---



(Formerly Rockwell Ventures Inc.)

CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED FEBRUARY 28, 2009, NINE MONTHS ENDED FEBRUARY 29,
2008 AND 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 sheet of
Rockwell Diamonds Inc. as of February 28, 2009, and the related consolidated
statements of operations and comprehensive loss, accumulated comprehensive loss
and deficit, shareholders' equity and cash flows for the year 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
audit provides 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. as of February 28, 2009 and the results of its operations
and its cash flows for the year ended February 28, 2009.

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 material 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 substatial 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 die Canadian Institute of Chartered Accountants.

KPMG Inc

Registered Accountants and Auditors Bloemfontein, Republic
of South Africa

September 11, 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    |  
|Transferagent                                                      |   | 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
      31 | 
|--------------------------------------------------------------------------------------------------------------- |  | ---------------------------- |  | - | ----------------------------------- | - |  | ----------------------- | 
|                                                                                                                |  |                              |  |   | 2009                                |   |  |                         | 
|                                                                                                                |  |                              |  |   |                                     |   |  |                         | 
|                                                                                                                |  |                              |  |   |                                     |   |  |                         | 
|                                                                                                                |  |                              |  |   |                                     |   |  |                         | 
|Share capital                                                                                                   |  | Number of shares             |  |   |                                     |   |  | Number of shares        | 
|Balance at beginning of the period                                                                              |  | 223,755,854                  |  | $ | 112,095,390                         |   |  | 186,976,219             | 
|Share purchase options
      exercised at $0.40 per share                                                       |  |                             |  |   |                                    |   |  | 107,917                 | 
|Share purchase options exercised at
      $0.42 per share                                                       |  |                             |  |   |                                    |   |  | 145,000                 | 
|Private placement
      November 2006, net of issue costs at $0.47 per share                                    |  |                             |  |   |                                    |   |  |                        | 
|Private placement May 2007, net of
      issue costs at $0.47 per share                                         |  |                             |  |   |                                    |   |  |                        | 
|Private placement
      January 2008, net of issue costs at $0.60 per share                                     |  |                             |  |   |                                    |   |  | 24,101,526              | 
|Interest consideration for convertible
      promissory at $0.60 per share notes                                |  |                             |  |   |                                    |   |  |                        | 
|Interest consideration
      for credit facility at $0.61 per share                                             |  |                             |  |   |                                    |   |  |                        | 
|Interest consideration for loan at
      $0.55 per share                                                        |  |                             |  |   |                                    |   |  |                        | 
|Commission
      consideration for private placement at $0.52 per share                                         |  |                             |  |   |                                    |   |  |                        | 
|Commission consideration for private
      placement at $0.60 per share                                         |  |                             |  |   |                                    |   |  | 500,000                 | 
|Warrants exercised at
      $0.60 per share                                                                     |  |                             |  |   |                                    |   |  | 2,400,000               | 
|Consideration for acquisition of
      property net of issue cost at $0.78 per share (note 7(b))                |  |                             |  |   |                                    |   |  | 7,848,663               | 
|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               | 
|Fair value of stock options allocated
      to shares issued on exercise                                        |  |                             |  |   |                                    |   |  |                        | 
|Balance at
      end of the period                                                                              |  | 238,041,569                  |  | $ | 119,952,532                         |   |  | 223,755,854             | 
|                                                                                                                |  |                              |  |   |                                     |   |  |                         | 
|Warrants                                                                                                        |  |                              |  |   |                                     |   |  |                         | 
|Broker warrants issued
      as consideration for private placement, beginning and                              |  |                              |  |   |                                     |   |  |                         | 
|end of period                                                                                                   |  |                              |  | $ | 1,693,197                           |   |  |                         | 
|                                                                                                                |  |                              |  |   |                                     |   |  |                         | 
|Contibuted surplus                                                                                              |  |                              |  |   |                                     |   |  |                         | 
|Balance at beginning of the period                                                                              |  |                              |  | $ | 2,332,882                           |   |  |                         | 
|Stock-based compensation (note 11(b))                                                                           |  |                              |  |   | 1,834,422                           |   |  |                         | 
|Fair value of stock options
      allocated to shares issued on exercise                                        |  |                              |  |   |                                    |   |  |                         | 
|Balance at
      end of the period                                                                              |  |                              |  | $ | 4,167,304                           |   |  |                         | 
|                                                                                                                |  |                              |  |   |                                     |   |  |                         | 
|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                         | ) |  |                         | 
|Loss for the period                                                                                             |  |                              |  |   | (12,975,962                         | ) |  |                         | 
|Balance at
      end of the period                                                                              |  |                              |  | $ | (41,982,624                         | ) |  |                         | 
|                                                                                                                |  |                              |  |   |                                     |   |  |                         | 
|TOTAL
      SHAREHOLDERS' EQUITY                                                                                |  |                              |  | $ | 70,421,026                          |   |  |                         | 

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:

| |  | At year end, the Companys current assets exceeded its
      current liabilities by $0.6 million and the Companys total assets
      exceeded its total liabilities by $70.4 million.                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The cash flow forecasts for the fiscal year 2010 indicate
      that additional funds of US$4 million will be required to enable the
      Company to continue as a going concern. The additional funding was
      calculated on the assumption that volumes remain constant with current
      production, with the new plant still operating at below 50% capacity,
      prices remaining at current depressed levels, which are 55% below pre
      crisis levels and the South African Rand remains at current levels
      relative to the United States and Canadian dollar.

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

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 recognition

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

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) Inventory

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.



---

|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)                                                      

(e) Property, plant and equipment

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


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. Under the unit of production method, the periodic depreciation
    charge is calculated by dividing the actual reserves mined into the estimated
    reserves at the beginning of the period and then multiplying the resulting
    fraction by the net carrying value of the related assets. Mineral resources and
    reserves are estimated by professional geologists and engineers in accordance
    with recognized industry, professional and regulatory standards. These estimates
    require inputs such as future diamond prices, future operating costs, and
    various technical geological, engineering, and construction parameters. Changes
    in any of these inputs could cause a significant change in the estimated
    resources and reserves which, in turn, could have a material effect on the
    carrying value of mineral properties. The unit of production method results in a
    systematic and rational allocation of the cost of the mineral property interests
    over the period the reserves are utilized.

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.

---

|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)                                                      

(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.



---

|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)                                                      

(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.

(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.

---

|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)                                                      

(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.

(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 self-sustaining operations exchange
  gains or losses arising on the translation from its functional currency to the
  Companys reporting currency 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. As the Companys reporting currency is the Canadian dollar gains or
  losses on translation from functional to reporting currency 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.



---

|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)                                                      

(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, 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.

---

|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)                                                      

(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) Section 1535  Capital
  Disclosures

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) Financial Instruments 
  Disclosure (Section 3862) and Presentation (Section 3863)

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      |  |   | 2012    | 
| | ---------------------------------------- | - | --------- |  | - | ----------- |  | - | --------- |  | - | --------- |  | - | ------- | 
| |                                          |   | amount    |  |   | cash flow   |  |   |           |  |   |           |  |   |         | 
| |                                          |   |           |  |   |             |  |   |           |  |   |           |  |   |         | 
| | Accounts payable and accrued liabilities | $ | 4,832,038 |  | $ | 4,832,038   |  | $ | 4,832,038 |  | $ |          |  | $ |        | 
| | Due 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 |  |   | 106,122 | 
| | Income 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      |  |   | 2011      | 
| | ---------------------------------------- | - | ---------- |  | - | ----------- |  | - | --------- |  | - | --------- |  | - | --------- | 
| |                                          |   | amount     |  |   | cash flow   |  |   |           |  |   |           |  |   |           | 
| |                                          |   |            |  |   |             |  |   |           |  |   |           |  |   |           | 
| | Accounts payable and accrued liabilities | $ | 4,420,212  |  | $ | 4,420,212   |  | $ | 4,420,212 |  | $ |          |  | $ |          | 
| | Amounts due to related parties           |   | 49,604     |  |   | 49,604      |  |   | 49,604    |  |   |          |  |   |          | 
| | Capital lease obligations                |   | 14,803,299 |  |   | 16,832,458  |  |   | 8,385,013 |  |   | 6,087,834 |  |   | 2,389,611 | 
| | Income 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, 2008South African Rand
      $
      10,082,048
      
      $
      16,362,773Other
      
      19,649
      
      
      1,127,790Total 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, 2008South African Rand
      $
      16,853,686
      
      $
      18,909,003Total 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) International Financial
  Reporting Standards ("IFRS")

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) Goodwill and Intangibles 
  Section 3064

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) EIC 173  Credit Risk and the
  Fair value of Financial Assets and Financial Liabilities

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 standardon its consolidated financial
  statements.

(iv) EIC 174 
  Mining Exploration Costs

The AcSB issued EIC-174, Mining
  Exploration Costs which provides guidance to mining enterprises related to the
  measurement of exploration costs and the conditions that a mining enterprise
  should consider when determining the need to perform an impairment review of
  such costs. The 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
    standardon its consolidated financial statements.

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

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 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.

---

|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)                                                      

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

| |                         |   | As at             |  |   | As at             | 
| | ----------------------- | - | ----------------- |  | - | ----------------- | 
| |                         |   | February 28, 2009 |  |   | February 29, 2008 | 
| | Rough diamond inventory | $ | 1,845,986         |  | $ | 830,780           | 
| | Mine supplies           |   | 1,873,933         |  |   | 2,635,073         | 
| | Total 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 obligation |   | 27,850,217                    | 
| | 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:



| |  | the rights to prospect, explore and/or mine precious stones and/or other
      minerals and/or metals held directly or indirectly by THO in the Saxendrift
      area of the Northern Cape;
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                            
| |  | a series of large remnant alluvial diamond terraces;                                                                                                                                       
| |  |                                                                                                                                                                                            
| |  | the plant, machinery, equipment and other movable assets owned and/or
      used by THO;                                                                                                   
| |  |                                                                                                                                                                                            
| |  | certain employees of THO; and                                                                                                                                                              
| |  |                                                                                                                                                                                            
| |  | a rehabilitation liability which will be taken over by 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)                                                      

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:

| |  | Acquired all of the shares and loans in Durnpike for
      consideration of ZAR 39.8 million ($6.1 million), payable in common shares
      of the Company. The Company issued 7,848,663 Common Shares and also issued
      1,676,529 Common Shares as finder fees relating to the Durnpike
      acquisition. The common shares were issued on November 30, 2007.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |                                                                                                                                                                                                                                                                                                                                                                    
| |  | The ZAR consideration does not include payment in respect
      of the Kwango River Project, which payment stands to be made by the
      Company only when (and if) the feasibility study referred to below has
      been completed and approved by the board of directors of 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 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%.

---

|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) | 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 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.

---

|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)                                                      

|(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) Authorized share
  capital

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) Share purchase options

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 28    | 
| | ---------------------------------------------------------------- | - | -------- | ---- |  | --------- | ---- |  | --------- | ---- |  | --------- | ---- |  | --------- | ---- |  | --------- | 
| | Expiry date                                                      |   | price    |      |  | 2008      |      |  | Granted   |      |  | Exercised |      |  | cancelled |      |  | 2009      | 
| | March 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     |      |  | 5,901,334 | 
| | November 14, 2012                                                | $ | 0.63     |      |  | 1,109,000 |      |  |          |      |  |          |      |  | 4,166     |      |  | 1,104,834 | 
| | June 20, 2011                                                    | $ | 0.45     |      |  |          |      |  | 1,150,000 |      |  |          |      |  | 200,000   |      |  | 950,000   | 
| |                                                                  |   |          |      |  | 7,462,000 |      |  | 1,150,000 |      |  |          |      |  | 655,832   |      |  | 7,956,168 | 
| |                                                                  |   |          |      |  |           |      |  |           |      |  |           |      |  |           |      |  |           | 
| | Weighted average exercise price                                  |   | $        | 0.62 |  | $         | 0.45 |  | $         |     |  | $         | 0.57 |  | $         | 0.60 | 
| | Weighted 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.

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

---

|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)                                                      

| |                                                                        |   | Exercise |      |  | May 31  |      |  |           |      |  |           |      |  | Expired/  |      |  | Feb 29    | 
| | ---------------------------------------------------------------------- | - | -------- | ---- |  | ------- | ---- |  | --------- | ---- |  | --------- | ---- |  | --------- | ---- |  | --------- | 
| | Expiry date                                                            |   | price    |      |  | 2007    |      |  | Granted   |      |  | Exercised |      |  | cancelled |      |  | 2008      | 
| | September 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 |      |  |          |      |  |          |      |  |          |      |  | 150,000   | 
| | July 10, 2010                                                          | $ | 0.68     |      |  |        |      |  | 300,000   |      |  |          |      |  |          |      |  | 300,000   | 
| | September 24, 2012                                                     | $ | 0.62     |      |  |        |      |  | 5,905,500 |      |  |          |      |  | 2,500     |      |  | 5,903,000 | 
| | November 14, 2012                                                      | $ | 0.63     |      |  |        |      |  | 1,114,500 |      |  |          |      |  | 5,500     |      |  | 1,109,000 | 
| |                                                                        |   |          |      |  | 447,917 |      |  | 7,320,000 |      |  | 252,917   |      |  | 53,000    |      |  | 7,462,000 | 
| |                                                                        |   |          |      |  |         |      |  |           |      |  |           |      |  |           |      |  |           | 
| | Weighted average exercise price                                        |   | $        | 0.44 |  | $       | 0.62 |  | $         | 0.41 |  | $         | 0.45 |  | $         | 0.62 | 
| | Weighted
      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 31  | 
| | -------------------------------------------------------------------- | - | -------- | ---- |  | ------- | - |  | ------- | ---- |  | --------- | ---- |  | --------- | ---- |  | ------- | 
| | Expiry date                                                          |   | price    |      |  | 2006    |   |  | Granted |      |  | Exercised |      |  | cancelled |      |  | 2007    | 
| | September 28, 2007                                                   | $ | 0.40     |      |  | 115,417 |   |  |        |      |  | 5,833     |      |  | 1,667     |      |  | 107,917 | 
| | February 29, 2008                                                    | $ | 0.42     |      |  | 210,000 |   |  |        |      |  | 3,334     |      |  | 16,666    |      |  | 190,000 | 
| | March 28, 2008                                                       | $ | 0.50     |      |  | 150,000 |   |  |        |      |  |          |      |  |          |      |  | 150,000 | 
| |                                                                      |   |          |      |  | 475,417 |   |  |        |      |  | 9,167     |      |  | 18,333    |      |  | 447,917 | 
| |                                                                      |   |          |      |  |         |   |  |         |      |  |           |      |  |           |      |  |         | 
| | Weighted average exercise price                                      |   | $        | 0.44 |  | $       |  |  | $       | 0.41 |  | $         | 0.42 |  | $         | 0.44 | 
| |                                                                      |   |          |      |  |         |   |  |         |      |  |           |      |  |           |      |  |         | 
| | Weighted
      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 contributed surplus | $ | 1,834,422   |  | $ | 1,826,317         |  | $ | 79,623     | 

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


(c) Share purchase warrants

---

|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
  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)).

(f) Private Placement, January
  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)                                                      

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
  and US GAAP, the Company accounts for mineral properties as described in note
  3(f). As it indicates, 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. Under the unit of
  production method, the periodic depreciation charge is calculated by dividing
  the actual reserves mined into the estimated reserves at the beginning of the
  period and then multiplying the resulting fraction by the net carrying value of
  the related assets. Mineral resources and reserves are estimated by professional
  geologists and engineers in accordance with recognized industry, professional
  and regulatory standards. These estimates require inputs such as future diamond
  prices, future operating costs, and various technical geological, engineering,
  and construction parameters. Changes in any of these inputs could cause a
  significant change in the estimated resources and reserves which, in turn, could
  have a material effect on the carrying value of mineral properties. The unit of
  production method results in a systematic and rational allocation of the cost of
  the mineral property interests over the period the reserves are
  utilized.

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

---

|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)                                                      

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.

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

| |                               |   |             |  |   | 2009        |  |   |             |  |   |             |  |   | 2008        |   |   |             | 
| | ----------------------------- | - | ----------- |  | - | ----------- |  | - | ----------- |  | - | ----------- |  | - | ----------- | - | - | ----------- | 
| |                               |   | Balance,    |  |   |             |  |   | Balance,    |  |   | Balance,    |  |   |             |   |   | Balance,    | 
| |                               |   | Canadian    |  |   |             |  |   | US          |  |   | Canadian    |  |   |             |   |   | US          | 
| |                               |   | GAAP        |  |   | Adjustments |  |   | GAAP        |  |   | GAAP        |  |   | Adjustments |   |   | GAAP        | 
| |                               |   |             |  |   |             |  |   |             |  |   |             |  |   |             |   |   |             | 
| | Current assets                | $ | 15,099,971  |  | $ |            |  | $ | 15,099,971  |  | $ | 38,596,562  |  | $ |            |   | $ | 38,596,562  | 
| | Property, plant and equipment |   | 59,569,186  |  |   |            |  |   | 59,569,186  |  |   | 64,831,636  |  |   |            |   |   | 64,831,636  | 
| | Other assets and deposits     |   | 139,140     |  |   |            |  |   | 139,140     |  |   | 3,200,112   |  |   |            |   |   | 3,200,112   | 
| |                               |   |             |  |   |             |  |   |             |  |   |             |  |   |             |   |   |             | 
| | Reclamation deposits          |   | 2,659,642   |  |   |            |  |   | 2,659,642   |  |   | 1,816,877   |  |   |            |   |   | 1,816,877   | 
| |                               |   |             |  |   |             |  |   |             |  |   |             |  |   |             |   |   |             | 
| | Mineral property              |   | 28,894,477  |  |   |            |  |   | 28,894,477  |  |   | 25,247,937  |  |   | (1          | ) |   | 25,247,936  | 
| |                               | $ | 106,362,416 |  | $ |            |  | $ | 106,362,416 |  | $ | 133,693,124 |  | $ | (1          | ) | $ | 133,693,123 | 
| |                               |   |             |  |   |             |  |   |             |  |   |             |  |   |             |   |   |             | 
| | Current liabilities           | $ | 14,462,800  |  | $ |            |  | $ | 14,462,800  |  | $ | 12,502,301  |  | $ |            |   | $ | 12,502,301  | 
| | Long-term liabilities         |   | 19,596,581  |  |   |            |  |   | 19,596,581  |  |   | 22,141,468  |  |   |            |   |   | 22,141,468  | 
| | Non-controlling interest      |   | 1,882,009   |  |   |            |  |   | 1,882,009   |  |   | 11,934,548  |  |   |            |   |   | 11,934,548  | 
| | Shareholders' 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 | 

---

|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 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (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.                                                                                                                                                                                                                                                                                                                                                                                            

---

|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)                                                      

| | (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 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.

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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)                                                      

| | (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.

|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.

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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)                                                      

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) Outstanding Niewejaarskraal
  mining rights

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) Warrants expired and share
  options granted subsequent to February 28, 2009

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.

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