---

(Formerly
Rockwell Ventures Inc.)

CONSOLIDATED FINANCIAL STATEMENTS



YEAR ENDED FEBRUARY 28, 2009,NINE MONTHS ENDED FEBRUARY 29, 2008AND YEAR
ENDED MAY 31, 2007(Expressed in Canadian
Dollars)

---

Managements Responsibility for Financial
Statements

The consolidated financial statements, the notes thereto and
other financial information contained in the Annual Report have been prepared in
accordance with Canadian generally accepted accounting principles and are the
responsibility of the management of Rockwell. The financial information
presented elsewhere in the Annual Report is consistent with the data that is
contained in the consolidated financial statements. The consolidated financial
statements, where necessary, include amounts which are based on the best
estimates and judgments of management.

In order to discharge managements responsibility for the
integrity of the financial statements, the Company maintains a system of
internal accounting controls. These controls are designed to provide reasonable
assurance that the Companys assets are safeguarded, transactions are executed
and recorded in accordance with managements authorization, proper records are
maintained and relevant and reliable financial information is produced. These
controls include maintaining quality standards in hiring and training of
employees, policies and procedures manuals, a corporate code of conduct and
ensuring that there is proper accountability for performance within appropriate
and well-defined areas of responsibility. The system of internal controls is
further supported by a compliance function, which is designed to ensure that we
and our employees comply with securities legislation and conflict of interest
rules.

The Board of Directors is responsible for overseeing
managements performance of its responsibilities for financial reporting and
internal control. The Audit Committee, which is composed of non-executive
directors, meets with management as well as the external auditors to ensure that
management is properly fulfilling its financial reporting responsibilities to
the Directors who approve the consolidated financial statements. The external
auditors have full and unrestricted access to the Audit Committee to discuss the
scope of their audits, the adequacy of the system of internal controls and
review financial reporting issues.

The consolidated financial statements have been audited by KPMG
Inc, the independent registered chartered accountants, in accordance with
Canadian generally accepted auditing standards and standards of the Public
Company Accounting Oversight Board (United States).



|/s/ Dr. John Bristow              | /s/ Desmond Morgan     
|--------------------------------- | -----------------------
|                                  |                        
|Dr. John Bristow                  | Desmond Morgan         
|Director, Chief Executive Officer | Chief Financial Officer

---

Report on Independent Registered Public Accounting
Firm

The Board of Directors and Shareholders of Rockwell Diamonds
  Inc.

We have audited the accompanying consolidated balance sheets of
  Rockwell Diamonds Inc. and subsidiaries as of February 28, 2009 and 2008, the
  related consolidated income statements, the statements of changes in equity, the
  cash flow statements for each of the years in the three-year period ended
  February 28, 2009. These consolidated financial statements are the
  responsibility of the Companys management. Our responsibility is to express an
  opinion on these consolidated financial statements based on our audits.

We conducted our audit in accordance with the standards of the
  Public Company Accounting Oversight Board (United States). Those standards
  require that we plan and perform the audit to obtain reasonable assurance about
  whether the financial statements are free of material misstatement. An audit
  includes examining, on a test basis, evidence supporting the amounts and
  disclosures in the financial statements. An audit also includes assessing the
  accounting principles used and significant estimates made by management, as well
  as evaluating the overall financial statement presentation. We believe that our
  audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  Rockwell Diamonds Inc. and subsidiaries as of February 28, 2009 and 2008, the
  results of its operations and its cash flows for each of the years in the
  three-year period ended in accordance with Canadian generally accepted
  accounting principles.

Canadian generally accepted accounting principles vary in
  certain significant respects from US generally accepted accounting principles.
  Information relating to the nature and effect of such differences is presented
  in note 17 to the consolidated financial statements.

The accompanying financial statements have been prepared
  assuming that the Company will continue as a going concern. As discussed in Note
  1 to the financial statements, the Company has suffered significant losses from
  operations in the current year and continues to incur losses subsequent to year
  end and has a risk that cash and working capital will not be sufficient to fund
  the continuing losses that raise substantial doubt about its ability to continue
  as a going concern. Managements plans in regard to these matters are also
  described in Note 1. The financial statements do not include any adjustments
  that might result from the outcome of this uncertainty.

As discussed in Note 4 to the financial statements, the Company
  has adopted new accounting policies for capital disclosures, financial
  instruments disclosures and presentation, going concern disclosures and
  inventories as required by the Canadian Institute of Chartered Accountants.

/s/ KPMG Inc.

KPMG Inc.Registered Accountants and Auditors 
  Bloemfontein, Republic of South Africa 
  11 September 2009



---

ROCKWELL DIAMONDS
INC.Consolidated Balance Sheets(Expressed in Canadian
Dollars)

|                                                                 |   | February 28, 2009 |   |   | February 29, 2008 |  
|---------------------------------------------------------------- | - | ----------------- | - | - | ----------------- | -
|ASSETS                                                           |   |                   |   |   |                   |  
|                                                                 |   |                   |   |   |                   |  
|Current assets                                                   |   |                   |   |   |                   |  
|Cash and cash equivalents                                        | $ | 3,997,807         |   | $ | 19,623,847        |  
|Accounts receivable                                              |   | 1,131,026         |   |   | 631,446           |  
|Restricted cash (note 7(a))                                      |   | 2,698,719         |   |   | 13,335,124        |  
|Trade receivable from a related party
      (note 13)            |   | 3,490,725         |   |   | 593,434           |  
|Inventory (note 5)                                               |   | 3,719,919         |   |   | 3,465,853         |  
|Prepayments                                                      |   | 61,775            |   |   | 946,858           |  
|                                                                 |   | 15,099,971        |   |   | 38,596,562        |  
|                                                                 |   |                   |   |   |                   |  
|Property, plant and equipment (note 6)                           |   | 59,569,186        |   |   | 64,831,636        |  
|Mineral property interests (note 7)                              |   | 28,894,477        |   |   | 25,247,937        |  
|Other assets and deposits (note 10)                              |   | 139,140           |   |   | 3,200,112         |  
|Reclamation deposits (note 9)                                    |   | 2,659,642         |   |   | 1,816,877         |  
|                                                                 |   |                   |   |   |                   |  
|                                                                 | $ | 106,362,416       |   | $ | 133,693,124       |  
|                                                                 |   |                   |   |   |                   |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                             |   |                   |   |   |                   |  
|                                                                 |   |                   |   |   |                   |  
|Current liabilities                                              |   |                   |   |   |                   |  
|Bank indebtedness (note 16)                                      | $ | 3,540,880         |   | $ |                  |  
|Accounts payable and accrued
      liabilities                   |   | 4,832,038         |   |   | 4,420,212         |  
|Amounts owing pursuant to acquisition
      (note 7(e))          |   |                  |   |   | 294,402           |  
|Due to related parties (note 13)                                 |   | 193,655           |   |   | 49,604            |  
|Income taxes                                                     |   | 456,046           |   |   | 890,332           |  
|Current portion of capital lease obligations (note 8)            |   | 5,440,181         |   |   | 6,847,751         |  
|                                                                 |   | 14,462,800        |   |   | 12,502,301        |  
|                                                                 |   |                   |   |   |                   |  
|Long-term liabilities                                            |   |                   |   |   |                   |  
|Capital lease obligations (note 8)                               |   | 3,284,596         |   |   | 7,955,548         |  
|Due to related parties (note 13)                                 |   | 383,330           |   |   |                  |  
|Future income taxes (note 14)                                    |   | 12,126,000        |   |   | 12,430,100        |  
|Reclamation obligation (note 9)                                  |   | 3,802,655         |   |   | 1,755,820         |  
|                                                                 |   | 19,596,581        |   |   | 22,141,468        |  
|                                                                 |   |                   |   |   |                   |  
|Non-controlling interest(note 7)                                 |   | 1,882,009         |   |   | 11,934,548        |  
|                                                                 |   |                   |   |   |                   |  
|Shareholders' equity                                             |   |                   |   |   |                   |  
|Share capital (note 11)                                          |   | 119,952,532       |   |   | 112,095,390       |  
|Warrants (note 11(c))                                            |   | 1,693,197         |   |   | 1,693,197         |  
|Contributed surplus                                              |   | 4,167,304         |   |   | 2,332,882         |  
|Accumulated other comprehensive loss                             |   | (13,409,383       | ) |   |                  |  
|Deficit                                                          |   | (41,982,624       | ) |   | (29,006,662       | )
|                                                                 |   | 70,421,026        |   |   | 87,114,807        |  
|Continuance of operations and going concern
      (note 1)       |   |                   |   |   |                   |  
|Commitments relating to mineral property
      interest (note 7) |   |                   |   |   |                   |  
|Contingencies (notes 18)                                         |   |                   |   |   |                   |  
|Subsequent events (note 19)                                      |   |                   |   |   |                   |  
|                                                                 |   |                   |   |   |                   |  
|                                                                 | $ | 106,362,416       |   | $ | 133,693,124       |  

The accompanying notes are an integral part of these
consolidated financial statements.

Approved by the Board of Directors

|/s/ Dr. John Bristow              | /s/ William J. Fisher
|--------------------------------- | ---------------------
|                                  |                      
|Dr. John Bristow                  | William J. Fisher    
|Director, Chief Executive Officer | Director             

---

ROCKWELL DIAMONDS
INC.Consolidated Statements of Operations and Comprehensive
Loss(Expressed in Canadian Dollars)

|                                                                   |   |              |   |   | Nine
      months |   |   |            |  
|------------------------------------------------------------------ | - | ------------ | - | - | ----------------- | - | - | ---------- | -
|                                                                   |   | Year ended   |   |   | ended             |   |   | Year ended |  
|                                                                   |   | February 28, |   |   | February 29,      |   |   | May 31,    |  
|                                                                   |   | 2009         |   |   | 2008              |   |   | 2007       |  
|                                                                   |   |              |   |   |                   |   |   |            |  
|Revenue                                                            |   |              |   |   |                   |   |   |            |  
|Rough diamonds sales                                               | $ | 34,330,078   |   | $ | 35,863,214        |   | $ | 8,117,647  |  
|Contract diamond sales                                             |   |             |   |   | 174,892           |   |   | 1,967,889  |  
|Other sales                                                        |   | 303,399      |   |   | 111,202           |   |   | 17,792     |  
|                                                                   |   | 34,633,477   |   |   | 36,149,308        |   |   | 10,103,328 |  
|Cost of sales                                                      |   |              |   |   |                   |   |   |            |  
|Cost of rough diamonds sales                                       |   | (25,113,363  | ) |   | (22,581,613       | ) |   | (7,206,389 | )
|Cost of contract diamond sales                                     |   |             |   |   | (148,658          | ) |   | (1,768,353 | )
|Amortization and depletion                                         |   | (11,287,197  | ) |   | (6,533,941        | ) |   | (2,074,415 | )
|Operating profit (loss)                                            |   | (1,767,083   | ) |   | 6,885,096         |   |   | (945,829   | )
|                                                                   |   |              |   |   |                   |   |   |            |  
|Expenses                                                           |   |              |   |   |                   |   |   |            |  
|Accretion of reclamation obligation (note 9)                       |   | 1,072,389    |   |   | 464,316           |   |   | 55,471     |  
|Exploration                                                        |   | 498,739      |   |   | 604,169           |   |   | 1,371,351  |  
|Foreign exchange gain                                              |   | (350,485     | ) |   | (751,315          | ) |   | (3,580,364 | )
|Interest on capital leases                                         |   | 1,592,001    |   |   | 1,289,385         |   |   | 433,125    |  
|Interest expense                                                   |   | 3,009,680    |   |   | 270,976           |   |   | 103,031    |  
|Legal, accounting and audit                                        |   | 1,863,261    |   |   | 790,725           |   |   | 691,759    |  
|Office and administration                                          |   | 3,489,460    |   |   | 2,697,077         |   |   | 2,993,453  |  
|Shareholder communications                                         |   | 453,489      |   |   | 198,985           |   |   | 200,574    |  
|Stock-based compensation - exploration (note
      11(b))          |   | 629,347      |   |   | 514,892           |   |   | 41,372     |  
|Stock-based compensation -
      administration (note 11(b))       |   | 1,205,075    |   |   | 1,311,423         |   |   | 38,251     |  
|Travel and conferences                                             |   | 605,812      |   |   | 654,705           |   |   | 666,194    |  
|Transfer agent                                                     |   | 250,878      |   |   | 544,232           |   |   | 176,530    |  
|                                                                   |   | 14,319,646   |   |   | 8,589,570         |   |   | 3,190,747  |  
|Other items                                                        |   |              |   |   |                   |   |   |            |  
|Write-off of accounts receivable                                   |   | 291,063      |   |   | 18,360            |   |   | 224,942    |  
|Loss on disposal of equipment                                      |   | 364,918      |   |   | 402,411           |   |   | 94,621     |  
|Loss on disposal of mineral property (note
      7(f))             |   | 203,339      |   |   |                  |   |   |           |  
|Interest income                                                    |   | (2,672,021   | ) |   | (1,118,396        | ) |   | (372,149   | )
|Convertible note accretion expense                                 |   |             |   |   |                  |   |   | 2,363,808  |  
|Loss on early extinguishment
      of convertible promissory notes |   |             |   |   |                  |   |   | 137,957    |  
|Write-down of assets (note 3(i))                                   |   | 2,590,958    |   |   |                  |   |   |           |  
|Write-down of marketable securities                                |   |             |   |   |                  |   |   | 1          |  
|                                                                   |   | 778,257      |   |   | (697,625          | ) |   | 2,449,180  |  
|                                                                   |   |              |   |   |                   |   |   |            |  
|Loss before
      income taxes                                     |   | 16,864,986   |   |   | 1,006,849         |   |   | 6,585,756  |  
|Current income tax expense
      (note 14)                         |   | 7,000        |   |   | 179,290           |   |   |           |  
|Future income tax (recovery) expense (note 14)                     |   | (3,347,000   | ) |   | 2,261,110         |   |   | (635,773   | )
|Loss before non-controlling interest                               |   | 13,524,986   |   |   | 3,447,249         |   |   | 5,949,983  |  
|Non-controlling interest                                           |   | (549,024     | ) |   | 5,955,779         |   |   | 415,159    |  
|Loss for the period                                                |   | 12,975,962   |   |   | 9,403,028         |   |   | 6,365,142  |  
|Other
      comprehensive loss (note 3(k))                         |   | 13,409,383   |   |   |                  |   |   |           |  
|Total comprehensive loss                                           | $ | 26,385,345   |   | $ | 9,403,028         |   | $ | 6,365,142  |  
|                                                                   |   |              |   |   |                   |   |   |            |  
|                                                                   |   |              |   |   |                   |   |   |            |  
|Basic and diluted
      loss per common share                      | $ | 0.05         |   | $ | 0.05              |   | $ | 0.11       |  
|                                                                   |   |              |   |   |                   |   |   |            |  
|Weighted average number of                                         |   |              |   |   |                   |   |   |            |  
|common shares outstanding                                          |   | 237,924,152  |   |   | 196,428,551       |   |   | 55,418,242 |  

The accompanying notes are an integral part of these
consolidated financial statements.

---

ROCKWELL DIAMONDS
INC.Consolidated Statements of Accumulated Comprehensive Loss
and Deficit(Expressed in Canadian Dollars)

|                                                                                     |   | Year
      ended |   |   | Nine
      months ended |   |   | Year
      ended |  
|------------------------------------------------------------------------------------ | - | ---------------- | - | - | ----------------------- | - | - | ---------------- | -
|                                                                                     |   | February 28      |   |   | February 29             |   |   | May 31           |  
|                                                                                     |   | 2009             |   |   | 2008                    |   |   | 2007             |  
|                                                                                     |   |                  |   |   |                         |   |   |                  |  
|                                                                                     |   |                  |   |   |                         |   |   |                  |  
|Accumulated other comprehensive loss                                                 |   |                  |   |   |                         |   |   |                  |  
|Balance at beginning of the period                                                   | $ |                 |   | $ |                        |   | $ |                 |  
|Comprehensive loss on currency translation of previously
      integrated operations |   | (13,409,383      | ) |   |                        |   |   |                 |  
|Balance at end of the period                                                         | $ | (13,409,383      | ) | $ |                        |   | $ |                 |  
|                                                                                     |   |                  |   |   |                         |   |   |                  |  
|Deficit                                                                              |   |                  |   |   |                         |   |   |                  |  
|Balance at beginning of the
      period                                             | $ | (29,006,662      | ) | $ | (19,603,634             | ) | $ | (13,238,492      | )
|Loss for the period                                                                  |   | (12,975,962      | ) |   | (9,403,028              | ) |   | (6,365,142       | )
|Balance at end of the period                                                         | $ | (41,982,624      | ) | $ | (29,006,662             | ) | $ | (19,603,634      | )

The accompanying notes are an integral part of these
consolidated financial statements.

---

ROCKWELL DIAMONDS
INC.Consolidated Statements of Shareholders'
Equity(Expressed in Canadian Dollars)

Year
        ended February 28
      
      
      Nine
        months ended February 29
      
      
      Year
        ended May 312009
      
      
      
      
      
      2008
      
      
      
      
      
      2007Share capital
      Number of shares
      
      
      
      
      
      Number of shares
      
      
      
      
      
      Number of sharesBalance at beginning of the period
      223,755,854
      
      $
      112,095,390
      
      
      186,976,219
      
      $
      88,903,530
      
      
      23,694,776
      
      $
      11,857,649Share purchase options exercised at
        $0.40 per share
      
      
      
      
      
      
      107,917
      
      
      43,167
      
      
      9,167
      
      
      3,734Share purchase options
        exercised at $0.42 per share
      
      
      
      
      
      
      145,000
      
      
      60,900
      
      
      
      
      
      Private placement November 2006, net
        of issue costs at $0.47 per share
      
      
      
      
      
      
      
      
      
      4,160
      
      
      42,000,000
      
      
      19,784,230Private placement May
        2007, net of issue costs at $0.47 per share
      
      
      
      
      
      
      
      
      
      
      
      
      116,007,154
      
      
      54,184,270Private placement January 2008, net
        of issue costs at $0.60 per share
      
      
      
      
      
      
      24,101,526
      
      
      13,860,916
      
      
      
      
      
      Interest consideration
        for convertible promissory at $0.60 per share notes
      
      
      
      
      
      
      
      
      
      
      
      
      1,734,127
      
      
      1,045,000Interest consideration for credit facility
        at $0.61 per share
      
      
      
      
      
      
      
      
      
      
      
      
      1,939,562
      
      
      1,182,869Interest consideration
        for loan at $0.55 per share
      
      
      
      
      
      
      
      
      
      
      
      
      497,993
      
      
      273,896Commission consideration for private
        placement at $0.52 per share
      
      
      
      
      
      
      
      
      
      
      
      
      1,093,440
      
      
      568,588Commission consideration
        for private placement at $0.60 per share
      
      
      
      
      
      
      500,000
      
      
      300,000
      
      
      
      
      
      Warrants exercised at $0.60 per share
      
      
      
      
      
      
      2,400,000
      
      
      1,440,000
      
      
      
      
      
      Consideration for acquisition
        of property net of issue cost at $0.78 per share (note 7(b))
      
      
      
      
      
      
      7,848,663
      
      
      6,081,842
      
      
      
      
      
      Consideration for additional
        interest of operating mines net of issue cost at $0.55 per share(note 7(b))
      14,285,715
      
      
      7,857,142
      
      
      
      
      
      
      
      
      
      
      
      Consideration for property finders fees
        at $0.78 per share
      
      
      
      
      
      
      1,676,529
      
      
      1,307,693Fair value of stock options allocated to shares issued
        on exercise
      
      
      
      
      
      
      
      
      
      93,182
      
      
      
      
      
      3,294Balance at end of the period
      238,041,569
      
      $
      119,952,532
      
      
      223,755,854
      
      $
      112,095,390
      
      
      186,976,219
      
      $
      88,903,530WarrantsBroker warrants issued
        as consideration for private placement, beginning andend of period
      
      
      $
      1,693,197
      
      
      
      
      $
      1,693,197
      
      
      
      
      $
      1,693,197Contibuted surplusBalance at beginning of the period
      
      
      $
      2,332,882
      
      
      
      
      $
      599,749
      
      
      
      
      $
      523,420Stock-based compensation (note 11(b))
      
      
      
      1,834,422
      
      
      
      
      
      1,826,315
      
      
      
      
      
      79,623Fair value of stock options allocated to shares issued
        on exercise
      
      
      
      
      
      
      
      
      
      (93,182
      )
      
      
      
      
      (3,294
      )Balance at end of the period
      
      
      $
      4,167,304
      
      
      
      
      $
      2,332,882
      
      
      
      
      $
      599,749Accumulated other comprehensive lossBalance at beginning of the period
      
      
      $
      
      
      
      
      
      $
      
      
      
      
      
      $
      Comprehensive loss on currency translation of previously
        integrated operations
      
      
      
      (13,409,383
      )
      
      
      
      
      
      
      
      
      
      
      Balance at end of the period
      
      
      $
      (13,409,383
      )
      
      
      
      $
      
      
      
      
      
      $
      DeficitBalance at beginning of the period
      
      
      $
      (29,006,662
      )
      
      
      
      $
      (19,603,634
      )
      
      
      
      $
      (13,238,492
      )Loss for the period
      
      
      
      (12,975,962
      )
      
      
      
      
      (9,403,028
      )
      
      
      
      
      (6,365,142
      )Balance at end of the period
      
      
      $
      (41,982,624
      )
      
      
      
      $
      (29,006,662
      )
      
      
      
      $
      (19,603,634
      )TOTAL SHAREHOLDERS' EQUITY
      
      
      $
      70,421,026
      
      
      
      
      $
      87,114,807
      
      
      
      
      $
      71,592,842


The accompanying notes are an integral part of these
consolidated financial statements.

---

ROCKWELL DIAMONDS
INC.Consolidated Statements of Cash Flows(Expressed in
Canadian Dollars)

|                                                                                          |   |              |   |   | Nine
      months |   |   |             |  
|----------------------------------------------------------------------------------------- | - | ------------ | - | - | ----------------- | - | - | ----------- | -
|                                                                                          |   | Year ended   |   |   | ended             |   |   | Year ended  |  
|                                                                                          |   | February 28, |   |   | February 29       |   |   | May 31,     |  
|Cash provided
      by (used in):                                                         |   | 2009         |   |   | 2008              |   |   | 2007        |  
|                                                                                          |   |              |   |   |                   |   |   |             |  
|Operating activities                                                                      |   |              |   |   |                   |   |   |             |  
|Loss for the period                                                                       | $ | (12,975,962  | ) | $ | (9,403,028        | ) | $ | (6,365,142  | )
|Items not affecting cash                                                                  |   |              |   |   |                   |   |   |             |  
|Accretion of reclamation obligation                                                       |   | 1,072,389    |   |   | 464,316           |   |   | 55,471      |  
|Amortization and
      depletion                                                          |   | 8,347,837    |   |   | 4,460,323         |   |   | 1,196,682   |  
|Amortization of capital lease equipment                                                   |   | 2,939,360    |   |   | 2,073,618         |   |   | 877,733     |  
|Write-down of assets                                                                      |   | 2,590,958    |   |   |                  |   |   |            |  
|Write-off of accounts receivable                                                          |   | 291,063      |   |   | 18,360            |   |   | 224,942     |  
|Write-down of
      marketable securities                                                 |   |             |   |   |                  |   |   | 1           |  
|Loss on early extinguishment of
      convertible promissory note                         |   |             |   |   |                  |   |   | 137,957     |  
|Convertible note
      accretion expense                                                  |   |             |   |   |                  |   |   | 2,363,808   |  
|Stock-based compensation (note 11(b))                                                     |   | 1,834,422    |   |   | 1,826,315         |   |   | 79,623      |  
|Loss on disposal of
      equipment                                                       |   | 364,918      |   |   | 402,411           |   |   | 94,621      |  
|Future income tax (recovery) expense                                                      |   | (3,347,000   | ) |   | 2,261,110         |   |   | (635,773    | )
|Provision for site
      reclamation                                                      |   |             |   |   | 230,622           |   |   | (474,024    | )
|Unrealized foreign exchange gain                                                          |   | (768,117     | ) |   | (2,967,105        | ) |   | (3,320,085  | )
|Non-controlling
      interest                                                            |   | (549,024     | ) |   | 5,955,779         |   |   | 415,159     |  
|Changes in non-cash working capital items                                                 |   |              |   |   |                   |   |   |             |  
|Accounts receivable                                                                       |   | (790,642     | ) |   | 1,074,612         |   |   | (920,522    | )
|Amounts due to and from related parties                                                   |   | (2,369,910   | ) |   | 245,819           |   |   | 6,074,609   |  
|Inventory                                                                                 |   | (123,266     | ) |   | (861,169          | ) |   | (508,110    | )
|Prepayments                                                                               |   | 885,083      |   |   | 1,758,863         |   |   | (2,672,073  | )
|Accounts payable and
      accrued liabilities                                            |   | 411,826      |   |   | (40,710           | ) |   | (3,485,300  | )
|Income taxes                                                                              |   | (434,286     | ) |   | (787,455          | ) |   | (872,950    | )
|Cash provided by (used in) operating activities                                           |   | (2,620,351   | ) |   | 6,712,681         |   |   | (7,733,373  | )
|                                                                                          |   |              |   |   |                   |   |   |             |  
|Investing activities                                                                      |   |              |   |   |                   |   |   |             |  
|Acquisition of Durnpike Investments (Pty) Limited,
      net of cash acquired             |   |             |   |   |                  |   |   | (8,293,413  | )
|Overdraft assumed on acquisition of
      Durnpike Investments, net                       |   |             |   |   |                  |   |   | (1,201,297  | )
|Acquisition of Saxendraift Mines (Pty) Limited                                            |   | (10,652,026  | ) |   |                  |   |   |            |  
|Amounts paid pursuant to acquisition
      (note 7(e))                                    |   | (294,402     | ) |   |                  |   |   |            |  
|Restricted cash                                                                           |   | 10,636,405   |   |   |                  |   |   | (15,642,120 | )
|Purchase of equipment and mineral
      properties                                        |   | (12,687,176  | ) |   | (21,003,124       | ) |   | (6,981,270  | )
|Proceeds received on disposal of equipment                                                |   | 310,944      |   |   | 1,034,620         |   |   | 263,010     |  
|Other assets and deposits                                                                 |   | 3,060,972    |   |   | 313,337           |   |   | (3,481,259  | )
|Reclamation
      deposits                                                                |   | (842,765     | ) |   | (778,811          | ) |   | (63,760     | )
|Cash used in investing activities                                                         |   | (10,468,048  | ) |   | (20,433,978       | ) |   | (35,400,109 | )
|                                                                                          |   |              |   |   |                   |   |   |             |  
|Financing activities                                                                      |   |              |   |   |                   |   |   |             |  
|Principal repayments under capital lease obligations                                      |   | (6,078,521   | ) |   | (5,964,113        | ) |   | (2,678,965  | )
|Common shares and warrants issued for
      cash, net of issue costs                      |   |             |   |   | 15,709,143        |   |   | 76,234,018  |  
|Amounts received (paid) to related parties                                                |   |             |   |   | (1,559,697        | ) |   | (872,735    | )
|Amounts paid pursuant to property
      acquisition                                       |   |             |   |   | (7,466,565        | ) |   | 2,885,509   |  
|Repayment of credit facility                                                              |   |             |   |   |                  |   |   | (11,000,000 | )
|Drawdown of credit facility                                                               |   | 3,540,880    |   |   |                  |   |   | 11,000,000  |  
|Repayment of convertible promissory notes                                                 |   |             |   |   |                  |   |   | (9,500,000  | )
|Issuance of convertible promissory
      notes                                            |   |             |   |   |                  |   |   | 9,500,000   |  
|Repayment of loans payable to related parties                                             |   |             |   |   |                  |   |   | (12,474,500 | )
|Loans payable to related parties                                                          |   |             |   |   |                  |   |   | 12,474,500  |  
|Cash provided by
      (used in) financing activities                                     |   | (2,537,641   | ) |   | 718,768           |   |   | 75,567,827  |  
|                                                                                          |   |              |   |   |                   |   |   |             |  
|                                                                                          |   |              |   |   |                   |   |   |             |  
|Increase (decrease) in cash and cash
      equivalents during the period                  |   | (15,626,040  | ) |   | (13,002,529       | ) |   | 32,434,345  |  
|                                                                                          |   |              |   |   |                   |   |   |             |  
|Cash and cash equivalents, beginning of period                                            |   | 19,623,847   |   |   | 32,626,376        |   |   | 192,031     |  
|                                                                                          |   |              |   |   |                   |   |   |             |  
|Cash and cash equivalents, end of period                                                  | $ | 3,997,807    |   | $ | 19,623,847        |   | $ | 32,626,376  |  
|                                                                                          |   |              |   |   |                   |   |   |             |  
|Interest paid on facilities during the
      period                                       | $ | 3,009,680    |   | $ | 270,976           |   | $ | 103,031     |  
|Interest paid on capital leases                                                           |   | 1,592,001    |   |   | 1,289,385         |   |   | 433,125     |  
|Interest received                                                                         |   | 2,672,021    |   |   | 1,118,396         |   |   | 372,149     |  
|Income taxes paid during the period                                                       |   | 434,511      |   |   | 787,455           |   |   | 872,950     |  
|                                                                                          |   |              |   |   |                   |   |   |             |  
|Supplemental disclosure of non-cash investing and
      financing activities:             |   |              |   |   |                   |   |   |             |  
|Issuance of warrants - consideration
      for private placement                          | $ |             |   | $ |                  |   | $ | 1,693,197   |  
|Issuance of common shares - consideration for private
      placement                     |   |             |   |   | 300,000           |   |   | 568,588     |  
|Issuance of common shares - interest
      on convertible promissory notes                |   |             |   |   |                  |   |   | 1,045,000   |  
|Issuance of common shares - interest on credit
      facility                             |   |             |   |   |                  |   |   | 1,456,764   |  
|Issuance of commons shares as
      consideration for acquisition of property (note 7(b)) |   | 7,857,143    |   |   | 6,081,842         |   |   |            |  
|Issuance of common shares as consideration for
      property finders fees                |   |             |   |   | 1,307,693         |   |   |            |  
|Fair value of stock options allocated
      to shares issued upon exercise                |   |             |   |   | 93,182            |   |   | 3,295       |  

The accompanying notes are an integral part of these
consolidated financial statements.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in
      Canadian Dollars unless otherwise stated)                                                      

|1. | CONTINUANCE OF OPERATIONS AND GOING
  CONCERN                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | Rockwell Diamonds Inc. (Rockwell or the Company) is
      incorporated under the British Columbia Business Corporations Act(formerly the Company Actof British Columbia), and is engaged
      in the business of diamond production and the acquisition and exploration
      of natural resource properties. The Companys principal mineral property
      interests are located in South Africa.                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The accompanying consolidated financial statements have
      been prepared on a going concern basis in accordance with Canadian
      generally accepted accounting principles (''GAAP''). The going concern
      basis of presentation assumes that Rockwell will continue in operation for
      the foreseeable future and will be able to realise its assets and
      discharge its liabilities and commitments in the normal course of
      business.                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | The Company incurred losses of $13 million during the
      year ended February 28, 2009 and continues to incur losses subsequent to
      year end. Although the Company has reduced costs substantially, sales of
      diamonds have also decreased. The risk that cash and working capital will
      not be sufficient to fund the continuing losses indicates that a material
      uncertainty exists which may cast substantial doubt on the ability of the
      Company to continue as a going concern. The directors believe that the
      Company will continue as a going concern for the fiscal year 2010 due to
      the following:
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

The directors have commenced plans to
raise financing, and the following plans have been considered to raise these
funds:

| | • | Private placement
| | - | -----------------
| | • | Prospectus       
| | • | Rights offering  

The directors have started the process
towards exercising either a rights offering or a private placement, and have
identified and communicated with current investors and potential new investors
to ensure that the desired investment is raised.

Accordingly, the financial statements
have been prepared on the basis of accounting policies applicable to a going
concern. Should the Company and its subsidiaries be unsuccessful in raising the
additional funds of US$4 million, they may be unable to realise their assets and
discharge their liabilities in the normal course of business. If the going
concern basis is not appropriate for these consolidated financial statements,
then significant adjustments would be necessary in the carrying value of assets
and liabilities, the reported revenues and expenses, and the balance sheet
classifications used.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

|2. | BASIS OF PRESENTATION AND PRINCIPLES OF
      CONSOLIDATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | These consolidated financial statements have been
      prepared in accordance with Canadian generally accepted accounting
      principles. These consolidated financial statements include the accounts
      of the Company, its subsidiaries and its variable interest entities where
      the Company has been determined to be the primary beneficiary. All
      significant intercompany balances and transactions have been eliminated
      upon consolidation.                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|3. | SIGNIFICANT ACCOUNTING POLICIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Cash and cash equivalents consist of cash and highly
      liquid investments, having maturity dates of three months or less from the
      date of purchase, that are readily convertible to known amounts of cash
      and which are subject to an insignificant risk of change in value. At
      February 28, 2009, of the $3,997,807 (2008  $19,623,847) cash and cash
      equivalents held by the Company, $3,626,750 (ZAR 28,689,082) (2008 
      $15,698,068 (ZAR 124,095,041)) were held in South African Rand (ZAR),
      and $371,057 (2008  $3,925,779) in Canadian Dollars.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Revenue from rough diamond sales is recognized when
      persuasive evidence of an arrangement exists, delivery has occurred, the
      Companys price to the customer is fixed or determinable and collection of
      the resulting receivable is reasonably assured.                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Trade accounts receivables are recorded at the invoiced
      amount less an estimate made for doubtful accounts based on a review of
      all outstanding amounts on a quarterly basis. Account balances are charged
      off against the allowance after all means of collection have been
      exhausted and the potential for recovery is considered remote.                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Rough diamond inventory is recorded at the lower of
      production cost and net realizable value. Production costs include the
      cost of consumable materials, direct labour, mine-site overhead expenses
      and amortization.                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | 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.                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | (e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   | Plant and equipment are stated at cost less accumulated
      amortization. Assets are amortized on a straight-line method over the
      estimated useful lives of the related assets, which are as
  follows:                                                                                                                                                                                                                                                                                                                                                                                   

Processing plant and equipment
    4  10 yearsOffice equipment
    6 yearsVehicles and light equipment
    5 years


---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

For the year ended February 28, 2009,
the nine months ended February 29, 2008 and the year ended May 31, 2007
(Expressed in Canadian Dollars unless otherwise stated)

Repairs and maintenance expenditures
are charged to operations as incurred. Significant improvements and major
replacements which extend the useful life of the asset are capitalized as
incurred.

(f)          
  Mineral property interests

The acquisition costs of mineral
properties are capitalized until the property is placed into production, sold,
or abandoned, or when management has determined that there has been an
impairment in value. Such acquisition costs are amortized over the estimated
life of the property, based on the unit of production method, or written off to
operations if the property is abandoned, allowed to lapse, or if there is little
prospect of further work being carried out by the Company.

Mineral property acquisition costs
include the cash consideration and the fair market value of common shares, based
on the trading price of the shares, on the date of issue or as otherwise
provided under the agreed terms for the mineral property interest.

Exploration expenditures and option
payments incurred prior to the determination of the feasibility of mining
operations are charged to operations as incurred. Exploration expenditures
incurred subsequent to the mining operations which do not increase production or
extend the life of operations are expensed in the period incurred.

Administrative expenditures are
expensed in the period incurred.

The amount presented for mineral
property interests represents costs incurred to date and accumulated acquisition
costs, less write-downs, and does not necessarily reflect present or future
values.

An impairment review of mineral
property interests is carried out when there is an indication that these may be
impaired by comparing the carrying amount of the interest to its estimated
recoverable amount. Where the recoverable amount is less than the carrying
amount an impairment charge is included in expenses in order to reduce the
carrying amount of mineral property interest to its fair value.

(g)          
  Financial instruments

All financial assets and liabilities
are recognized when the entity becomes a party to the contract creating the
asset or liability. All financial instruments are classified into one of the
following categories: held for trading, held-to-maturity, loans and receivables,
available-for-sale financial assets, or other financial liabilities. Initial and
subsequent measurement and recognition of changes in the value of financial
instruments depends on their initial classification:

| | • | Held-to-maturity investments, loans and receivables, and
      other financial liabilities are initially measured at fair value and
      subsequently measured at amortized cost. Amortization of premiums or
      discounts and losses due to impairment are included in current period net
      earnings.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

| | • | Available-for-sale financial assets are measured at fair
      value. Changes in fair value are included in other comprehensive income
      (loss) until the gain or loss is recognized in net earnings.                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                       
| | • | Held for trading financial instruments are measured at
      fair value. All gains and losses are included in net earnings in the
      period in which they arise.                                                                                                                                                                                                                                   
| |   |                                                                                                                                                                                                                                                                                                                                                                                                       
| | • | All derivative financial instruments are measured at fair
      value, even when they are part of a hedging relationship. Changes in fair
      value are included in net earnings in the period in which they arise,
      except for hedge transactions which qualify for hedge accounting treatment
      in which case gains and losses are recognized in other comprehensive
      income (loss).

In accordance with these policies, the
Company has classified its financial instruments as follows:

| | • | Cash and cash equivalents and restricted cash are
      classified as held for trading financial instruments and are measured at
      fair value.                                                                                                                                                                                                                                                                                                                                 
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Accounts receivable and trade receivable from a related
      party are classified as loans and receivables and are measured initially
      at fair value and subsequently measured at amortized cost.                                                                                                                                                                                                                                                                            
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Accounts payable and accrued liabilities, bank
      indebtedness, amounts owing pursuant to acquisition and balances payable
      to related parties are classified as other financial liabilities and are
      measured initially at fair value and subsequently measured at amortized
      cost.                                                                                                                                                                             
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| | • | Reclamation deposits invested in interest bearing money
      market linked investments are classified as available-for-sale securities
      and are carried at fair market value, with the unrealized gain or loss
      recorded in shareholders equity as a component of other comprehensive
      income (loss). During the period there were no unrealized gains or losses
      relating the reclamation deposits as the carrying amounts approximate the
      fair value.

(h)          
  Site closure and reclamation obligations

The Company recognizes any statutory,
contractual or other legal obligation related to the retirement of tangible
long-lived assets when such obligations are incurred, if a reasonable estimate
of fair value can be made.

These obligations are measured
initially at fair value and the resulting costs are capitalized to the carrying
value of the related asset. In subsequent periods, the liability is adjusted for
the accretion of the discount and any changes in the amount or timing of the
underlying future cash flows. The asset retirement cost is amortized to
operations over the life of the asset. Changes resulting from revisions to the
timing or the amount of the original estimate of undiscounted cash flows are
recognized as an increase or a decrease in the carrying amount of the liability,
and the related asset retirement cost is capitalized as part of the carrying
amount of the related long-lived asset. In the event the required decrease in
the asset retirement cost is in excess of the carrying value, the excess amount
is recorded as a change in estimate in the statement of operations.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

(i)          
  Impairment of long-lived assets

Long-lived assets, including mineral
properties, property, plant and equipment, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying value 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 of would be separately presented
in 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. Previously
recognized impairment losses are not reversed if the fair value subsequently
increases.

As at February 28, 2009, the Company
completed an impairment analysis which considered the indicators of impairment
in accordance with Section 3063, Impairment of Long-lived Assets as well as
EIC-126, Accounting by Exploration Companies for Exploration Costs and AcG-11,
Enterprises in the Development Stage. The Company prepared cash flow forecasts
for the mine and development projects using price assumptions reflecting
prevailing diamond prices and analysts' consensus forecasts, current
life-of-mine plans and forecast operating cost profiles. The analysis was based
on the life of mining properties, using long-term price assumptions of US$968,
US$824 and US$604 per carat for the Saxendrift, Klipdam and Holpan mines
respectively as well as a long-term foreign exchange of US$1 to ZAR 8.8. Sales
and production volumes were set at 20% below forecast. Other assumptions used in
determining whether impairment existed include: (a) Inflation rate of 5%, (b)
Prime lending rate of 12%, (c) Finance lease periods of 36 months, (d) No
increases in salaries and wages, (e) Royalty payments of 5%, (f) Fuel and oil
increases of 2.5%, and (g) Electricity increases of 27.5% .

The undiscounted cashflows were greater
than the carrying value of the long lived assets and thus, a comparison to fair
value was not required.

The Company identified a portion of
assets at Saxendrift, H.C. Van Wyk, and Durnpike whose net asset values did not
accurately reflect the expected benefits of their remaining useful lives. These
assets were written down by a total amount of $2,590,958.

Management 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 management 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.

(j)          
  Variable interest entities

Variable interest entities (VIE) are
entities in which equity investors do not have a controlling financial interest
or the equity investment at risk is not sufficient to permit the entity to
finance its activities without additional subordinated financial support
provided by other parties. The Company consolidates the accounts of VIEs where
it has been determined that the Company is the primary beneficiary, defined as
the party that receives the majority of the expected residual returns and/or
absorbs the majority of the entitys expected losses.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

(k)          
  Foreign currency translation

During the year, the Company classified
its foreign operations as self-sustaining operations due to the Company reaching
a stage in the development of its foreign operations where the foreign
subsidiaries are now able to fund their operations from internally generated
cash flows. In prior years, these foreign subsidiaries were considered
integrated due to funding provided by the parent to fund its operations. The tax
effected loss on changing non-monetary assets and liabilities from the
historical exchange rate to the current rate was $13,499,733. During the year,
an additional income of $90,350 was recorded, resulting in an accumulated other
comprehensive loss on translation of self-sustaining foreign operations of
$13,409,383.

Self-sustaining operations are foreign
operations that are financially and operationally independent of the reporting
enterprise such that the exposure to exchange rate changes is limited to the
reporting enterprise's net investment in the foreign operation and which have a
functional currency different from the entity. Assets and liabilities of
self-sustaining operations are translated into the reporting currency at the
exchange rate in effect at the balance sheet date. Revenue and expense items
(including depreciation and amortization) are translated into the reporting
currency at the exchange rate in effect on the dates on which such items are
recognized in income during the period or appropriate averages.

For a self-sustaining operations
exchange gains or losses are presumed not to have a direct effect on the
activities of the reporting enterprise and are incorporated in the financial
statements of the reporting enterprise as a separate component of shareholders
equity. However, as the Companys functional currency is the Canadian dollar
gains or losses on translation are recorded in other comprehensive income
(loss), which is a separate component of shareholders equity.

(l)          
  Share capital

Common shares issued for mineral
property interests are recorded at their fair market value based upon the
trading price of the shares on the Toronto Stock Exchange (TSX) on the date of
issue or as otherwise provided under the terms of the agreement to issue the
shares. Share issue costs are deducted from share capital.

(m)          
Stock-based compensation

The Company has a share option plan
which is described in note 11(b). The Company records all stock-based payments
granted using the fair value method.

Under the fair value method,
stock-based payments are measured at the fair value of the consideration
received or the fair value of the equity instruments issued, whichever is more
reliably measurable, and are charged to operations over the vesting period, with
an offsetting amount to contributed surplus. Consideration received on the
exercise of stock options is recorded as share capital and the related
contributed surplus is transferred to share capital.

(n)          
  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,

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

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 tax assets are recognized to the
extent that they are considered more likely than not to be realized. The
valuation of future income tax assets is adjusted, if necessary, by the use of a
valuation allowance to reflect the estimated realizable amount.

(o)          
  Loss per share

Basic income (loss) per share is
calculated by dividing the loss for the period by the weighted average number of
common shares outstanding during the period.

Diluted income (loss) per share is
calculated using the treasury stock method. Under the treasury stock method, the
weighted average number of common shares outstanding used for the calculation of
diluted income (loss) per share assumes that the proceeds receivable upon
exercise of dilutive share purchase options and warrants are used to repurchase
common shares at the average market price during the period.

Diluted loss per share has not been
presented separately as the effect of outstanding options and warrants would be
anti-dilutive for all periods presented.

(p)          
  Use of estimates

The preparation of consolidated
financial statements in conformity with Canadian generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities as at the balance sheet date, and the reported amounts of
revenues and expenses during the reporting period. Significant areas requiring
the use of management estimates relate to the impairment of long lived assets,
rates for depletion and amortization, determination of reclamation obligations
and the assumptions used in determining stock-based compensation expense. Actual
results could differ from those estimates.

(q)          
  Comprehensive Income (Loss)

Comprehensive income (loss) is the change
  in the Companys shareholders equity that results from transactions
  and other events from other than the Companys shareholders and includes
  items that would not normally be included in net income (loss), such as unrealized
  gains or losses on available-for-sale investments. Certain gains and losses
  that would otherwise be recorded as part of net income (loss) are to be presented
  in other accumulated comprehensive income (loss) until it is considered appropriate
  to recognize into net income (loss). Accumulated other comprehensive income
  (loss) is presented as a new category in shareholders equity.

(r)          
  Comparative figures

Prior years comparative figures have
not been reclassified to conform to the presentation adopted for the current
year.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

4.           CHANGES
  IN ACCOUNTING POLICIES

|(a) | Newly Adopted Accounting Policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | Effective March 1, 2008, the Company adopted the
      following new accounting standards issued by the Canadian Institute of
      Chartered Accountants (CICA). These new standards have been adopted on a
      prospective basis with no restatement to prior period financial
      statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | This standard requires disclosure of an entity's
      objectives, policies and processes for managing capital, quantitative data
      about what the entity regards as capital and whether the entity has
      complied with any externally imposed capital requirements and, if it has
      not complied, the consequences of such non-compliance. As at February 28,
      2009, the Company is not subject to externally imposed capital
      requirements other than its restricted cash (note 7(a)) and its overdraft
      facility (note 16).                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | 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, 2009 and the Company
      expects it will be able to raise sufficient capital resources to carry out
      its plans of operations for fiscal 2010 as disclosed in note 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | These standards replace CICA 3861, Financial Instruments
       Disclosure and Presentation. They increase the disclosures previously
      required, which will enable users to evaluate the significance of
      financial instruments for an entity's financial position and performance,
      including disclosures about fair value. In addition, disclosure is
      required of qualitative and quantitative information about exposure to
      risks arising from financial instruments, including specified minimum
      disclosures about credit risk, liquidity risk and market risk. The
      quantitative disclosures must provide information about the extent to
      which the entity is exposed to risk, based on information provided
      internally to the entitys key management personnel.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | The carrying value of the Companys cash and cash
      equivalents, accounts receivable, restricted cash, trade receivable from a
      related party, reclamation deposits, bank indebtedness, accounts payable
      and accrued liabilities and due to/from related parties approximate their
      fair values.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

Aside from the financial assets
mentioned above, the carrying amounts of the Company's other financial assets
approximate their fair values. The following tables show the estimated fair
values of the financial assets:

| |                                             |   | Estimated
      fair value as at | 
| | ------------------------------------------- | - | -------------------------------- | 
| |                                             |   | February 28, 2009                | 
| |                                             |   |                                  | 
| | Cash and equivalents                        | $ | 3,997,807                        | 
| | Restricted cash                             |   | 2,698,719                        | 
| | Held for trading                            | $ | 6,696,526                        | 
| |                                             |   |                                  | 
| | Accounts receivable                         | $ | 1,131,026                        | 
| | Trade receivable from
      a related party |   | 3,490,725                        | 
| | Loans and receivables                       | $ | 4,621,751                        | 
| |                                             |   |                                  | 
| | Reclamation deposits                        | $ | 2,659,642                        | 
| | Available for sale
      financial assets   | $ | 2,659,642                        | 
| |                                             |   |                                  | 
| | Total financial assets                      | $ | 13,977,919                       | 

The fair value of marketable securities
and investments and reclamation deposits represents the market value of quoted
investments.

The fair values of financial
liabilities are as follows:

| |                                          |   | Estimated
      fair value as at | 
| | ---------------------------------------- | - | -------------------------------- | 
| |                                          |   | February 28, 2009                | 
| |                                          |   |                                  | 
| | Bank Indebtedness                        | $ | 3,540,880                        | 
| | Accounts payable and accrued liabilities |   | 4,832,038                        | 
| | Amounts due to a related party           |   | 576,985                          | 
| | Amounts owing pursuant to acquisition    |   |                                 | 
| | Capital lease obligations                |   | 8,724,777                        | 
| | Income tax liability                     |   | 456,046                          | 
| |                                          | $ | 18,130,726                       | 

Financial Instrument Risk Exposure
and Risk Management

The Company is exposed in varying
degrees to a variety of financial instrument related risk, including credit
risk, liquidity risk, foreign exchange risk, interest risk and diamond price
risk.

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.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

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's minimize its credit risk
by settling the receivables on its diamond sales in the month following the
sale.

Liquidity Risk

Liquidity risk is the risk that the
Company will not be able to meet its financial obligations as they fall due. As
discussed in note 1, the Company is confident that it will be able to raise
sufficient capital in order to meet short term business requirements, 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 the Rand
balances disclosed below.

The following are the contractual
maturities of financial liabilities at carrying values (excluding interest
payments):

February 28,
      2009
    
    Carrying
    
    
    Contractual
    
    
    2010
    
    
    2011
    
    
    2012amount
    
    
    cash flowAccounts payable and
    $
    4,832,038
    
    $
    4,832,038
    
    $
    4,832,038
    
    $
    
    
    $
    accrued liabilitiesDue to related parties
    
    576,985
    
    
    576,985
    
    
    193,655
    
    
    383,330
    
    
    Bank indebtedness
    
    3,540,880
    
    
    3,540,880
    
    
    3,540,880
    
    
    
    
    
    Capital lease obligations
    
    8,724,777
    
    
    9,537,062
    
    
    6,570,081
    
    
    2,860,859
    
    
    106,122Income tax
      liability
    
    456,046
    
    
    456,046
    
    
    456,046
    
    
    
    
    
    


---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

February 29, 2008
    
    Carrying
    
    
    Contractual
    
    
    2009
    
    
    2010
    
    
    2011amount
    
    
    cash flowAccounts payable and
    $
    4,420,212
    
    $
    4,420,212
    
    $
    4,420,212
    
    $
    
    
    $
    accrued liabilitiesAmounts due to related
    
    49,604
    
    
    49,604
    
    
    49,604
    
    
    
    
    
    partiesCapital lease obligations
    
    14,803,299
    
    
    16,832,458
    
    
    8,385,013
    
    
    6,087,834
    
    
    2,389,611Income tax liability
    
    890,332
    
    
    890,332
    
    
    890,332
    
    
    
    
    
    


Foreign Exchange 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
foreign exchange 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.

The exposure of the Companys cash and
cash equivalents, restricted cash, accounts receivable and amounts due from
related parties to foreign exchange risk is as follows:

| | Currency               |   | February 28, 2009 |  |   | February 29, 2008 | 
| | ---------------------- | - | ----------------- |  | - | ----------------- | 
| | South African Rand     | $ | 10,082,048        |  | $ | 16,362,773        | 
| | Other                  |   | 19,649            |  |   | 1,127,790         | 
| | Total Financial Assets | $ | 10,101,697        |  | $ | 17,490,563        | 

The exposure of the Companys bank
  indebtedness, accounts payable and accrued liabilities, amounts due to related
  parties and capital lease obligations to foreign exchange risk is as follows:

| | Currency                          |   | February 28, 2009 |  |   | February 29, 2008 | 
| | --------------------------------- | - | ----------------- |  | - | ----------------- | 
| | South African Rand                | $ | 16,853,686        |  | $ | 18,909,003        | 
| | Total
      Financial Liabilities | $ | 16,853,686        |  | $ | 18,909,003        | 

Sensitivity analysis:

A 10 percent change of the Canadian
dollar against the ZAR at February 28, 2009 would have changed net loss by
$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 as detailed in note 8. 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.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

Sensitivity analysis:

A 10 percent change of the prime rate
for the year ended February 28, 2009 would have changed net loss by $159,200.
This analysis assumes that all other variables, in particular foreign exchange
rates, remain constant.

Diamond price risk

The value of the Company's mineral
resource properties is dependent on the price and the outlook of diamonds.

For the past several months, the
international diamond market has softened as a consequence of the credit crunch
and the volatility and uncertainty in the banking and financial market sectors.
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 jewelry. 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.

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.

(iii)Amendments to Section 1400  Going Concern

CICA 1400, General Standards of
Financial Statement Presentation, was amended to include requirements to assess
and disclose an entity's ability to continue as a going concern. The Companys
assessment and disclosure of its ability to continue as a going concern are
disclosed in note 1.

(iv)       Inventories (Section
  3031)

In June 2007, the CICA issued Section
3031  Inventories which replaces Section 3030 and establishes standards for
the measurement and disclosure of inventories. This section applies to fiscal
years beginning on or after January 1, 2008. The main features of the new
section are:

| | • | Measurement at the lower of cost and net realizable
      value;                                                                                                                                             
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                                              
| | • | Cost of items that are not ordinarily interchangeable,
      and goods and services produced and segregated for specific projects,
    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; and                                                                                 
| |   |                                                                                                                                                                                                              
| | • | Reversal of previous write-downs to net realizable value
  when there is a subsequent increase in the value of inventories.                                                                                  

Upon adoption of this standard, the
Company concluded that there were no material differences between the new
standard and the Companys current accounting policy for its diamond and
supplies inventory as disclosed in note 3 (d).

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

|(b) | Accounting Policies Not Yet Adopted                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | (i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | In 2006, the Canadian Accounting Standards Board ("AcSB")
      published a new strategic plan that will significantly affect financial
      reporting requirements for Canadian companies. The AcSB strategic plan
      outlines the convergence of Canadian GAAP with International Financial
      Reporting Standards (IFRS) over an expected five year transitional
      period. In February 2008, the AcSB announced that 2011 is the changeover
      date for publicly-listed companies to use IFRS, replacing Canadian GAAP.
      The date is for interim and annual financial statements relating to fiscal
      years beginning on or after January 1, 2011. The transition date of March
      1, 2011 will require the restatement for comparative purposes of amounts
      reported by the Company for the year ended February 28, 2011. The Company
      is currently in the process of developing an IFRS conversion plan and
      evaluating the impact of the transition to IFRS.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | (ii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The 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 standards for
      the recognition, measurement, presentation and disclosure of goodwill
      subsequent to its initial recognition and of intangible assets. Standards
      concerning goodwill remain unchanged from the standards included in the
      previous Section 3062. The section applies to the Companys 2010 fiscal
      year. Section 3064 is not expected to have a significant impact on the
      financial statements.                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | (iii)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The AcSB issued EIC-173 which requires the Company to
      consider its own credit risk as well as the credit risk of its
      counterparty when determining the fair value of financial assets and
      liabilities, including derivative instruments. The standard is effective
      for the first quarter of fiscal 2010 and is required to be applied
      retrospectively without restatement of prior periods. The Company is
      currently evaluating the impact of this new standard on its consolidated
      financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | (iv)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | 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 standard is effective for the first quarter of fiscal 2010 and
      is required to be applied retrospectively without restatement of prior
      periods. The Company is currently evaluating the impact of this new
      standard on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | (v)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    | The AcSB adopted 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                                                                                                                                                                                                                                                                                                                                                                                       

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

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
Corporation is currently evaluating the impact of the adoption of these changes
on its consolidated financial statements.

|5. | INVENTORY
|-- | ---------

As
        at
    
    
      As
        atFebruary 28, 2009
    
    
      February 29, 2008Rough diamond inventory
    $
      1,845,986
    
    $
      830,780Mine supplies
    
      1,873,933
    
    
      2,635,073Total inventory
    $
      3,719,919
    
    $
      3,465,853


|   | As at February 28, 2009, rough diamond inventory was
      valued at net realizable value.
|-- | ------------------------------------------------------------------------------------------
|   |                                                                                           
|6. | PROPERTY, PLANT AND
EQUIPMENT                                                             

| |                                                          |   | As
      at February 28, 2009 | 
| | -------------------------------------------------------- | - | ----------------------------- | 
| |                                                          |   | Cost                          | 
| |                                                          |   |                               | 
| |                                                          |   |                               | 
| | Land and buildings                                       | $ | 5,822,677                     | 
| | Processing plant and equipment                           |   | 52,090,193                    | 
| | Processing plant and equipment under capital
      lease |   |                               | 
| | obligation                                               |   | 21,374,971                    | 
| | Office equipment                                         |   | 859,678                       | 
| | Vehicles and light equipment                             |   | 1,579,592                     | 
| | Vehicles and light equipment under capital
      lease   |   |                               | 
| | obligation                                               |   |                              | 
| |                                                          | $ | 81,727,111                    | 

| |                                                          |   | As
      at February 29, 2008 | 
| | -------------------------------------------------------- | - | ----------------------------- | 
| |                                                          |   | Cost                          | 
| |                                                          |   |                               | 
| | Land                                                     | $ | 3,936,092                     | 
| | Processing plant and equipment                           |   | 35,421,362                    | 
| | Processing plant and equipment under capital
      lease |   | 27,850,217                    | 
| | obligation                                               |   |                               | 
| | Office equipment                                         |   | 815,209                       | 
| | Vehicles and light equipment                             |   | 1,389,566                     | 
| | Vehicles and light equipment under capital
      lease   |   |                               | 
| | obligation                                               |   | 154,323                       | 
| |                                                          | $ | 69,566,769                    | 

The groups bankers have registered two
notarial general covering bonds of ZAR 10 million ($1,264,000) over all loose
assets on the property of the farm Holpan, Barkley West, Northern Cape.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

|7. | MINERAL PROPERTY
INTERESTS
|-- | --------------------------

| |                                                          |   | As at             |   |   | As at             |  
| | -------------------------------------------------------- | - | ----------------- | - | - | ----------------- | -
| | Acquisition
      Costs                                  |   | February 28, 2009 |   |   | February 29, 2008 |  
| |                                                          |   |                   |   |   |                   |  
| | H.C. Van Wyk Diamonds and Klipdam
      Mining           |   |                   |   |   |                   |  
| |                                                          |   |                   |   |   |                   |  
| | Balance, beginning of period                             | $ | 25,247,936        |   | $ | 24,121,854        |  
| | Acquisition costs                                        |   | 55,746            |   |   | 1,822,138         |  
| | Foreign exchange
      adjustments                       |   | (7,321,972        | ) |   |                  |  
| | Financial, legal, advisory, and other
      fees         |   |                  |   |   | 4,216             |  
| | Site closure and
      reclamation obligation recognized |   |                  |   |   | 230,622           |  
| | Future income tax liability                              |   | 6,390,327         |   |   | 419,050           |  
| | Change in future income
      tax rate                   |   | (201,415          | ) |   |                  |  
| | Depletion of mineral properties during the period        |   | (1,796,639        | ) |   | (1,349,944        | )
| | H.C. Van Wyk and Klipdam, end of period                  |   | 22,373,983        |   |   | 25,247,936        |  
| |                                                          |   |                   |   |   |                   |  
| | Ricardo Property                                         |   |                  |   |   | 1                 |  
| |                                                          |   |                   |   |   |                   |  
| | Saxendrift Mine                                          |   |                   |   |   |                   |  
| |                                                          |   |                   |   |   |                   |  
| | Balance, beginning of period                             |   |                  |   |   |                  |  
| | Acquisition costs                                        |   | 5,295,754         |   |   |                  |  
| | Foreign exchange
      adjustments                       |   | (178,144          | ) |   |                  |  
| | Future income tax liability                              |   | 1,990,181         |   |   |                  |  
| | Depletion of mineral properties during the
      year    |   | (587,297          | ) |   |                  |  
| | Saxendrift Mine
      (Pty) Ltd, end of period           |   | 6,520,494         |   |   |                  |  
| |                                                          |   |                   |   |   |                   |  
| | Balance, end
      of period                             | $ | 28,894,477        |   | $ | 25,247,937        |  

|(a) | Acquisition of Saxendrift Mine (Pty)
Ltd.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | On March 6, 2007, the Company and Trans Hex Group Limited
      (Trans Hex) entered into a conditional agreement whereby the Companys
      wholly owned South African subsidiary, Rockwell Resources RSA (Pty) Ltd.
      (Rockwell RSA), would acquire two open pit alluvial diamond mines and
      three alluvial diamond exploration projects from Trans Hex (the
      Transaction). Trans Hex, through its wholly-owned subsidiary, Trans Hex
      Operations (Pty) Ltd. (THO), was the owner of two open pit alluvial
      diamond mines, namely Saxendrift and Niewejaarskraal, and three alluvial
      diamond exploration projects, namely Kwartelspan, Zwemkuil-Mooidraai and
      Remhoogte-Holsloot, which are located along the southern bank of the
      Middle Orange River between Douglas and Prieska in the Northern Cape
      Province of South Africa (Northern Cape) and which are collectively
      referred to as the Middle Orange River Operations and Projects (or
      MORO). The MORO includes:
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

On April 11, 2008 the Company completed
  the MORO acquisition. Registration and transfer of Saxendrift Mine Pty (Ltd)
  and the Saxendrift mining right, as well as prospecting rights in respect of
  the Kwartelspan, Zwemkuil-Mooidraai and part of the Remhoogte-Holsloot projects
  were obtained. In March 2009, the Niewejaarskraal mining rights were acquired
  subsequent to year end.

The results of the Saxendrift
operations have been included in the consolidated financial statements since the
date of acquisition. The following table summarizes the total purchase
consideration of the Saxendrift assets:

| |                                    |  | Amount     |  |   | Amount     | 
| | ---------------------------------- |  | ---------- |  | - | ---------- | 
| |                                    |  | (ZAR)      |  |   | ($)        | 
| | Cash consideration                 |  | 73,536,000 |  | $ | 9,618,508  | 
| | Acquisition costs and other        |  | 4,912,895  |  |   | 642,607    | 
| | Other commitments                  |  | 2,988,619  |  |   | 390,911    | 
| | Total purchase
      consideration |  | 81,437,514 |  | $ | 10,652,026 | 

The total acquisition price has been
allocated to the net assets acquired and liabilities assumed of Saxendrift as
follows:

| |                            |  | Amount     |   |   | Amount     |  
| | -------------------------- |  | ---------- | - | - | ---------- | -
| |                            |  | (ZAR)      |   |   | ($)        |  
| | Inventory                  |  | 1,000,000  |   | $ | 130,800    |  
| | Plant and equipment        |  | 47,750,000 |   |   | 6,245,700  |  
| | Other assets               |  | 100        |   |   | 12         |  
| | Mineral property interests |  | 40,487,414 |   |   | 5,295,754  |  
| | Reclamation obligation     |  | (7,800,000 | ) |   | (1,020,240 | )
| |                            |  | 81,437,514 |   | $ | 10,652,026 |  

The allocation of purchase price is
based on managements estimates of the fair value of the assets acquired and
liabilities assumed at the date of acquisition, April 11, 2008.

Effective July 1, 2008, a Black
Economic Empowerment (BEE) group, Liberty Lane Investments (Pty) Ltd (Liberty
Lane) acquired a shareholding of 26% by subscribing for shares in Saxendrift.
The acquisition by Liberty Lane was financed via loans provided by Rockwell RSA
to Liberty Lane. The Company has determined that its 74% interest in Saxendrift
qualifies as a variable interest entity (VIE) due to certain voting
arrangements required under the Saxendrift shareholders agreement. The Company
has also determined the Company is the primary beneficiary of the VIE as it is
most closely related to the activities and has primary exposure to the expected
losses of the VIE. Consequently, the Company has consolidated 100% of the
results of operations of Saxendrift since the date of acquisition. Upon full
repayment of the outstanding loans by Liberty Lane, the Company will reduce the
consolidation of Saxendrifts results of operations to 74%.

The Company continues to maintain good
standing with its BEE partner and is operating under the terms of its BEE
agreement, including the appointment of a director to its Board.

As at February 28, 2009, the Company
has a commitment to pay ZAR27.5 million ($3.4 million)in cash to Trans
Hex for the remaining Niewejaarskraal mining rights and part of the
Remhoogte-Holsloot projects. The Company has placed $2.7 million in trust toward
application of this remaining payment and will be released to Transhex 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.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

|(b) | Acquisition of Durnpike Investments (Pty)
      Limited                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | On January 31, 2007, the Company completed the
      acquisition of Durnpike Investments (Pty) Limited (Durnpike), a private
      South African company (Acquisition). Durnpike holds an interest in
      respect of and/or rights in the four alluvial diamond properties in South
      Africa and the Democratic Republic of Congo. These four properties include
      the Holpan/Klipdam Property in South Africa, Wouterspan Property in South
      Africa, Kwango River Project in the Democratic Republic of Congo and
      Galputs Minerale Project in South Africa.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Pursuant to the Durnpike Acquisition Definitive
      Agreement, the Company:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Holpan/Klipdam Property and the Wouterspan Property
      were initially owned by the H.C. Van Wyk Diamante Trust (Van Wyk Trust),
      a business trust registered in South Africa. The Van Wyk Trust held 99% of
      HC Van Wyk Diamonds Ltd (HCVW), a private South African company, and 99%
      of Klipdam Mining Company Limited (Klipdam), a private South African
      company. The remaining 1% of HCVW and Klipdam was owned by nominees of the
      Van Wyk Trust, HCVW and Klipdam, and were collectively referred to as The
      Van Wyk Diamond Group of companies (VWDG). To facilitate Durnpikes
      initial acquisition of 49% of the issued and outstanding shares of HCVW
      and 51% of the issued and outstanding shares of Klipdam (the Acquisition
      Interest), the Company advanced a non-interest bearing loan to Durnpike
      of ZAR50 million (Cdn$7.8 million) and committed to pay an additional
      ZAR30 million ($4.5 million) to the Van Wyk Trust on July 7, 2007. This
      loan was secured by a pledge of Durnpikes Acquisition Interest. The
      payment of ZAR30 million was made to the Van Wyk Trust in June
  2007.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | Durnpike also had the option to increase its shareholding
      in HCVW to a 51% controlling interest by (a) subscribing for additional
      shares in HCVW for the amount of ZAR1 million ($160,000) and (b)
      introducing a ZAR24 million ($3.9 million) working capital loan into VWDG.
      These conditions were met in January 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | On January 31, 2007, all the conditions precedent to the
      completion of the Acquisition as per the Definitive Agreement were
      fulfilled. The Company also received the necessary regulatory approvals in
      Canada and South Africa.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | During the year ended May 31, 2007, a black economic
      empowerment (BEE) group, African Vanguard Resources (Pty) Ltd., the
      holding company of Richtrau No 136 (Pty) Ltd, purchased 15% of the VWDG
      from the Van Wyk Trust for an amount of ZAR22.5 million ($3.4
    million).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The Company also entered into an Exchange Agreement with
      the Van Wyk Trust to acquire the remaining shareholding of VWDG for ZAR60
      million ($7.6 million), payable in Common Shares. On March 1, 2008, the
      Company ratified the Exchange Agreement and increased its ownership of
      HCVW and Klipdam by 34%, resulting in an 85% interest, by issuing
      14,285,715 common shares of                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

the Company pursuant to the Definitive
  Agreement and thereby reducing the non-controlling interest to 15%. On June
  1, 2008, the BEE group increased its shareholding from 15% to 26% by subscribing
  for an additional 11% shares in HCVW and Klipdam, thereby reducing the Companys
  interest to 74%. This additional 11% is at a subscription price of ZAR17.5 million
  and is funded by Rockwell RSA, a subsidiary of the Company. Consequently, the
  Company has consolidated 85% of the results of operations of HCVW and Klipdam
  until the outstanding loans by the BEE group are fully repaid, at which time
  the Company will then reduce the consolidation of HCVW and Klipdams results
  of operations to 74%.

|(c) | Kwango River Project  Democratic Republic of
      Congo                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Pursuant to the Durnpike Acquisition Definitive
      Agreement, the Company had to incur US$7 million on a feasibility study on
      the Kwango River Project by August 31, 2007. This deadline was extended to
      February 29, 2008 at no cost and could be further extended to December 31,
      2008 by payment of US$1 million in Common Shares.                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Durnpikes interest in the Kwango River Project in the
      DRC was constituted by an agreement concluded during 2006 (Midamines
      Agreement) with Midamines SPRL (Midamines), the holder of the
      exploration permit on the Kwango River Project, to act as contractor on
      behalf of Midamines to manage and carry out exploration and mining.
      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. These
      royalties took the form of a series of recurring minimum royalty payments
      of US$1,200,000 per annum (commencing on December 31, 2007).                                                                                                                                                                                                                                             
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | During the first quarter of 2008, pursuant to an amending
      agreement to the Midamines Agreement, the Company paid consideration of
      $600,000 to Midamines in order to increase the size of the concession
      (Permit 331). As part of such amending agreement, Midamines waived its
      right to payment of the abovementioned US$1,200,000 royalty payment on
      December 31, 2007. 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 cancelled the Midamines Agreement and claimed
  damages.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Midamines has subsequently disputed Durnpikes
      entitlement to cancel the Midamines Agreement and has demanded payment of
      US$1,200,000 as well as other amounts which have not yet been determined.
      Midamines has threatened to refer the dispute to arbitration and to join
      Rockwell as party thereto, but no formal referral to arbitration has as
      yet been forthcoming.                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|(d) | Galputs Minerale Project                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | As provided for in the Durnpike Acquisition Definitive
      Agreement, the Company executed an agreement in relation to the
      acquisition of control of the mineral rights relating to the Galputs
      Minerale Project (Galputs). In order for the Company to fully control
      the Galputs minerals rights, the South African Department of Minerals and
      Energy (DME) had to give its final written approval to transfer of the
      shares of Galputs from Virgilia Investments Inc. to the Company on
    or                                                                                                                                                                  

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

before May 31, 2008. Since no written
approval had been received from the DME by May 31, 2008, the provisions of the
agreement shall not be enforced and as a result all parties have been restored
to a position prior to entering the agreement.

|(e) | Makoenskloof property, South Africa                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | In conjunction with the acquisition of Durnpike, HCVW had
      an option agreement to acquire the Makoenskloof alluvial diamond project.
      The Makoenskloof property is located on the north bank of the Middle
      Orange River ("MOR"). As a result of the acquisition of HCVW by Durnpike,
      and concurrent acquisition of Durnpike by Rockwell, the Company assumed
      the option to purchase the Makoenskloof property.                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | In December 2007, Makoenskloof property was placed on
      care and maintenance in order for management to evaluate the results of
      the bulk sampling activities which had taken place up until the end of
      November 2007.                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | In April 2007 the Company, entered into an agreement in
      relation to its Makoenskloof property to purchase plant and equipment in
      the amount of ZAR21.3 million (approximately $3.2 million) from Folmink
      Delwery CC. As at February 29, 2008 the Company was committed to pay the
      remaining consideration of ZAR2.3 million ($294,402) and completed the
      payment of the final consideration in August 2008.                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(f) | Disposal of Minera Ricardo                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    | During the period ended August 31, 2008, the Company sold
      its 100% interest in certain mineral exploration and exploitation
      concessions in the Calama Mining District in Chile known as the Ricardo
      Property through the sale of all its shares in Minera Ricardo Resources
      Inc. S.A. (Minera Ricardo) to Hunter Dickinson Acquisitions Inc.,a company with a director and officer in common, for a nominal price
      of $1, resulting in a loss of $203,339.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

|8. | CAPITAL LEASE OBLIGATIONS                                                                                                                                    
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                              
|   | Included in property, plant and equipment are mining
      equipment that the Company acquired pursuant to three to four year capital
      lease agreements.

The Companys capital lease obligations
are with the following financial institutions:

As at
    
    
      As atFebruary 28, 2009
    
    
      February 29, 2008ELB Finance
    $
      
    
    $
      105,418Stannic
    
      883,409
    
    
      2,093,869Wesbank
    
      81,779
    
    
      319,236Nedbank
    
      178,092
    
    
      1,842,519Komatfin
    
      7,581,497
    
    
      10,442,257$
      8,724,777
    
    $
      14,803,299


Capital lease obligations as detailed
above are secured over plant and equipment and are repayable, on average, in 36
monthly installments. Interest is charged at rates of between 12.00% to 12.75%
per annum linked to the prevailing prime rate of the relative financial
institution mentioned above.

Future minimum lease payments are as
follows:

As at
    
    
      As atFebruary 28, 2009
    
    
      February 29, 20082009
    $
      
    
    $
      8,385,0132010
    
      6,570,081
    
    
      6,087,8342011
    
      2,860,859
    
    
      2,389,6112012
    
      106,122
    
    
      Total minimum lease payments
    
      9,537,062
    
    
      16,862,458Less: interest
      portion
    
      (812,285
    )
    
      (2,059,159
    )Present value of capital lease obligations
    
      8,724,777
    
    
      14,803,299Current portion
    
      5,440,181
    
    
      6,847,751Non-current portion
    $
      3,284,596
    
    $
      7,955,548


---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

**9.******RECLAMATION OBLIGATION**

The continuity of the provision for
reclamation costs related to the Holpan, Wouterspan, Klipdam and Saxendrift
mines, are as follows:

| |                                                                |   | As at             |   |   | As at             |  
| | -------------------------------------------------------------- | - | ----------------- | - | - | ----------------- | -
| |                                                                |   | February 28, 2009 |   |   | February 29, 2008 |  
| |                                                                |   |                   |   |   |                   |  
| | Holpan, Wouterspan and Klipdam                                 |   |                   |   |   |                   |  
| |                                                                |   |                   |   |   |                   |  
| | Balance, beginning of period                                   | $ | 1,755,820         |   | $ | 1,361,557         |  
| | Changes during the period:                                     |   |                   |   |   |                   |  
| | Reclamation obligation
      recognized (expenditure incurred) |   | (10,274           | ) |   | 230,622           |  
| | Foreign exchange on reclamation                                |   |                  |   |   | (300,675          | )
| | Accretion expense                                              |   | 944,789           |   |   | 464,316           |  
| | Balance, end of
      period                                   | $ | 2,690,335         |   | $ | 1,755,820         |  
| |                                                                |   |                   |   |   |                   |  
| |                                                                |   |                   |   |   |                   |  
| | Saxendrift                                                     |   |                   |   |   |                   |  
| |                                                                |   |                   |   |   |                   |  
| | Balance, beginning of period                                   | $ |                  |   | $ |                  |  
| | Changes during the period:                                     |   |                   |   |   |                   |  
| | Reclamation obligation
      recognized                        |   | 984,720           |   |   |                  |  
| | Foreign exchange on reclamation                                |   |                  |   |   |                  |  
| | Accretion expense                                              |   | 127,600           |   |   |                  |  
| | Balance, end of
      period                                   | $ | 1,112,320         |   | $ | -                |  
| |                                                                |   |                   |   |   |                   |  
| | Total
      reclamation obligation, end of period              | $ | 3,802,655         |   | $ | 1,755,820         |  

The rehabilitation provision is based
on an independent professional surveyors measurement of those mined areas which
need to be rehabilitated at year-end.

These measurements determine the volume
of material needed to reclaim the mined areas. The liability is calculated by
applying a cost of ZAR4.00 ($0.51) for each cubic meter measured, and has been
determined with reference to plant, fuel and labour usage and has been found
acceptable by the Department of Mineral and Energy Affairs.

As required by regulatory authorities,
at February 28, 2009, the Company had cash reclamation deposits totaling
$2,659,642 (2008  $ 1,816,877) comprised of $1,654,589 (2008  $ 1,816,877) for
the Holpan, Wouterspan and Klipdam mine and $1,005,053 (2008  Nil) for the
Saxendrift mine. These deposits are invested in interest bearing money market
linked investments at rates ranging from 9.5% to 11% per annum. These
investments have been ceded as security in favour of the guarantees the bank
issued on behalf of the group (note 16).

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

|10. | OTHER ASSETS AND
DEPOSITS
|--- | -------------------------

| |                                       |   | As at             |  |   | As at             | 
| | ------------------------------------- | - | ----------------- |  | - | ----------------- | 
| |                                       |   | February 28, 2009 |  |   | February 29, 2008 | 
| |                                       |   |                   |  |   |                   | 
| | Loans receivable
      (a)            | $ | -                 |  | $ | 3,045,110         | 
| | Other assets                          |   | 3,068             |  |   | -                 | 
| | Refundable security deposits          |   | 136,072           |  |   | 155,002           | 
| | Total other
      assets and deposits | $ | 139,140           |  | $ | 3,200,112         | 

(a) Loans receivable in 2008
was represented by $830,194 receivable for the Saxendrift acquisition and
$2,214,916 receivable from the BEE group.

|11. | SHARE CAPITAL                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Companys authorized share capital consists of an
      unlimited number of common shares, without par value, and an unlimited
      number of preferred shares without par value, of which no preferred shares
      have been issued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Company has a share purchase option compensation plan
      approved by the shareholders that allows the Company to grant options for
      up to 10% of the issued and outstanding shares of the Company at any one
      time, typically vesting over two years, to its directors, employees,
      officers, and consultants. The exercise price of each option is set by the
      board of directors at the time of grant and cannot be less than the market
      price (less permissible discounts) on the Toronto Stock Exchange. Options
      have a maximum term of five years and typically terminate 30 days
      following the termination of the optionees employment, except in the case
      of retirement or death.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The continuity of share purchase options for the year
      ended February 28, 2009 is as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

Exercise
      
      
      Feb 29
      
      
      
      
      
      
      
      
      Expired/
      
      
      Feb 28Expiry date
      
      price
      
      
      2008
      
      
      Granted
      
      
      Exercised
      
      
      cancelled
      
      
      2009March 28, 2008
      $
      0.50
      
      
      150,000
      
      
      
      
      
      
      
      
      150,000
      
      
      July 10, 2010
      $
      0.68
      
      
      300,000
      
      
      
      
      
      
      
      
      300,000
      
      
      _September 24, 2012
      $
      0.62
      
      
      5,903,000
      
      
      
      
      
      
      
      
      1,666
      
      
      5,901,334November 14, 2012
      $
      0.63
      
      
      1,109,000
      
      
      
      
      
      
      
      
      4,166
      
      
      1,104,834June 20, 2011
      $
      0.45
      
      
      
      
      
      1,150,000
      
      
      
      
      
      200,000
      
      
      950,0007,462,000
      
      
      1,150,000
      
      
      
      
      
      655,832
      
      
      7,956,168Weighted average exercise price
      
      
      
      $
      0.62
      
      $
      0.45
      
      $
      
      
      $
      0.57
      
      $
      0.60Weighted
        average fair value of options granted during the period
      
      
      
      
      
      
      
      
      
      
      $
      0.45


As at February 28, 2009, 4,987,445 of
the options outstanding with a weighted average exercise price of $0.60 per
share have vested with grantees.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

The continuity of share purchase
options for the nine months ended February 29, 2008 is as follows:

Exercise
      
      
      May 31
      
      
      
      
      
      
      
      
      Expired/
      
      
      Feb 29Expiry date
      
      price
      
      
      2007
      
      
      Granted
      
      
      Exercised
      
      
      cancelled
      
      
      2008September 28, 2007
      $
      0.40
      
      
      107,917
      
      
      
      
      
      107,917
      
      
      
      
      
      February 29, 2008
      $
      0.42
      
      
      190,000
      
      
      
      
      
      145,000
      
      
      45,000
      
      
      March 28, 2008
      $
      0.50
      
      
      150,000
      
      
      
      
      
      
      
      
      
      
      
      150,000July 10, 2010
      $
      0.68
      
      
      
      
      
      300,000
      
      
      
      
      
      
      
      
      300,000September 24, 2012
      $
      0.62
      
      
      
      
      
      5,905,500
      
      
      
      
      
      2,500
      
      
      5,903,000November 14, 2012
      $
      0.63
      
      
      
      
      
      1,114,500
      
      
      
      
      
      5,500
      
      
      1,109,000447,917
      
      
      7,320,000
      
      
      252,917
      
      
      53,000
      
      
      7,462,000Weighted average exercise price
      
      
      
      $
      0.44
      
      $
      0.62
      
      $
      0.41
      
      $
      0.45
      
      $
      0.62Weighted
        average fair value of options granted during the period
      
      
      
      
      
      
      
      
      
      
      $
      0.62


As at February 29, 2008, 250,000 of the
options outstanding with a weighted average exercise price of $0.57 per share
had vested with grantees.

The continuity of share purchase
options for the year ended May 31, 2007 is as follows:

Exercise
      
      
      May 31
      
      
      
      
      
      
      
      
      Expired/
      
      
      May 31Expiry date
      
      price
      
      
      2006
      
      
      Granted
      
      
      Exercised
      
      
      cancelled
      
      
      2007September 28, 2007
      $
      0.40
      
      
      115,417
      
      
      
      
      
      5,833
      
      
      1,667
      
      
      107,917February 29, 2008
      $
      0.42
      
      
      210,000
      
      
      
      
      
      3,334
      
      
      16,666
      
      
      190,000March 28, 2008
      $
      0.50
      
      
      150,000
      
      
      
      
      
      
      
      
      
      
      
      150,000475,417
      
      
      
      
      
      9,167
      
      
      18,333
      
      
      447,917Weighted average exercise price
      
      
      
      $
      0.44
      
      $
      
      
      $
      0.41
      
      $
      0.42
      
      $
      0.44Weighted
        average fair value of options granted during the year
      
      
      
      
      
      
      
      
      
      
      $
      Nil


As at May 31, 2007, 327,917 of the
options outstanding with a weighted average exercise price of $0.40 per share
had vested with grantees.

Using a Black-Scholes option pricing
model with the assumptions noted below, the fair values of stock options granted
have been reflected in the statement of operations as follows:

| |                                         |   | Year ended  |  |   | Nine Months ended |  |   | Year ended | 
| | --------------------------------------- | - | ----------- |  | - | ----------------- |  | - | ---------- | 
| |                                         |   | February 28 |  |   | February 29       |  |   | May 31     | 
| |                                         |   | 2009        |  |   | 2008              |  |   | 2007       | 
| | Exploration and engineering             | $ | 629,347     |  | $ | 514,892           |  | $ | 41,372     | 
| | Operations and
      administration     |   | 1,205,075   |  |   | 1,311,425         |  |   | 38,251     | 
| | Total compensation cost expensed to     |   |             |  |   |                   |  |   |            | 
| | operations, with the offset credited to | $ | 1,834,422   |  | $ | 1,826,317         |  | $ | 79,623     | 
| | contributed surplus                     |   |             |  |   |                   |  |   |            | 

The weighted-average assumptions used
to estimate the fair value of options granted are as follows:

2009
    
    
    2008
    
    
    2007Risk free interest rate
    
    4%
    
    
    4%
    
    
    4%Expected life
    
    3 years
    
    
    4.8 years
    
    
    2 yearsExpected volatility
    
    122%
    
    
    111%
    
    
    97%Expected dividends
    
    nil
    
    
    nil
    
    
    nil


---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

(c)          
Share purchase warrants

The continuity of share purchase
warrants (each warrant exercisable into one common share) for the period ended
February 28, 2009 is:

| | Expiry date                      |  | November 22, 2009 | (i) |  | May 09, 2009 | (ii) |  | May 09, 2009 | (iii)
| | -------------------------------- |  | ----------------- | --- |  | ------------ | ---- |  | ------------ | -----
| | Balance, May 31, 2007            |  | 42,000,000        |     |  | 116,007,154  |      |  | 5,772,000    |      
| | Issued                           |  |                  |     |  |             |      |  |             |      
| | Exercised                        |  | 2,400,000         |     |  |             |      |  |             |      
| | Expired                          |  |                  |     |  |             |      |  |             |      
| | Balance, February 29,
      2008 |  | 39,600,000        |     |  | 116,007,154  |      |  | 5,772,000    |      
| | Issued                           |  |                  |     |  |             |      |  |             |      
| | Exercised                        |  |                  |     |  |             |      |  |             |      
| | Expired                          |  |                  |     |  |             |      |  |             |      
| | Balance, February 28, 2009       |  | 39,600,000        |     |  | 116,007,154  |      |  | 5,772,000    |      

| | (i)   | The share purchase warrants are exercisable over three
      years with the option to exercise at $0.60 expiring on November 22, 2007,
      the option to exercise at $0.80 expiring on November 22, 2008 and the
      option to exercise at $1.00 expiring on November 22, 2009.                                                                                                                                                                                                                                                                                             
| | ----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (ii)  | In May 2007, Rockwell completed a $60 million private
      placement financing of 116,007,154 million equity Units at $0.52 each with
      each Unit consisting of one common share and one share purchase warrant
      exercisable over two years at $0.70.                                                                                                                                                                                                                                                                                                                 
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (iii) | In May 2007, the Company issued 5,772,000 broker warrants
      exercisable over two years at $0.70 expiring on May 9, 2009. Using a
      Black-Scholes option pricing model, the fair value of the 5,772,000 broker
      warrants granted in the amount of $1,693,197 (2008 $1,693,197) have been
      reflected in the consolidated balance sheet. The weighted-average
      assumptions used to estimate the fair value of warrants granted were an
      expected volatility of 97%, expected dividends of nil, expected life of 2
      years and risk free rate of 4%.
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | (d)   | Private placement, May
2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

In May 2007, Rockwell completed a $60
million financing of 116,007,154 million equity Units at $0.52 each with each
Unit consisting of one common share and one share purchase warrant exercisable
over two years at $0.70. All securities are subject to a four month hold period
in Canada expiring September 10, 2007. In addition, the securities have not
been, and will not be, registered under the United States Securities Act of
1933, as amended, and may not be offered or sold in the United States absent
registration or an applicable exemption from registration requirements. The
Company paid cash commissions of $3,877,665, issued 1,093,440 common shares fair
valued at $568,588 as compensation to agents as well as 5,772,000 broker
warrants fair valued at $1,693,197 to the agents, bringing the total issued
common shares to 117,100,594 and total commissions to $6,139,450.

(e)          
  Shares issued, November 2007

On November 30, 2007 the Company issued
7,848,663 Common Shares at a price of $0.78 per share for a total of $6,081,842,
net of issue costs, and also issued 1,676,529 Common Shares at a share price of
$0.78 per share for a total of $1,307,693 as finder fees relating to the
Durnpike acquisition (note 7(b)).

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

(f)          
  Private Placement, January 2008

In January 2008 the Company completed a
brokered private placement of 24,101,526 Common Shares at a price of $0.60 per
share for total proceeds of $13,860,916, net of issue costs. The Company issued
500,000 Common Shares and paid a cash fee of $300,000 as finders fees relating
to the private placement. All shares issued pursuant to the private placement
are subject to a hold period expiring on March 31, 2008.

Proceeds from the financing were used
to fund Rockwells diamond operations and new project evaluation and
development.

(g)          
Shares issued, March 2008

On March 1, 2008, the Company issued
14,285,715 common shares at a price of $0.55 per share for a total of $7,857,143
to increase its ownership of HCVW and Klipdam by 34%, resulting in a total
interest holding of 85%, and thereby reducing the non-controlling interest of
HCVW and Klipdam to 15% (note 7(b)).

|12. | LOSS PER SHARE
|--- | --------------

| |                                                                    |  |              |  |  | Nine months  |  |  |             | 
| | ------------------------------------------------------------------ |  | ------------ |  |  | ------------ |  |  | ----------- | 
| |                                                                    |  | Year ended   |  |  | ended        |  |  | Year ended  | 
| |                                                                    |  | February 28, |  |  | February 29, |  |  | May 31,     | 
| | (Number of common
      shares)                                    |  | 2009         |  |  | 2008         |  |  | 2007        | 
| |                                                                    |  |              |  |  |              |  |  |             | 
| | Basic weighted average shares outstanding:                         |  | 237,924,152  |  |  | 196,428,551  |  |  | 55,418,242  | 
| | Weighted average shares dilution adjustments:                      |  |              |  |  |              |  |  |             | 
| | Dilutive
      stock options                                       |  |             |  |  |             |  |  |            | 
| | Common share purchase warrants                                     |  |             |  |  |             |  |  |            | 
| | Diluted weighted average shares outstanding                        |  | 237,924,152  |  |  | 196,428,551  |  |  | 55,418,242  | 
| |                                                                    |  |              |  |  |              |  |  |             | 
| | Weighted average shares dilution
      adjustments  exclusions(a) |  |              |  |  |              |  |  |             | 
| | Stock options                                                      |  | 7,956,168    |  |  | 7,462,000    |  |  | 447,917     | 
| | Common share purchase
      warrants                               |  | 161,379,154  |  |  | 161,379,154  |  |  | 163,779,154 | 

(a) These adjustments were excluded, as
they were anti-dilutive. Diluted loss per share has not been presented
separately on the Statement of Operations as the effect of outstanding options
and warrants would be anti-dilutive.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

|13. | RELATED PARTY BALANCES AND
  TRANSACTIONS
|--- | -----------------------------------------

| | Balances
      payable                    |   | As at             |  |   | As at            | 
| | ----------------------------------------- | - | ----------------- |  | - | ---------------- | 
| |                                           |   | February 28, 2009 |  |   | February 29,2008 | 
| | Banzi Trading (h)                         | $ |                  |  | $ |                 | 
| | Jeffrey Brenner                           |   | 7,890             |  |   |                 | 
| | Jakes Tyres (i)                           |   | 5,498             |  |   | 49,604           | 
| | Hunter Dickinson Services Inc. (a)        |   | 180,267           |  |   |                 | 
| | Current balances payable                  | $ | 193,655           |  | $ | 49,604           | 
| |                                           |   |                   |  |   |                  | 
| |                                           |   |                   |  |   |                  | 
| | Liberty Lane (l)                          |   | 383,330           |  |   |                 | 
| |                                           |   |                   |  |   |                  | 
| | Longterm balances payable                | $ | 383,330           |  | $ |                 | 
| |                                           |   |                   |  |   |                  | 
| |                                           |   |                   |  |   |                  | 
| | Balances receivable                       |   |                   |  |   |                  | 
| | Hunter Dickinson Services Inc. (a)        | $ |                  |  | $ | 78,504           | 
| | Flawless Diamonds Trading
      House (g) |   | 3,441,510         |  |   | 477,298          | 
| | Banzi Trade 26 (Pty) Ltd (h)              |   | 19,547            |  |   | 33,744           | 
| | Diacor CC (k)                             |   | 29,668            |  |   | 3,888            | 
| |                                           | $ | 3,490,725         |  | $ | 593,434          | 

| |                                             |   | Year
      ended |  |   | Nine
      Months |  |   | Year
      ended | 
| | ------------------------------------------- | - | ---------------- |  | - | ----------------- |  | - | ---------------- | 
| | Transactions                                |   | February 28      |  |   | February 29       |  |   | May 31           | 
| |                                             |   | 2009             |  |   | 2008              |  |   | 2007             | 
| |                                             |   |                  |  |   |                   |  |   |                  | 
| | Services rendered and expenses reimbursed:  |   |                  |  |   |                   |  |   |                  | 
| | Hunter Dickinson Services Inc. (a)          | $ | 1,280,316        |  | $ | 863,861           |  | $ | 1,988,027        | 
| | Euro-American Capital
      Corporation (b) |   |                 |  |   | 14,393            |  |   | 18,765           | 
| | CEC Engineering (c)                         |   | 26,904           |  |   | 39,766            |  |   | 187,225          | 
| | John Bristow                                |   |                 |  |   |                  |  |   | 115,320          | 
| | Jeffrey B Traders CC (d)                    |   |                 |  |   | 52,740            |  |   | 141,318          | 
| | Seven Bridges Trading
      (e)             |   |                 |  |   | 57,952            |  |   | 55,534           | 
| | Cashmere Trading (f)                        |   | 18,808           |  |   | 353,736           |  |   | 43,357           | 
| | Banzi Trade 26 (Pty)
      Ltd (h)          |   | 29,768           |  |   | 47,575            |  |   | 251,942          | 
| | Jakes Tyres (i)                             |   | 440,283          |  |   | 1,141,454         |  |   | 267,361          | 
| | AA Van Wyk (j)                              |   |                 |  |   | 148,658           |  |   | 173,977          | 
| | Diacor CC (k)                               |   | 39,510           |  |   | 3,888             |  |   |                 | 
| |                                             |   |                  |  |   |                   |  |   |                  | 
| | Sales rendered to:                          |   |                  |  |   |                   |  |   |                  | 
| | Flawless Diamonds
      Trading House (g)   | $ | 34,330,078       |  | $ | 36,038,106        |  | $ | 10,085,536       | 
| | Banzi Trade 26 (Pty) Ltd (h)                |   | 884              |  |   |                  |  |   |                 | 
| |                                             |   |                  |  |   |                   |  |   |                  | 

| | (a) | 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.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

| | (b) | 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.                                                                                                                                                                                                                   
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (c) | 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.                                                                                                                                                                                                                                                                                                   
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (d) | 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.                                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (e) | Seven Bridges Trading is a wholly owned subsidiary of
      Randgold Resources, 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.                                                                                                  
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (f) | Cashmere Trading is a private company owned by Hennie Van
      Wyk, an officer of the Company, which provides helicopter services for the
      movement of 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.                                                                                                                     
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (g) | 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.
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (h) | 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.                 
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (i) | Jakes Tyres is a private company with certain directors
      and officers (H C van Wyk) in common with the Company that provides tyres,
      tyre repair services and consumables at market rates to Rockwells remote
      Middle Orange River operations.                                                                                                                                                                                                                                       
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (j) | 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.                                                                                                                                                                                                                                                                                                                          
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (k) | Diacor CC is a private company of which H C van Wyk is a
      director from which the Company has purchased consumable materials at
      market rates.                                                                                                                                                                                                                                                                                                                                             
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | (l) | Liberty Lane is the BEE partner of the Saxendrift
      property and has certain directors in common with the
  Company.                                                                                                                                                                                                                                                                                                                                                                             

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

|14. | INCOME TAXES                                                                                                                                                                                                              
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                           
|    | Income tax expense (recovery) differs from the amount
      which would result from applying the statutory Canadian income tax rates
      in 2009 of 30.75% (2008  33.5%, 2007  34.1%) for the following
      reasons:

| |                                   |   | Year
      ended |   |   | Nine
      months ended |   |   | Year
      ended |  
| | --------------------------------- | - | ---------------- | - | - | ----------------------- | - | - | ---------------- | -
| |                                   |   | February 28      |   |   | February 29             |   |   | May 31           |  
| |                                   |   | 2009             |   |   | 2008                    |   |   | 2007             |  
| |                                   |   |                  |   |   |                         |   |   |                  |  
| | Loss before income taxes and      |   |                  |   |   |                         |   |   |                  |  
| | non-controlling
      interest    | $ | (16,864,986      | ) | $ | (1,006,849              | ) | $ | (6,585,756       | )
| |                                   |   |                  |   |   |                         |   |   |                  |  
| | Expected income tax recovery      | $ | (5,186,000       | ) | $ | (338,000                | ) | $ | (2,324,000       | )
| | Difference in foreign tax rates   |   | (253,000         | ) |   | 298,000                 |   |   | 101,000          |  
| | Permanent differences             |   | 1,232,000        |   |   | 1,200,000               |   |   | 309,000          |  
| | Change in tax rate                |   | 671,000          |   |   | 440,000                 |   |   |                 |  
| | Change in valuation allowance     |   | (390,000         | ) |   | (477,000                | ) |   | 1,409,433        |  
| | Other non-deductible items        |   | 586,000          |   |   | 1,317,400               |   |   | (131,206         | )
| |                                   |   |                  |   |   |                         |   |   |                  |  
| | Net income tax expense (recovery) | $ | (3,340,000       | ) | $ | 2,440,400               |   | $ | (635,773         | )

The estimated tax effect of the
significant components within the Companys future tax assets and liabilities
are as follows:

| |                                     |   | As at       |   |   | As at       |   |   | As at       |  
| | ----------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
| |                                     |   | February 28 |   |   | February 29 |   |   | May 31      |  
| |                                     |   | 2009        |   |   | 2008        |   |   | 2007        |  
| |                                     |   |             |   |   |             |   |   |             |  
| | Future income tax asset (liability) |   |             |   |   |             |   |   |             |  
| | Resource allowances                 | $ | 1,409,000   |   | $ | 1,938,000   |   | $ | 2,133,000   |  
| | Loss carry forwards                 |   | 4,767,000   |   |   | 3,559,000   |   |   | 3,824,000   |  
| | Other                               |   | 2,005,000   |   |   | 1,460,000   |   |   | 1,835,000   |  
| | Total                               |   | 8,181,000   |   |   | 6,957,000   |   |   | 7,792,000   |  
| | Less: valuation allowance           |   | (6,567,000  | ) |   | (6,957,000  | ) |   | (7,434,860  | )
| |                                     |   | 1,614,000   |   |   |            |   |   | 357,140     |  
| | Mineral properties                  |   | (8,090,000  | ) |   | (3,937,000  | ) |   | (5,005,000  | )
| | Equipment                           |   | (5,650,000  | ) |   | (8,493,100  | ) |   | (7,331,000  | )
| | Net future tax asset (liability)    | $ | (12,126,000 | ) | $ | (12,430,100 | ) | $ | (11,978,860 | )

At February 28, 2009, the Company had
available for deduction against future taxable income non-capital losses in
Canada of approximately $16,394,000 (2008  $12,587,000, 2007  $10,711,000).
These losses, if not utilized, will expire in various years ranging from 2010 to
2029. Subject to certain restrictions, the Company also had Canadian resource
expenditures of approximately $5,635,000 (2008  $5,635,000; 2007  $5,635,000),
which are available to reduce taxable income in future years.

The Company has losses in South Africa
of $2,000,000 (2008  $ nil) which are available for deduction against future
taxable income. These losses carry forward indefinitely.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

|15. | SEGMENTED INFORMATION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    | Operating segments are defined as components of an
      enterprise about which separate financial information is available that is
      evaluated regularly by the chief operation decision maker, or
      decision-making group, in deciding how to allocate resources and in
      assessing performance. All of the Company's operations are within the
      mineral exploration and diamond mining sector. The Company's resource
      properties are currently only located in the Northern Cape region of the
      Republic of South Africa.

| | For the year ended         |   |            |   |   |          |   |   |                    |   |   |             |  
| | -------------------------- | - | ---------- | - | - | -------- | - | - | ------------------ | - | - | ----------- | -
| | February 28, 2009          |   | Canada     |   |   | Chile    |   |   | South
      Africa |   |   | Total       |  
| | Revenue                    | $ |           |   | $ |         |   | $ | 34,633,477         |   | $ | 34,633,477  |  
| | Loss for the year          |   | (5,590,213 | ) |   | (135,528 | ) |   | (7,250,221         | ) |   | (12,975,962 | )
| | Total assets               |   | 575,275    |   |   |         |   |   | 105,787,141        |   |   | 106,362,416 |  
| | Mineral property interests |   |           |   |   |         |   |   | 28,894,477         |   |   | 28,894,477  |  
| | Property, plant and        |   |           |   |   |         |   |   | 59,569,186         |   |   | 59,569,186  |  
| | equipment                  |   |            |   |   |          |   |   |                    |   |   |             |  
| |                            |   |            |   |   |          |   |   |                    |   |   |             |  
| | For the nine months        |   |            |   |   |          |   |   |                    |   |   |             |  
| | ended February 29, 2008    |   | Canada     |   |   | Chile    |   |   | South Africa       |   |   | Total       |  
| | Revenue                    | $ |           |   | $ |         |   | $ | 36,149,308         |   | $ | 36,149,308  |  
| | Loss for the period        |   | (3,393,226 | ) |   | (92,767  | ) |   | (5,917,035         | ) |   | (9,403,028  | )
| | Total assets               |   | 4,002,546  |   |   | 70,133.  |   |   | 129,620,445        |   |   | 133,693,124 |  
| | Mineral property interests |   |           |   |   | 1        |   |   | 25,247,936         |   |   | 25,247,937  |  
| | Property, plant and        |   |           |   |   |         |   |   | 64,831,636         |   |   | 64,831,636  |  
| | equipment                  |   |            |   |   |          |   |   |                    |   |   |             |  
| |                            |   |            |   |   |          |   |   |                    |   |   |             |  
| | For the year ended         |   |            |   |   |          |   |   |                    |   |   |             |  
| | May 31, 2007               |   | Canada     |   |   | Chile    |   |   | South Africa       |   |   | Total       |  
| | Revenue                    | $ |           |   | $ |         |   | $ | 10,103,328         |   | $ | 10,103,328  |  
| | Loss for the year          |   | (5,342,557 | ) |   | (191,800 | ) |   | (830,785           | ) |   | (6,365,142  | )
| | Total assets               |   | 38,281,401 |   |   | 62,857.  |   |   | 91,262,125         |   |   | 129,606,383 |  
| | Mineral property interests |   |           |   |   | 1        |   |   | 24,121,854         |   |   | 24,121,855  |  
| | Property, plant and        |   |           |   |   |         |   |   | 44,790,441         |   |   | 44,790,441  |  
| | equipment                  |   |            |   |   |          |   |   |                    |   |   |             |  

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

|16. | BANK INDEBTEDNESS                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                      
|    | The Company has an overdraft facility in the amount of
      ZAR28 million ($3.8 million) available for its operations (current balance
      $3.5 million). Current operating income is being used to service this
      facility. This facility has an interest cost of Prime (currently 11% per
      annum) plus 0.6% and have a notarial bond over assets of ZAR10 million
      ($1.3 million).
|    |                                                                                                                                                                                                                                                                                                                                                                                                      
|    | HC van Wyk Diamonds Ltd holds guarantees by the bank
      towards Eskom (Electricity Provider) of ZAR 1,225,300 ($154,886) and the
      Department of Minerals and Energy (DME) of ZAR 11,576,104 ($1,463,292)
      towards rehabilitation expenses.                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                      
|17. | DIFFERENCES BETWEEN CANADIAN AND UNITED STATES
      GENERALLY ACCEPTED ACCOUNTING PRINCIPLES                                                                                                                                                                                                                                                                                                        

These consolidated financial statements
have been prepared in accordance with Canadian generally accepted accounting
principles ("Canadian GAAP"). Material variations in the accounting measurement
principles, practices and methods used in preparing these financial statements
from measurement principles, practices and methods accepted in the United States
(US GAAP) are described and quantified below.

Mineral properties and deferred
exploration costs

Under Canadian GAAP, the Company
accounts for mineral properties as described in note 3(f).

In March 2004, the Emerging Issues
Task Forces (EITF) reached a consensus in EITF 04-2 that mineral interests
should be considered tangible assets. On April 30, 2004, the FASB issued a FASB
Staff Position (FSP) amending SFAS 141 and SFAS 142, Goodwill and Other
Intangible Assets, to provide that certain mineral use rights are considered
tangible assets and that mineral use rights should be accounted based on their
substance.

In March 2004, in EITF 04-3 Mining
Assets: Impairment and Business Combinations, the EITF reached a consensus that
an entity should include the cash flows associated with value beyond proven and
probable reserves in estimates of future cash flows (both undiscounted and
discounted) used for determining whether a mining asset is impaired under
Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets.

Under U.S. GAAP, the recoverability of
capitalized mineral properties exploration expenditures are generally considered
insupportable until a commercially mineable deposit is determined; therefore,
all mineral properties exploration expenditures are expenses as incurred. As the
Company does not have reports on proven and probable reserves on any of its
mineral properties, all exploration expenditures incurred, other than its
acquisition costs, and its other mineral properties have been expensed as
incurred.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

The impact of the differences between
Canadian GAAP and US GAAP on the consolidated balance sheets would be as
follows:

2009
    
    
    
    
    
    
    
    
    2008Balance,
    
    
    
    
    
    Balance,
    
    
    Balance,
    
    
    
    
    
    Balance,Canadian
    
    
    
    
    
    US
    
    
    Canadian
    
    
    
    
    
    USGAAP
    
    
    Adjustments
    
    
    GAAP
    
    
    GAAP
    
    
    Adjustments
    
    
    GAAPCurrent assets
    $
    15,099,971
    
    $
    
    
    $
    15,099,971
    
    $
    38,596,562
    
    $
    
    
    $
    38,596,562Property, plantand equipment
    
    59,569,186
    
    
    
    
    
    59,569,186
    
    
    64,831,636
    
    
    
    
    
    64,831,636Other assets anddeposits
    
    139,140
    
    
    
    
    
    139,140
    
    
    3,200,112
    
    
    
    
    
    3,200,112Reclamationdeposits
    
    2,659,642
    
    
    
    
    
    2,659,642
    
    
    1,816,877
    
    
    
    
    
    1,816,877Mineral property
    
    28,894,477
    
    
    
    
    
    28,894,477
    
    
    25,247,937
    
    
    (1
    )
    
    25,247,936$
    106,362,416
    
    $
    
    
    $
    106,362,416
    
    $
    133,693,124
    
    $
    (1
    )
    $
    133,693,123Current liabilities
    $
    14,462,800
    
    $
    
    
    $
    14,462,800
    
    $
    12,502,301
    
    $
    
    
    $
    12,502,301Long-termliabilities
    
    19,596,581
    
    
    
    
    
    19,596,581
    
    
    22,141,468
    
    
    
    
    
    22,141,468Non-controllinginterest
    
    1,882,009
    
    
    
    
    
    1,882,009
    
    
    11,934,548
    
    
    
    
    
    11,934,548Shareholders'equity
    
    70,421,026
    
    
    
    
    
    70,421,026
    
    
    87,114,807
    
    
    (1
    )
    
    87,114,806$
    106,362,416
    
    $
    
    
    $
    106,362,416
    
    $
    133,693,124
    
    $
    (1
    )
    $
    133,693,123


The impact of the differences between
Canadian GAAP and US GAAP on the statements of operations and deficit would be
as follows:

| |                                                             |   | 2009        |   |   | 2008        |   |   | 2007       |  
| | ----------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ---------- | -
| | Loss for the year, Canadian GAAP                            | $ | (12,975,962 | ) | $ | (9,403,028  | ) | $ | (6,365,142 | )
| | Write-down of mineral property interests                    |   |            |   |   |            |   |   |           |  
| | Loss for the year, US GAAP                                  | $ | (12,975,962 | ) | $ | (9,403,028  | ) | $ | (6,365,142 | )
| | Basic and diluted loss per share, US GAAP                   | $ | (0.05       | ) | $ | (0.05       | ) | $ | (0.11      | )
| | Weighted average number of common shares
      outstanding, |   |             |   |   |             |   |   |            |  
| | US GAAP                                                     |   | 237,924,152 |   |   | 196,428,551 |   |   | 55,418,242 |  

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

The impact of the differences between
Canadian GAAP and US GAAP on the consolidated statements of cash flows would be
as follows:

| |                                                                   |   | 2009        |   |   | 2008        |   |   | 2007        |  
| | ----------------------------------------------------------------- | - | ----------- | - | - | ----------- | - | - | ----------- | -
| | Cash used in operating activities, Canadian
      GAAP            | $ | (2,620,351  | ) | $ | 6,712,681   |   | $ | (7,733,373  | )
| | Proceeds from sale of marketable securities                       |   |            |   |   |            |   |   |            |  
| | Cash used in operating activities, US GAAP                        |   | (2,620,351  | ) |   | 6,712,681   |   |   | (7,733,373  | )
| |                                                                   |   |             |   |   |             |   |   |             |  
| | Cash provided by (used in) investing
      activities, Canadian   |   |             |   |   |             |   |   |             |  
| | GAAP                                                              |   | (10,468,048 | ) |   | (20,433,978 | ) |   | (35,400,108 | )
| | Purchase of marketable securities                                 |   |            |   |   |            |   |   |            |  
| | Proceeds from sale of marketable securities                       |   |            |   |   |            |   |   |            |  
| | Cash provided by investing activities, US
      GAAP              |   | (10,468,048 | ) |   | (20,433,978 | ) |   | (35,400,108 | )
| |                                                                   |   |             |   |   |             |   |   |             |  
| | Cash provided by financing activities,
      Canadian GAAP and US |   |             |   |   |             |   |   |             |  
| | GAAP                                                              |   | (2,537,641  | ) |   | 718,768     |   |   | 75,567,827  |  
| | Reclassification of bank advances                                 |   | -           |   |   |            |   |   | 529,308     |  
| | Cash provided by financing activities, US GAAP                    |   | (2,537,641  | ) |   | 718,768     |   |   | 76,097,135  |  
| |                                                                   |   |             |   |   |             |   |   |             |  
| | Increase (decrease) in cash and equivalents during the year       |   | (15,626,040 | ) |   | (13,002,529 | ) |   | 32,963,654  |  
| | Cash and equivalents, beginning of year                           |   | 19,623,847  |   |   | 32,626,376  |   |   | 192,031     |  
| | Cash and cash equivalents, end of period                          |   | 3,997,807   |   |   | 19,623,847  |   |   | 33,155,685  |  

Canadian GAAP permits bank advances to
be included in the determination of cash and cash equivalents in the
consolidated statements of cash flows. In certain circumstances US GAAP requires
that bank advances be reported as financing cash flows. As a result, under US
GAAP, the total decrease in cash and cash equivalents at the end of the period
would decrease by $Nil (2008 -$Nil; 2007 Increase by $529,308).

Stock based compensation

In December 2004, Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
123 (Revised 2006), "Share-Based Payment" ("SFAS 123R"), which is a
revision of SFAS 123 "Accounting for Stock-Based Compensation". SFAS 123R
supersedes APB Opinion No. 25, "Accounting for Stock Issued to
Employees". SFAS 123R requires all share-based payments to employees,
including grants of employee stock options, be recognized in the income
statement based on their fair values. In calculating compensation to be
recognized, SFAS 123R requires the Company to estimate future forfeitures. Prior
to adoption of SFAS 123R, the Company's accounting for stock based compensation
for US GAAP purposes was consistent with that used for Canadian GAAP. For
Canadian GAAP purposes, the Company uses the fair value method to account for
all stock option grants but accounts for forfeitures as they occur, as permitted
by Canadian GAAP.

Based on the Company's historical stock
option forfeiture rates, the expense that would be recognized for US GAAP
purposes under SFAS 123R is not materially different from that recorded for
Canadian GAAP purposes.

Income taxes

Under Canadian GAAP, future tax assets
and liabilities may be recorded at substantively enacted tax rates. Under US
GAAP, deferred tax assets and liabilities are recorded at enacted tax rates.
There

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

were no significant differences between
enacted and substantively enacted tax rates for the periods presented.

FASB Interpretation (FIN) No. 48:
Accounting for Uncertainty in Income Taxes, an interpretation of FASB
Statement No.109, was adopted by the Company on June 1, 2007. FIN 48 prescribes
a recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. The interpretation requires that the Company recognize the impact of
a tax position in the financial statements if the position is more likely than
not of being sustained on audit, based on the technical merits of the position.
FIN 48 also provides guidance on de-recognition, classification, interest and
penalties, accounting in interim periods and disclosure. In accordance with the
provisions of FIN 48, any cumulative effect resulting from the change in
accounting principle is to be recorded as an adjustment to the opening balance
of deficit. The adoption of FIN 48 did not result in a material impact on the
Companys consolidated financial position or results of operations.

Impact of recent United States
accounting pronouncements:

| | (i)   | In December 2007, the FASB issued SFAS No. 141 (revised
      2007), Business Combinations,(SFAS 141(R)). SFAS 141(R) amends
      the principles and requirements for how an acquirer recognizes and
      measures in its financial statements the identifiable assets acquired, the
      liabilities assumed, any non-controlling interest in the acquiree and the
      goodwill acquired. It expands the definition of a business and a business
      combination; requires recognition of assets acquired, liabilities assumed,
      and contingent consideration at their fair value on the acquisition date;
      requires acquisition-related expenses and restructuring costs to be
      recognized separately from the business combination and expensed as
      incurred; requires in- process research and development to be capitalized
      at fair value as an intangible asset; and requires that changes in
      accounting for deferred tax asset valuation allowances and acquired income
      tax uncertainties after the measurement period be recognized as a
      component of provision for taxes. SFAS 141(R) also establishes disclosure
      requirements to enable the evaluation of the nature and financial effects
      of the business combination. SFAS 141(R) is effective for the Companys
      2010 fiscal year. Therefore, Company will apply SFAS 141(R) prospectively
      to all business combinations subsequent to March 1, 2009.
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (ii)  | In February 2008, the FASB issued FASB Staff Position
      ("FSP") SFAS 157-2, "Effective Date of FASB Statement No. 157" ("FSP SFAS
      157-2"). FSP SFAS 157-2 delays the effective date of SFAS No. 157, "Fair
      Value Measurements" ("SFAS 157") to fiscal years beginning after November
      15, 2008 for all nonfinancial assets and nonfinancial liabilities, except
      those that are recognized or disclosed at fair value in the financial
      statements on a recurring basis. As a result of adoption of FSP SFAS
      157-2, the Company adopted SFAS 157 for nonfinancial assets and
      non-financial liabilities in effective March 1, 2008. However, SFAS 157
      did not result in any material measurement impact on the consolidated
      financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (iii) | SFAS No. 159, The Fair Value Option for Financial
      Assets and Financial Liabilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |       | Included an amendment of SFAS No. 115.This
      Statement permits entities to choose to measure many financial instruments
      and certain other items at fair value. This Statement applies to all
      entities, including not-for-profit organizations. Most of the provisions
      of this Statement apply only to entities that elect the fair value option.
      The Company elected not to apply the fair value
option.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

| | (iv)   | In December 2007, the FASB issued SFAS No. 160,
      Non-controlling Interests in Consolidated Financial Statements  an
      amendment of Accounting Research Bulletin No. 51 (SFAS 160). SFAS
      160 establishes accounting and reporting standards for the non-
      controlling interest in a subsidiary and for the deconsolidation of a
      subsidiary. SFAS 160 also establishes disclosure requirements that clearly
      identify and distinguish between the controlling and non-controlling
      interests and requires the separate disclosure of income attributable to
      controlling and non-controlling interests. SFAS 160 is effective for the
      Companys 2009 fiscal year. The Company is currently evaluating the impact
      of adoption of SFAS No. 160 but does not expect adoption to have a
      material impact on results of operations, cash flows or financial
      position, although it will result in certain retrospective adjustments
      including the presentation of non-controlling interest as a component of
      shareholders equity.
| | ------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (v)    | In March 2008, the FASB issued SFAS No. 161,
      Disclosure about Derivative Instruments and Hedging Activities (FAS
      161).FAS 161 changes the disclosure requirements for derivative
      instruments and hedging activities by requiring enhanced disclosures about
      how and why an entity uses derivatives instruments, how derivative
      instruments and related hedged items affect an entitys operating results,
      financial position, and cash flows. FAS 161 is effective for the Companys
      2010 fiscal year. The Company is currently evaluating the impact of
      adoption of SFAS No. 161 but does not expect adoption to have a material
      impact on results of operations, cash flows or financial
  position.                                                                                                                                                                                                                                                                                                                                         
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (vi)   | In May 2008, the FASB issued FSP Accounting Principles
      Board ("APB") 14-1 "Accounting for Convertible Debt Instruments That May
      Be Settled in Cash upon Conversion (Including Partial Cash Settlement)"
      ("FSP APB 14-1"). FSP APB 14-1 requires the issuer of certain convertible
      debt instruments that may be settled in cash (or other assets) on
      conversion to separately account for the liability and equity components
      of those instruments by allocating the proceeds from the issuance between
      the liability component and the embedded conversion option. This standard
      is effective for the Companys 2010 fiscal year. The Company is currently
      reviewing the provisions of this standard.                                                                                                                                                                                                                                                                                                                                              
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (vii)  | In May 2008, the FASB issued SFAS No. 162, The
      Hierarchy of Generally Accepted Accounting Principles ("SFAS No.
      162"). The new standard is intended to improve financial reporting by
      identifying a consistent framework, or hierarchy, for selecting accounting
      principles to be used in preparing financial statements that are presented
      in conformity with U.S. generally accepted accounting principles (GAAP)
      for nongovernmental entities. SFAS No. 162 is effective 60 days following
      the Securities and Exchange Commission's approval of the Public Company
      Accounting Oversight Board Auditing amendments to AU Section 411, The
      Meaning of Present Fairly in Conformity with Generally Accepted Accounting
      Principles. The Company is currently evaluating the impact of adoption of
      SFAS No. 162 but does not expect adoption to have a material impact on
      results of operations, cash flows or financial position.                                                                                                 
| |        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (viii) | In June 2008, the FASB issued Staff Position No. EITF
      03-6-1, Determining Whether Instruments Granted in Share-Based Payment
      Transactions Are Participating Securities ("FSP EITF 03-6-1"). FSP EITF
      03-6-1 provides that unvested share-based payment awards that contain
      non-forfeitable rights to dividends are participating securities and
      should be included in the computation of earnings per share pursuant to
      the two-class method. FSP                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

EITF 03-6-1 is effective for the
Companys 2010 fiscal year. The Company is currently reviewing the provisions of
this standard but does not expect the adoption of FSP EITF 03-6-1 to have a
material effect on its consolidated results of operations, cash flows or
financial position

| | (ix) | In June 2008, the FASB issued EITF 07-5, "Determining
      Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own
      Stock" ("EITF 07-5"). EITF 07-5 provides guidance in assessing whether an
      equity-linked financial instrument (or embedded feature) is indexed to an
      entity's own stock for purposes of determining whether the appropriate
      accounting treatment falls under the scope of SFAS 133, "Accounting For
      Derivative Instruments and Hedging Activities" and/or EITF 00-19,
      "Accounting For Derivative Financial Instruments Indexed to, and
      Potentially Settled in, a Company's Own Stock". EITF 07-5 is effective for
      financial statements issued for the Companys 2010 fiscal year. The
      Company is currently reviewing the provisions of this standard but does
      not expect the adoption of EITF 07-5 to have a material effect on its
      consolidated results of operations, cash flows or financial
    position.                                                                                                                     
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (x)  | In May 2009, the FASB issued SFAS No. 165, Subsequent
      Events (SFAS No. 165). This new standard is intended to establish
      general standards of accounting for and disclosure of events that occur
      after the balance sheet date but before financial statements are issued or
      are available to be issued. It requires the disclosure of the date through
      which an entity has evaluated subsequent events and the basis for that
      datethat is, whether that date represents the date the financial
      statements were issued or were available to be issued. This disclosure
      should alert all users of financial statements that an entity has not
      evaluated subsequent events after that date in the set of financial
      statements being presented.                                                                                                                                                                                                                                                                                                                                
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | In particular, this Statement sets forth: (a) The period
      after the balance sheet date during which management of a reporting entity
      should evaluate events or transactions that may occur for potential
      recognition or disclosure in the financial statements; (b) the
      circumstances under which an entity should recognize events or
      transactions occurring after the balance sheet date in its financial
      statements; (c) The disclosures that an entity should make about events or
      transactions that occurred after the balance sheet date.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| |      | This Statement is effective for interim and annual
      periods ending after June 15, 2009. The Company is currently evaluating
      the impact of adoption of SFAS No. 165 but does not expect adoption to
      have a material impact on results of operations, cash flows or financial
      position.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | (xi) | On April 25, 2008, the FASB issued a FASB Staff Position
      (FSP) Determination of the Useful Life of Intangible Assets that amends
      the factors that should be considered in developing renewal or extension
      assumptions used to determine the useful life of a recognized intangible
      asset under FASB Statement No. 142, Goodwill and Other Intangible Assets.
      The intent of this FSP is to improve the consistency between the useful
      life of a recognized intangible asset under Statement 142 and the period
      of expected cash flows used to measure the fair value of the asset under
      FASB Statement No. 141 (revised 2007), Business Combinations, and other
      U.S. generally accepted accounting principles (GAAP). FSP FAS 142-3 is
      effective for financial statements issued for fiscal years beginning after
      December 15, 2008 and is effective for the Companys 2010 fiscal year.
      Management has not determined the effect that adopting this statement
      would have on the Companys financial position, cash flows or results of
      operations.

---

|ROCKWELL DIAMONDS INC.                                                                                             
|-------------------------------------------------------------------------------------------------------------------
|Notes to the Consolidated Financial Statements                                                                     
|For the year ended February 28, 2009, the nine months ended
      February 29, 2008 and the year ended May 31, 2007
|(Expressed in Canadian
      Dollars unless otherwise stated)                                                      

|18. | CONTINGENCIES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | In connection with the acquisition of Saxendrift in note
      7(a), one of the assets purchased from Trans Hex, with a carrying value of
      $6,257,000 is the subject of a dispute between Trans Hex and a third
      party, which claims ownership in a certain plant. Although the Company is
      not subject to this dispute and cannot determine the likelihood of the
      outcome, the Company has a warranty claim with Trans Hex should the third
      party be successful with its claim against Trans Hex.                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | During the first quarter of 2008, pursuant to an amending
      agreement to the Midamines Agreement, the Company paid consideration of
      $600,000 to Midamines in order to increase the size of the concession
      (Permit 331). As part of such amending agreement, Midamines waived its
      right to payment of the abovementioned US$1,200,000 royalty payment on
      December 31, 2007. 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 cancelled the Midamines Agreement and claimed
  damages.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Midamines has subsequently disputed Durnpikes
      entitlement to cancel the Midamines Agreement and has demanded payment of
      US$1,200,000 as well as other amounts which have not yet been
      particularised. Midamines has threatened to refer the dispute to
      arbitration and to join Rockwell as party thereto, but no formal referral
      to arbitration has as yet been forthcoming (refer note 7(c)).                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|19. | SUBSEQUENT EVENTS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | On April 11th, 2008 all the conditions
      precedent to the Saxendrift acquisition had been met, however the
      Niewejaarskraal new mining order rights are still outstanding and are
      subject to the approval of the South African Department of Minerals and
      Energy.                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    | Subsequent to February 28, 2009, 5,772,000 broker
      warrants and 116,007,154 share purchase warrants expired unexercised (note
      11(c)). No additional share options have been granted subsequent to year
      end.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

---