UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
DC 20549











FORM
10-Q











QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
EXCHANGE ACT OF 1934





For
the Quarterly period ended October 31,
2009





Commission file number:333-83231





GLOBAL
DIVERSIFIED INDUSTRIES, INC.


(Exact
Name of Registrant as specified in its charter)




NEVADA
            95-4741485(State
      of incorporation)
            (IRS
      Employer Identification No.)





1200 Airport Drive, Chowchilla,
      CA
            93610(Address
      of principal executive offices)
            (Zip
      Code)





(559)
665-5800


(Registrant's
telephone number, including area code)





None


(Former
name, former address and former fiscal year, if changed since last
report)




Indicate
by check mark, whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filings requirements for
the past 90 days.    Yes x No o





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.  See definition of
“accelerated filer and larger accelerated filer” in Rule 12b-2 of the Exchange
Act:





Large
      Accelerated Filer o
            Accelerated
      Filer                     
      oNon-Accelerated
      Filer   o
            Smaller
      Reporting Company  x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).  Yes o No x





State the
number of shares outstanding of each of the issuer's classes of common equity,
15,369,885 shares of Common Stock ($.001 par value) as of December 18,
2009.








Table of Contents








TABLE OF CONTENTS





PagePART
      I  Financial InformationItem
      1.
            Financial Statements
      (Unaudited)
            3Condensed Consolidated Balance
      Sheets:  October 31, 2009 (Unaudited) and April 30,
      2009
            3Condensed Consolidated Statements
      of Operations: For the Three Months and Six Months Ended
      October  31, 2009 and 2008
(Unaudited)
            5Condensed Consolidated Statements
      of Cash Flows: For the Three Months Ended October 31, 2009 and 2008
      (Unaudited)
            6Notes to Unaudited Consolidated
      Financial Information
            7Item
      2.
            Management's Discussion and
      Analysis of Financial Condition and Results of
      Operations
            20Item
      3.
            Quantitative and Qualitative
      Disclosures About Market Risk
            27Item
      4.
            Controls and
      Procedures
            27PART
      II  Other InformationItem
      1.
            Legal
      Proceedings
            27Item
      2.
            Changes in
      Securities
            27Item
      3.
            Defaults Upon Senior
      Securities
            28Item
      4.
            Submission of Matters to Vote of
      Security Holders
            28Item
      5.
            Other
      Information
            28Item
      6.
            Exhibits, Including
      Certifications
            28








Table of Contents





ITEM I.  FINANCIAL STATEMENTS (UNAUDITED)





GLOBAL
DIVERSIFIED INDUSTRIES, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS


(UNAUDITED)





October
      31, 2009
            
            
            April
      30, 2009ASSETS:Current
      assets:Cash
      and cash equivalents
            
            $
            221,659
            
            
            $
            335,799Accounts
      receivable, net of allowance for doubtful accounts of $288,376 at October
      31, 2009 and $154,945 at April 30, 2009, respectively
            
            
            283,764
            
            
            
            1,563,830Inventories
            
            
            4,911,809
            
            
            
            4,583,275Advances
      to employees
            
            
            5,980
            
            
            
            15,815Other
      current assets
            
            
            41,667
            
            
            
            91,667Prepaid
      expenses
            
            
            14,080
            
            
            
            40,554Total
      current assets
            
            
            5,478,959
            
            
            
            6,630,940Property,
      plant and equipment:Property,
      plant and equipment, at cost
            
            
            5,151,485
            
            
            
            4,845,445Less:
      Accumulated depreciation
            
            
            (1,817,066
            )
            
            
            (1,587,861
            )Total
      property, plant and equipment, net
            
            
            3,334,419
            
            
            
            3,257,584Other
      assets:
              Inventories-long
      term
            
            
            643,738
            
            
            
            661,738Deferred
      Financing Cost, net of accumulated amortization of $308,532
              and
      $213,589 at October 31, 2009 and April 30, 2009, respectively (Note
      J)
            
            
            1,014,794
            
            
            
            994,522Deposit
            
            
            37,375
            
            
            
            37,375Intangible
      assets  net of accumulated amortization
      of  $423,998  and $375,280 at
      October  31, 2009 and April 30, 2009, respectively (Note
      G)
            
            
            914,746
            
            
            
            920,662Total
      other assets
            
            
            2,610,653
            
            
            
            2,614,297Total
      Assets
            
            $
            11,424,031
            
            
            $
            12,502,821





See
accompanying notes to the unaudited condensed consolidated financial
information





3
 Table of Contents




GLOBAL
DIVERSIFIED INDUSTRIES, INC.


CONDENSED CONSOLIDATED BALANCE SHEETS (Continued)


(UNAUDITED)





October
      31, 2009
            
            
            April
      30, 2009LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)Current
      liabilities:Accounts
      payable and accrued liabilities
            
            $
            1,125,640
            
            
            $
            787,913Derivative
      Liability
            
            
            2,405,845
            
            
            
            -Dividend
      payable
            
            
            340,247
            
            
            
            57,444Convertible
      notes payable, current portion (Note B)
            
            
            100,000
            
            
            
            100,000Total
      current liabilities
            
            
            3,971,732
            
            
            
            945,357Long-term
      liabilities:Convertible
      notes payable, long term portion, net of debt discount (Note
      B)
            
            
            5,522,368
            
            
            
            5,499,476Total
      long-term liabilities
            
            
            5,522,368
            
            
            
            5,499,476Commitment
      and contingencies
            
            
            -
            
            
            
            -Convertible
      Redeemable Preferred Stock, Series D, par value $.001 per share, 2,750,000
      shares authorized, 1,946,512 and 0 shares issued and outstanding at
      October 31, 2009 and April 30, 2009, respectively (Note F)
            
            
            1,946,512
            
            
            
            -Discount
      on Preferred Stock Series D
            
            
            (689,388
            )
            
            
            -Net
      Preferred Stock Series D
            
            
            1,257,124
            
            
            
            -Convertible
      Redeemable Preferred Stock, Series C par value $.001 per share, 2,750,000
      shares authorized, 1,750,000 shares issued and outstanding at October 31,
      2009 and April 30, 2009, respectively (Note E)
            
            
            1,750,000
            
            
            
            1,750,000Discount
      on Preferred Stock Series C
            
            
            (1,682,595
            )
            
            
            (1,744,140
            )Net
      Preferred Stock Series C
            
            
            67,405
            
            
            
            5,860Convertible
      Redeemable Preferred Stock, Series B, par value $.001 per share; 3,500,000
      shares authorized; 3,484,294 shares issued and outstanding at October 31,
      2009 and April 30, 2009, respectively (Note D )
            
            
            3,484,294
            
            
            
            3,484,294Discount
      on Preferred Stock Series B
            
            
            (2,874,623
            )
            
            
            (3,439,670
            )Net
      Preferred Stock Series B
            
            
            609,671
            
            
            
            44,624Stockholders' equity
      (deficit):Common
      stock, par value $.001 per share; 2,750,000,000 shares authorized;
      15,369,885 and 15,369,885 shares issued and outstanding at October 31,
      2009 and April 30, 2009, respectively (Note C)
            
            
            15,370
            
            
            
            15,370Additional
      paid-in capital
            
            
            6,710,521
            
            
            
            13,334,258Treasury
      stock (Note C)
            
            
            (50
            )
            
            
            (50
            )Accumulated
      deficit
            
            
            (6,730,110
            )
            
            
            (7,342,074
            )Total
      stockholders' equity (deficit)
            
            
            (4,269
            )
            
            
            6,007,504Total
      liabilities and stockholders' equity (deficit)
            
            $
            11,424,031
            
            
            $
            12,502,821





See
accompanying notes to the unaudited condensed consolidated financial
information





4
 Table of Contents








GLOBAL
DIVERSIFIED INDUSTRIES, INC.


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


(UNAUDITED)








For
      The Three Months Ended
              October
      31,
            
            
            For
      the Six Months Ended
              October
      31,2009
            
            
            2008
            
            
            2009
            
            
            2008Revenues
            
            $
            193,366
            
            
            $
            1,668,294
            
            
            $
            205,807
            
            
            $
            2,167,355Depreciation
      and amortization
            
            
            142,768
            
            
            
            86,692
            
            
            
            277,923
            
            
            
            173,383Cost
      of goods sold
            
            
            683,582
            
            
            
            1,094,605
            
            
            
            1,085,651
            
            
            
            1,422,062Gross
      profit
            
            
            (632,984
            )
            
            
            486,997
            
            
            
            (1,157,767
            )
            
            
            571,910Operating
      expenses:Selling,
      general and administrative expenses
            
            
            919,434
            
            
            
            503,229
            
            
            
            1,377,828
            
            
            
            1,003,999Total
      operating expense
            
            
            919,434
            
            
            
            503,229
            
            
            
            1,377,828
            
            
            
            1,003,999Income
      (loss) from operations
            
            
            (1,552,418
            )
            
            
            (
      16,232
            )
            
            
            (2,535,595
            )
            
            
            (432,089
            )Interest
      expense, net
            
            
            (251,418
            )
            
            
            (49,316
            )
            
            
            (471,642
            )
            
            
            (82,735
            )Change
      in fair value-derivatives
            
            
            1,354,592
            
            
            
            -
            
            
            
            3,646,532
            
            
            
            -Guaranty
      Expense
            
            
            (13,665
            )
            
            
            ( 44,944
            )
            
            
            (27,330
            )
            
            
            (70,566
            )Net
      income (loss)
            
            
            (462,909
            )
            
            
            (110,492
            )
            
            
            611,965
            
            
            
            (585,390
            )Preferred
      Dividends, paid or accrued
            
            
            157,029
            
            
            
            157,083
            
            
            
            314,058
            
            
            
            281,173Accretion
      of discount on preferred stock
            
            
            570,020
            
            
            
            7,148
            
            
            
            711,076
            
            
            
            9,122Net
      income (loss) attributable to common stockholders
            
            
            (1,189,958
            )
            
            
            (274,723
            )
            
            
            (413,169
            )
            
            
            (875,685
            )Earnings
      per common share:Basic
            
            $
            (0.08
            )
            
            $
            (0.01
            )
            
            $
            (0.03
            )
            
            $
            (0.05
            )Diluted
            
            
            (0.08
            )
            
            
            (0.01
            )
            
            
            (0.03
            )
            
            
            (0.05
            )Weighted
      average shares outstanding:Basic
            
            
            15,369,885
            
            
            
            15,369,885
            
            
            
            15,369,885
            
            
            
            15,369,885Diluted
            
            
            15,369,885
            
            
            
            15,369,885
            
            
            
            15,369,885
            
            
            
            15,369,885




See
accompanying notes to the unaudited condensed consolidated financial
information




5
 Table of Contents





GLOBAL
DIVERSIFIED INDUSTRIES, INC.


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW


(UNAUDITED)





For
      the Six months ended
              October
      31,2009
            
            
            2008Cash
      flows from operating activities:Net
      income (loss)
            
            $
            611,965
            
            
            $
            (585,390
            )Adjustment
      to reconcile net income (loss) to net cash used in continuing
      operationsDepreciation
      and amortization
            
            
            277,923
            
            
            
            173,383Change
      in derivative liability
            
            
            (3,646,532
            )
            
            
            -Amortization
      of debt discount
            
            
            50,936
            
            
            
            9,690Amortization
      of deferred financing cost
            
            
            170,365
            
            
            
            -Bad
      debt expense
            
            
            133,431
            
            
            
            -Amortization
      of Guaranty Expense
            
            
            27,330
            
            
            
            70,566Change
      in assets and liabilities:(Increase)/decrease
      in accounts receivable
            
            
            1,146,635
            
            
            
            (737,868
            )(Increase)
      in inventory
            
            
            (310,534
            )
            
            
            (691,180
            )Decrease
      / (increase) in prepaid expense and others
            
            
            145,507
            
            
            
            (158,090
            )(Increase)
      in employee advances
            
            
            9,835
            
            
            
            3,094Increase
      in accounts payable and accrued liabilities
            
            
            337,727
            
            
            
            (99,073
            )Net
      cash (used in) continuing operations
            
            
            (1,045,412
            )
            
            
            (2,014,872
            )Cash
      flows from investing activities:Intangible
      assets
            
            
            (38,836
            )
            
            
            -Capital
      expenditure
            
            
            (306,039
            )
            
            
            (
      75,731
            )Net
      cash (used in) investing activities
            
            
            (344,875
            )
            
            
            (
      75,371
            )Cash
      flows from financing activities:Proceeds
      from sale of Series D Preferred Stock
            
            
            1,335,447
            
            
            
            -Proceeds
      from sale of Series C Preferred Stock, net of cost
            
            
            -
            
            
            
            1,500,000Preferred
      Dividends Paid
            
            
            (31,255
            )
            
            
            (146,913
            )Proceeds
      from (repayments of) notes payable, net
            
            
            (28,045
            )
            
            
            807,091Repayments
      of payable to related parties, net
            
            
            -
            
            
            
            (5,500
            )Net
      cash provided by(used in) financing activities
            
            
            1,276,147
            
            
            
            2,154,678Net
      decrease in cash and cash equivalents
            
            $
            (114,140
            )
            
            $
            64,075Cash
      and cash equivalents at beginning of period
            
            
            335,799
            
            
            
            53,193Cash
      and cash equivalents at end of period
            
            $
            221,659
            
            
            $
            117,268Supplemental
      Disclosures of Cash Flow Information:Cash
      paid during the period for interest
            
            $
            33,451
            
            
            $
            55,731Change
      in fair value-derivatives
            
            
            (3,646,532
            )
            
            
            -Preferred
      dividends accrued
            
            
            340,247
            
            
            
            -Initial
      EITF 07-5 derivative liability
            
            
            5,625,933
            
            
            
            -Accretion
      of preferred stock discounts charged to paid-in-capital
            
            
            711,076
            
            
            
            9,122Amortization
      of beneficial conversion feature of convertible notes
            
            
            50,936
            
            
            
            9,690





See
accompanying notes to the unaudited condensed consolidated financial
information




6
 Table of Contents





GLOBAL
DIVERSIFIED INDUSTRIES, INC.


NOTES TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION -
(Unaudited)


OCTOBER
31, 2009





NOTE
A - SUMMARY OF ACCOUNTING POLICIES





General





The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States of America for interim financial information and with the
instructions to Form 10-Q.  Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements.





In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Accordingly,
the results of operations for the three and six month period ended October 31,
2009, are not necessarily indicative of the results that may be expected for the
year ending April 30, 2010. The unaudited condensed consolidated financial
statements should be read in conjunction with the consolidated April 30, 2009
financial statements and footnotes thereto included in the Company's SEC Form
10-K.





Business and Basis of
Presentation





Global
Diversified Industries, Inc. (the "Company"), is incorporated under the laws of
the State of Nevada, and is in the business of designing, manufacturing and
marketing re-locatable modular structures such as classrooms and office
buildings to end users as well as to third party leasing agents for use
primarily within the state of California and other Western States.





The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiaries, Lutrex Enterprises, Inc. ("Lutrex") and Global
Modular, Inc. ("Global Modular ").  All significant intercompany
balances and transactions have been eliminated in consolidation.





Effect of Related
Prospective Accounting Pronouncement





On May 1,
2009, we adopted  the standard issued by FASB which provides that an
entity should use a two-step approach to evaluate whether an equity-linked
financial instrument (or embedded feature) is indexed to its own stock,
including evaluating the instrument's contingent exercise and settlement
provisions.   The adoption of the standard has affected the accounting
for certain freestanding warrants and preferred stock that contain exercise
price adjustment features (“down round provisions”).  Our preferred
stock and warrants with such provisions are no longer deemed to be indexed to
the company’s own stock and are no longer classified in
equity.  Instead, these were reclassified as derivative liability on
May 1, 2009 as a result of this standard.  The fair value of the
derivative liability as of May 1, 2009 was approximately $5,625,933 and was
recorded as a cumulative adjustment to additional paid in capital. See Note A,
Derivative Instruments and Fair Value of Financial Instruments.





Revenue
Recognition





The
Company recognizes revenue when persuasive evidence of an arrangement exists,
the price to the customer is fixed, collectability is reasonably assured and
title and risk of ownership is passed to the customer, which is usually upon
delivery.





In fiscal
2009 and 2010, the Company entered into several fixed-price arrangements whereby
the Company is to construct and install several modular units for customers.
Revenue from these construction-type fixed-price contracts is recognized in
accordance with the provisions of the FASB, standard  on the basis of
the estimated percentage of completion.





Under the
percentage-of-completion method, progress toward completion is measured by the
ratio of costs incurred to total estimated costs. Revenue and gross profit may
be adjusted prospectively for revisions in estimated total contract costs. If
the current estimates of total contract revenue and contract cost indicate a
loss, a provision for the entire loss on the contract is recorded in the period
in which it becomes evident. The total estimated loss includes all costs
allocable to the specific contract. Each construction contract is reviewed
individually to determine the appropriate basis of recognizing revenue.
Revisions to the estimates at completion are reflected in results of operations
as a change in accounting estimate in the period in which the facts that give
rise to the revision become known by management.





Currently,
there are no warranties provided with the purchase of the Company’s products.
The cost of replacing defective products and product returns have been
immaterial and within management’s expectations.  In the future, when
the company deems warranty reserves are appropriate that such costs will be
accrued to reflect anticipated warranty costs.








7
 Table of Contents





GLOBAL
DIVERSIFIED INDUSTRIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION


OCTOBER
31, 2009





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (Continued)





Reclassifications





Certain
reclassifications have been made to conform prior periods' data to the current
presentation. These reclassifications had no effect on results of
operations.





Use of
Estimates





The
preparation of financial statements and related disclosures in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. The Company evaluates, on an on-going basis, its
estimates and judgments, including those related to revenue recognition, bad
debts, excess inventory, impairment of intangible assets, income taxes,
contingencies and litigation. Its estimates are based on historical experience
and assumptions that the Company believes to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.





New Accounting
Pronouncements





In
December 2007, the Company adopted standards issued by FASB which require most
identifiable assets, liabilities, non-controlling interests and goodwill
acquired in a business combination to be recorded at “full fair value” and
require non-controlling interests (previously referred to as minority interests)
to be reported as a component of equity.  The standards are effective
for fiscal years beginning after December 15, 2008 these standards will be
applied to business combinations occurring after the effective date The standard
will be applied prospectively to all non-controlling interests, including any
that arose before the effective date.  The Company has not determined
the effect, if any, the adoption of the FASB standard will have on the Company’s
financial position or results of operations.





In
September 2006, the FASB adopted a standard that defines fair value, establishes
a framework for measuring fair value and expands disclosure of fair value
measurements. The standard applies under other accounting pronouncements that
require or permit fair value measurements and accordingly, does not require any
new fair value measurements The standard is effective for financial statements
issued for fiscal years beginning after November 15, 2007. The Company has
adopted the FASB standard in these financial statements.





In
September 2006, the FASB issued an amendment to the accounting standards for
employer’s accounting for defined benefit pension and other post retirement
plans. As of October 31, 2009, the Company does not have a pension plan, nor
does it have any plans for a pension program in the near future.  As
such, the FASB standard is not expected to have a material impact on the
Company’s financial statements.





In
February 2007, the FASB issued a standard that establishes a fair value option
that permits entities to choose to measure eligible financial instruments and
certain other items at fair value at specified election dates. A business entity
shall report unrealized gains and losses on items for which the fair value
options have been elected in earnings at each subsequent reporting date. The
standard is effective as of the beginning of an entity’s first fiscal year that
begins after November 15, 2007, provided the entity elects to apply the
provisions of standard.. The Company has adopted the standard in these financial
statements.





In March
2008, the FASB issued an amendment to the accounting standards which changes the
disclosure requirements for derivative instruments and hedging activities.
Entities are required to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments, (b) how derivative instruments and related
hedged items are accounted for under the standard and its related
interpretations, and (c) how derivative instruments and related hedged items
affect an entity’s financial position, financial performance, and cash flows.
The standard is effective for fiscal years and interim periods beginning after
November 15, 2008 and has been adopted in the company’s financial
statements.





8
 Table of Contents





GLOBAL
DIVERSIFIED INDUSTRIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION


OCTOBER
31, 2009





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (Continued)





In
December 2007, the FASB issued an amendment to the accounting standards that
requires: (i) the ownership interests in subsidiaries held by parties other than
the parent be clearly identified, labeled, and presented in the consolidated
statement of financial position within equity, but separate from the parent's
equity; (ii) the amount of consolidated net income attributable to the parent
and to the noncontrolling interest be clearly identified and presented on the
face of the consolidated statement of income; (iii) changes in a parent's
ownership interest while the parent retains its controlling financial interest
in its subsidiary be accounted for consistently; (iv) when a subsidiary is
deconsolidated, any retained noncontrolling equity investment in the former
subsidiary and any gain or loss on the deconsolidation be initially measured at
fair value; and (v), entities provide sufficient disclosures that clearly
identify and distinguish between the interests of the parent and the interests
of the noncontrolling owners. The standard is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008. Earlier adoption is prohibited. The standard is not expected to have a
material impact on the Company's financial statements.





In May
2008, the FASB issued a standard that resolves existing inconsistencies in
accounting for financial guarantee insurance contracts by insurance enterprises
under the standard requires that an insurance enterprise recognize a claim
liability prior to an event of default (insured event) when there is evidence
that credit deterioration has occurred in an insured financial obligation and
clarifies how the standard applies to financial guarantee insurance contracts,
including the recognition and measurement to be used to account for premium
revenue and claim liabilities. The standard also requires expanded disclosures
about financial guarantee insurance contracts. The standard is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and all interim periods within those fiscal years, except for some disclosures
about the insurance enterprise’s risk-management activities. The standard is not
expected to have a significant impact on our consolidated financial
statements.





In May
2009, the FASB issued a standard for “Subsequent Events.” This pronouncement
establishes standards for accounting for and disclosing subsequent events
(events which occur after the balance sheet date but before financial statements
are issued or are available to be issued). The standard requires an entity to
disclose the date subsequent events were evaluated and whether that evaluation
took place on the date financial statements were issued or were available to be
issued. It is effective for interim and annual periods ending after June 15,
2009.  The company has adopted this pronouncement in the current
period.





In June
2009, the FASB issued a standard that will become the source of authoritative
U.S. generally accepted accounting principles (GAAP) recognized by the FASB to
be applied by nongovernmental entities. Rules and interpretive releases of the
Securities and Exchange Commission (SEC) under authority of federal securities
laws are also sources of authoritative GAAP for SEC registrants. On the
effective date of this Statement, the Codification will supersede all
then-existing non-SEC accounting and reporting standards. All other non
grandfathered non-SEC accounting literature not included in the Codification
will become non authoritative. This statement is effective for financial
statements issued for interim and annual periods ending after September 15,
2009. The Company does not expect the adoption of the standard to have an impact
on the Company’s results of operations, financial condition or cash
flows.





Cash and Cash
Equivalents





The
Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.  There were
no cash equivalents at October 31, 2009 or April 30, 2009,
respectively.





Derivative Instruments and
Fair Value of Financial Instruments





Derivative
Instruments





We have
evaluated the application of FASB standards to certain freestanding warrants and
preferred stock that contain exercise price adjustment features known as down
round provisions.  Based on the guidance in the standards, we have
concluded these instruments are required to be accounted for as derivatives
effective May 1, 2009.





9
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GLOBAL
DIVERSIFIED INDUSTRIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION


OCTOBER
31, 2009





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (Continued)





We have
recorded the fair value of the warrants and preferred stock that are classified
as derivative liabilities in our balance sheet at fair value with changes in the
value of these derivatives reflected in the consolidated statements of
operations as gain or loss on derivative liabilities.  These
derivative instruments are not designated as hedging instruments under the FASB
standards..





Lattice
Valuation Model





Beginning
in the quarter ended October 31, 2008, we  have valued all subsequent
freestanding warrants and conversion features in the preferred stock that
contain down round provisions using a lattice model, with the assistance of a
valuation consultant, for which management understands the methodologies.
This  model incorporates transaction details such as the company’s
stock price, contractual terms, maturity, risk free rates, as well as
assumptions about future financings, volatility, and holder behavior as of May
1, 2009 and October 31, 2009.





The
primary assumptions include projected annual volatility of 240-250% and holder
exercise targets at 150-200% of the exercise/conversion price for the warrants
and preferred stock, decreasing as the instruments approach
maturity.  Based on these assumptions, the fair value of the warrant
derivatives as of May 1, 2009 was estimated by management to be
$5,625,933.  This amount was recorded as a cumulative adjustment to
additional paid in capital.





On July
23, 2009, the Company issued Preferred D shares and related warrants as detailed
in Note F.  This preferred stock and associated warrants are also
derivative instruments under FASB standards.





The fair
value of the remaining derivatives as of October 31, 2009 was estimated by
management to be $2,405,845.





The
foregoing assumptions are reviewed quarterly and are subject to change based
primarily on management’s assessment of the probability of the events described
occurring.  Accordingly, changes to these assessments could materially
affect the valuation.





Fair
Value of Financial Instruments





FASB
standards defines fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. The standard also establishes a
fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair
value:





Level 1
– Quoted prices in active markets for identical assets or
liabilities.





Level 2
– Observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
assets or liabilities.





Level 3
– Unobservable inputs that are supported by little or no market activity and
that are financial instruments whose values are determined using pricing models,
discounted cash flow methodologies, or similar techniques, as well as
instruments for which the determination of fair value requires significant
judgment or estimation. Our Level 3 liabilities consist of the derivative
liabilities associated with certain freestanding warrants that contain down
round provisions and convertible bonds with a strike price denominated in a
foreign currency.





If the
inputs used to measure the financial assets and liabilities fall within more
than one level described above, the categorization is based on the lowest level
input that is significant to the fair value measurement of the
instrument.





10
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GLOBAL
DIVERSIFIED INDUSTRIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION


OCTOBER
31, 2009





NOTE
A - SUMMARY OF ACCOUNTING POLICIES (Continued)





Financial
Assets and Liabilities Measured at Fair Value on a Recurring Basis





The
following table summarizes the financial assets and liabilities measured at fair
value, on a recurring basis during the three months ended October 31, 2009
:





Carrying
            
            
            Fair Value Measurements UsingValue
            
            
            Level 1
            
            
            Level 2
            
            
            Level 3
            
            
            TotalDerivative
      liabilities
            
            $
            2,405,845
            
            
            $
            -
            
            
            $
            -
            
            
            $
            2,405,845
            
            
            $
            2,405,845Totals
            
            
            
            
            
            $
            -
            
            
            $
            -
            
            
            $
            2,405,845
            
            
            $
            2,405,845





Level 3
Valuation Techniques


Financial
assets are considered Level 3 when their fair values are determined using
pricing models, discounted cash flow methodologies or similar techniques and at
least one significant model assumption or input is unobservable.  Our
Level 3 liabilities consist of the derivative liabilities associated with
certain preferred stock issuances and freestanding warrants that contain down
round provisions.





The
following table provides a summary of the changes in fair value, including net
transfers in and/or out, of all financial assets measured at fair value on a
recurring basis using significant unobservable inputs during the quarter ended
October 31, 2009:





DerivativeLiabilitiesBalance,
      May 1, 2009
            
            $
            5,625,933Total
      realized/unrealized (gains) or losses:Included
      in other income (expense)
            
            
            (3,646,532
            )Included
      in stockholders' equityPurchases,
      issuances and settlements
            
            
            426,444Transfers
      in and/or out of Level 3
            
            
            -Balance,
      October 31, 2009
            
            $
            2,405,845





NOTE
B - NOTES PAYABLE





A summary
of notes payable at October 31, 2009 and April 30, 2009 is as
follows:





October
      31, 2009
            
            
            April
      30, 2009Note
      payable in five annual payments beginning December 31, 2006, with interest
      payable monthly at 10% per annum.  Lender has an option at the
      end of each twelve months (“anniversary date”) to receive restricted
      shares of the Company’s common stock in lieu of the annual cash payment of
      $100,000. The conversion price is equal to 75% of the closing price for
      the day that is twelve months prior to each anniversary date. The minimum
      conversion price shall be $0.05 per share. (c)
            
            
            135,620
            
            
            
            153,974Note
      payable secured by receivable and property with principal payments in four
      equal lump sum payments being due December 19, 2010, second payment due
      December 19, 2011, third payment due December 19, 2012 and final payment
      due December 19, 2013. Interest rate is at 13% per annum payable monthly,
      however during the first twelve months the accrued interest shall be
      deferred and payable in one lump sum payment on the first anniversary date
      of the Original Issuance Date (d)
            
            
            5,486,748
            
            
            
            5,445,502Total
      Notes Payable
            
            
            5,622,368
            
            
            
            5,599,476Less:
      current portion
            
            
            (100,000
            )
            
            
            (100,000
            )Total
      - notes payable – long term
            
            
            5,522,368
            
            
            $
            5,499,476







11
 Table of Contents





GLOBAL
DIVERSIFIED INDUSTRIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION


OCTOBER
31, 2009





NOTE
B - NOTES PAYABLE (Continued)





(c) The
Company granted the note-holder an option to receive restricted shares of the
Company’s common stock in lieu of the annual cash payment of $100,000 at the end
of each twelve months (“anniversary date”).  The conversion price is
equal to 75% of the closing price for the day that is twelve months prior to
each anniversary date. The minimum conversion price shall be $0.05 per
share.  The Company has sufficient authorized and unissued shares
available to settle the debt, and has reserved 10 million shares of common stock
to settle the debt in the event that the note-holder converts at the minimum
conversion price of $0.05 per share.  The Company accounted for the
convertible in accordance with FASB standards, and recognized an imbedded
beneficial conversion feature present in the convertible note. The Company
recognized and measured an aggregate of $166,667 of the proceeds, which is equal
to the intrinsic value of the imbedded beneficial conversion feature, to
additional paid in capital and a discount against the convertible note. The debt
discount attributed to the beneficial conversion feature is amortized over the
maturity period (five years) as interest expense.  In October 31,
2006, the note-holder agreed to convert $200,000 of principal into 2,353,356
shares of the Company's common stock (Note J). These shares were issued in
September 2007. The Company wrote off the proportionate unamortized debt
discount applicable to the converted of principal, and non-cash interest expense
of $54,900 was charged to operations in connection with the conversion of notes.
Total non-cash interest expense the Company charged to operations in connection
with amortization and write-off of debt discount attributed to the beneficial
conversion feature amounted to $9,690 and $9,690 for the six month periods years
ended October 31, 2009 and 2008, respectively.





(d) The
Company issued the note-holder 68,168,164 warrants with an exercise price of
$0.05 per share expiring by December 11, 2015.  The Company accounted
for the warrants in accordance with FASB standards. The debt discount of
$595,391 is amortized over the maturity period of six years as interest
expense.  Total non-cash interest expense the Company charged to
operations in connection with amortization of debt discount amounted to $47,964
and $0 for the periods ended October 31, 2009 and 2008
respectively.  The aggregate fair value of the warrants was determined
with the assistance of a valuations consultant using the multinomial lattice
formula assuming no dividends, the stock would have no growth with an annual
volatility of 80%, reset events projected to occur 5% of the time at $0.04
generating an adjusted warrant exercise price of $0.0495.





NOTE
C – CAPITAL STOCK





On
November 7, 2001 the Company's Board of Directors approved an increase in the
Company's authorized common stock from 50,000,000 to 400,000,000 with a par
value of $.001. The Company also created a Series A Preferred class of stock,
$.001 par value, and authorized 10,000,000 shares.  On February 3,
2003, the Company’s Board of Directors approved to change the conversion right
of the Series A Preferred Stock from a ratio of five common for one preferred
share to ten common for one preferred share.  Effective February 21,
2008, the Registrant amended its Articles of Incorporation to (a) increase its
authorized common stock from four hundred million (400,000,000) to two billion
seven hundred thirty six million five hundred thousand (2,736,500,000) shares,
(b) increase its authorized preferred stock from ten million (10,000,000) to
thirteen million five hundred thousand (13,500,000) shares, (c) authorize blank
check preferred stock and delegate the right to designate preferences and
limitations for such preferred stock to the Board of Directors,
(d)  establish the designations, rights and preferences of the Series
B Preferred Stock.





Effective
June 24, 2008, the Registrant amended its Articles of Incorporation to authorize
(a) to increase its authorized preferred stock from thirteen million five
hundred thousand  (13,500,000) shares to sixteen million two hundred
fifty thousand (16,250,000) shares, (b) authorize blank check preferred stock
and delegate the right to designate preferences and limitations for such
preferred stock to the Board of Directors, (c) establish the designations,
rights and preferences of the Series C Preferred Stock.





As of
October 31, 2009 and April 30, 2009, the Company has 15,369,885 and 15,369,885
shares of common stock issued and outstanding, respectively.  The
Company did not issue any shares of common stock during the six months period
ended October 31, 2009.  The Company has 50,000 shares of treasury
stock at October 31, 2009 and April 30, 2009





On May
21, 2008, the Company affected a one-to-twenty stock split of our common
stock.  The Company did not reduce the number of shares we are
authorized to issue or change the par value of the common stock.  All
references to share value in these consolidated financial statements have been
restated to reflect this split.





NOTE
D – CONVERTIBLE REDEEMABLE PREFERRED STOCK – SERIES B





In
February 2008, the Board of Directors authorized the issuance of up to 3,500,000
shares of Series B 12% convertible voting preferred stock (“Series B”) having a
stated value of $1.00 per share. The Series B shares are convertible at any
time, at the option of the holder, into the Company’s common stock at an
initial conversion rate determined by dividing the stated value of $1.00 by the
initial conversion price of $0.005 (post stock split $0.07) per share. The
conversion price is subject to certain anti-dilution provisions in the event the
Company issues shares of its common stock or common stock equivalents below the
stated conversion price or pays a stock dividend or otherwise makes a
distribution payable in shares of common stock, with the exception of any shares
issued upon conversion or payment of dividend on this issuance, or other similar
events such as stock splits or common stock reclassifications.  The
holders are entitled to receive a cumulative 12% dividend based on the stated
value of $1.00 per share, payable on the calendar quarter in cash.





Upon any
liquidation, dissolution or winding-up of the Company, the Series B shareholders
shall be entitled to receive out of the assets, whether capital or surplus, of
the Company an amount equal to 100% of the stated value, plus any accrued and
unpaid dividends thereon and any other fees or liquidated damages owing thereon,
for each Series B share before any distribution or payment shall be made to the
holders of any other securities, and if the assets of the Company shall be
insufficient to pay in full such amounts, then the entire assets to be
distributed to the Series B shareholders shall be ratably distributed among the
Series B shareholders in accordance with the respective amounts that would be
payable on such shares if all amounts payable thereon were paid in full. The
liquidation value as of October 31, 2009 was $2,874,623 plus accrued dividends
of $209,058.





12
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GLOBAL
DIVERSIFIED INDUSTRIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION


OCTOBER
31, 2009





NOTE
D – CONVERTIBLE REDEEMABLE PREFERRED STOCK – SERIES B
(Continued)





In
February 2008, the Company issued 2,000,000 Series B shares at $1.00 per share
to accredited investors in a private placement. The Company received $2,000,000
less issuance costs totaling $202,000. Net cash proceeds at April 30, 2008 were
$1,798,000. Additionally, in February 2008, the Company issued 1,484,294 Series
B shares at $1.00 per share in exchange for existing convertible
debentures.





Under the
terms of the Series B Stock Certificate of Designation, the holders have a
right, at any time after the second year anniversary and upon providing written
notice to the Company (a “Put Notice”), to force the Company to redeem all or
part of the shares of Series B Convertible Preferred Stock held by such Holders
at a cash redemption price per share equal to 100% of the then outstanding
Stated Value of the Series B Convertible Preferred Stock, plus all accrued and
unpaid dividend thereon, plus all other amounts, costs, expenses and liquidated
damages due in  respect of the Series B Convertible Preferred Stock
(the “Put Redemption Amount”).





As a
result of this obligation, the Company has determined the Series B shares
includes redemption features that have the potential to be outside the
control of the Company, and accordingly, the Company has classified the Series
B shares outside of shareholders’ equity in accordance with FASB
standards. In accordance with the standard, the fair value allocated to the
Preferred Stock at the date of issuance was recorded outside of common
shareholders’ equity in the accompanying consolidated balance
sheet.





In
connection with the February 22, 2008 issuance of the Series B Preferred Stock,
the Company entered into a registration rights agreement with the purchasers of
the Series B shares, which requires the Company to obtain an effective
registration statement with the SEC covering the sale of the common stock
issuable upon conversion of the Series B shares on or before 150 calendar days.
If the Company is unable to do so, the Company will have to pay liquidated
damages in cash to the holders of the Series B shares.  The amount of
damages that may be due is one and a one-half percent of the stated value of 12%
Preferred Stock per month; provided, however, that in no event shall the
aggregate amount paid exceed nine percent of the stated value. The Company is in
default of this requirement but has obtained a waiver on this provision from the
holders.  In accordance with the FASB standard, no penalty accrual has
been made as management has concluded that none will be payable.  This
treatment is consistent with the guidance in FASB standards.





The
Company, after the effective date of the registration, and with certain market
conditions, can force redemption of the Series B 12% Convertible Preferred
Stock.





In
connection with the Convertible Redeemable Series B Preferred Stock issuance
dated February 22, 2008, the Company entered into a Security Agreement whereby
the holder or holders of the Company’s Series B Convertible Preferred Stock have
a security interest in substantially all of the Company’s tangible and
intangible assets.





As
additional consideration for the purchase of the Series B shares, the Company
granted to the holders of the Series B shares a) warrants entitling it to
purchase 34,842,940 common shares of the Company’s common stock at the price of
$0.07 per share expiring five years from issuance and b) warrants entitling
it to purchase 34,842,940 common shares of the Company at a price of
$0.07 per share expiring seven years from issuance.  The warrants
are covered under the registration rights agreement. As discussed in Note A to
these condensed consolidated financial statements, the Company’s original
accounting for the warrants and the related preferred stock classified the
warrants as liabilities and recorded their estimated fair value at date of issue
to be $7,760,305 using the Black-Scholes formula assuming no dividends, a
risk-free interest rate of 2.81% to 3.26 %, expected volatility of 115.06%, and
expected warrant life of five to seven years.





In
addition, the Company issued to broker/dealers a) warrants entitling it to
purchase 2,000,000 common shares of the Company’s common stock at the price of
$0.07 per share expiring five years from issuance; b) warrants entitling it
to purchase 2,000,000 common shares of the Company at a price of $0.07 per
share expiring five years from issuance and c) warrants entitling it to purchase
2,000,000 common shares of the Company’s common stock at the price of $0.07 per
share expiring seven years from issuance.  The warrants are covered
under the registration rights agreement. The Company estimated the fair value at
date of issue of the stock purchase warrants issued in connection with the
issuance of the Series B preferred stock to be $682,133 using the Black-Scholes
formula assuming no dividends, a risk-free interest rate of 2.81% to 3.26 %,
expected volatility of 115.06%, and expected warrant life of five to seven
years.   These warrants were initially accounted for in the same
manner as the warrants issued to the purchasers of the Series B Preferred
Stock.




After the
accretion of the discount, the Series B Preferred Stock had a carrying value of
$609,671 and $44,624 at October 31, 2009 and April 30, 2009,
respectively.





13
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GLOBAL
DIVERSIFIED INDUSTRIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION


OCTOBER 31, 2009





NOTE
E – CONVERTIBLE REDEEMABLE PREFERRED STOCK – SERIES C





On June
26, 2008 the  Company entered into a an Amended and Restated
Securities Agreement with Babirak Carr, P.C., solely as administrative agent for
Vicis Capital Master Fund ("Vicis"), and the holders of the Company's Series B
Convertible Preferred Stock, pursuant to which the Company issued and sold (a) a
series of its Series C Convertible Preferred Stock having an aggregate original
stated value of $1,750,000 (total of 1,750,000 shares of Series C Preferred
Stock), and (b) its Series 3 Common Stock Purchase Warrants exercisable, in the
aggregate, for 35,000,000 shares of Common Stock.  The total cash paid
to the Company for the Series C Preferred Stock and Series 3 Warrants was
$1,750,000.  The Company paid $75,000 in expenses to Vicis, which
included legal fees of Vicis.





The
Series C Preferred Stock: a) has a stated amount of $1.00 per share; (b) is
convertible at the option of the holder at a price of $.07 per share at any time
into a total of 25,000,000 Series C Preferred Stock; c)  is subject to
redemption in one lump sum payment on the date two years from the date of
issuance, unless earlier converted; d) accrues dividends on any balance
outstanding at an annual rate of twelve percent, due and payable quarterly in
arrears in cash.  Redemption of the outstanding principal and any
accrued but unpaid dividends is guaranteed by the Registrant’s
subsidiaries.  Payment thereof is secured by a blanket lien
encumbering the assets of the Registrant and its subsidiaries subject only to a
lien by State Financial Corporation or other asset-backed lender in an amount
not to exceed $2,000,000.





The
Series 3 Warrants for a total of 35,000,000 shares of Common Stock have an
exercise price of $.10 per share and have a term of 7 years from the date of
issuance.





Under the
terms of the Series C Preferred Stock and the Series 3 Warrants, Vicis may
convert the Series C Preferred Stock and exercise the Series 3 Warrants,
provided that such Conversion and/or exercise do not result in Vicis
beneficially owning more that 4.99% of our outstanding shares of Common Stock
after giving effect to the issuance of shares of Common Stock issuable upon
conversion of the Series C Preferred Stock and/or exercise of the Series 3
Warrants. This limitation may be changed from 4.99% to 9.99% upon not less than
61 days notice to the Company by Vicis.





Midtown
Partners & Co. Inc. acted as Placement Agent for the Company and was paid:
a) a 10% cash commission of $175,000; a Series BD-4 Warrant to purchase
2,500,000 shares of Common Stock at an exercise price of $.07 per share
exercisable for 5 years from the date of issuance; and c) a Series BD-5 Warrant
to purchase 3,500,000 shares of Common Stock at an exercise price of $.10 per
share exercisable for 7 years from the date of issuance.





The
Series 3 Warrants, the Series BD-4 and Series BD-5 Warrants have "cashless
exercise" provisions and certain anti-dilution rights.  The Company
agreed to register the Common Stock underlying the Series C Preferred Stock, the
Series 3 Warrants, the Series BD-4 Warrants and the Series BD-5 Warrants
pursuant to a Registration Rights Agreement.





The
issuance of the Series C Preferred Stock, the Series 3 Warrants, the Series BD-4
Warrants and the issuance of the Series BD-5 Warrants were exempt from the
registration requirements of the Securities Act of 1933, as amended, pursuant to
Section 4(2) of the Act for transactions not involving a public offering and
Rule 506 of Regulation D.





The
Company used the same basis of accounting to record the Series C Preferred Stock
and each of the warrant series issued therewith as it used when it corrected the
accounting for the Series B Preferred and related warrants as disclosed in Note
A. The relative fair values of the preferred and the warrants were apportioned
and then the effective beneficial conversion feature of the relative fair value
of the preferred was calculated. The initial step of the calculation was the
determination of the Black-Scholes value assuming no dividends, a risk-free
interest rate of 3.50% to 3.74 %, expected volatility of 233.64%, and expected
warrant life of five or seven years.  The relative fair values derived
were as follows: Series C Preferred: $563,939; Series C Warrants: $1,012,835;
Broker Warrants: $173,226.  The effective beneficial conversion
feature was $1,186,061, which was limited to the remaining undiscounted value of
the preferred of $563,939.  Accordingly the initial carrying value of
the preferred was zero. Accretion of the discount amounted to $67,405 and $5,860
at October 31, 2009 and April 30, 2009 respectively, which is the carrying value
at each date, respectively.





NOTE
F – CONVERTIBLE REDEEMABLE PREFERRED STOCK – SERIES D





On July
26, 2009 Global Diversified Industries, Inc. (the  "Company") entered
into a Securities Purchase Agreement with Vicis Capital Master Fund ("Vicis"),
and the holders of the Company's Series B Convertible Preferred Stock and Series
C Convertible Preferred Stock, pursuant to which the Company issued and sold (a)
a series of its Series D Convertible Preferred Stock (the “Series D Preferred
Stock”) having an aggregate original stated value of $1,946,512 (total of
1,946,512 shares of Series D Preferred Stock), (b) its Series 5 Common Stock
Purchase Warrants exercisable, in the aggregate, for 28,837,209 shares of Common
Stock (individually, a “Series 5 Warrant” and collectively, the “Series 5
Warrants”).  The total cash paid for the Series D Preferred Stock and
Series 5 Warrants was $1,335,447 plus a receivable of $73,000.





On
September 4, 2009, the Company returned $600,000 to Vicis Capital Master Fund
which was held in escrow as a part of the  funding from Vicis Capital
Master Fund on July 23, 2009.  These funds were held in an escrow
account for the purpose of the Company purchasing an ownership interest in
another company.  The Company made the decision to not purchase the
ownership interest in the company and returned the funds pursuant to a Letter of
Agreement dated July 23, 2009.  Pursuant to the terms of the Letter of
Agreement, Midtown agreed to refund the Company $48,000 of the cash commissions
that it previously received in connection with the July 23, 2009
financing.  In addition, the law firm preparing the documents for the
July 23, 2009, agreed to release the remaining funds held in the escrow account
of $25,000 to the Company.







14
 Table of Contents




GLOBAL
DIVERSIFIED INDUSTRIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL INFORMATION


OCTOBER
31, 2009





NOTE
F – CONVERTIBLE REDEEMABLE PREFERRED STOCK – SERIES D
(Continued)





The
Conversion Price of the Series D Preferred Stock and the Exercise Price of the
Series 5 Warrants shall be subject to adjustment for issuances of equity or
equity linked financing at a purchase price of less than the Conversion Price or
Exercise Price, such that the conversion price or exercise price shall be
adjusted using full ratchet price based price protection on such new issuances
subject to customary adjustments such that the Conversion Price of the Preferred
Stock and the Exercise Price of the Series D Warrants shall be fully adjusted
down to that future common stock or conversion price as price-based
anti-dilution.  The Series B and Series C Preferred Stock and
related warrants will be adjusted to $0.04 per share.





The
Series D Preferred Stock: a) has a stated amount of $1.00 per share; is
convertible at the option of the holder at a price of $.04 per share at any time
(total of 48,662,791 shares of common stock); b)  is subject to
redemption in one lump sum payment (the “Redemption Amount”) on the date two
years from the date of issuance, unless earlier converted.  Payment of
the Redemption Amount is guaranteed by the Registrant’s
subsidiaries.  Payment of the Redemption Amount is secured by a
blanket lien encumbering the assets of the Registrant.





The
Series 5 Warrants have an exercise price of $.04 per share (total of 28,837,209
shares of Common Stock and have a term of 7 years from the date of
issuance.





Under the
terms of the Series D Preferred Stock and the Series 5 Warrants, Vicis may
convert the Series D Preferred Stock and exercise the Series 5
Warrants, provided that such Conversion and/or exercise do not result in
Vicis beneficially owning more that 4.99% of our outstanding shares of Common
Stock after giving effect to the issuance of shares of Common Stock issuable
upon conversion of the Series D Preferred Stock and/or exercise of the Series 5
Warrants. This limitation may be changed from 4.99% to 9.99% upon not less than
61 days notice to the Company by Vicis.





The
Company paid $27,701 in expenses to Vicis, which included legal fees of
Vicis.





Midtown
Partners & Co. Inc. acted as Placement Agent for the Company and was paid:
a) a 8% commission ($124,000), b) Series BD-7 Warrant to purchase 2,883,721
shares of Common Stock at an exercise price of $.04 per share exercisable for 7
years from the date of issuance and c) Series BD-8 Warrant to purchase 4,000,000
shares of Common Stock at an exercise price of $.0.04 per share exercisable for
7 years from the date of issuance.





The
Series 5 Warrants, Series BD-7 and Series BD8 Warrants have "cashless exercise"
provisions and certain anti-dilution rights.





The
issuance of the Series D Preferred Stock, the Series 5 Warrants,  the
Series BD-7 and Series BD-8 Warrants were exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
of the Act for transactions not involving a public offering and Rule 506
promulgated by the United States Securities and Exchange Commission under the
Securities Act of 1933.





NOTE
G- ACQUISITION OF INTANGIBLE ASSETS





The trade
name acquired is considered to have an undeterminable life, and as such will not
be amortized. Instead, the trade name is tested annually for impairment, with
any impairment charged against earnings in the Company’s consolidated statement
of earnings. An independent appraiser assessed the value of the trade name
acquired and determined that the fair value of the trade name exceeded its
recorded book value at April 30, 2009. The building engineering and
architectural plans acquired have estimated useful lives of ten
years.





The
Company has adopted  the FASB standard whereby the
Company  periodically test its intangible assets for
impairment.  On an annual basis, and when there is reason to suspect
that their values have been diminished or impaired, these assets are tested for
impairment,  and write-downs will be included in results from
operations.  There was no impairment of acquired intangibles as of
October 31, 2009.





Total
identifiable intangible assets acquired and their carrying values at October 31,
2009 are:





Gross
      Carrying Amount
            
            
            Accumulated
      Amortization
            
            
            Net
            
            
            Residual
      Value
            
            Weighted
      Average
              Amortization
              Period
      (Years)Amortized
      Identifiable Intangible Assets:Building
      engineering and architectural plans
            
            $
            988,744
            
            
            $
            (423,998
            )
            
            $
            564,746
            
            
            $
            -
            
            10.0Total
      Amortized Identifiable Intangible Assets
            
            
            988,744
            
            
            
            (423,998
            )
            
            
            564,746
            
            
            
            -
            
            10.0Unamortized
      Identifiable Intangible Assets:Trade
      Name
            
            
            350,000
            
            
            
            -
            
            
            
            350,000
            
            
            
            350,000
            
            -Total
      Amortized Identifiable Intangible Assets
            
            
            350,000
            
            
            
            -
            
            
            
            350,000
            
            
            
            350,000
            
            -Total
            
            $
            1,338,744
            
            
            $
            (423,998
            )
            
            $
            914,746
            
            
            $
            350,000
            
            10.0








15
 Table of Contents





GLOBAL
DIVERSIFIED INDUSTRIES, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2009





NOTE
G- ACQUISITION OF INTANGIBLE ASSETS – (Continued)





Total
amortization expense charged to operations for the six months period ended
October 31, 2009 and 2008 were $48,718 and $72,063, respectively.  
Estimated amortization expense as of October 31, 2009 is as
follows:





2010
            
            $
            97,4362011
            
            
            97,4362012
            
            
            97,4362013
            
            
            97,4362014
      and after
            
            
            175,002Total
            
            $
            564,746








16
 Table of Contents





GLOBAL
DIVERSIFIED INDUSTRIES, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2009





NOTE
H – GUARANTEE FEE AGREEMENT





On July
29, 2008, the Company entered into a Guarantee Fee, Indemnification, and
Security Agreement with two individuals,  collectively, the
“Guarantors” pursuant to which in consideration for the continuing guarantee by
the Guarantors of various surety bonds issued to the Company, the Company: a)
issued a "Blanket-Lien", in favor of the Guarantors, on all of the Company's and
the Company's subsidiaries' assets, b) issued the Guarantors warrants to
purchase 26,950,000 and 8,050,000 shares, respectively,   of the
Company’s common stock, all at an exercise price of $.10 per share, exercisable
for the seven year period from the date of issuance.  The warrants
have certain anti-dilution rights.





The
warrants have an aggregate fair value of $273,288, as determined by the
multinomial lattice formula assuming no dividends, the stock would have no
growth with an annual volatility of 80%, reset events projected to occur 10% of
the time at $0.07 generating an adjusted warrant exercise price of $0.097 and
expected warrant life of seven years.  The agreement has been modified
to specify a minimum term of five years.  Since the warrant holders
have agreed to forfeit the percentage of warrants unearned should they not
fulfill their five year guaranty, the Company is recognizing the related expense
proportionately over five years. For six months ended October 31, 2009, the
Company recorded expense of $27,330 with an equivalent offset to additional
paid-in capital.





The
issuance of the above warrants were exempt from the registration requirements of
the Securities Act of 1933, as amended, pursuant to Section 4(2) of the Act for
transactions not involving a public offering and Rule 506 promulgated by the
United States Securities and Exchange Commission under the Securities Act of
1933.





NOTE I
– NON-EMPLOYEE STOCK OPTIONS AND WARRANTS





Non-Compensatory Stock
Options





Transactions
involving options are summarized as follows:





Number
      of Shares
            
            
            Weighted
      Average Price
              Per
      ShareOutstanding
      at April 30, 2008
            
            
            -
            
            
            $
            -Outstanding
      at April 30, 2009
            
            
            68,168,164
            
            
            $
            0.05Outstanding
      at October 31, 2009
            
            
            68,168,164
            
            
            $
            $0.05





During
the quarter ended January 31, 2009, the Company granted a stock option to the
CEO of the Company to purchase all or any part of an aggregate of 68,168,164
shares. The exercise price for each share is $0.05 with a maximum option term of
seven years. The option shall vest and become exercisable upon the satisfaction
in full (inclusive of all principal, interest and penalties) of the six million
loan made to the Company by Debt Opportunity Fund, LLP. The Company accounted
for the options as contingent, since the holder does not earn the right to the
award until the Debt Opp. Fund, LLP is repaid in full.  All other
previously granted stock options were fully vested at the time the stock options
were granted. Accordingly, no compensation costs were charged to operations
during the quarters ended October 31, 2009 and 2008. All previously granted
stock options expired as of April 30, 2007.





Non-Compensatory
Warrants





The
following table summarizes the changes in non-compensatory warrants outstanding
and the related prices for the shares of the Company’s common stock issued to
non-employees of the Company.





Warrants
      Outstanding
            
            
            Warrants
      ExercisableExercise
      Prices
            
            
            Number
      Outstanding
            
            
            Weighted
      Average Remaining Contractual Life (Years)
            
            
            Weighed
      Average Exercise Price
            
            
            Number
      Exercisable
            
            
            Weighted
      Average Exercise Price$
            0.04
            
            
            38,842,940
            
            
            
            3.33
            
            
            $
            0.04
            
            
            38,842,940
            
            
            $
            0.04$
            0.04
            
            
            36,842,940
            
            
            
            5.33
            
            
            $
            0.04
            
            
            36,842,940
            
            
            $
            0.04$
            0.04
            
            
            2,500,000
            
            
            
            3.75
            
            
            $
            0.04
            
            
            2,500,000
            
            
            $
            0.04$
            0.04
            
            
            73,500,000
            
            
            
            5.75
            
            
            $
            0.04
            
            
            73,500,000
            
            
            $
            0.04$
            0.04
            
            
            74,984,980
            
            
            
            6.17
            
            
            $
            0.04
            
            
            74,984,980
            
            
            $
            0.04$
            0.04
            
            
            36,587,209
            
            
            
            6.67
            
            
            $
            0.04
            
            
            36,587,209
            
            
            $
            0.04Total
            
            
            263,258,069
            
            
            
            
            
            
            $
            0.04
            
            
            263,258,069
            
            
            $
            0.04








17
 Table of Contents





GLOBAL
DIVERSIFIED INDUSTRIES, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2009





NOTE I
– NON-EMPLOYEE STOCK OPTIONS AND WARRANTS (Continued)





Transactions
involving warrants are summarized as follows:





Number
      of Shares
            
            
            Weighted
      Average Price
              Per
      ShareOutstanding
      at April 30, 2008
            
            
            75,685,880
            
            
            $
            0.04Granted
            
            
            150,984,980
            
            
            
            0.04Exercised
            
            
            -
            
            
            
            -Canceled
      or expiredOutstanding
      at April 30, 2009
            
            
            226,670,860
            
            
            $
            0.08Granted
            
            
            36,587,209
            
            
            $
            0.04Exercised
            
            
            -Canceled
      or expired
            
            
            -Outstanding
      at July 31, 2009
            
            
            263,258,069
            
            
            $
            0.04Granted
            
            
            -Exercised
            
            
            -Canceled
      or expired
            
            
            -Outstanding
      at October 31, 2009
            
            
            263,258,069
            
            
            $
            0.04





The
Company granted 750,000 warrants during the year ended April 30, 2003 in
connection with acquisition of MBS in February 2003.  The warrants
granted have an original expiration date on January 31, 2004, 750,000 of the
warrants were extended to and expired on July 31, 2006, and the remaining
750,000 warrants were extended to January 31, 2008.  These warrants
have expired.





The
Company granted 75,685,880 warrants during the year ended April 30, 2008 and
granted 76,000,000 in June 2008 in with two funding by Vicis Capital Master
Funds.  Of the 75,685,880 warrants granted during the year ended April
30, 2008, 40,842,940 will expire on February 21, 2013 and the remaining
34,842,940 warrants expire on February 21, 2015. The 41,000,000 warrants granted
in June 24, 2008 and the 35,000,000 warrants granted in July 27, 2008 will
expire on June 25, 2015 and July 28, 2015 respectively.





The
Company granted 74,984,980 warrants in December 2008 in connection the issuance
of a promissory note by Debt Opportunity Fund LLP.  The warrants
granted will expire on December 11, 2015.





The
Company granted 36,587,209 warrants in July 23, 2009 in connection with a
funding by Vicis Capital Master Fund.  The warrants granted will
expire on July 23, 2016.





In
September 2001, the Board of Directors of the Company implemented an Employee
Stock Incentive Plan (“2001 Stock Option Plan”) for officers, employees and
certain non-employees (collectively referred to as "Employees") in an amount
equal to 15,000,000 shares of common stock. The 2001 Stock Option Plan provides
for the issuance of stock options exercisable at fifty percent (50%) of the fair
market value of the common stock on the date of exercise. For an employee
holding greater than ten percent (10%) of the total voting power of all stock of
the Company, the exercise price of an incentive stock option shall be at least
one hundred and ten percent (110%) of the fair market value of the common stock
on the date of the grant of the option. The maximum life of the options is ten
years from the date the stock options are granted.





In
February 2004, the Board of Directors of the Company implemented another
Employee Stock Incentive Plan (“2004 Stock Option Plan”) for officers, employees
and certain non-employees (collectively referred to as "Employees") in an amount
equal to 2,000,000 shares of common stock. The 2004 Stock Option Plan provides
for the issuance of stock options at an exercise price of $0.05 per share (or
110% of the fair market value of the common stock on the date of the grant of
the option, for employees holding greater than ten percent (10%) of the total
voting power of all stock of the Company). The maximum life of the options is
ten years from the date the stock options are granted.





During
the year ended April 30, 2005, the Company granted an aggregate of 986,840
options to Employees pursuant to 2001 Stock Option Plan, and all options were
exercised on the grant date (Note J). There are no employee stock options
pursuant to the 2001 Stock Option Plan outstanding at October 31,
2009.





18
 Table of Contents




GLOBAL
DIVERSIFIED INDUSTRIES, INC.


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS


OCTOBER
31, 2009





NOTE J
– DEFERRED FINANCING COST





On
December 19, 2008, the Company issued 6,816,816 warrants with an exercise price
of $0.05 per share by December 11, 2015, as part of the fees to secure a
$6,000,000 funding through the issuance of a promissory note.  Using
the effective interest method, the deferred financing cost was $59,538 as of
December 31, 2008 and is being amortized to interest expense.  As of
October 31, 2009, the total non-cash interest charged to operations amount to
$4,415 and $0 for the period year ended October 31, 2009 and 2008
respectively.  The aggregate fair value of the warrants was determined
with the assistance of a valuations consultant using the multinomial lattice
formula assuming no dividends, the stock would have no growth with an annual
volatility of 80%, reset events projected to occur 5% of the time at $0.04
generating an adjusted warrant exercise price of $0.0495.





Prepaid
financing expenses relating to issuance of Series B Preferred Stock, Series C
Preferred Stock, Series D Preferred Stock and the Promissory Note for $6,000,000
totaled $1,396,758 of which $168,442 and $100,092 had been amortized as of
October 31, 2009 and April 30, 2009, respectively.  The remaining net
deferred financing costs per the balance sheet at October 31, 2009 was $50,983,
which was for the December 2008 funding and $963,810 for the Series B
Preferred Stock, Series C and Series D Preferred Stock funding.  For
deferred financing costs, the Company amortizes the amount using the straight
line method. Since the term is only two years, the difference from using the
effective interest method is immaterial.  The fees were paid for
legal, placement agent, due diligence and financial consultants
fees.





NOTE K
– EARNINGS PER SHARE





The
following shares of common stock were  not included in the calculation
of weighted-average fully-diluted shares outstanding or fully-diluted earnings
per share for the six month ended October 31, 2009 because the exercise or
conversion prices of the securities were in excess of the average closing market
price of the Company’s common stock for the period of $0.0375:





For
      the exercise of warrants t $0.04 per share
            
            
            36,587,209For
      the exercise of warrants at $0.05 per share
            
            
            74,984,980For
      the exercise of warrants at $0.10 per share
            
            
            78,000,000For
      the exercise of warrants at $0.20 per share
            
            
            36,842,940For
      the exercise of warrants at $0.40 per share
            
            
            36,842,940For
      the exercise of stock options at $0.05 per share
            
            
            68,168,164For
      the conversion of Series B preferred stock at $0.10 per
    share
            
            
            49,775,629For
      the conversion of Series C preferred stock at $0.07 per
    share
            
            
            25,000,000For
      the conversion of Series C preferred stock at $1.00 per
    share
            
            
            156,653Total
      shares issuable
            
            
            406,358,515





The
Company did not present fully-diluted shares outstanding or earnings per share
for the three months ended October 31, 2008 because the effect would have been
anti-dilutive.




NOTE L – SUBSEQUENT
EVENTS





On
November 18, 2009 Global Diversified Industries, Inc. (the  "Company")
entered into a Securities Purchase Agreement with Vicis Capital Master Fund
("Vicis"), and the holders of the Company's Series B Convertible Preferred
Stock, Series C Convertible Preferred Stock and Series D Convertible Preferred
Stock, pursuant to which the Company issued additional shares of Series D
Convertible Preferred Stock and sold (a) additional shares of its Series D
Convertible Preferred Stock (the “Series D Preferred Stock”) having an aggregate
original stated value of $1,550,000 (total of 1,550,000 shares of Series D
Preferred Stock), (b) its Series 5 Common Stock Purchase Warrants exercisable,
in the aggregate, for 25,000,000 shares of Common Stock (individually, a “Series
5 Warrant” and collectively, the “Series 5 Warrants”).  The total cash
paid for the Series D Preferred Stock and Series 5 Warrants was $1,250,000 with
$500,000 being deposited into an escrow account for guaranteeing performance of
one or more manufacturing contracts.





The
Company paid $15,000 in expenses to Vicis, which included legal fees of
Vicis.





Midtown
Partners & Co. Inc. acted as Placement Agent for the Company and was paid:
a) a 8% commission ($100,000), b) Series BD-9 Warrant to purchase 3,875,000
shares of Common Stock at an exercise price of $.04 per share exercisable for 7
years from the date of issuance and c) Series BD-10 Warrant to purchase
2,500,000 shares of Common Stock at an exercise price of $.0.04 per share
exercisable for 7 years from the date of issuance.





The
Series 5 Warrants, Series BD-9 and Series BD-10 Warrants have an exercise price
of $.04 per share with "cashless exercise" provisions and certain anti-dilution
rights.





The
issuance of the Series D Preferred Stock, the Series 5 Warrants, the Series
BD-9 and Series BD-10 Warrants were exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
of the Act for transactions not involving a public offering and Rule 506
promulgated by the United States Securities and Exchange Commission under the
Securities Act of 1933.





On
November 20, 2009, Phillip Hamilton, Chief Executive Officer of Global
Diversified Industries, Inc. purchased  (a) all shares of Common Stock
(b) all shares of Preferred Series D Stock (c) all Preferred Series D Stock
Warrants and (d) 18,950,000 Series 3 Warrants owned by Rebecca
Manandic.





As of
November 20, 2009, Phillip Hamilton owns 21% percent of the Company’s stock on a
fully diluted basis.





Subsequent
events were evaluated through the date this report was filed.




19
 Table of Contents





ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED OCTOBER 31, 2009





This
report on Form 10-Q contains forward-looking statements within the meaning of
Rule 175 of the Securities Act of 1933, as amended, and Rule 3b-6 of the
Securities Act of 1934, as amended, that involve substantial risks and
uncertainties. These forward-looking statements are not historical facts, but
rather are based on current expectations, estimates and projections about our
industry, our beliefs and our assumptions. Words such as "anticipate",
"expects", "intends", "plans", "believes", "seeks" and "estimates" and
variations of these words and similar expressions are intended to identify
forward-looking statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties and other factors, some of
which are beyond our control and difficult to predict and could cause actual
results to differ materially from those expressed or forecasted in the
forward-looking statements. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this Form 10-Q.
Investors should carefully consider all of such risks before making an
investment decision with respect to the Company's stock. The following
discussion and analysis should be read in conjunction with our financial
statements and summary of selected financial data for Global Diversified
Industries, Inc. Such discussion represents only the best present assessment
from our Management.





Introduction





The
Company is a Nevada company with a limited operating history. On December 11,
2001, Global Diversified Industries, Inc., formerly Global Foods Online, Inc.
(the "Company") acquired two wholly-owned subsidiaries, Majestic Modular
Buildings, Ltd. ("Modular"), and, Lutrex Enterprises, Inc. "Lutrex", an entity
controlled by the Company's President and Chief Executive Officer.





Modular
was engaged in the business of designing, manufacturing and marketing
re-locatable modular structures such as classrooms and office buildings and was
under contract to build multiple single story classrooms for two school
districts in southern California.





The
Company is a holding company for two wholly owned subsidiaries, Lutrex
Enterprises, Inc., an entity, which holds equipment and inventory for the
registrant, and Global Modular, Inc., a sales, marketing, manufacturing and
construction site work of modular type structures.





Overview





The
Company's subsidiary, Global Modular, Inc. ("Global Modular") is in the business
of designing, manufacturing and marketing pre-fabricated, modular type
structures. Global Modular's 100,000 square foot factory is located on sixteen
acres adjacent to the municipal airport at Chowchilla, California. The
manufacturing facility has the capacity to produce approximately $50,000,000 of
revenue per year. Its principal customer base during the current fiscal year
will be educational (public and private schools, universities, etc.), child-care
and municipality sectors. Its product lines consist of a variety of relocatable
(portable) classroom designs, and designs used specifically for permanent
modular construction, i.e., complete schools, wing additions, etc. Global
Modular's capabilities include single-story "slab-on-grade" construction, where
a concrete slab is poured on site, which also serves as the floor. The
structures are built in our factory and shipped to the site for installation on
the concrete slab. The modular division has recently secured rights to
state-of-the-art two-story designs recently owned by Aurora Modular Industries,
Inc. All of Global Modulars' portable/modular structures are engineered and
constructed in accordance with pre-approved building plans, commonly referred to
as "P.C.'s" or "pre-checked" plans that conform to structural and seismic safety
specifications administered by the California Department of State Architects
(DSA). The DSA regulates all California school construction on public real
estate and the DSA's standards are considered to be more rigorous than the
standards that typically regulate other classes of commercial portable
structures.





In the
quarter ending October 31, 2006, Global Modular was awarded a five year contract
with Victor Valley School District that contained a "piggyback clause.
This allows Global Modular to provide educational customers with product
contracted under a "piggyback clause". The State of California allows school
districts to canvass proposals from modular classroom vendors under a bidding
process where the successful bidder can provide other public school districts
and municipalities portable classrooms under a "piggyback contract" issued by
the originating school district. This process saves school districts valuable
time and resources from the necessity of soliciting bids. A modular vendor who
possesses a "piggybackable contract" containing competitive pricing and a
variety of design options may have access to future business for up to five
years, depending on the term of the piggyback contract. This piggyback contract
includes all appropriate pricing parameters pertinent to Global's "permanent
modular construction" designs. Global Modulars' new piggyback contract provides
them the flexibility to offer California public schools and municipalities an
expanded variety of design and pricing alternatives to meet virtually any design
request by the school district and/or architect.





Among
Global Modular’s asset base is its integrated, state-of-the-art, automated
manufacturing process which includes equipment, raw material and marketing
collateral that are specifically designed for the high capacity fabrication of
modular structures. Future revenue generation and growth partially depends on
the success of marketing efforts to the educational sector for single-story and
two-story designs.





The
Company’s subsidiary Global Modular, Inc. has secured necessary architectural
and engineering approvals from the State of California (Division of the State
Architect) for their single story and two-story designs. The two-story design is
desirable by school districts since individual two-story buildings can be
installed side-by-side to form a cluster of buildings, occupying hundreds of
students. The two-story design is fully equipped with easy access to the second
story by stairs and balcony along with a hydraulic elevator to accommodate
handicap students, teachers and visitors. School districts continue to turn to
two-story portable classrooms to satisfy their space dilemma since they have
little real estate to surrender. Since the recent acquisition of Aurora Modular
Industries intellectual property; the promotion of single-story slab-on-grade
and two-story designs will be the main focus of our sales team during the next
several years. Global Modular now possesses adequate DSA approved designs that
can meet virtually any type configuration and aesthetic alternatives a school
district may desire.





20
 Table of Contents




During
the remainder of 2009, the Global Modular will continue to focus its attention
on the sales and marketing of portable classrooms and modular buildings to the
California public and private school sectors including California
municipalities. Since the state of California has been experiencing an influx in
student enrollment over the past several years, and the forecast for the next
ten years is for continual increasing enrollments, the portable classroom
manufacturing industry has become more successful. In an effort to keep up with
demand for additional classroom space, modular manufactures are expecting
increased production backlogs throughout the remainder of 2009 and into
2010.





The
following Management Discussion and Analysis should be read in conjunction with
the financial statements and accompanying notes included in this Form
10-Q.





Effect of Related
Prospective Accounting Pronouncement





On May 1,
2009, we adopted FASB standards which provides that an entity should use a
two-step approach to evaluate whether an equity-linked financial instrument (or
embedded feature) is indexed to its own stock, including evaluating the
instrument's contingent exercise and settlement provisions.   The
adoption of the standard has affected the accounting for certain freestanding
warrants and preferred stock that contain exercise price adjustment features
(“down round provisions”).  Our preferred stock and warrants with such
provisions are no longer deemed to be indexed to the company’s own stock and are
no longer classified in equity.  Instead, these were reclassified as
derivative liability on May 1, 2009 as a result of this
standard..  The fair value of the derivative liability as of May 1,
2009 was approximately $5,625,933 and was recorded as a cumulative
adjustment to retained earnings. See Note A, Derivative Instruments and Fair
Value of Financial Instruments.





See
Critical Accounting Policies, Notes D, E and F to the condensed consolidated
financial statements for a further discussion of the Series B, C and D Preferred
as well as Part II, Item 2 this Form 10-Q





COMPARISON
OF THE THREE MONTHS ENDED OCTOBER 31, 2009 TO THE THREE MONTHS ENDED
OCTOBER 31, 2008





The
Company’s total revenues were $193,366 for the quarter ended October 31, 2009
compared to $1,668,294 for the same time period in 2008, a decrease of
$1,474,928.  The Company reduced  production to a minimum
level during quarter ended October 31, 2009.  Management made the
decision to focus on dismantling and transporting the equipment and raw
materials purchased from one of the largest modular manufacturers in the country
back to the Company’s Chowchilla plant.





The
Company had a negative gross profit of $490,216 for the quarter ended October
31, 2009 and a gross profit of $573,689 for the quarter ended October 31,
2008.  There was no new production for the quarter ended October 31,
2009.  As part of agreement with the bankrupt company that sold Global
the majority of its assets, Global took over some of their projects and
experienced cost overruns on a couple of their projects that were
underbid.





Total
operating expenses were $1,062,202 for the three months ended October 31, 2009
compared to $589,921 for the same time period in 2008.  The Company’s
legal and professional fees increased $173,253 for the quarter ended October 31,
2009 as compared to the quarter ended October 31, 2008.  This increase
was the result of legal and professional fees incurred for the four fundings
received by the Company.   Due to the Company’s acquisitions the
depreciation expense increased by $56,076 when comparing the second quarter of
2009 and 2008. Also, the Company’s interest expense increased by $202,102
due to the debt service on the long term promissory note executed in December
2008, when comparing the second quarter of 2009 and 2008.  The Company
realized a reduction of $1,354,592 in the change in the fair value of the
derivatives for the quarter ended October 31, 2009 as compared to the quarter
ended October 31, 2008.





COMPARISON
OF THE SIX MONTHS ENDED OCTOBER 31, 2009 TO THE SIX MONTHS ENDED OCTOBER 31,
2008





Total
revenues from continuing operations decreased to $205,807 for the six months
ended of October 31, 2009 from $2,167,355 for the six months ended October 31,
2008. The Company reduced production operations to a minimal amount during the
six months ended October 31, 2009 and focused on relocating the equipment
acquired in sale of a major competitor with out of state location to their plant
in Chowchilla, CA.





Cost of
goods sold from continuing operations was $1,085,651 and $1,422,062,
respectively for the six months ended October 31, 2009 and 2008. The Company
focused on closing out all of the projects in the field and incurred losses on
two projects.





Total
operating expenses increased to $1,655,751 in the six months ended October 31,
2009 from $1,177,382 in the six months ended October 31, 2008. The operating
expenses increased due to legal fees and professional fees by $278,097 comparing
the six months ended October 31, 2009 and October 31, 2008, which was attributed
to the professional consulting fees incurred in securing funding from Vicis
Capital Master Fund.  The Company also had an increase of $38,250 in
travel costs and an increase of $104,540 in depreciation for the six months
ending October 31, 2009 as compared to the six months ended October 31,
2008.  Also, the Company interest expense increased $388,907 for the
six months ended October 31, 2009 as compared to the six months ended October
31, 2008, due to debt service on the six million long term promissory note
executed in December 2008.





The
Company realized a reduction of $3,646,532 in Change in fair value of
derivatives for the six months ended October 31, 2009 as compared to the six
months ended October 31, 2008.





Liquidity and Capital
Resources





As of
October 31, 2009, the Company had a working capital surplus of $1,507,227. The
net profit for the six months ended October 31, 2009 was $611,965. The Company
generated a negative cash flow from operations of $1,045,412 for the six-month
period ended October 31, 2009. The negative cash flow from operating activities
for the period is primarily attributable to the Company's net profit from
continuing operations of $611,965 adjusted for depreciation and amortization of
$277,923, amortization of debt discount of $50,936, a decrease in the fair value
of derivatives of $3,646,532, a decrease in accounts receivable of
$1,146,635, an increase in inventory of $310,534, a decrease in other assets of
$145,507 and an increase in accounts payable of $337,727.





21
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Cash
flows used in investing activities for the six-month period ended October 31,
2009 consisted of the acquisition of $38,836 of architectural plans used in
operations and $306,039 for equipment.





The
Company funded operations during the six months ended October 31, 2009 from
proceeds from the sale of Series D Preferred Stock for $1,335,477. The Company
paid preferred stock dividends of $31,255 to the preferred stockholders and
reduced notes payable by $28,044.





As a
result of limited capital resources and revenues from operations, the Company
has relied on the issuance of equity securities to non-employees in exchange for
services. The Company's management enters into equity compensation agreements
with non-employees if it is in the best interest of the Company under terms and
conditions consistent with the requirements of FASB standards In order to
conserve its limited operating capital resources, the Company anticipates
continuing to compensate non-employees for services during the next twelve
months. This policy may have a material effect on the Company's results of
operations during the next twelve months.





While the
Company has raised capital to meet its working capital and financing needs in
the past, additional financing is required in order to meet the Company's
current and projected cash flow needs for operations and development. The
Company is presently seeking financing in the form of debt or equity in order to
provide the necessary working capital. Such financing may be upon terms that are
dilutive or potentially dilutive to our stockholders. The Company currently has
no commitments for financing. There are no assurances the Company will be
successful in raising the funds required.





By
adjusting its operations and development to the level of capitalization,
management believes it has sufficient capital resources to meet projected cash
flow needs through the next twelve months. However, if thereafter, we are not
successful in generating sufficient liquidity from operations or in raising
sufficient capital resources, on terms acceptable to us, this could have a
material adverse effect on our business, results of operations, liquidity and
financial condition.





The
effect of inflation on the Company's revenue and operating results was not
significant. The Company's operations are located in North America and there are
no seasonal aspects that would have a material effect on the Company's financial
condition or results of operations.





Inflation





The
effect of inflation on the Company's revenue and operating results was not
significant.





Off-Balance Sheet
Arrangements





The
Company does not maintain off-balance sheet arrangements nor does it participate
in non-exchange traded contracts requiring fair value accounting
treatment.





Critical Accounting
Policies





The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
judgments that affect our reported assets, liabilities, revenues, and expenses,
and the disclosure of contingent assets and liabilities. We base our estimates
and judgments on historical experience and on various other assumptions we
believe to be reasonable under the circumstances. Future events, however, may
differ markedly from our current expectations and assumptions. While there are a
number of significant accounting policies affecting our consolidated financial
statements; we believe the following critical accounting policies involve the
most complex, difficult and subjective estimates and judgments:





·
            Revenue
      Recognition·
            Hybrid
      equity instruments·
            Derivative
      instruments and fair value of financial instruments·
            Warrants
      issued for certain services·
            Inventories





Revenue
Recognition





The
Company recognizes revenue when persuasive evidence of an arrangement exists,
the price to the customer is fixed, collectibility is reasonably assured and
title and risk of ownership is passed to the customer, which is usually upon
delivery.  However, in limited circumstances, certain customers
traditionally have requested to take title and risk of ownership prior to
shipment.  Revenue for these transactions is recognized only
when:





(1) Title
and risk of ownership have passed to the customer;


(2) The
Company has obtained a written fixed purchase commitment;


(3) The
customer has requested in writing the transaction be on a bill and hold
basis;


(4) The
customer has provided a delivery schedule;


(5) All
performance obligations related to the sale have been completed;


(6) The
modular unit has been processed to the customer’s specifications, accepted by
the customer and made ready for shipment; and


(7) The
modular unit is segregated and is not available to fill other
orders.





22
 Table of Contents





In the
event that the Company’s arrangements with its customers include more than one
product or service, the Company determines whether the individual revenue
elements can be recognized separately in accordance with FASB
standards.





In fiscal
years 2007, 2008, 2009 and 2010, the Company entered into several fixed-price
arrangements whereby the Company is to construct and install several modular
units for customers. Revenue from these construction-type fixed-price contracts
is recognized in accordance with FASB standards, on the basis of the estimated
percentage of completion.





Under the
percentage-of-completion method, progress toward completion is measured by the
ratio of costs incurred to total estimated costs. Revenue and gross profit may
be adjusted prospectively for revisions in estimated total contract costs. If
the current estimates of total contract revenue and contract cost indicate a
loss, a provision for the entire loss on the contract is recorded in the period
in which it becomes evident. The total estimated loss includes all costs
allocable to the specific contract. Each construction contract is reviewed
individually to determine the appropriate basis of recognizing revenue.
Revisions to the estimates at completion are reflected in results of operations
as a change in accounting estimate in the period in which the facts that give
rise to the revision become known by management.





Hybrid Equity
Instruments





Redeemable
convertible preferred stock issued with common stock purchase warrants present
one of the most difficult areas in today’s accounting environment. The
correct treatment of these instruments requires careful analysis and the choice
and application of the proper rules encompassed by several accounting
pronouncements as discussed in the above-referenced notes.  Moreover
these accounting rules continue to evolve





Derivative Instruments and
Fair Value of Financial Instruments





Derivative
Instruments





We have
evaluated the application of FASB standards to certain freestanding warrants and
preferred stock that contain exercise price adjustment features known as down
round provisions.  Based on the guidance in these standards, we have
concluded these instruments are required to be accounted for as derivatives
effective May 1, 2009.





We have
recorded the fair value of the warrants and preferred stock that are classified
as derivative liabilities in our balance sheet at fair value with changes in the
value of these derivatives reflected in the consolidated statements of
operations as gain or loss on derivative liabilities.  These
derivative instruments are not designated as hedging instruments under the
standard.





Lattice
Valuation Model





Beginning
in the quarter ended October 31, 208, we  have valued the freestanding
warrants and the conversion features in the preferred stock that contain down
round provisions using a lattice model, with the assistance of a valuation
consultant, for which management understands the methodologies. This model
incorporates transaction details such as the company’s stock price, contractual
terms, maturity, risk free rates, as well as assumptions about future
financings, volatility, and holder behavior as of May 1, 2009 and July 31,
2009.





The
primary assumptions include projected annual volatility of 240-250% and holder
exercise targets at 150-200% of the exercise/conversion price for the warrants
and preferred stock, decreasing as the instruments approach
maturity.  Based on these assumptions, the fair value of the warrant
derivatives as of May 1, 2009 was estimated by management to be
$5,625,933.  This amount was recorded as a cumulative adjustment to
additional paid in capital.





On July
23, 2009, the Company issued Preferred D shares and related warrants as detailed
in Note F.  This preferred stock and associated warrants are also
derivative instruments under FASB standards.





The fair
value of the remaining derivatives as of October 31, 2009 was estimated by
management to be $2,405,845.





The
foregoing assumptions are reviewed quarterly and are subject to change based
primarily on management’s assessment of the probability of the events described
occurring.  Accordingly, changes to these assessments could materially
affect the valuation.





Fair
Value of Financial Instruments





FASB
standards defines fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. The standard also establishes a
fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair
value:





Level 1
– Quoted prices in active markets for identical assets or
liabilities.





Level 2
– Observable inputs other than Level 1 prices, such as quoted prices for
similar assets or liabilities; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of the
assets or liabilities.





Level 3
– Unobservable inputs that are supported by little or no market activity and
that are financial instruments whose values are determined using pricing models,
discounted cash flow methodologies, or similar techniques, as well as
instruments for which the determination of fair value requires significant
judgment or estimation. Our Level 3 liabilities consist of the derivative
liabilities associated with certain freestanding warrants that contain down
round provisions and convertible bonds with a strike price denominated in a
foreign currency.





If the
inputs used to measure the financial assets and liabilities fall within more
than one level described above, the categorization is based on the lowest level
input that is significant to the fair value measurement of the
instrument.





23
 Table of Contents




Financial
Assets and Liabilities Measured at Fair Value on a Recurring Basis





The
following table summarizes the financial assets and liabilities measured at fair
value, on a recurring basis during the six months ended October 31, 2009 (in
thousands):





Carrying
            
            
            Fair Value Measurements UsingValue
            
            
            Level 1
            
            
            Level 2
            
            
            Level 3
            
            
            TotalDerivative
      liabilities
            
            $
            2,405,845
            
            
            $
            -
            
            
            $
            -
            
            
            $
            2,405,845
            
            
            $
            2,405,845Totals
            
            
            
            
            
            $
            -
            
            
            $
            -
            
            
            $
            2,405,845
            
            
            $
            2,405,845





Level 3
Valuation Techniques


Financial
assets are considered Level 3 when their fair values are determined using
pricing models, discounted cash flow methodologies or similar techniques and at
least one significant model assumption or input is unobservable.  Our
Level 3 liabilities consist of the derivative liabilities associated with
certain preferred stock issuances and freestanding warrants that contain down
round provisions.





The
following table provides a summary of the changes in fair value, including net
transfers in and/or out, of all financial assets measured at fair value on a
recurring basis using significant unobservable inputs during the quarter ended
October 31, 2009 (in thousands):





DerivativeLiabilitiesBalance,
      May 1, 2009
            
            $
            5,625,933Total
      realized/unrealized (gains) or losses:Included
      in other income (expense)
            
            
            (3,646,532
            )Included
      in stockholders' equityPurchases,
      issuances and settlements
            
            
            426,444Transfers
      in and/or out of Level 3
            
            
            -Balance,
      October 31, 2009
            
            $
            2,405,845





Warrants issued for certain
services





The
Company has issued certain warrants in exchange for a continuing guarantee of
its surety bonds.  As the period of service is prospective for the
five year term of the agreement the Company is charging the fair value of these
warrants proportionately over such five year term.





Inventories





We value
our inventories, which consists of raw materials, work in progress, finished
goods, at the lower of cost or market. Cost is determined on the first-in,
first-out method (FIFO) and includes the cost of merchandise and freight. A
periodic review of inventory quantities on hand is performed in order to
determine if inventory is properly positioned at the lower of cost or market.
Factors related to current inventories such as future consumer demand and trends
in the Company's core business, current aging, current and anticipated wholesale
discounts, and class or type of inventory is analyzed to determine estimated net
realizable values. A provision is recorded to reduce the cost of inventories to
the estimated net realizable values, if required. Any significant unanticipated
changes in the factors noted above could have a significant impact on the value
of our inventories and our reported operating results.





Allowance for Uncollectible
Accounts





We are
required to estimate the collectibility of our trade receivables. A considerable
amount of judgment is required in assessing the realization of these receivables
including the current creditworthiness of each customer and related aging of the
past due balances. In order to assess the collectibility of these receivables,
we perform ongoing credit evaluations of our customers' financial condition.
Through these evaluations we may become aware of a situation where a customer
may not be able to meet its financial obligations due to deterioration of its
financial viability, credit ratings or bankruptcy. The reserve requirements are
based on the best facts available to us and are reevaluated and adjusted as
additional information is received. Our reserves are also based on amounts
determined by using percentages applied to certain aged receivable categories.
These percentages are determined by a variety of factors including, but are not
limited to, current economic trends, historical payment and bad debt write-off
experience. We are not able to predict changes in the financial condition of our
customers and if circumstances related to our customers deteriorate, our
estimates of the recoverability of our receivables could be materially affected
and we may be required to record additional allowances. Alternatively, if we
provided more allowances than are ultimately required, we may reverse a portion
of such provisions in future periods based on our actual collection experience.
As of October 31, 2009, we determined a reserve of $288,376 was required against
our account receivables.





24
 Table of Contents





Employees





As of
October 31, 2009, the company had 20 employees. The Company anticipates the
number of employees will increase over the next six months. The Company does not
expect to have any collective bargaining agreements covering its
employees.





Properties





The
Company's principal executive offices are located at 1200 Airport Drive,
Chowchilla California. The property consists of sixteen acres of real
estate including a 100,000 square foot structure of usable space. The structure
will be utilized by the Company's executive management team, as well as housing
the operating entities of Lutrex and Global Modular. The Company has entered
into a three-year lease (including options for renewals) for the property at a
rate of $24,021 per month for the remaining of the current fiscal year with
moderate increases for each year thereafter. The Company believes that the
current facilities are suitable for its current needs.





Trends, Risks and
Uncertainties





We have
sought to identify what we believe to be the most significant risks to our
business, but we cannot predict whether, or to what extent, any of such risks
may be realized nor can we guarantee that we have identified all possible risks
that might arise. Investors should carefully consider all of such risk factors
before making an investment decision with respect to our Common
Stock.





Cautionary Factors that May
Affect Future Results and Market Price of Stock





Our
annual report on April 30, 2009 Form 10-K includes a detailed list of cautionary
factors that may affect future results. Management believes that there have been
no material changes to those factors listed, however other factors besides those
listed could adversely affect us. That annual report can be accessed on
EDGAR.





Subsequent
Events





On
November 18,, 2009 Global Diversified Industries, Inc.
(the  "Company") entered into a Securities Purchase Agreement with
Vicis Capital Master Fund ("Vicis"), and the holders of the Company's Series B
Convertible Preferred Stock, Series C Convertible Preferred Stock and Series D
Convertible Preferred Stock, pursuant to which the Company issued additional
shares of Series D Convertible Preferred Stock and sold (a) additional shares of
its Series D Convertible Preferred Stock (the “Series D Preferred Stock”) having
an aggregate original stated value of $1,550,000 (total of 1,550,000 shares of
Series D Preferred Stock), (b) its Series 5 Common Stock Purchase Warrants
exercisable, in the aggregate, for 25,000,000 shares of Common Stock
(individually, a “Series 5 Warrant” and collectively, the “Series 5
Warrants”).  The total cash paid for the Series D Preferred Stock and
Series 5 Warrants was $1,250,000 with $500,000 being deposited into an escrow
account for guaranteeing performance of one or more manufacturing
contracts.





The
Company paid $15,000 in expenses to Vicis, which included legal fees of
Vicis.





Midtown
Partners & Co. Inc. acted as Placement Agent for the Company and was paid:
a) a 8% commission ($100,000), b) Series BD-9 Warrant to purchase 3,875,000
shares of Common Stock at an exercise price of $.04 per share exercisable for 7
years from the date of issuance and c) Series BD-10 Warrant to purchase
2,500,000 shares of Common Stock at an exercise price of $.0.04 per share
exercisable for 7 years from the date of issuance.





The
Series 5 Warrants, Series BD-9 and Series BD-10 Warrants have "cashless
exercise" provisions and certain anti-dilution rights.





The
issuance of the Series D Preferred Stock, the Series 5 Warrants, the Series
BD-9 and Series BD-10 Warrants were exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
of the Act for transactions not involving a public offering and Rule 506
promulgated by the United States Securities and Exchange Commission under the
Securities Act of 1933.





On
November 20, 2009, Phillip Hamilton, Chief Executive Officer of Global
Diversified Industries, Inc. purchased  (a) all shares of Common Stock
(b) all shares of Preferred Series D Stock (c) all Preferred Series D Stock
Warrants and (d) 18,950,000 Series 3 Warrants owned by Rebecca
Manandic.





As of
November 20, 2009, Phillip Hamilton owns 21% percent of the Company’s stock on a
fully diluted basis.





Subsequent
events were evaluated through the date this report was filed.





LIMITED
OPERATING HISTORY; ANTICIPATED LOSSES; UNCERTAINTY OF FUTURE
RESULTS





The
Company has only a limited operating history upon which an evaluation of its
operations and its prospects can be based. The Company's prospects must be
evaluated with a view to the risks encountered by a company in an early stage of
development, particularly in light of the uncertainties relating to the new and
evolving manufacturing methods with which the Company intends to operate and the
acceptance of the Company's business model. The Company will be incurring costs
to develop, introduce and enhance its products, to establish marketing
relationships, to acquire and develop product lines that will compliment each
other and to build an administrative organization. To the extent that such
expenses are not subsequently followed by commensurate revenues, the Company's
business, results of operations and financial condition will be materially
adversely affected. There can be no assurance that the Company will be able to
generate sufficient revenues from the sale of their modular buildings and
related products.. If cash generated by operations is insufficient to satisfy
the Company's liquidity requirements, the Company may be required to sell
additional equity or debt securities. The sale of additional equity or
convertible debt securities would result in additional dilution to the Company's
stockholders.





25
 Table of Contents





POTENTIAL
FLUCTUATIONS IN ANNUAL OPERATING RESULTS





The
Company's annual operating results may fluctuate significantly in the future as
a result of a variety of factors, most of which are outside the Company's
control, including: the demand for manufactured modular buildings; seasonal
trends; introduction of new government regulations and building standards;
local, state and federal government procurement delays; general economic
conditions, and economic conditions specific to the modular building industry.
The Company's annual results may also be significantly impacted by the impact of
the accounting treatment of acquisitions, financing transactions or other
matters. Particularly at the Company's early stage of development, such
accounting treatment can have a material impact on the results for any quarter.
Due to the foregoing factors, among others, it is likely that the Company's
operating results will fall below the expectations of the Company or investors
in some future quarter.





LIMITED
PUBLIC MARKET, POSSIBLE VOLATILITY OF SHARE PRICE





The
Company's common stock is currently quoted on the NASD OTC Electronic Bulletin
Board under the ticker symbol GDIV. As of December 15, 2009, there were
approximately 15,369,885 shares of common stock outstanding, of which
approximately 9,380,104 were tradable without restriction under the Securities
Act. There can be no assurance that a trading market will be sustained in the
future. Factors such as, but not limited to, technological innovations, new
products, acquisitions or strategic alliances entered into by the Company or its
competitors, failure to meet security analysts' expectations, government
regulatory action, patent or proprietary rights developments, and market
conditions for manufacturing stocks in general could have a material effect on
the volatility of the Company's stock price.





MANAGEMENT
OF GROWTH





The
Company expects to experience significant growth in the number of employees and
the scope of its operations. In particular, the Company intends to hire
additional engineering, sales, marketing, and administrative personnel.
Additionally, acquisitions could result in an increase in the number of
employees and business activity. Such activities could result in increased
responsibilities for management. The Company believes that its ability to
increase its customer support capability and to attract, train, and retain
qualified engineering, sales, marketing, and management personnel, will be a
critical factor to its future success. In particular, the availability of
qualified sales engineering and management personnel is quite limited, and
competition among companies to attract and retain such personnel is intense.
During strong business cycles, the Company may experience difficulty in filling
its needs for qualified sales, engineering and other personnel.





The
Company's future success will be highly dependent upon its ability to
successfully manage the expansion of its operations. The Company's ability to
manage and support its growth effectively will be substantially dependent on its
ability to implement adequate improvements to financial and management controls,
reporting and order entry systems, and other procedures and hire sufficient
numbers of financial, accounting, administrative, and management personnel. The
Company's expansion and the resulting growth in the number of its employees have
resulted in increased responsibility for both existing and new management
personnel. The Company is in the process of establishing and upgrading its
financial accounting and procedures. There can be no assurance that the Company
will be able to identify, attract, and retain experienced accounting and
financial personnel. The Company's future operating results will depend on the
ability of its management and other key employees to implement and improve its
systems for operations, financial control, and information management, and to
recruit, train, and manage its employee base. There can be no assurance that the
Company will be able to achieve or manage any such growth successfully or to
implement and maintain adequate financial and management controls and
procedures, and any inability to do so would have a material adverse effect on
the Company's business, results of operations, and financial
condition.





The
Company's future success depends upon its ability to address potential market
opportunities while managing its expenses to match its ability to finance its
operations. This need to manage its expenses will place a significant strain on
the Company's management and operational resources. If the Company is unable to
manage its expenses effectively, the Company's business, results of operations,
and financial condition will be materially adversely affected.





RISKS
ASSOCIATED WITH ACQUISITIONS





As part
of its business strategy, the Company expects to acquire assets and businesses
relating to or complementary to its operations. These acquisitions by the
Company will involve risks commonly encountered in acquisitions of companies.
These risks include, among other things, the following: the Company may be
exposed to unknown liabilities of the acquired companies; the Company may incur
acquisition costs and expenses higher than it anticipated; fluctuations in the
Company's quarterly and annual operating results may occur due to the costs and
expenses of acquiring and integrating new businesses or technologies; the
Company may experience difficulties and expenses in assimilating the operations
and personnel of the acquired businesses; the Company's ongoing business may be
disrupted and its management's time and attention diverted; the Company may be
unable to integrate successfully.





IMPLEMENTATION
OF SECTION 404 OF THE SARBANES-OXLEY ACT





We may
not be able to implement Section 404 of the Sarbanes-Oxley Act on a timely
basis. The SEC, as directed by Section 404 of the Sarbanes-Oxley Act,
adopted rules generally requiring each public company to include a report of
management on the company’s internal controls over financial reporting in its
annual report on Form 10-K that contains an assessment by management of the
effectiveness of the company’s internal controls over financial reporting. This
requirement first applied to our annual report on Form 10-K for the fiscal
year ended April 30, 2008. In addition, commencing with our annual report
for the fiscal year ending April 30, 2010 our independent registered accounting
firm must attest to and report on management’s assessment of the effectiveness
of our internal controls over financial reporting.





We have
in the past discovered, and may in the future discover, areas of our internal
controls that need improvement. How companies should be implementing these new
requirements including internal control reforms to comply with Section 404’s
requirements and how independent auditors will apply these requirements and test
companies’ internal controls, is still reasonably uncertain.





Upon
completion of a Section 404 plan, we may not be able to conclude that our
internal controls are effective.  Any failure to implement required
new or improved controls, or difficulties encountered in their implementation,
could negatively affect our operating results or cause us to fail to meet our
reporting obligations.





26
 Table of Contents





ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
applicable





ITEM 4. CONTROLS AND PROCEDURES





The
Company's management including the President, Chief Executive Officer and Chief
Financial Officer, have evaluated as of and within 45 days prior to the filing
of this quarterly report, the effectiveness of the design, maintenance and
operation of the Company's disclosure controls and procedures. Based on this
evaluation, because of the Company’s limited resources and limited number of
employees, management concluded that as of April 30, 2009, our internal control
over financial reporting is not effective in providing reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with the US generally
accepted accounting principles





Additionally,
due to the size of the Company, we are unable to properly segregate our duties
and functions.





There
have been no changes in internal controls or in other factors that could
significantly affect these controls subsequent to the date of the evaluation
thereof, including any corrective actions with regard to significant
deficiencies and material weaknesses.





PART
II. OTHER INFORMATION





ITEM 1. LEGAL PROCEEDINGS





On
December 13, 2007, the company filed a lawsuit against Financial Pacific
Insurance Company, Inc and Salmeri Insurance Agency, Inc. for terminating the
company’s bonding line of credit during the quarter ended January 31, 2006,
without good cause and in contravention of its past dealings. The lawsuit seeks
reimbursement for damages in excess of $10 million.  As this
litigation is in its initial stages, the Company can make no assurances with
respect to the outcome of this matter.





In
February, 2008, the company filed a lawsuit against Santa Rosa City Schools for
damages in excess of $600,000.





The
Company is subject to other legal proceedings and claims which arise in the
ordinary course of its business.  Although occasional adverse
decisions or settlements may occur, the Company believes that the final
disposition of such matters will not have a material adverse effect on its
financial position, results of operations or liquidity.





ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF
PROCEEDS





On August
12, 2008, the company filed a Form 8-K report to the SEC, which stated that the
company completed a private placement on June 26, 2008, and issued (a) its
Series C Preferred Stock having an aggregate original principal balance of
$1,750,000, (b) its Series 3 Warrants exercisable, in aggregate, for 35,000,000
shares of Common Stock, (c) Series BD-4 Warrants exercisable, in the
aggregate for 2,500,000 shares of Common Stock and (d) Series BD-5 Warrants
exercisable, in the aggregate for 3,500,000 shares of Common Stock (the “Series
C Offering”). The stated value of the Series C Preferred Stock converts into
Common Stock at a conversion price of ten cent ($.10) per share.  The
total cash paid for the Securities was $1,750,000 in cash.





The
issuance of the Series C Preferred Stock, the Series 3 Warrants, the Series BD-4
Warrants and the issuance of the Series BD-5 Warrants  were exempt
from the registration requirements of the Securities Act of 1933, as amended,
pursuant to Section 4(2) of the Act for transactions not involving a public
offering and Rule 506 promulgated by the United States Securities and Exchange
Commission under the Securities Act of 1933.





The Form
8-K  report filed  to the SEC on August 12,
2008,  also stated that on July 29, 2008, the Company entered into a
Guarantee Fee, Indemnification, and Security Agreement with Guarantors pursuant
to which in consideration for the continuing guarantee by the Guarantors of
Surety Bonds issued to the Company, the Company issued  Warrants
exercisable, in aggregate, for 35,000,000 shares of Common Stock of the Company
at an exercise price of $.10 per share, exercisable for the 7 year period from
the date of issuance.





The
issuance of the Warrants to the Guarantors were exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
of the Act for transactions not involving a public offering and Rule 506
promulgated by the United States Securities and Exchange Commission under the
Securities Act of 1933.





On
February 5, 2009, the Company filed a Form 8-K report to the SEC, which stated
that on December 19, 2008, the Company entered into a Loan and Securities
Purchase Agreement and received $6,000,000 in cash and issued (a) its series 4
warrants, in aggregate for 68,198,164 shares of Common Stock and (b) Series BD-6
Warrants exercisable, in aggregate for 6,816,816 shares of Common
Stock.





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The
issuance of the Series 4 Warrants and the issuance of the Series BD-6
Warrants were exempt from the registration requirements of the Securities
Act of 1933, as amended, pursuant to Section 4(2) of the Act for transactions
not involving a public offering and Rule 506 promulgated by the United States
Securities and Exchange Commission under the Securities Act of 1933





The Form
8-K report filed to the SEC on February 5, 2009, also stated that on December
17, 2008, the Company entered into a Stock Option Agreement with one of its
executives, which allows the executive to purchase 68,164,164 shares of Common
Stock at an exercise price of $0.05 per share for a period of seven years
provided that the Company completely satisfies in full all principal and
interest on a certain promissory note dated on February 5, 2009 for
$6,000,000.





The
issuance of the Stock Option to the executive was exempt from the registration
requirements of the Securities Act of 1933, as amended, pursuant to Section 4(2)
of the Act for transactions not involving a public offering and Rule 506
promulgated by the United States Securities and Exchange Commission under the
Securities Act of 1933.





ITEM 3. DEFAULTS UPON SENIOR SECURITIES





None
during this reporting period.





ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS





None
during this reporting period.





ITEM 5. OTHER INFORMATION





None
during this reporting period.





ITEM 6. EXHIBITS





Exhibit
      No.
            
            Description31.1
            
            Certification of Phillip
      Hamilton Pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002.31.2
            
            Certification of Adam DeBard
      to Section 302 of the Sarbanes-Oxley Act of
    2002.32.1
            
            Certification of Phillip
      Hamilton Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2
            
            Certification of Adam DeBard
      Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.







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SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, there unto duly
authorized.


GLOBAL
      DIVERSIFIED INDUSTRIES, INC.Date: 
      December 21, 2009
            By:
            /s/ Phillip
      HamiltonChairman
      and Chief Executive Officer
              (Principal
      Executive Officer)





Date:  December
      21, 2009
            By:
            /s/ Adam
      DeBardChief Operating
      Officer
              (Principal
      Accounting and Financial Officer)








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