

|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Exploration expenses (excluding stock-based compensation)
decreased to $97,805 for the twelve months ended February 28, 2010 compared to
$498,739 for the same period in the prior year as a result of the diminished
exploration activity due to the recession.

Office and administrative costs for the twelve months ended
February 28, 2010 decreased to $3.4 million from $3.5 million incurred for the
same period in the prior year. This decrease was primarily the result of
controlling costs and reducing overheads. Travel and conference expenses
amounted to $194,544 for the twelve months ended February 28, 2010 compared to
$605,812 for the same period in the previous year. Legal, accounting and audit
expenses for the twelve months ended February 28, 2010 amounted to $1.4 million
compared to $1.9 million incurred for the same period in the prior year. The
Company has experienced significant legal costs due to the unsolicited bid by
Pala and the capital raising exercise.

Stock-based compensation decreased to $0.3 million for the
twelve months ended February 28, 2010 in comparison to $1.8 million for the same
period in the previous year.

Net interest expenses were $1.1 million for the twelve months
ended February 28, 2010, compared to $1.9 million for the twelve months ended
February 28, 2009, due to the use of the credit facility in fiscal 2009 to
maintain working capital and the deferred lease payments.

Please refer to section 1.2 for additional discussion on the
Companys results of operations.

1.6        
Liquidity

At February 28, 2010, the Company had cash and cash equivalents
of $2.5 million (2009 - $4.0 million) and bank indebtedness of $0.7 million
(2009 - $3.5 million), for net cash holdings of $1.8 million (2009 - $0.5
million). The Company also had a working capital of $0.3 million (2009 - $0.6
million).

The Company had no long-term debt at February 28, 2010, other
than asset retirement obligations relating to its Klipdam, Holpan, Wouterspan
and Saxendrift mines, and capital lease obligations relating to mining equipment
with three to four year lease agreements. The Companys capital lease
obligations are denominated in South African Rand (ZAR).

The improved results of the August/September 2009 tender, the
cash outflow reduction from the lease holiday and ZAR12.5 million ($1.8 million)
received for the sale of several high value stones to the Steinmetz Diamond
Group, provided sufficient liquidity to build up inventories and hold back sales
until an advantageous tender date in mid November 2009. This has resulted in
achieving a much improved average of over US$1,400 per carat, and thus sales for
the quarter ended November 2009 amounted to ZAR91 million ($12.8 million)
against operating costs of ZAR75 million ($10.3 million), before corporate
expenses. The fourth quarter tender achieved a lower average of US$1,154.1 due
to the tender parcel not including as large high value stones as those in the
November parcel.

The cash utilisation rate in the first quarter of fiscal 2010
was $2 million, which reduced to $1.8 million in the second quarter. Improved
diamond prices and the reduced cash outflow due to the payment deferral on its
lease obligations has resulted in positive cash flow from operations, sufficient
to fully cover corporate overheads and improve working capital. The
strengthening of the Rand, by 7% in the current quarter and 28% in the fiscal
year to date, has had a significant negative effect on cash inflows from sales,
which are realized in US Dollars.

25

---

|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

The Company raised $8.6 million dollars in private placements
and a further $4.6 million from a rights offer subsequent to year end. In the
first quarter of fiscal 2011 the company raised a further $3.4 million from a
private placement. Of the initial funds raised in late fiscal 2010, $6 million
has been utilised to clear the arrears from the Komatfin payment deferral and
pay off the unsecured loan at the operations. This has resulted in the
strengthening the balance sheet. The balance of the funds raised will be
utilised to settle fees and outstanding costs incurred as a consequence of
unsolicited corporate activity in fiscal 2010, and most importantly to upgrade
the Wouterspan plant and make improvements to the Saxendrift plant, to enable
operations to increase production at lower costs.

Contractual Obligations and Commitments

The Company has the following payment commitments: a minimum
lease payments of $3.3 million, with $3.2 million payable in the next 12 months,
with instalments up to the year 2012 to various financial institutions for plant
and equipment.

The following are the contractual maturities of contractual
obligations:

Payments due by periodLess than
      
      
      More than 5Total
      one year
      1 to 3 years
      3 to 5 years
      yearsContractual obligation
      Nil
      Nil
      Nil
      Nil
      NilLong term debt obligations
      3.3m
      3.2m
      0.1m
      Nil
      NilOperating lease obligations
      Nil
      Nil
      Nil
      Nil
      NilPurchase obligations
      Nil
      Nil
      Nil
      Nil
      NilOther
      Nil
      Nil
      Nil
      Nil
      NilTotal
      3.3m
      3.2m
      0.1m
      Nil
      Nil


Other than described above and in the notes to the financial
statements for the twelve months ended February 28, 2010, the Company has no
"Purchase Obligations" defined as any agreement to purchase goods or services
that is enforceable and legally binding on the Company that specifies all
significant terms, including: fixed or minimum quantities to be purchased;
fixed, minimum or variable price provisions; and the approximate timing of the
transaction.

The payment deferral to the Companys equipment lessors did not
change the period of the contracts, as subsequent payments will be increased to
catch up the capital portion of the payments deferred. The interest position as
well as the additional interest calculated on the capital not paid, has been
paid in the current period.

1.7        Capital
Resources

The Company's sources of capital are primarily equity and
debt.

Historically, the Companys sources of funding have been
  cash flow from operations and the issuance of equity securities for cash, primarily
  through private placements to sophisticated investors and institutions. The
  Company has issued common share capital in each of the past few years, pursuant
  to private placement financings and the exercise of warrants and options. The
  Companys access to financing, when the financing is not transaction specific,
  is always uncertain. There can be no assurance of continued access to significant
  equity funding.

26

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               



The Company's access to capital sources is dependent upon
general financial market conditions, especially those that pertain to venture
capital situations such as mineral exploration and development.

Recent market events and conditions, including disruptions in
the international credit markets and other financial systems and the
deterioration of global economic conditions have had a significant material
adverse impact on a number of financial institutions forcing them into
bankruptcy or requiring government authorities to rescue them. These events and
a general flight from risk have limited access to capital and credit for many
companies. The unprecedented disruptions in the current credit and financial
markets, could, among other things, impede access to capital or increase the
cost of capital, which would have an adverse effect on the Companys ability to
obtain, or increase its cost of obtaining, capital and financing, if required,
for its operations. The Companys access to additional capital may not be
available on terms acceptable to the Company.

Furthermore, in recent months, worldwide securities markets
have experienced a high level of price and volume volatility, and the market
price of securities of many companies have experienced unprecedented declines in
price which have not necessarily been related to the operating performance,
underlying asset values or prospects of such companies. In addition,
significantly higher redemptions by holders of mutual and hedge funds has forced
many of such funds (including those holding the Companys securities) to sell
such securities at any price. Therefore, there can be no assurance that
significant fluctuations in the trading price of the Companys common shares
will not occur, or that such fluctuations will not materially adversely affect
the Companys ability to raise equity funding without significant dilution to
its existing shareholders.

During the twelve months ended February 28, 2010, the Company
did not complete any debt financings, other than the payment deferral on its
capital lease obligations, the arrears and interest of which have been fully
repaid in the last quarter of fiscal 2010. The Company anticipates that it has
sufficient funding facilities and funds available (refer to section 1.6 above)
to meet its working capital requirements, provided that the diamond market
continues to recover and sales continue to achieve over US$1,100 per carat in
the near future and the exchange rate remains constant. At an exchange rate of
ZAR7.40  7.60 to US$1 and current volumes and grade being achieved, breakeven
point is anticipated to be reached when the Sales price per carat recovers to
the US$1,150  US$1,300 per carat range.

The Company raised $8.6 million from private placement and has,
subsequently to the year end, raised $4.6 million via a rights issue and a
further $3.4 million from a private placement. As noted in previous sections of
this document, these funds have been allocated to meet the expenditure
requirements to ensure the continuation of operations until such time as the
international diamond markets recover and for capital expenditure to improve
efficiencies at existing operations, expand operations to take advantage of
existing resources and reopen operations that have been on care and maintenance
in line with future market improvement.

Funds raised have been applied to reducing the short term
finance and the Komatfin payment deferral, which will cause significant
reductions in interest expenses. Working capital is now sufficient to provide
financial leeway to hold sales tenders at dates where there is higher market
demand due to seasonal events. This will generate larger profit margins and
improved cash inflows.

27

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

1.8        Off-Balance
Sheet Arrangements

None.

1.9Transactions with Related Parties

|                                         |   | As
      at       |  |   | As
      at       | 
|---------------------------------------- | - | ----------------- |  | - | ----------------- | 
|Balances payable                         |   | February 28, 2010 |  |   | February 28, 2009 | 
|Jeffrey B
      Traders CC (d)           | $ |                  |  | $ | 7,890             | 
|Jakes Tyres (i)                          |   |                  |  |   | 5,498             | 
|Banzi
      Trade 26 (Pty) Ltd (h)       |   | 603               |  |   |                  | 
|Hunter Dickinson Services
      Inc. (a) |   | 627,435           |  |   | 180,267           | 
|Seven Bridges Trading (e)                |   | 13,285            |  |   |                  | 
|Current balances payable                 | $ | 641,323           |  | $ | 193,655           | 
|                                         |   |                   |  |   |                   | 
|Liberty Lane (l)                         | $ | 414,566           |  | $ | 383,330           | 
|Longterm balances payable               | $ | 414,566           |  | $ | 383,330           | 
|                                         |   |                   |  |   |                   | 
|Balances receivable                      |   |                   |  |   |                   | 
|Banzi Trade 26
      (Pty) Ltd (h)       | $ | 46,108            |  | $ | 19,547            | 
|Diacor CC (k)                            |   |                  |  |   | 29,668            | 
|Current balances
      receivable        | $ | 46,108            |  | $ | 49,215            | 

28

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

|                                                 |   | Year
      ended |  |   | Year
      ended |  |   | Nine
      Months | 
|------------------------------------------------ | - | ---------------- |  | - | ---------------- |  | - | ----------------- | 
|Transactions                                     |   | February 28      |  |   | February 28      |  |   | February 29       | 
|                                                 |   | 2010             |  |   | 2009             |  |   | 2008              | 
|                                                 |   |                  |  |   |                  |  |   |                   | 
|Services rendered and
      expenses reimbursed: |   |                  |  |   |                  |  |   |                   | 
|Hunter Dickinson Services
      Inc. (a)         | $ | 961,042          |  | $ | 1,280,316        |  | $ | 863,861           | 
|Euro-American Capital Corporation (b)            |   |                 |  |   |                 |  |   | 14,393            | 
|CEC Engineering (c)                              |   | 17,818           |  |   | 26,904           |  |   | 39,766            | 
|Jeffrey B
      Traders CC (d)                   |   |                 |  |   |                 |  |   | 52,740            | 
|Seven Bridges Trading (e)                        |   | 139,789          |  |   |                 |  |   | 57,952            | 
|Cashmere
      Trading (f)                       |   |                 |  |   | 18,808           |  |   | 353,736           | 
|Banzi Trade 26 (Pty) Ltd
      (h)               |   | 17,688           |  |   | 29,768           |  |   | 47,575            | 
|Jakes
      Tyres (i)                            |   |                 |  |   | 440,283          |  |   | 1,141,454         | 
|AA Van Wyk (j)                                   |   |                 |  |   |                 |  |   | 148,658           | 
|Diacor CC
      (k)                              |   |                 |  |   | 39,510           |  |   | 3,888             | 
|Flawless Diamonds Trading
      House (g)        |   | 316,081          |  |   | 346,768          |  |   | 362,255           | 
|                                                 |   |                  |  |   |                  |  |   |                   | 
|Sales rendered to:                               |   |                  |  |   |                  |  |   |                   | 
|Banzi
      Trade 26 (Pty) Ltd (h)               |   | 1,989            |  |   | 884              |  |   |                  | 
|                                                 |   |                  |  |   |                  |  |   |                   | 

Related Party transactions are explained below. These
arrangements and transactions have typically been established to provide
professional and cost effective services and resources to Rockwell. In
particular these services relate to the remote areas in which some of Rockwells
operations are located and have also been established to address security and
social responsibility requirements. In remote areas it is difficult to obtain
key services and make purchases of certain supplies on an as needed basis.

Likewise security of product consideration is paramount given
the high value product produced by the Company.

- Hunter Dickinson Services Inc. (HDSI) is a private company with a
  director in common with the Company. HDSI provides geological, technical,
  corporate development, administrative and management services to, and incurs
  third party costs on behalf of, the Company on a full cost recovery market
  related basis pursuant to an agreement dated November 21, 2008.
- Euro-American Capital Corporation is a private company controlled by Rene
  Carrier, a former director of the Company, which provided management services
  to the Company at market rates for those services. Rene Carrier resigned as a
  director in November 2008.
- CEC Engineering Ltd. is a private company owned by David Copeland, Chairman
  and a director of the Company, which provides engineering and project
  management services at market rates.
- Jeffrey B Traders CC is a private company controlled by Jeffrey Brenner, a
  former director and employee of the Company, which provided management and
  specialized diamond marketing services to the Company at market rates.

29

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

- Seven Bridges Trading is a wholly owned subsidiary of Randgold Resources
  Limited, a public company where Mark Bristow, a director of the Company,
  serves in an executive capacity. Seven Bridges Trading provides office,
  conferencing, information technology, and other administrative and management
  services at market rates to the Companys South African subsidiaries.
- Cashmere Trading is a private company owned by Hennie Van Wyk, who was an
  officer of the company until his resignation in February 2010. Previously this
  company provided helicopter services for the movement of diamond product on an
  ad-hoc basis at competitive market rates thereby providing benefits to the
  company and its employees in respect of secure transport of high value product
  and reduced insurance premiums.
- Flawless Diamonds Trading House (Flawless) is a private company where
  certain directors, former directors and officers of the Company, namely,
  Messr. Brenner, J W and D M Bristow and Van Wyk, are shareholders of. Flawless
  is a registered diamond broker which provides specialist diamond valuation,
  marketing and tender sales services to the Company for a fixed fee of 1% of
  turnover which is below the market rate charged by similar tender houses.
- Banzi Trade 26 (Pty) Ltd (Banzi) is 49% owned by HC van Wyk Diamonds Ltd
  and 51% by Bokomoso Trust. Banzi is an empowered private company established
  to provide self sustaining job creation programs to local communities as part
  of the companys Social and Labour Plan which is required in terms of the
  Minerals and Petroleum Resources Development Act (MPRDA). Banzi provides the
  Company with buildings materials at market rates.
- Jakes Tyres is a private company of which Mr HC van Wyk, who was an officer
  of the Company until his resignation in February 2009, that provided tyres,
  tyre repair services and consumables at market rates to Rockwells remote
  Middle Orange River operations.
- AA Van Wyk is a private company owned by a party related to the directors
  and officers of the Company, which provided contract mining services at market
  rates.
- Diacor CC is a private company of which H C van Wyk is a director from
  which the Company previously has purchased consumable materials at market
  rates. As noted above Mr Van Wyk resigned from Rockwell in February 2009.
- Liberty Lane is the BEE partner of the Saxendrift property and has certain
  directors in common with the Company.

30

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

1.10  Fourth Quarter

The Company had a loss of $2.4 million for the quarter ending
February 28, 2010 compared to a net loss of $19.8 million for the quarter ending
February 28, 2009. The market prices have increased since the collapse in the
diamond market in the fourth quarter of fiscal 2009, along with a global credit
crunch which caused a total collapse in the demand and prices of commodities,
but still insufficient to reach break even point. Over the period, the Company
has run three of its operations, and Wouterspan Mine, which was put into care
and maintenance in order to preserve its cash balances, is still on care and
maintenance.

During the quarter ended February 28, 2010, the Company
realized diamond sales of $9.0 million compared to $1.0 million for the quarter
ended February 28, 2009. This increase has been due to the recovery of the
diamond market compared to the depressed conditions experienced in the
comparative quarter of the prior year.

Mining costs and amortisation and depletion was $8.0 million
for the quarter ended February 28, 2010 compared with $12.3 million quarter
ended February 28, 2009. The new plant at Saxendrift mine which was commissioned
in February, 2009, has been a success and has been responsible for US$4.5
million of the total tender sales of US$5.5 million in the fourth quarter 2010.
Due to the economic crisis, the Company put the Wouterspan mine on care and
maintenance to conserve cash and minimize costs.

Administrative costs for the quarter ended February 28, 2010
decreased to $2.4 million in comparison to $2.9 million incurred for the same
quarter of the prior year. Management have been successful in containing costs,
even with increased legal and corporate advisory services in the current period
as a result of the capital raise and legal defence against Midamines in the
DRC.

Operations in the quarter have been cash positive, with net
operating profit of $2.0 million excluding depreciation less cash overheads of
$1.9 million giving an inflow of $0.1 million before interest income of $0.1 and
Hire Purchase payments of $0.5 million, giving a net cash utilization of $0.3
million.

The strengthening of the rand against the US Dollar, the
currency in which sales are made, has slowed the recovery. It is anticipated
that the average prices will rise to over US$1200 per carat in fiscal 2011, the
required break-even price at current exchange rates.

1.11       Proposed
Transactions

Etruscan Diamonds Limited

The Company has signed a term sheet with Etruscan diamonds
Limited whereby the Company proposes to purchase Etruscans Blue Gum diamond
operation in the Ventersdorp region, South Africa. The acquisition is for 74% of
the operation with the balance owned pursuant to South Africas Black Economic
Empowerment regime. The price to be paid to Etruscan is an amount not exceeding
ZAR33.5 million (approximately $4.65 million) payable in Rockwell shares valued
at $0.068 each. The Company will also assume certain non-material property
maintenance obligations effective immediately and other financial obligations
upon completion of the acquisition.

31

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

The Blue Gum alluvial diamond deposit hosts estimated mineral
resources of 25 million cubic metres (indicated) with a grade of 2.37 carats/100
cubic metres and 15 million cubic metres (inferred) with a grade of 2.37
carats/100 cubic metres as at October 2009.

Rights offering

On March 19, 2010 the Company completed a rights offering
whereby each registered holder of the Company's common shares on the record date
received one right for each common share held. The rights offering was 100%
subscribed and applications for additional shares were received but could not be
fulfilled because they exceeded the maximum allowable subscription. Pursuant to
the rights offering, Rockwell issued 92.7 million common shares at a
subscription price of $0.05 per common share yielding gross proceeds of
approximately $4.6 million (ZAR 33.2 million).

The Company plans to use the funds to modernize and
re-commission the Wouterspan operation which was placed on care and maintenance
in January 2009, and identify value add merger and acquisition targets such as
the recently announced Etruscan acquisition.

Private placement

In March 2010, the company completed a private placement of 53
million common shares at a price of $0.065 per share for total proceeds of $3.4
million. The company paid a cash fee of $0.1 million finders fees relating to
the private placement.

Proceeds from the financing will be used to fund working
capital on the mining operations.

Flawless Diamonds Trading House (Pty) Limited

On April 21, 2010 the Company acquired a 20% shareholding in
Flawless Diamonds Trading House (Pty) Limited from Hennie van Wyk for the amount
of $95,686. Flawless is a registered diamond broker which provides specialist
diamond valuation, marketing and tender sales services to the Company.

1.12     Critical Accounting Estimates

The Company's accounting policies are presented in note 3 of
the audited consolidated financial statements for the year ended February 28,
2010, which have been publicly filed on SEDAR at www.sedar.com and as presented
in changes in accounting policies item 1.13. The preparation of consolidated
financial statements in accordance with Canadian generally accepted accounting
principles requires management to select accounting policies and make estimates.
Such estimates may have a significant impact on the financial statements. These
estimates include:

- mineral resources and reserves,
- the carrying values of diamond and supplies inventories,
- the carrying values of mineral properties,
- the carrying values of property, plant and equipment,
- the assumptions used in determining the reclamation obligation,
- the valuation allowances for future income taxes, and
- the valuation of stock-based compensation expense.

32

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Actual amounts could differ from the estimates used and,
accordingly, affect the results of operation.

Mineral resources and reserves and mineral properties.

Mineral resources and reserves are estimated by professional
geologists and engineers in accordance with recognized industry, professional
and regulatory standards. These estimates require inputs such as future metal
prices, future operating costs, and various technical geological, engineering,
and construction parameters. Changes in any of these inputs could cause a
significant change in the estimated resources and reserves which, in turn, could
have a material effect on the carrying value of property, plant and equipment
and mineral properties.

The carrying value of mineral properties is also dependant on
the valuation used for the common shares and warrants of the Company issued for
the acquisition of mineral properties. The value of the common shares issued is
the price of the common shares of the Company at the effective date of the
acquisition. The Company uses the Black-Scholes pricing model to estimate a
value for the warrants issued upon the acquisition date of a property. This
model, and other models which are used to value options and warrants, require
inputs such as expected volatility, expected life to exercise, and interest
rates. Changes in any of these inputs could cause a significant change in the
carrying value initially recorded for mineral properties.

Long-lived assets, including mineral properties and equipment,
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to estimated undiscounted future cash flows expected to be generated by
the asset. If the carrying amount of an asset exceeds its estimated future cash
flows, an impairment charge is recognized by the amount by which the carrying
amount of the asset exceeds the fair value of the asset. Assets to be disposed,
if any, are presented separately on the balance sheet and reported at the lower
of the carrying amount and the fair value less costs to sell, and are no longer
amortized.

The Companys estimates of mineral prices, recoverable
reserves, and operating, capital and reclamation costs used in impairment tests
are subject to certain risks and uncertainties that may affect the
recoverability of mineral property costs. Although the Company has made its best
estimate of these factors, it is possible that changes could occur in the future
that could adversely affect managements estimate of the net cash flow from its
assets.

Diamond and supplies inventories

Rough diamond inventory are valued at the lower of average
production cost and net realizable value. Production costs include the cost of
consumable materials, direct labour, mine-site overhead expenses and
amortization. Net realizable value is determined with reference to a valuation
performed by an experienced valuator which approximates market value less cost
to sell.

Supplies are valued at the lower of cost, at the average purchase
  cost basis, and net realizable value. Appropriate provisions are made for redundant
  and slow-moving items. Cost of items that are not ordinarily interchangeable,
  and goods and services produced and segregated for specific projects, are assigned
  by using a specific identification of their individual costs. Consistent use
  of either first-in first-out or weighted average cost formula to measure the
  cost of other inventories is applied. Net realizable value is determined with
  reference to market value less cost to sell.

33

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Reclamation liability

Upon the completion of any mining activities, the Company will
ordinarily be required to undertake environmental reclamation activities in
accordance with local and/or industry standards. The estimated costs of these
reclamation activities are dependent on labour costs, the environmental impacts
of the Company's operations, the effectiveness of the chosen reclamation
techniques, and applicable government environmental standards. Changes in any of
these factors could cause a significant change in the reclamation expense
charged in a period.

Future Income Taxes

The Company uses the asset and liability method of accounting
for income taxes. Under this method, future income tax assets and liabilities
are computed based on differences between the carrying amount of assets and
liabilities on the balance sheet and their corresponding tax values, using the
enacted or substantively enacted income tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled.

Future income tax assets also result from unused loss carry
forwards, resource-related pools, and other deductions. A valuation allowance is
recorded against any future income tax assets if it is more likely that the
asset will not be realized.

Stock-based compensation expense

From time to time, the Company may grant share purchase options
to employees, directors, and service providers. The Company uses the
Black-Scholes option pricing model to estimate a value for these options. This
model, and other models which are used to value options, require inputs such as
expected volatility, expected life to exercise, and interest rates. Changes in
any of these inputs could cause a significant change in the stock-based
compensation expense charged in a period.

1.13Changes in
Accounting Policies including Initial Adoption

Effective March 1, 2009, the Company adopted the following
accounting standards issued by the Canadian Institute of Chartered Accountants
(CICA). These new standards have been adopted with no restatement to prior
period financial statements.

34

---

|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

(a)     Section
3064  Goodwill and Intangibles

The Canadian Accounting Standards Board
("AcSB") issued CICA Handbook Section 3064 which replaces Section 3062,
Goodwill and Other Intangible Assets, and Section 3450, Research and
Development Costs. This new section establishes revised standards for the
recognition, measurement, presentation and disclosure of goodwill and intangible
assets. The Company evaluated the impact of this new standard and concluded that
this standard did not have a significant impact on the Companys consolidated
financial statements.

(b)EIC 173  Credit Risk and the Fair Value of Financial Assets
and Financial Liabilities

The AcSB issued EIC-173, Credit Risk
and the Fair Value of Financial Assets and Financial Liabilities, which
requires the Company to consider its own credit risk as well as the credit risk
of its counterparties when determining the fair value of financial assets and
liabilities, including derivative financial instruments. The standard was
effective for the first quarter of fiscal 2010 and is required to be applied
retrospectively without restatement of prior periods. The adoption of this
standard did not have an impact on the valuation of financial assets or
liabilities of the Company.

(c)     EIC 174
 Mining Exploration Costs

The AcSB issued EIC-174, Mining
Exploration Costs, which provides guidance to mining enterprises related to
the measurement of exploration costs and the conditions that a mining enterprise
should consider when determining the need to perform an impairment review of
such costs. The accounting treatments provided in EIC-174 have been applied in
the preparation of these financial statements and did not have an impact on the
valuation of the Companys mineral properties.

(d)Section 3862 - Financial Instruments - Disclosures

During the year, CICA Handbook Section
3862, Financial Instruments  Disclosureswas amended to require enhanced
disclosures about the relative reliability of the data, or inputs, thatan entity uses to measure the fair values of its financial instruments. It
requires financial instruments measured at fair value to be classified into one
of three levels in the fair value hierarchy according to the relative
reliability of the inputs used to estimate the fair values.

(e)     Section
3855  Financial Instruments  Recognition and Measurement

The CICA amended Handbook Section 3855,
  Financial Instruments  Recognition and Measurement to provide additional
  guidance concerning the assessment of embedded derivatives upon reclassification
  of a financial asset out of the held-for-trading category, amend the definition
  of loans and receivables, amend the categories of financial assets into which
  debt instruments are required or permitted to be classified, amend the impairment
  guidance for held-to-maturity debt instruments and require reversal of impairment
  losses on available-for sale debt instruments when conditions have changed.
  These amendments were effective for fiscal years beginning on or after November
  1, 2008. This amendment did not have a material impact on the Companys
  consolidated financial statements.

35

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

(f)     
  Accounting Policies Not Yet Adopted

(i)International Financial Reporting Standards ("IFRS")

The AcSB has announced its decision to
replace Canadian generally accepted accounting principles (Canadian GAAP) with
IFRS for all Canadian publicly-listed companies. The AcSB announced that the
changeover date will commence for interim and annual financial statements
relating to fiscal years beginning on or after January 1, 2011. The transition
date for the Company to changeover to IFRS will be January 1, 2011. Therefore,
the IFRS adoption will require the restatement for comparative purposes of
amounts reported by the Company for the year ending February 28, 2011. During
the year, the Company has established a formal project plan, allocated internal
resources and engaged expert consultants, monitored by a steering committee to
manage the transition from Canadian GAAP to IFRS reporting.

(ii)    Business
Combinations/Consolidated Financial Statements/Non- Controlling Interests

The AcSB issued CICA Sections 1582,
Business Combinations, 1601, Consolidated Financial Statements,
and 1602, Non-Controlling Interests, which superseded current Sections
1581,

Business Combinations and 1600
Consolidated Financial Statements. These new Sections replace existing
guidance on business combinations and consolidated financial statements to
harmonize Canadian accounting for business combinations with IFRS. These
Sections will be applied prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after January 1, 2011. Earlier adoption is permitted. If
an entity applies these Sections before January 1, 2011, it is required to
disclose that fact and apply each of the new sections concurrently. The Company
is currently evaluating the impact of the adoption of these changes on its
consolidated financial statements.

Management of the International Financial Reporting
Standards (IFRS) Convergence Project

The Company has begun the process of transitioning from
Canadian GAAP to IFRS. It has established a formal project plan, allocated
internal resources and engaged expert consultants, monitored by a Steering
Committee to manage the transition from Canadian GAAP to IFRS reporting. The
Steering Committee regularly updates the Audit Committee and the Board of
Directors with the progress of the convergence project through communication and
meetings.

The Company is in the process of evaluating its overall
readiness to transition from Canadian GAAP to IFRS including the readiness of
its staff, Board of Directors, Audit Committee and auditors.

36

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

The IFRS convergence project instituted consists of three
primary phases, which in certain cases will occur concurrently as IFRS is
applied to specific areas:

- Phase 1 - Initial Scoping and Impact Assessment Analysis:to isolate
  key areas that will be impacted by the transition to IFRS.
- Phase 2 - Evaluation and Design:to identify specific changes
  required to existing accounting policies, information systems and business
  processes, together with an analysis of policy alternatives allowed under IFRS
  and development of draft IFRS financial statements.
- Phase 3 - Implementation and Review: to execute the changes to
  information systems and business processes, completing formal authorization
  processes to approve recommended accounting policy changes and training
  programs across the Companys finance and other staff, as necessary. This will
  culminate in the collection of financial information necessary to compile IFRS
  compliant financial statements, including embedding IFRS principles in
  business processes, and Audit Committee review and approval of the financial
  statements.

The Company is now in the evaluation and design phase having
completed most of the initial scoping and impact assessment in Q4 2009. A
timetable has been prepared to manage the transition and to monitor the progress
of the transition project. At the date of preparing this MD&A, the Steering
Committee has presented the project plan and its initial scoping and impact
assessment to the Audit Committee. We expect to complete the quantification of
financial statement impacts by Q2 of fiscal 2011.

First-time Adoption of International Financial Reporting
Standards

IFRS 1, First-time Adoption of International Financial
Reporting Standards (IFRS 1), sets forth guidance for the initial adoption
of IFRS. Commencing for the period ended May 31, 2011 the Company will restate
its comparative fiscal 2011 financial statements for annual and interim periods
to be consistent with IFRS. In addition, the Company will reconcile equity and
net earnings from the previously reported fiscal 2010 Canadian GAAP amounts to
the restated IFRS amounts.

IFRS generally requires that first-time adopters
retrospectively apply all IFRS standards and interpretations in effect as at the
first annual reporting date. IFRS 1 provides for certain mandatory exceptions
and optional exemptions to this general principle.

The Company anticipates using the following IFRS 1 optional
exemptions:

- to apply the requirements of IFRS 3, Business Combinations,prospectively from the Transition Date;
- to apply the requirements of IFRS 2, Share-based Payments, to
  equity instruments granted which had not vested as of the Transition Date;
- Transfer all foreign currency translation differences recognized as a
  separate component of equity to retained earnings on the transition date
  including those foreign currency differences which arise on application of
  IFRS (see functional currency analysis below).

Changes to estimates previously made are not permitted. The
estimates previously made by the Company under Canadian GAAP will not be revised
for application of IFRS except where necessary to reflect any changes resulting
from differences in accounting policies.

37

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Impact of Adoption of IFRS on Financial Reporting

While Canadian GAAP is in many respects similar to IFRS,
conversion will result in differences in recognition, measurement, and
disclosure in the financial statements. Based on a high-level scoping
assessment, the following financial statement areas are expected to be
significantly impacted:

Basis of Consolidation

Under Canadian GAAP, the Company accounts for its interest in
HC van Wyk and Klipdam as a variable interest entities.

IAS27 (International Accounting Standard) does not include the
concept of a variable interest entity. IFRS requires the Company to consolidate
entities including Special Purpose Entities (SPE) only where the Company has
the power to govern the financial and operating policies of an entity so as to
obtain benefits from its activities. As at February 28, 2010 Rockwell has the
power to govern the financial and operating policies of the entities. The
Company will continue to consolidate the entities until such time as the
counterparty delivers on the terms set out in the sales agreements, giving
effect to the shareholders agreements, at which time the companies will
reconsider their conclusion regarding control under IFRS.

Therefore, there will be no impact on the opening balance sheet
at the transition date or on the consolidated balance sheet at February 28,
2011.

Minority Interest

Under Canadian GAAP, losses in a subsidiary may create a debit
balance in non-controlling interests.

Under IAS 27.35 where losses applicable to the minority exceed
the minority interest in the equity of the relevant subsidiary, the excess and
any further losses attributable to the minority are charged to the group unless
the minority has a binding obligation to, and is able to make good the losses.
Where excess losses have been taken up by the group, if the subsidiary in
question subsequently reports profits, all such profits are attributed to the
group until the minoritys share of losses previously absorbed by the group has
been recovered.

Share-based Payments (IFRS 2)

The Company currently measures stock-based compensation at the
fair value of the options granted using the Black-Scholes option pricing formula
and recognizes this expense over the vesting period of the options. For the
purpose of accounting for share based payment transactions, an individual is
classified as an employee when the individual is consistently represented to be
an employee under law. The fair value of the options granted to employees is
measured on the date of grant. The fair value of options granted to contractors
and consultants is measured on the date the services are completed. Forfeitures
are recognized as they occur.

As under Canadian GAAP, IFRS 2 requires the Company to measure
  stock-based compensation related to stock-options granted to employees at the
  fair value of the options on the date of grant and to recognize such expense
  over the vesting period of the options. However, for options granted to non-employees,
  IFRS requires that stock-based compensation be measured at the fair value of
  the services received unless the fair value of the services cannot be reliably
  measured. For the purpose of accounting for share based payment transactions,
  an individual is classified as an employee when the individual is an employee
  for legal or tax purposes (direct employee) or provides services similar to
  those performed by a direct employee.

38

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

This definition of an employee is broader than that currently
  applied by the Company and will result in certain contractors and consultants
  being classified as employees under IFRS.

However, the Company has determined that no adjustments will be
required at the transition date of March 1, 2010 or for the annual period ended
February 28, 2010.

Income Taxes

IAS 12, Income Taxes, requires the recognition of
deferred tax assets or liabilities for all deductible and taxable temporary
differences except for temporary differences created in a transaction that is:

(a) not a business combination; and

(b) at the time of the transaction,
affects neither accounting profit nor taxable profit.

Under Canadian GAAP, the Company recognizes a deferred tax
liability on temporary differences arising on the initial recognition of the
mineral property interest and net profit interest (where the accounting basis of
the asset acquired exceeded its tax basis) in a transaction which was not a
business combination and affected neither accounting profit (loss) nor taxable
profit (loss).

As of the Transition Date, the Company will derecognize all
deferred tax liabilities which had been previously recognized on the initial
acquisition of the mineral property interest and the net profit interest since
these transactions are deemed not to be a business combination and affected
neither accounting profit (loss) nor taxable profit (loss) with a corresponding
reduction in the related asset.

Impairment of Assets

Per IAS 36, Impairment of Assets, an entity shall assess
at the end of each reporting period whether there is any indication that an
asset may be impaired. If any such indication exists, the entity should estimate
the recoverable amount of the asset. The indicators of impairment are generally
consistent with those of Canadian GAAP. An asset should be written down to its
recoverable amount if the recoverable amount is less than its carrying value.

The recoverable amount is equal to the higher of the fair value
less cost to sell and its value in use. It is not necessary to determine both if
no indicators for impairment exists. The value in use is based on a discounted
cash flow model. This approach is different than Canadian GAAP (i.e. one step
model under IFRS compared to two step model under Canadian GAAP).

To the extent possible, IFRS requires individual assets to be
tested for impairment. However, if it is not possible to determine the
recoverable amount of an individual asset, an entity should determine the
recoverable amount of the Cash Generating Unit (CGU) to which the asset
belongs. The definition of a Cash Generated Unit is different from the Canadian
definition of an Asset Group.



39

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

In addition, the Company has in the past written down mineral
  property amounts for certain mineral properties. Under IAS 36, the Company could
  reconsider whether there is any indication that an impairment loss recognized
  in a prior period may no longer exist or has decreased on transition and thereafter
  on an annual basis. If such indicators exist, a new recoverable amount should
  be calculated and all or part of the impairment charge should be reversed to
  the extent the recoverable amount exceeds its carrying value. The maximum amount
  of the reversal is the lower of (1) the amount necessary to bring the carrying
  amount of the asset to its recoverable amount, and (2) the amount necessary
  to restore the asset of the cash generating unit to the pre-impairments carrying
  amounts less subsequent depreciation or amortization that would have been recognized.
  This is different than Canadian GAAP where write back of previously recognized
  impairments are not permitted.

However, the Company has determined that no significant
reversal of previously recognized impairments will be required at the transition
date or for the annual period ended February 28, 2010.

IFRS Impact on Our Organization

The conversion to IFRS will impact the way the Company presents
its financial results. The first financial statements prepared using IFRS (i.e.
interim financial statements for the three months ended May 31, 2011) will be
required to include numerous notes disclosing extensive transitional information
and full disclosure of all new IFRS accounting policies.

The subsidiaries of the Company have been reporting in IFRS for
the last five years, therefore the financial staff have a working knowledge of
IFRS. The impact is therefore restricted to the consolidating entries and the
taxation effects thereon.

The Company is currently evaluating the impact of the
conversion on its accounting systems and has not determined whether significant
changes to its accounting systems are required. The Company expects to complete
this evaluation by the third fiscal quarter (Q3) 2011.

In addition, the Company will evaluate its internal and
disclosure control processes as a result of its conversion to IFRS, assess the
impacts of adopting IFRS on its contractual arrangements to identify any
material compliance issues such as its debt covenants and other commitments and
consider the impacts the transition will have on its internal planning process
and compensation arrangements. The Company expects to complete this evaluation
by second fiscal quarter (Q2) of 2011.

1.14Financial
Instruments and Risks and Uncertainties

Capital Management Objectives

As at February 28, 2010, the Company is not subject to
externally imposed capital requirements other than its restricted cash and its
overdraft facility.

At February 28, 2010, of the $2,512,610 (2009  $3,997,807)
cash and cash equivalents held by the Company, $1,376,073 (ZAR 10,066,386)
((2009  $3,626,750 (ZAR 28,689,082)) were held in South African Rand (ZAR),
and $1,136,537 (2009  $371,057) in Canadian Dollars. Cash and cash equivalents
exclude cash subject to restrictions.

40

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

The Company's primary objectives when managing capital are to
safeguard the Company's ability to continue as a going concern, so that it can
continue to provide returns for shareholders, and to have sufficient funds on
hand for business opportunities as they arise. The Company considers the
components of shareholders equity, as well as its cash and cash equivalents,
and bank indebtedness as capital. The Companys investment policy is to invest
its cash in highly liquid short-term interest-bearing investments, having
maturity dates of three months or less from the date of acquisition, that are
readily convertible to known amounts of cash.

The Company manages the capital structure and makes adjustments
to it in the light of changes in economic conditions and the risk
characteristics of the underlying assets. The Company may issue new shares
through private placements, issue debt, or return capital to shareholders, in
order to maintain or adjust the capital structure.

In order to facilitate the management of its capital
requirements, the Company prepares annual expenditure budgets that are updated
as necessary depending on various factors, including successful capital
deployment and general industry conditions.

There were no changes to the Companys approach to capital
management during the year ended February 28, 2010 and the Company expects it
will be able to raise sufficient capital resources to carry out its plans of
operations for fiscal 2011.

Financial Instrument Risk Exposure and Risk Management

The Company is exposed in varying degrees to a variety of
financial instrument related risk. The Board approves and monitors the risk
management processes, including treasury policies, counterparty limits,
controlling and reporting structures, credit risk, liquidity risk, currency
risk, interest risk and diamond price risk. The types of risk exposure and the
way in which such exposure is managed are provided as follows:

Credit Risk

Credit risk is the risk of potential loss to the Company if a
counterparty to a financial instrument fails to meet its contractual
obligations. The Companys credit risk is primarily attributable to its liquid
financial assets including cash and equivalents, restricted cash, accounts
receivable and trade receivable from a related party. The carrying value, which
approximates fair value, of the Companys cash and cash equivalents, accounts
receivable and trade receivable from a related party represent the maximum
exposure to credit risk.

The Company limits exposure to credit risk on liquid financial
assets through maintaining its cash and equivalents with high-credit quality
financial institutions. The Company does not have financial assets that are
invested in asset backed commercial paper.

The Company minimizes its credit risk by reducing credit terms
to 30 days on its sales.

Accounts receivable is reliant on the price of the diamond
package obtained at date of tender for which there are no observable market
data.

Cash and cash equivalents and bank indebtedness are carried in
traded currencies.

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Liquidity Risk

Liquidity risk is the risk that the Company will not be able to
meet its financial obligations as they fall due. The Company raised $8.6 million
in a private placement at the end of the current year and a further $8.0 million
subsequent to the year end. After taking into account cash flows from operations
and the Companys holdings of cash and cash equivalents, the Company believes
that these sources will be sufficient to cover the likely requirements for the
foreseeable future. The Companys cash and equivalents are invested in business
accounts which are available on demand for the Companys programs, and which are
not invested in any asset backed deposits/investments.

The Company operates in South Africa. Like other foreign
entities operating there, the Company is subject to currency exchange controls
administered by the South African Reserve Bank, that country's central bank. A
significant portion of the Company's funding structure for its South African
operations consists of advancing loans to its South Africa incorporated
subsidiaries and it is possible the Company may not be able to acceptably
repatriate such funds once those subsidiaries are able to repay the loans or
repatriate other funds such as operating profits should any develop. The
repatriation of cash held in South Africa is permitted upon the approval of the
South African Reserve Bank. Cash balances in South Africa are disclosed below.

Currency Risk

In the normal course of business, the Company enters into
transactions for the purchase of supplies and services denominated in South
African Rand (ZAR). In addition, the Company has cash and certain liabilities
denominated in ZAR. As a result, the Company is subject to currency risk from
fluctuations in foreign exchange rates. The Company has not entered into any
derivative or other financial instruments to mitigate this foreign exchange
risk.

A 10 percent increase/decrease of the Canadian dollar against
  the ZAR at February 28, 2010 would have a net loss gain/loss effect of $391,238
  (2009  $ 659,120). This analysis assumes that all other variables, in
  particular interest rates, remain constant.

Interest Rate Risk

The Company is subject to interest rate risk with respect to
its investments in cash and cash equivalents. The Companys policy is to invest
cash at floating rates of interest and cash reserves are to be maintained in
cash equivalents in order to maintain liquidity, while achieving a satisfactory
return for shareholders. Fluctuations in interest rates when the cash
equivalents mature impact interest income earned.

The Company has capital lease obligations with several
financial institutions. The capital leases bear interest at rates linked to the
prevailing prime rate of the relative financial institution, and are subject to
interest rate change risk.

A 10 percent increase/decrease of the prime rate for the year
ended February 28, 2010 would have a net loss/gain effect of $154,580 (2009 
$159,200). This analysis assumes that all other variables, in particular foreign
exchange rates, remain constant.

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Diamond price risk

The value of the Company's mineral resource properties is
dependent on the price and the outlook of diamonds. Diamond demand and prices
fluctuate and are affected by numerous factors beyond the control of the
Company, including worldwide economic trends, worldwide levels of diamond
discovery and production and the level of demand for, and discretionary spending
on, luxury goods such as diamonds and jewellery. Low or negative growth in the
worldwide economy, prolonged credit market disruptions or activities creating
disruptions in economic growth could result in decreased demand for diamonds,
thereby negatively affecting the price of diamonds. Similarly, a substantial
increase in the worldwide level of diamond production could also negatively
affect the price of diamonds. In each case, such developments could materially
adversely affect the Companys results of operations.

The profitability of the Company's operations is highly
correlated to the market price of diamonds. If diamond prices decline for a
prolonged period below the cost of production of the Company's operating mines,
it may not be economically feasible to continue production.

1.15      Other MD&A
Requirements

Additional information relating to the Company is available on
SEDAR at www.sedar.com.

1.15.1   Additional Disclosure for Venture Issuers
Without Significant Revenue

Not applicable. The Company is not a venture issuer.

1.15.2   Disclosure of Outstanding Share
Data

The following details the share capital structure as of the date
  of this MD&A. These figures may be subject to minor accounting adjustments
  prior to presentation in future consolidated financial statements.

|                         | Exercise |            |            
|------------------------ | -------- | ---------- | -----------
|Expiry
      date        | price    | Number     | Total      
|Common shares            |          |            | 518,185,238
|                         |          |            |            
|Share purchase options   |          |            |            
|September
      24, 2012 | $ 0.62   | 5,896,500  |            
|November
      14, 2012  | $ 0.63   | 1,101,500  |            
|June
      20, 2011      | $ 0.45   | 950,000    |            
|December
      7, 2014   | $ 0.06   | 14,270,890 |            
|January
      18, 2015   | $ 0.07   | 600,000    | 22,818,890 

1.15.3Internal Controls over
Financial Reporting Procedures

The Company's management is responsible for establishing and
  maintaining adequate internal controls over financial reporting. Any system
  of internal controls over financial reporting, no matter how well designed,
  has inherent limitations. Therefore, even those systems determined to be effective
  can provide only reasonable assurance with respect to financial statement preparation
  and presentation.

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

Management has used the Committee of Sponsoring Organizations
  of the Treadway Commission (COSO) framework to evaluate the effectiveness of
  the Companys internal control over financial reporting.

During managements evaluation of the effectiveness of internal
controls over financial reporting as at February 28, 2009, management identified
significant deficiencies in the Companys internal controls over financial
reporting. The deficiencies identified include insufficient supervision and
review by key accounting personnel over routine, non-routine and complex
accounting transactions, inconsistent application of documented financial
reporting procedures by accounting personnel, and the ineffective review of
certain accounting transactions by accounting personnel. At February 28, 2009,
management concluded that the combination of these significant deficiencies
resulted in a material weakness and, therefore, the Companys internal control
over financial reporting was not effective at February 28, 2009.

Management remediated the material weakness that existed as at
February 28, 2009 during the period ended February 28, 2010 by implementing the
following remediation plans:

- Recruitment of qualified and experienced members to the accounting team.
  The Company contracted the additional services of an accountant with
  experience in the diamond industry to assist in the rigorous review of
  procedures and to assist with addressing backlogs and changes in reporting.
- Enhancing controls around the timing and level of review of accounting
  schedules and calculations that support significant financial statement
  accounts.
- The CFO, Group Financial Manager and Rockwell staff implemented a review of
  the financial reporting procedures and continue to implement further
  improvements to ensure sufficient, appropriate and timely review of the
  financial information to mitigate any potential future delays.
- Continuous review, improvement and re-engineering of financial processes to
  meet the Companys financial reporting and disclosure obligations.
- Appropriate training of accounting personnel regarding the Companys period
  end financial reporting processes and procedures.

These programs were designed to reduce, although they may not
completely eliminate, the risk of a material misstatement. The full effect of
the extent of these measures will only be fully realised in the 2011 financial
year.

Management is of the opinion that by implementing the above
items and other actions it has taken to improve internal control over financial
reporting, the material weakness identified above has been remediated.

At February 28, 2010, management evaluated the effectiveness of
the Companys internal control over financial reporting and concluded that such
internal control over financial reporting was effective and there were no
material weaknesses identified by management.

44

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|ROCKWELL DIAMONDS INC.                         
|-----------------------------------------------
|THREE AND TWELVE MONTHS ENDED FEBRUARY 28, 2010
|MANAGEMENT'S DISCUSSION AND ANALYSIS           
|                                               

1.15.4Disclosure Controls and
Procedures

The Company has disclosure controls and procedures in place to
provide reasonable assurance that any information required to be disclosed by
the Company under securities legislation is recorded, processed, summarized and
reported within the applicable time periods and to ensure that required
information is gathered and communicated to the Company's management so that
decisions can be made about timely disclosure of that information.

As at February 28, 2010, our management carried out an
evaluation, with the participation of our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of our disclosure controls and
procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934(the Exchange Act)). Based upon
that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that, as at February 28, 2010, our disclosure controls and procedures
were effective in recording, processing, summarizing and reporting, on a timely
basis, information required to be disclosed by us in reports that we file or
submit under the Exchange Act.

It should be noted that while our Chief Executive Officer and
our Chief Financial Officer believe that our disclosure controls and procedures
provide a reasonable level of assurance that they are effective, they do not
expect that our disclosure controls and procedures or internal control over
financial reporting will prevent all errors and fraud. A control system, no
matter how well conceived or operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system will be met.

45

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