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EX-32.1 - DIAMOND DISCOVERIES INTERNATIONAL CORPv208379_ex32-1.htm
EX-31.1 - DIAMOND DISCOVERIES INTERNATIONAL CORPv208379_ex31-1.htm
  

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended March 31, 2009.
   
¨
TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
   
 
For 1934 for the transition period from                 to                .
   
Commission file number 000-31585

DIAMOND DISCOVERIES INTERNATIONAL CORP.
(Exact name of small business issuer as specified in its charter)

Delaware
06-1579927
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)

45 Rockefeller Plaza, Suite 2000
New York, NY 10111
(Address of principal executive offices)

(212) 332-8016
(Issuer’s telephone number)
  
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                                                                                                                  Yes ¨ No  x

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 large accelerated filer” in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer  ¨
Accelerated filer  ¨
Non-accelerated filer  x

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court                                 Yes  ¨  No  ¨

APPLICABLE ONLY TO CORPORATE ISSUERS

The number of shares outstanding of Registrant’s common stock, as of January __, 2011 is 401,491,830.

Transitional Small Business Disclosure Format (check one):     Yes  ¨  No  x
  
 


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

DIAMOND DISCOVERIES INTERNATIONAL CORP.
(An Exploration Stage Company)

CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2009 and December 31, 2008
(Unaudited)

     
Mar. 31,
2009
     
Dec. 31,
2008
 
ASSETS
               
Current assets
               
  Cash
 
3,524
   
$
33,848
 
  Other current assets
   
     
 
     
3,524
     
33,848
 
                 
  Property and equipment, net
   
     
 
  Other assets
   
219,590
     
222,775
 
                 
            Total
 
223,114
   
$
256,623
 
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
               
Liabilities:
               
Notes payable
 
1,221,462
   
$
1,264,529
 
Accounts payable
   
203,611
     
198,659
 
Other current liabilities
   
175,000
     
175,000
 
Advances from stockholders
   
212,085
     
202,874
 
     
1,812,158
     
1,841,062
 
                 
Total liabilities
   
1,812,158
     
1,841,062
 
                 
Commitments and contingencies
               
                 
Stockholders’ deficiency:
               
Preferred stock, par value $.001 per share; 20,000,000 shares authorized; none issued
   
     
 
Common stock, par value $.001 per share; 480,000,000 shares authorized; 383,991,830 and 383,991,830 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively
   
383,992
     
383,992
 
Additional paid-in capital
   
17,061,141
     
17,061,141
 
Deficit accumulated during the exploration stage
   
(18,438,137
)
   
(18,376,483
)
Accumulated other comprehensive income (loss)
   
(596,040
)
   
(646,584
)
Unearned compensation
   
     
(6,505
)
                 
Total stockholders’ deficiency
   
(1,589,044
)
   
(1,584,439
)
                 
Total
 
223,114
   
$
256,623
 

See Notes to Condensed Consolidated Financial Statements

 
2

 

DIAMOND DISCOVERIES INTERNATIONAL CORP.
(An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2009 AND 2008 AND PERIOD
FROM APRIL 24, 2000 (DATE OF INCEPTION) TO MARCH 31, 2009
(Unaudited)

   
Three Months
Ended March 31,
       
   
2009
   
2008
   
Cumulative
 
                   
Revenues
  $     $     $  
                         
Operating expenses:
                       
Exploration costs
                3,953,729  
Reimbursements of exploration costs
                (1,549,438 )
  Exploration costs, net of reimbursements
                2,404,291  
General and administrative expenses
    61,654       138,520       16,332,733  
Totals
    61,654       138,520       18,737,024  
                         
Operating loss
    (61,654 )     (138,520 )     (18,737,024 )
                         
Other income (expenses)
                       
  Gain on modification of debt
                1,193,910  
  Interest expense
                (895,023 )
                         
Net loss
  $ (61,654 )   $ (138,520 )   $ (18,438,137 )
                         
Basic net loss per common share
  $     $          
                         
Basic weighted average common shares Outstanding
    383,991,830       358,216,830          

See Notes to Condensed Consolidated Financial Statements.

 
3

 
 
DIAMOND DISCOVERIES INTERNATIONAL CORP.
(An Exploration Stage Company)
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
THREE MONTHS ENDED MARCH 31, 2009 AND PERIOD FROM APRIL 24, 2000
(DATE OF INCEPTION) TO MARCH 31, 2009
 
                       
Deficit
 
Accumulated
                 
                       
Accumulated
 
other
                 
                   
Additional
 
during the
 
comprehensive
 
Subscriptions
         
   
Preferred stock
 
Common stock
 
paid-in
 
exploration
 
income
 
receivable
 
Unearned
     
   
Shares
 
Amount
 
Shares
 
Amount
 
capital
 
stage
 
(loss)
 
Shares
 
Amount
 
compensation
 
Total
 
Issuance of shares to founders effective as of April 24, 2000
      $     4,850,000   $ 4,850   $   $           $   $   $ 4,850  
Issuance of shares as payment for legal services
            150,000     150     3,600                         3,750  
Issuance of shares in connection with acquisition of mineral permits
            2,000,000     2,000     48,000                         50,000  
Subscription for purchase of 10,000,000 shares
            10,000,000     10,000     240,000             10,000,000     (250,000 )        
Proceeds from issuance of common stock
                                (1,000,000 )   25,000         25,000  
Net loss
                        (713,616 )                   (713,616 )
Balance, December 31, 2000
            17,000,000     17,000     291,600     (713,616 )         9,000,000     (225,000 )       (630,016 )
Proceeds from issuance of common stock
                                (9,000000 )   225,000         225,000  
Net loss
                        (1,021,190 )                   (1,021,190 )
Balance, December 31, 2001
            17,000,000     17,000     291,600     (1,734,806 )                     (1,426,206 )
Proceeds from private placements of units of common stock and warrants
            1,685,000     1,685     756,565             51,758     (23,291 )       734,959  
Net loss
                        (877,738 )                   (877,738 )
Balance, December 31, 2002
            18,685,000     18,685     1,048,165     (2,612,544 )         51,758     (23,291 )       (1,568,985 )
Issuance of shares as payment for accounts payable
            3,000,000     3,000     295,423                         298,423  
Issuance of shares as payment for services
            6,715,000     6,715     1,368,235                         1,374,950  
Issuance of stock options
                    1,437,000                     (1,437,000 )    
Issuance of shares as payment for advances from stockholders
            7,500,000     7,500     767,500                         775,000  
Issuance of shares as payment for notes payable
            1,810,123     1,810     124,898                         126,708  
Proceeds from issuance of common stock
            6,000,000     6,000     444,000             4,000,000     (281,250 )       168,750  
Proceeds from issuance of common stock in connection with exercise of stock options
            10,050,000     10,050     292,450                         302,500  
Amortization of unearned compensation
                                        169,744     169,744  
Net loss
                        (3,222,057 )                   (3,222,057 )
Foreign currency translation adjustment
                            (360,900 )               (360,900 )
Total comprehensive loss ($3,582,957)
                                             
Balance, December 31, 2003
            53,760,123     53,760     5,777,671     (5,834,601 )   (360,900 )   4,051,758     (304,541 )   (1,267,256 )   (1,935,867 )
Issuance of shares as payment for services
            16,842,000     16,842     1,614,858                         1,631,700  
Proceeds from issuance of common stock
            4,000,000     4,000     384,832             524,207     (56,754 )       332,078  
Issuance of shares as payment for accounts payable
            1,400,000     1,400     138,600                         140,000  
Issuance of stock options
                    1,139,000                     (1,139,000 )    
Proceeds from issuance of common stock in connection with exercise of stock options
            31,125,000     31,125     395,125                         426,250  
Forgiveness of stock subscriptions
                                (4,575,965 )   361,295         361,295  
Amortization of unearned compensation
                                        529,423     529,423  
Net loss
                        (3,724,106 )                   (3,724,106 )
Foreign currency translation adjustment
                            (131,269               (131,269 )
Total comprehensive loss ($3,855,375)
                                             
Balance, December 31, 2004
            107,127,123     107,127     9,450,086     (9,558,707 )   (492,169 )           (1,876,833 )   (2,370,496 )
Issuance of shares as payment for services
            6,000,000     6,000     204,000                         210,000  
Proceeds from issuance of common stock
            69,883,657     69,884     2,376,044                         2,445,928  
Issuance of shares as payment for accounts payable
            36,481,050     36,481     1,156,386                         1,192,867  
Issuance of stock options
                    1,218,500                     (1,218,500 )    
Proceeds from issuance of common stock in connection with exercise of stock options
            28,125,000     28,125     253,125                         281,250  
Amortization of unearned compensation
                                        889,960     889,960  
Net loss
                        (3,419,547 )                   (3,419,547 )
Foreign currency translation adjustment
                            (151,691               (151,691 )
Total comprehensive loss ($3,571,238)
                                             
Balance, December 31, 2005
            247,616,830     247,617     14,658,141     (12,978,254 )   (643,860 )           (2,205,373 )   (921,729 )
Issuance of shares as payment for services
            46,000,000     46,000     1,334,000                         1,380,000  
Proceeds from issuance of common stock
            100,000     100     3,400                         3,500  
Issuance of stock options
                    150,000                     (150,000 )    
Proceeds from issuance of common stock in connection with exercise of stock options
            11,500,000     11,500     103,500                         115,000  
Amortization of unearned compensation
                                        1,142,674     1,142,674  
Net loss
                        (3,053,173 )                   (3,053,173 )
Foreign currency translation adjustment
                            (48,535               (48,535 )
Total comprehensive loss ($3,101,708)
                                             
Balance, December 31, 2006
            305,216,830     305,217     16,249,041     (16,031,427 )   (692,395 )           (1,212,699 )   (1,382,263 )
Issuance of shares as payment for services
            52,000,000     52,000     416,000                         468,000  
Issuance of stock options
                    10,000                     (10,000 )    
Proceeds from issuance of common stock in connection with exercise of stock options
            1,000,000     1,000     9,000                         10,000  
Amortization of unearned compensation
                                        784,560     784,560  
Net loss
                        (1,470,562 )                   (1,470,562 )
Foreign currency translation adjustment
                            (244,177               (244,177 )
Total comprehensive loss ($1,714,741)
                                             
Balance, December 31, 2007
            358,216,830     358,217     16,684,041     (17,501,989 )   (936,572           (438,139 )   (1,834,442 )
Issuance of shares as payment for services
            10,025,000     10,025     121,600                         131,625  
Issuance of shares in connection with acquisition of mineral permits
            10,000,000     10,000     120,000                         130,000  
Proceeds from issuance of common stock
            5,750,000     5,750     135,500                         141,250  
Amortization of unearned compensation
                                        431,634     431,634  
Net loss
                        (874,494 )                   (874,494 )
Foreign currency translation adjustment
                            289,988                 289,988  
Total comprehensive loss ($584,506)
                                             
Balance, December 31, 2008
      $     383,991,830   $ 383,992   $ 17,061,141   $ (18,376,483 )   (646,584     $   $ (6,505 ) $ (1,584,439 )
Amortization of unearned compensation
                                        6,505     6,505  
Net loss
                        (61,654 )                   (61,654 )
Foreign currency translation adjustment
                            50,544                 50,544  
Total comprehensive loss ($11,110)
                                             
Balance, March 31, 2009
      $     383,991,830   $ 383,992   $ 17,061,141   $ (18,438,137 )   (596,040     $   $   $ (1,589,044 )
 
See Notes to Condensed Consolidated Financial Statements.

 
4

 

DIAMOND DISCOVERIES INTERNATIONAL CORP.
(An Exploration Stage Company)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 2009 AND 2008 AND PERIOD FROM
APRIL 24, 2000 (DATE OF INCEPTION) TO MARCH 31, 2009
(Unaudited)

   
Three Months
Ended March 31,
       
   
2009
   
2008
   
Cumulative
 
                   
Operating activities:
                 
Net loss
  $ (61,654 )   $ (138,520 )   $ (18,438,137 )
Adjustments to reconcile net loss to net cash used in operating activities:
                       
Costs of services paid through issuance of common stock
                5,204,875  
Amortization of unearned compensation
    6,505       112,470       3,954,500  
Amortization of discount on note payable
                45,107  
Forgiveness of stock subscription
                361,295  
Gain on modification of debt
                (1,193,910 )
Cost of mineral permits paid through issuance of common stock
                50,000  
Loss on disposal of property and equipment
                74,680  
Depreciation
          11,939       171,953  
Changes in operating assets and liabilities –
                       
Other assets
                (34,133 )
Accounts payable
    9,488       1,932       2,917,906  
Other current liabilities
                175,000  
Net cash used in operating activities
    (45,661 )     (12,179 )     (6,710,864 )
                         
Investing activities
                       
Purchases of property and equipment
                (252,733 )
Acquisition of Caribou property
                (75,000 )
Proceeds from sale of property and equipment
                10,000  
Net cash used in investing activities
                (317,733 )
                         
Financing activities:
                       
Advances from stockholders, net
    15,337       10,000       1,662,297  
Proceeds from issuance of notes payable, net of payments
                212,729  
Proceeds from issuance of common stock
                5,156,465  
Net cash provided by financing activities
    15,337       10,000       7,032,121  
                         
Net increase (decrease) in cash
    (30,324 )     (2,179 )     3,524  
                         
Cash, beginning of period
    33,848       4,213        
                         
Cash, end of period
  $ 3,524     $ 2,034     $ 3,524  

See Notes to Condensed Consolidated Financial Statements.

 
5

 

DIAMOND DISCOVERIES INTERNATIONAL CORP.
(An Exploration Stage Company)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

Note 1 – Business and basis of presentation:

The condensed consolidated financial statements include the accounts of Diamond Discoveries International Corp., which was incorporated in the State of Delaware on April 24, 2000, and its wholly owned subsidiaries Diamond Discoveries Canada, Inc. and Platinum Discoveries Corp. (the “Company”).  All intercompany accounts and transactions have been eliminated in consolidation.  The Company is engaged in activities related to the exploration for mineral resources in Canada. It conducts exploration and related activities through contracts with third parties.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, necessary to present fairly the financial position of the Company as of March 31, 2009, its results of operations for the three months ended March 31, 2009 and 2008, its changes in stockholders’ deficit for the three months ended March 31, 2009, its cash flows for the three months ended March 31, 2009 and 2008 and the related cumulative amounts for the period from April 24, 2000 (date of inception) to March 31, 2009. Pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “SEC”), certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed in or omitted from these financial statements unless significant changes have taken place since the end of the most recent fiscal year. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the years ended December 31, 2008 and 2007 and the notes thereto (the “Audited Financial Statements”) and the other information included in the Company’s Annual Report on Form 10-K (the “Form 10-K”) for the year ended December 31, 2008 that was previously filed with the SEC.

The results of operations for the three months ended March 31, 2009 are not necessarily indicative of the results to be expected for the full year ending December 31, 2009.

As further explained in Note 3 in the Audited Financial Statements, the Company acquired mineral permits for property in the “Torngat Fields” located in the Province of Quebec, Canada. The Company intended to develop the permits from early stage exploration through completion of the exploration phase. Prior to any further exploration decisions, a mineral deposit must be appropriately assessed. Gathering this data usually takes several years. Once the appropriate data was gathered, management determined not to proceed any further with the exploration of this property.

In March 2008, the Company acquired mineral rights for property located in the Thetford Mines area (the “Caribou Property”).  The Company intends to develop the mineral rights from the early stage exploration through completion of the exploration phase. Prior to any further exploration decisions, a mineral deposit must be appropriately assessed. Gathering this data usually takes several years. Once the appropriate data has been gathered, management will determine how to proceed any further with the exploration of this property.

Other than contracting with third parties to conduct exploration and gather data on its behalf, the Company had not conducted any operations or generated any revenues as of March 31, 2009. Accordingly, it is considered an “exploration stage company” for accounting purposes.  In addition to exploration costs, the Company incurs general and administrative expenses which consist primarily of professional fees relating to corporate filings and consulting and other expenses incurred in operating our business.

The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. However, in addition to not generating any revenues, the Company had a working capital deficit of approximately $1,809,000 and a stockholders’ deficit of approximately $1,589,000 as of March 31, 2009. Management believes that the Company will not generate any revenues during the twelve month period subsequent to March 31, 2009 in which it will be gathering and evaluating data related to the permits for the Torngat Fields. Since its inception, the Company has received total consideration of $7,032,121 as a result of proceeds from shareholder advances, the issuance of notes payable and the sales of common stock.  Management believes that the Company will still need total additional financing of approximately $500,000 to continue to operate as planned during the twelve month period subsequent to March 31, 2009. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Management plans to obtain such financing through private offerings of debt and equity securities. However, management cannot assure that the Company will be able to obtain any or all of the additional financing it will need to continue to operate through at least March 31, 2010 or that, ultimately, it will be able to generate any profitable commercial mining operations. If the Company is unable to obtain the required financing, it may have to curtail or terminate its operations and liquidate its remaining assets and liabilities.

 
6

 

The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue its operations as a going concern.

Note 2—Summary of significant accounting policies:

Use of estimates:

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Mining costs:

Exploration and evaluation costs are expensed as incurred. Management’s decision to develop or mine a property will be based on an assessment of the viability of the property and the availability of financing. The Company will capitalize mining exploration and other related costs attributable to reserves in the event that a definitive feasibility study establishes proven and probable reserves. Capitalized mining costs will be expensed using the unit of production method and will also be subject to an impairment assessment.

Concentrations of credit risk:

The Company maintains its cash in bank deposit accounts, the balances of which, at times, may exceed Federal insurance limits. Exposure to credit risk is reduced by placing such deposits with major financial institutions and monitoring their credit ratings.

Impairment of long-lived assets:

Impairment losses on long-lived assets, such as mining claims, are recognized when events or changes in circumstances indicate that the undiscounted cash flows estimated to be generated by such assets are less than their carrying value and, accordingly, all or a portion of such carrying value may not be recoverable. Impairment losses are then measured by comparing the fair value of assets to their carrying amounts.

Income taxes:

The Company accounts for income taxes pursuant to the asset and liability method which requires deferred income tax assets and liabilities to be computed annually for temporary differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The income tax provision or credit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.

Refundable tax credit:

The Company is eligible for a refundable tax credit given by the Province of Quebec to encourage mineral exploration in the province.  Eligible expenses include exploration expenses within Quebec.

The Company files a tax return claiming the refundable tax credit.  However, the Quebec government subjects the return to a review process which may result in a substantial adjustment to the initial claimed credit prior to issuing an assessment of the refundable tax credit.  Due to the uncertainty of the amount approved by the Quebec government, the Company’s policy is to record the refundable tax credit at such time that it has been notified by the Quebec government of an assessment.  During the three months ended March 31, 2009 and 2008, the Company did not receive any refunds under the program.

Net earnings (loss) per share:

The Company presents “basic” earnings (loss) per share and, if applicable, “diluted” earnings per share pursuant to the provisions of Statement of Financial Accounting Standards No. 128, “Earnings per Share”. Basic earnings (loss) per share is calculated by dividing net income or loss by the weighted average number of common shares outstanding during each period. The calculation of diluted earnings per share is similar to that of basic earnings per share, except that the denominator is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares, such as those issuable upon the exercise of stock options and warrants, were issued during the period.

 
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Since the Company had a net loss for the three months ended March 31, 2008, the assumed effects of the exercise of the warrants to purchase 95,576,849 shares of common stock that were issued during 2005 and the application of the treasury stock method would have been anti-dilutive.  Therefore, there is no diluted per share amounts in the 2008 statements of operations. All of the warrants to purchase 95,576,849 shares of common stock expired in December 2008.

Foreign currency translation and transactions:

The functional currency of the Company’s operations is Canadian dollars.  The assets and liabilities arising from these operations are translated at current exchange rates and related revenues and expenses at average exchange rates in effect during the year.  Resulting translation adjustments, if material, are recorded in the statement of changes in stockholders' deficiency while foreign currency transaction gains and losses are included in operations.

The Company recorded a loss of $61,654 and $138,520 during the three months ended March 31, 2009 and 2008, respectively.  During the three months ended March 31, 2009 and 2008, the Company recorded a net foreign currency translation adjustment of $50,544 and $56,326, respectively, in its interest in the Caribou Property and Torngat Mountains operations reflecting a strengthening of the Canadian dollar against the U. S. dollar which is included in accumulated other comprehensive income (loss).  Translation adjustments for prior periods have been immaterial.

Comprehensive loss

Comprehensive loss consists of net loss for the period, unrealized hedging transactions and foreign currency translation adjustments.

Recent accounting pronouncements:

In December 2007, the FASB issued Statement of Financial Standards No. 141(R) (“SFAS No. 141(R)”), “Business Combinations,” which revises the previously issued SFAS 141. SFAS No. 141(R) establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquire.  The statement also provides guidance for recognizing and measuring goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS No. 141(R) is effective for financial statements issued for fiscal years beginning after December 15, 2008 and will be applied prospectively. The adoption of this statement is not expected to have a material impact on the Company’s consolidated financial statements.

In December 2007, the FASB issued Statement of Financial Standards No. 160 (“SFAS No. 160”), “Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51.” SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parent’s ownership interest, and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS No. 160 is effective for financial statements issued for fiscal years beginning after December 15, 2008. FAS 160 will be applied prospectively, with a disclosure requirement for existing minority interests to be applied retrospectively. The adoption of this statement is not expected to have a material impact on the Company’s consolidated financial statements.

In May 2008, the FASB issued Statement of Financial Standards No. 162 (“SFAS No. 162”), “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selection the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States.  It is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.”  The adoption of this statement is not expected to have a material impact on the Company’s consolidated financial statements.

Note 3 – Property and equipment:

During the year ended December 31, 2008, the Company recorded an impairment loss for the remaining balance of property and equipment. Prior to that, depreciation was calculated using the straight-line method over the estimated useful lives of such assets.  Expenditures for maintenance and repairs were charged to expense as incurred.

 
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Depreciation expense for the three months ended March 31, 2008 was $11,939.

Note 4 – Notes payable:

In November 2005, the Company and Prospecting Geophysics Ltd. (“PGL”) entered into an agreement whereby the amount due to PGL was converted to a non-interest bearing note payable totaling $1,500,000 (Canadian).  The note is secured with the permits identified in Note 3 in the Audited Financial Statements.  In connection with the agreement, the Company recorded a gain on the modification of debt of $1,349,623.  The Company recorded the note using a 12% discount rate.  The Company was unable to make the scheduled payments ($600,000 Canadian) during 2006 under this note payable and therefore the note is effectively in default.  As such, the entire balance of the note payable is shown as being currently due in the accompanying consolidated balance sheet.

Note 5 – Advances from stockholders:

Advances from stockholders of $212,085 at March 31, 2009 were non-interest bearing and due on demand.

Note 6 – Income taxes:

As of March 31, 2009, the Company had net operating loss carryforwards of approximately $19,034,000 available to reduce future Federal taxable income which will expire through 2022. The Company had no other material temporary differences as of that date. Due to the uncertainties related to, among other things, the changes in the ownership of the Company, which could subject those loss carryforwards to substantial annual limitations, and the extent and timing of its future taxable income, the Company offset the deferred tax assets of approximately $7,614,000 attributable to the potential benefits from the utilization of those net operating loss carryforwards by an equivalent valuation allowance as of March 31, 2009.

The Company had also offset the potential benefits from net operating loss carryforwards by an equivalent valuation allowance as of December 31, 2008. As a result of the increases in the valuation allowance of approximately $13,000 and $33,000 in the three months ended March 31, 2009 and 2008, respectively, and $7,614,000 in the period from April 24, 2000 to March 31, 2009, the Company did not recognize any credits for income taxes in the accompanying condensed statements of operations to offset its pre-tax losses in any of those periods.

Note 7 – Stockholders’ deficiency:

Preferred stock

As of March 31, 2009, the Company was authorized to issue up to 20,000,000 shares of preferred stock with a par value of $.001 per share. The preferred stock may be issued in one or more series with dividend rates, conversion rights, voting rights and other terms and preferences to be determined by the Company’s Board of Directors, subject to certain limitations set forth in the Company’s Articles of Incorporation. No shares of preferred stock had been issued by the Company as of March 31, 2009.

Common stock

During the period from April 24, 2000 to December 31, 2000, the Company issued 150,000 shares of common stock as payment for legal services. Accordingly, general and administrative expenses in the accompanying statement of operations, and common stock and additional paid-in capital in the accompanying statements of stockholders’ deficiency, for the period from April 24, 2000 to December 31, 2004 was increased to reflect the estimated fair value of the shares of $3,750.

On May 20, 2000, the Company completed the sale of 10,000,000 shares of common stock for $250,000, or $.025 per share, through a private placement intended to be exempt from registration under the Securities Act of 1933 (the “Act”). Initially, the buyer paid $25,000 in cash and $225,000 through the issuance of a 10% promissory note. The exchange of shares for a note receivable was a noncash transaction that is not reflected in the accompanying statement of cash flows for the period from April 24, 2000 to December 31, 2004. The 10% promissory note was paid on various dates through May 20, 2001.

During the year ended December 31, 2002, the Company received total cash consideration of $734,959 as a result of the sale of 1,633,242 units of common stock and warrants to purchase common stock at $.45 per unit through private placements intended to be exempt from registration under the Act. Each unit consisted of one share of common stock and one warrant to purchase one share of common stock exercisable at $.75 per share for a two year period from the date of purchase. The Company had also received subscriptions through the private placements for the purchase of 51,758 units at $.45 per unit or a total of $23,291 as of December 31, 2002. The notes receivable from the subscribers are noninterest bearing and were due six months from the respective dates of sale, but remained outstanding at December 31, 2004. All the warrants remained outstanding as of December 31, 2004.

 
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In 2003, the Company issued 6,715,000 shares of its common stock in exchange for services performed by various consultants and recorded a charge to general and administrative expenses of $1,374,950, or $0.20 per share, for the fair value of the shares.

In May 2003, the Company issued 1,500,000 shares of its common stock in payment of accounts payable to Prospecting Geophysics, Ltd. of $148,423, or $0.10 per share, which approximated the fair value of the shares.

From July 2003 to September 2003, the Company issued 1,810,123 shares of its common stock in payment of 8% demand notes payable of $126,708, or $0.07 per share, which approximated the fair value of the shares.

In August 2003, in connection with a private placement of its common stock, the Company issued 2,000,000 shares of its common stock for $150,000, or $0.08 per share.  In addition, the Company issued 6,500,000 shares of its common stock for $65,000, or $0.01 per share, in connection with the exercise of stock options.

In September 2003, the Company issued 5,000,000 shares of its common stock in payment of advances from stockholders of $525,000, or $0.11 per share, which approximated the fair value of the shares.

In October 2003, the Company issued 2,500,000 shares of its common stock in payment of advances from stockholders of $250,000, or $0.10 per share, which approximated the fair value of the shares.  In addition, in connection with a private placement of its common stock, the Company issued 4,000,000 shares of its common stock for $300,000, or $0.08 per share, $281,250 of which represents a subscription receivable at December 31, 2004.  Also, the Company issued 540,000 shares of its common stock in payment for accounts payable of $54,000, or $0.10 per share, which approximated the fair value of the shares. Further, the Company issued 2,350,000 shares of its common stock for $225,500, or $0.10 per share, in connection with the exercise of stock options.

In November 2003, the Company issued 1,200,000 shares of its common stock for $12,000, or $0.01 per share, in connection with the exercise of stock options.

In December 2003, the Company issued 960,000 shares of its common stock in payment for accounts payable of $96,000, or $0.10 per share, which approximated the fair value of the shares.

In 2004, the Company issued 15,467,000 shares of its common stock in exchange for services performed by various consultants and recorded a charge to general and administrative expenses of $1,546,700 for the fair value of the shares.

In March 2004, in connection with a private placement of its common stock, the Company issued 2,500,000 shares of its common stock for $238,832.

In March 2004, the Company issued 450,000 shares of its common stock in payment of $45,000 of accounts payable, which approximated the fair value of the shares.

In May 2004, in connection with a private placement of its common stock, the Company issued 125,000 shares of its common stock valued at $12,500 as payment for the commission associated with the private placement.

In May 2004, the Company issued 950,000 shares of its common stock in payment of $95,000 of accounts payable, which approximated the fair value of the shares.

In July 2004, in connection with a private placement of its common stock, the Company issued 1,500,000 shares of its common stock for $150,000.  In addition, the Company issued 1,250,000 shares of its common stock in exchange for services performed by various consultants and recorded a charge to general and administrative expenses of $99,750 for the fair value of the shares.  Further, the Company issued 1,250,000 shares of its common stock in connection with the exercise of stock options.

In December 2004, the Company issued 29,875,000 shares of its common stock in connection with the exercise of stock options.

In January 2005, the Company issued 2,600,000 shares of its common stock in connection with the exercise of stock options.

In July 2005, in connection with a private placement of its common stock, the Company issued 27,750,000 shares of its common stock for $971,250.  In addition, the Company issued 8,587,858 shares of its common stock in payment of $302,500 of accounts payable, which approximated the fair value of the shares.

 
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In August 2005, the Company issued 1,100,000 shares of its common stock in connection with the exercise of stock options.

In September 2005, in connection with a private placement of its common stock, the Company issued 2,300,000 shares of its common stock for $80,500.

In October 2005, the Company issued 6,000,000 shares of its common stock in exchange for services performed by various consultants and recorded a charge to general and administrative expenses of $210,000 for the fair value of the shares.

In December 2005, in connection with a private placement of its common stock, the Company issued 39,833,657 shares of its common stock for $1,394,178.  In addition, the Company issued 27,893,192 shares of its common stock in payment of $890,367 of accounts payable, which approximated the fair value of the shares.  Further, the Company issued 24,425,000 shares of its common stock in connection with the exercise of stock options.

In January 2006, the Company issued 11,500,000 shares of its common stock in connection with the exercise of stock options.  In addition, in connection with a private placement of its common stock, the Company issued 100,000 shares of its common stock for $3,500.  Finally, the Company issued 46,000,000 shares of its common stock in exchange for services performed by various consultants and recorded a charge to general and administrative expenses of $1,380,000 which approximated the fair value of the shares.

In September 2007, the Company issued 52,000,000 shares of its common stock in exchange for services performed by various consultants and recorded a charge to general and administrative expenses of $468,000 which approximated the fair value of the shares.  In October 2007, the Company issued 1,000,000 shares of its common stock in connection with the exercise of stock options.

In May 2008, in connection with a private placement of its common stock, the Company issued 5,750,000 shares of its common stock for $141,250. In June 2008, the Company issued 10,000,000 shares of its common stock in connection with the acquisition of the Caribou property which is recorded in other assets in the accompanying balance sheet of $130,000 which approximated the fair value of the shares.  In October 2008, the Company issued 10,025,000 shares of its common stock in exchange for services performed by various consultants and recorded a charge to general and administrative expenses of $131,625 which approximated the fair value of the shares.

The issuances of common stock for services and in payment of accounts payable, 8% demand notes payable, advances to stockholders and acquisitions were non-cash transactions and, accordingly, they are not reflected in the accompanying statements of cash flows for the years ended December 31, 2008 and 2007 and the period from April 24, 2000 (Date of Inception) to December 31, 2008.

Stock Option Plans

2005 Plan

On November 14, 2005, the Company adopted the Diamond Discoveries International Corp. 2005 Stock Incentive Plan (the “2005 Plan”).  Under the 2005 Plan, 35,000,000 shares of common stock are reserved for issuance.  The purpose of the 2005 Plan is to provide incentives for officers, directors, consultants and key employees to promote the success of the Company, and to enhance the Company’s ability to attract and retain the services of such persons.  Options granted under the 2005 Plan may be either: (i) options intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code of 1986; or (ii) non-qualified stock options.  Stock options may be granted under the 2005 Plan for all employees and consultants of the Company, or employees of any present or future subsidiary or parent of the Company.  The 2005 Plan is administered by the Board of Directors.  The Compensation Committee is empowered to interpret the 2005 Plan and to prescribe, amend and rescind the rules and regulations pertaining to the 2005 Plan.  Options granted under the 2005 Plan generally vest over three years.  No option is transferable by the optionee other than by will or the laws of descent and distribution and each option is exercisable, during the lifetime of the optionee, only by the optionee.  The Compensation Committee may not receive options.

Any incentive stock option that is granted under the 2005 Plan may not be granted at a price less than the fair market value of the Company’s Common Stock on the date of grant (or less than 110% of the fair market value in the case of holders of 10% or more of the total combined voting power through all classes of stock of the Company or a subsidiary or parent of the Company.)  Non-qualified stock options may be granted at the exercise price established by the Compensation Committee, which may be less than the fair market value of the Company’s Common Stock on the date of grant.

 
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Each option granted under the 2005 Plan is exercisable for a period not to exceed ten years from the date of grant (or five years in the case of a holder of more than 10% of the total combined voting power of all classes of stock of the Company or a subsidiary or parent of the Company) and shall lapse upon expiration of such period, or earlier upon termination of the recipient’s employment with the Company, or as determined by the Compensation Committee.

2004 Plan

On September 30, 2004, the Company adopted the Diamond Discoveries International Corp. 2004 Stock Incentive Plan (the “2004 Plan”).  Under the 2004 Plan, 35,000,000 shares of common stock are reserved for issuance.  The purpose of the 2004 Plan is to provide incentives for officers, directors, consultants and key employees to promote the success of the Company, and to enhance the Company’s ability to attract and retain the services of such persons.  Options granted under the 2004 Plan may be either: (i) options intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code of 1986; or (ii) non-qualified stock options.  Stock options may be granted under the 2004 Plan for all employees and consultants of the Company, or employees of any present or future subsidiary or parent of the Company.  The 2004 Plan is administered by the Board of Directors.  The Compensation Committee is empowered to interpret the 2004 Plan and to prescribe, amend and rescind the rules and regulations pertaining to the 2004 Plan.  Options granted under the 2004 Plan generally vest over three years.  No option is transferable by the optionee other than by will or the laws of descent and distribution and each option is exercisable, during the lifetime of the optionee, only by the optionee.

Any incentive stock option that is granted under the 2004 Plan may not be granted at a price less than the fair market value of the Company’s Common Stock on the date of grant (or less than 110% of the fair market value in the case of holders of 10% or more of the total combined voting power through all classes of stock of the Company or a subsidiary or parent of the Company.)  Non-qualified stock options may be granted at the exercise price established by the Compensation Committee, which may be less than the fair market value of the Company’s Common Stock on the date of grant.

Each option granted under the 2004 Plan is exercisable for a period not to exceed ten years from the date of grant (or five years in the case of a grant of an incentive stock option to a holder of more than 10% of the total combined voting power of all classes of stock of the Company or a subsidiary or parent of the Company) and shall lapse upon expiration of such period, or earlier upon termination of the recipient’s employment with the Company, or as determined by the Compensation Committee.

2003 Plan

On May 30, 2003, the Company adopted the Diamond Discoveries International Corp. 2003 Stock Incentive Plan (the “2003 Plan”).  Under the 2003 Plan, 15,000,000 shares of common stock are reserved for issuance.  The purpose of the 2003 Plan is to provide incentives for officers, directors, consultants and key employees to promote the success of the Company, and to enhance the Company’s ability to attract and retain the services of such persons.  Options granted under the 2003 Plan may be either: (i) options intended to qualify as “incentive stock options” under Section 422 of the Internal Revenue Code of 1986; or (ii) non-qualified stock options.  Stock options may be granted under the 2003 Plan for all employees and consultants of the Company, or employees of any present or future subsidiary or parent of the Company.  The 2003 Plan is administered by the Board of Directors.  The Compensation Committee is empowered to interpret the 2003 Plan and to prescribe, amend and rescind the rules and regulations pertaining to the 2003 Plan.  Options granted under the 2003 Plan generally vest over three years.  No option is transferable by the optionee other than by will or the laws of descent and distribution and each option is exercisable, during the lifetime of the optionee, only by the optionee.

Any incentive stock option that is granted under the 2003 Plan may not be granted at a price less than the fair market value of the Company’s Common Stock on the date of grant (or less than 110% of the fair market value in the case of holders of 10% or more of the total combined voting power through all classes of stock of the Company or a subsidiary or parent of the Company.)  Non-qualified stock options may be granted at the exercise price established by the Compensation Committee, which may be less than the fair market value of the Company’s Common Stock on the date of grant.

Each option granted under the 2003 Plan is exercisable for a period not to exceed ten years from the date of grant (or five years in the case of a grant of an incentive stock option to a holder of more than 10% of the total combined voting power of all classes of stock of the Company or a subsidiary or parent of the Company) and shall lapse upon expiration of such period, or earlier upon termination of the recipient’s employment with the Company, or as determined by the Compensation Committee.

In February 2004, the Company issued options to acquire 1,000,000 shares of its common stock at an exercise price of $.10 per share to consultants and other non-employees.  The options had an aggregate fair market value of $90,000 at the date of issuance as determined based on the Black-Scholes options-pricing model. Accordingly, the Company initially increased unearned compensation and additional paid-in capital by $90,000 to record the fair value of the options.

In December 2004, the Company issued options to acquire 33,975,000 shares of its common stock at an exercise price of $.01 per share to consultants and other non-employees.  The options had an aggregate fair market value of $1,049,000 at the date of issuance as determined based on the Black-Scholes options-pricing model. Accordingly, the Company initially increased unearned compensation and additional paid-in capital by $1,049,000 to record the fair value of the options.

 
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In July 2005, the Company issued options to acquire 1,150,000 shares of its common stock at an exercise price of $.01 per share to consultants and other non-employees.  The options had an aggregate fair market value of $34,500 at the date of issuance as determined based on the Black-Scholes options-pricing model. Accordingly, the Company initially increased unearned compensation and additional paid-in capital by $34,500 to record the fair value of the options.

In December 2005, the Company issued options to acquire 30,000,000 shares of its common stock at an exercise price of $.01 per share to consultants and other non-employees.  The options had an aggregate fair market value of $1,184,000 at the date of issuance as determined based on the Black-Scholes options-pricing model. Accordingly, the Company initially increased unearned compensation and additional paid-in capital by $1,184,000 to record the fair value of the options.

In January 2006, the Company issued options to acquire 5,000,000 shares of its common stock at an exercise price of $.01 per share to consultants and other non-employees.  The options had an aggregate fair market value of $150,000 at the date of issuance as determined based on the Black-Scholes options-pricing model. Accordingly, the Company initially increased unearned compensation and additional paid-in capital by $150,000 to record the fair value of the options.


There were no options granted during the three months ended March 31, 2009.

The Company recorded a charge of $6,505 and $112,470 to compensation expense to amortize unearned compensation for the three months ended March 31, 2009 and 2008, respectively.

The following table summarizes information with respect to options granted under the 2005 Plan, 2004 Plan and the 2003 Plan as of and for the three months ended March 31, 2009 and 2008.

   
2009
   
2008
 
   
Shares
   
Weighed
Average
Exercise
Price
   
 
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