_______________________________________________________________________________

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 20-F

[ ]  REGISTRATION  STATEMENT  PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                                       OR

[X] ANNUAL REPORT PURSUANT TO SECTION "13" OR "15(D)" OF THE SECURITIES EXCHANGE
    ACT OF 1934.

     For the fiscal year Ended December 31, 2002
                               -----------------

[ ]  TRANSITION  REPORT  PURSUANT TO SECTION  "13" OR "15(D)" OF THE  SECURITIES
     EXCHANGE ACT OF 1934.

     For the transition period from               to
                                    -------------    ------------

                         Commission file number 0-25816
                                                -------

                          ARCHANGEL DIAMOND CORPORATION
               (Exact name of Company as Specified in its Charter)

                             Yukon Territory, Canada
                 (Jurisdiction of Incorporation or Organization)

                         Suite 400, 65 Overlea Boulevard
                        Toronto, Ontario M4H 1P1, CANADA
                    (Address of Principal Executive Offices)

Securities  registered  or to be registered  pursuant to Section  "12(b)" of the
Act: None


Securities  registered  or to be registered  pursuant to Section  "12(g)" of the
Act:

                        Common Shares, without par value
                        --------------------------------
                                (Title of Class)

Securities for which there is a reporting obligation pursuant to Section "15(d)"
of the Act: None

Indicate the number of  outstanding  shares of each of the Company's  classes of
capital  or common  stock as of the close of the period  covered by this  Annual
Report:

                As of December 31, 2002: 72,234,558 Common Shares
                -------------------------------------------------

Indicate by check mark whether the Company (1) has filed all reports required to
be filed by Sections  "13" or "15(d)" of the Act during the  preceding 12 months
(or for such shorter period that the Company was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
                                             Yes [X]                 No [ ]

Indicate by check mark which financial statement item the Company has elected to
follow.
                                             Item 17 [X]             Item 18 [ ]

                 Exhibit Index at Sequentially Numbered Page 37.


<PAGE>


                                 EXCHANGE RATES

Except as otherwise  indicated,  all dollar amounts  described in this Form 20-F
Annual Report are expressed in United States (US) dollars.

                                CONVERSION TABLE

For ease of reference, the following conversion factors are provided:

 ---------------------------------- ---  --------------------------------- -----
 1 inch (in.) = 25.4001 millimeters mm   2,204.6 pounds = 1 metric tonne   t
 ---------------------------------- ---  --------------------------------- -----
 1 mile = 1.6093 kilometers         km   1 carat = 0.2 grams               g
 ---------------------------------- ---  --------------------------------- -----
 1 foot = 0.305 meters              m
 ---------------------------------- ---  --------------------------------- -----
 1 acre = 0.4047 hectare            h
 ---------------------------------- ---  --------------------------------- -----

<TABLE>
<CAPTION>

                                   DEFINITIONS

------------------------------------------------------------------------------------------
<S>                           <C>
Arkhangelskgeoldobycha        ("AGD") AGD is the Company's  Russian joint venture  partner
                              on the Verkhotina Area and is the holder of the Licence.
-------------------------------------------------------------------------------------------
Almazny                       Bereg ("AB") AB is the Russian  joint stock company in which
                              the Company  owns 40% of the  ordinary  shares and which was
                              formed to hold the Licence and to coordinate  the operations
                              on the Verkhotina Area
-------------------------------------------------------------------------------------------
anomaly                       a value higher or lower than the expected  which may outline
                              a zone of potential exploration interest but not necessarily
                              of commercial significance
-------------------------------------------------------------------------------------------
Archaean                      a period of geological time extending from about 3.9 billion
                              years to 2.5 billion years before present
-------------------------------------------------------------------------------------------
bulk sample                   a large  sample  usually  taken from one site and usually in
                              excess of one thousand tonnes in weight
-------------------------------------------------------------------------------------------
carat                         a unit of weight for diamonds, equivalent to 0.2 of a gram
--------------------------------------------------------------------------------
crater facies                 the upper part of a volcano  usually  containing  tuffaceous
                              sediments and which is usually roughly circular in shape
-------------------------------------------------------------------------------------------
craton                        that part of the earth's  crust which has been stable for at
                              least 1500 million years
-------------------------------------------------------------------------------------------
diamond                       a  crystallized  variety of pure carbon  which may be of gem
                              quality
-------------------------------------------------------------------------------------------
diamondiferous deposit        a  mineralized  body  containing   diamonds  that  has  been
                              delineated  by   appropriately   spaced  drilling  and  bulk
                              sampling to support a sufficient  tonnage and average  grade
                              in contained diamonds.  Such a deposit does not qualify as a
                              reserve until a final and comprehensive  evaluation of close
                              sampling results verifies grade,  recoveries,  unit cost and
                              other   material   factors   conclude   legal  and  economic
                              feasibility.
-------------------------------------------------------------------------------------------
diamondiferous                containing diamonds
-------------------------------------------------------------------------------------------
diatreme facies               the lower  part of a  volcano  usually  containing  magmatic
                              material
-------------------------------------------------------------------------------------------

                                            ii

<PAGE>

-------------------------------------------------------------------------------------------
Exchange Act                  Securities Exchange Act of 1934
-------------------------------------------------------------------------------------------
feasibility                   study  a  comprehensive   study  in  which  all  geological,
                              engineering   and  economic   factors  are   considered   in
                              sufficient detail to serve as the basis for a final decision
                              on whether to proceed with  development of a  diamondiferous
                              deposit for production
-------------------------------------------------------------------------------------------
gem diamond                   a diamond which can be used,  normally in a faceted form, as
                              an ornamental object usually used in jewelry
-------------------------------------------------------------------------------------------
geophysical                   survey  the   exploration  of  an  area  in  which  physical
                              properties relating to geology are used. Geophysical methods
                              include  seismic,  magnetic,   electromagnetic  gravity  and
                              induced polarization techniques.
-------------------------------------------------------------------------------------------
indicator minerals            those minerals which can be used to indicate the presence of
                              kimberlites
-------------------------------------------------------------------------------------------
intrusion/intrusive           a volume of igneous  (molten)  rock which has been  injected
                              into older rock
-------------------------------------------------------------------------------------------
infrastructure                the system of public  works of a  country,  state or region.
                              Includes the  resources,  such as  personnel,  buildings and
                              equipment as required to carry on an activity.
-------------------------------------------------------------------------------------------
kimberlite                    an uneven grained,  ultramafic,  intrusive rock in which the
                              visible  minerals may include  olivine,  phlogopite,  pyrope
                              garnet,  picroilmenite  and chrome  diopside  cemented  by a
                              groundmass  which  may  include   serpentine,   calcite  and
                              chromite.  Kimberlites may be diamondiferous and, along with
                              olivine lamproites,  are one of the primary economic sources
                              of diamonds (see "pipe" below)
-------------------------------------------------------------------------------------------
Licence                       a 25 year Licence for the exploration and mining of diamonds
                              from the Verkhotina Area in the  Arkhangel'sk  Oblast of the
                              Russian Federation held by AGD
-------------------------------------------------------------------------------------------
Lower Proterozoic             a period of geological  time extending from about 1.6 to 2.5
                              billion years before present
-------------------------------------------------------------------------------------------
macrodiamond                  a diamond  measuring  1.0  millimeter or greater in at least
                              one direction
-------------------------------------------------------------------------------------------
magmatic rock                 a rock which is emplaced in the molten state
-------------------------------------------------------------------------------------------
magnetic survey               a survey conducted from the air for the purpose of recording
                              the natural magnetic  characteristics  of rocks on and below
                              the surface of the earth
-------------------------------------------------------------------------------------------
microdiamond                  a diamond measuring less than 1.0 millimeter in its greatest
                              direction
-------------------------------------------------------------------------------------------
Oblast                        a province (or state) in the Russian Federation
-------------------------------------------------------------------------------------------
octahedral diamond            an  eight-sided  diamond  crystal in which all the faces are
                              equilateral triangles
-------------------------------------------------------------------------------------------
pipe                          a  colloquial  term for an intrusive  body of magmatic  rock
                              which has the three-dimensional  shape of a cylinder,  pipe,
                              or cone
-------------------------------------------------------------------------------------------


                                           iii
<PAGE>





-------------------------------------------------------------------------------------------
reserves                      that part of a mineral  deposit which could be  economically
                              and legally extracted or produced at the time of the reserve
                              determination
-------------------------------------------------------------------------------------------
TSX                           Venture  Exchange the name was changed  effective  April 15,
                              2002  from  the  Canadian  Venture  Exchange  (formerly  the
                              Vancouver Stock Exchange)
-------------------------------------------------------------------------------------------
tuffaceous                    the lithified ash and fragmented debris from a volcano
-------------------------------------------------------------------------------------------
Verkhotina                    Area a 400 square kilometer area located in the Arkhangel'sk
                              Oblast  of  the  Russian   Federation  and  covered  by  the
                              Verkhotina Diamond Venture  Agreement,  to which the Company
                              is a party
-------------------------------------------------------------------------------------------
Verkhotina Diamond Mining     agreement  dated November 24, 1993 (as amended)  between the
Agreement ("VDV  Agreement")  Company and AGD, by which the Company  acquired the right to
                              earn a 40% interest in any profits from the Verkhotina Area
-------------------------------------------------------------------------------------------
Memorandum                    memorandum of agreement  dated  February 25, 1994,  amending
                              the VDV Agreement  and setting out ownership  structure of a
                              Russian  joint  stock  company  and  providing  for  AGD  to
                              transfer the Licence to such joint stock company
-------------------------------------------------------------------------------------------
1999 Agreement                agreement dated July 15, 1999,  between the Company and AGD,
                              wherein  AGD would,  within a period not to exceed 180 days,
                              transfer or  re-register  the Licence to a new Russian joint
                              stock company to be established,  of which the Company would
                              also own a 40% interest
-------------------------------------------------------------------------------------------


                                            iv
</TABLE>

<PAGE>


                           FORWARD LOOKING STATEMENTS

This annual report includes "forward-looking  information" within the meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities  Exchange  Act  of  1934,  as  amended.  All  statements  other  than
statements  of  historical  fact are,  or may be  deemed to be,  forward-looking
statements, including without limitation, those concerning: the economic outlook
for the diamond exploration and mining industry;  expectations regarding diamond
values and production and prospects and outlook of the Company's  litigation and
arbitration  proceedings.  These  forward-looking  statements  are not  based on
historical  facts,  but  rather  reflect  the  Company's  current   expectations
concerning  future results and events and generally may be identified by the use
of  forward-looking  words  or  phrases  such  as  "believe",  "aim",  "expect",
"anticipate",  "intend", "foresee",  "forecast",  "likely", "should", "planned",
"may", "estimated",  "potential" or other similar words and phrases.  Similarly,
statements that describe the Company's objectives,  plans or goals are or may be
forward-looking statements.

These forward-looking  statements involve known and unknown risks, uncertainties
and other factors that may cause the Company's  actual  results,  performance or
achievements to differ materially from the anticipated  results,  performance or
achievements expressed or implied by these forward-looking statements.  Although
the Company  believes that the expectations  reflected in these  forward-looking
statements are reasonable, no assurance can be given that such expectations will
prove to have been correct.

The risk  factors  described  in Item 3D,  beginning on page 2, could affect the
Company's future results,  causing these results to differ materially from those
expressed in any forward-looking  statements.  These factors are not necessarily
all of the important  factors that could cause the Company's  actual  results to
differ materially from those expressed in any forward-looking statements.  Other
unknown or  unpredictable  factors could also have material  adverse  effects on
future results.

You should review carefully all information,  including the financial statements
and the notes to the financial  statements,  included in this annual report. The
forward-looking  statements  included in this annual  report are made only as of
the date of this annual report.  The Company  undertakes no obligation to update
publicly or release any revisions to these forward-looking statements to reflect
events or circumstances  after the date of this annual report on Form 20-F or to
reflect the occurrence of unanticipated  events. All subsequent written and oral
forward-looking  statements  attributable to the Company or any person acting on
its behalf are qualified by the cautionary statements in this section.




                                       v
<PAGE>
<TABLE>
<CAPTION>


                                                 TABLE OF CONTENTS
<S>                                                                                                            <C>
ITEM 1.      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS...............................................1

ITEM 2.      OFFER STATISTICS AND EXPECTED TIMETABLE.............................................................1

ITEM 3.      KEY INFORMATION.....................................................................................1
             A. Selected Financial Data..........................................................................1
             B. Capitalization and Indebtedness..................................................................2
             C. Reasons for the Offer and Use of Proceeds........................................................2
             D. Risk Factors.....................................................................................2
                  Licence Dispute................................................................................2
                  Russian Political Environment..................................................................3
                  Uncertain Legal Environment in Russia..........................................................4
                  Controlling Shareholder........................................................................5
                  Need for Additional Funding....................................................................5
                  Dilution.......................................................................................5
                  Price and Volume Volatility....................................................................5
                  Market Factors and Volatility..................................................................6
                  No Commercial Reserves.........................................................................6
                  No Earnings History............................................................................6
                  Title to Properties............................................................................7
                  Regulation.....................................................................................7
                  Environmental Laws.............................................................................7
                  Competition....................................................................................7
                  Conflicts of Interest..........................................................................8
                  Processing Facility............................................................................8
                  Diamond Exploration and Development Risks......................................................8
                  Diamond Marketing..............................................................................8
                  Calculation of Reserves and Mineral Recovery...................................................8
                  Currency Fluctuations and Foreign Exchange.....................................................9
                  Taxation Risks.................................................................................9
                  U.S. Shareholder's Federal Income Tax Consequences.............................................9
                  Reliance on Strategic Relationships............................................................9
                  Penny Stock Rules.............................................................................10

ITEM 4.      INFORMATION ON THE COMPANY.........................................................................10
             A. History and Development of the Company..........................................................10
             B. Business Overview...............................................................................10
             C. Organizational Structure........................................................................11
             D. Property, Plants and Equipment..................................................................11
                  Verkhotina Area...............................................................................11
                  Location, Access and Climate..................................................................11
                  Exploration and Diamond Mining Licence........................................................12
                  Verkhotina Diamond Venture Agreement (VDV Agreement)..........................................12
                  Establishment of the Russian Joint Stock Company, AB..........................................12
                  Licence Dispute...............................................................................13
Rock Formations and Mineralization of the Arkhangel'sk Region...................................................15
                  Discovery of the Grib Pipe Deposit within the Verkhotina Area.................................15
                  Work Completed on the Grib Pipe Deposit.......................................................15
                  Planned Exploration Activities................................................................16
                  Plant and Equipment...........................................................................16

                                                        iv
<PAGE>


                                                 TABLE OF CONTENTS


ITEM 5.      OPERATING AND FINANCIAL REVIEW AND PROSPECTS.......................................................16
             A. Operating Results...............................................................................16
                  Critical Accounting Policies..................................................................17
                  Fiscal Year Ended December 31, 2002 Compared to Fiscal Year Ended December 31, 2001...........17
                  Fiscal Year Ended December 31, 2001 Compared to 11 Months Ended December 31, 2000.............18
             B. Liquidity and Capital Resources.................................................................18
             C. Research and Development, Patents and Licences, etc.............................................19
             D. Trend Information...............................................................................19

ITEM 6.      DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.........................................................20
             A. Directors and Senior Management.................................................................20
             B. Compensation....................................................................................21
             C. Board Practices.................................................................................22
                  Directors and Officers Term of Office and Length of Service...................................22
                  Service Contracts with Directors and Officers.................................................22
                  Committees of the Board of Directors..........................................................22
             D. Employees.......................................................................................23
             E. Share Ownership.................................................................................23

ITEM 7.      MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..................................................24
             A. Major Shareholders..............................................................................24
             B. Related Party Transactions......................................................................24
             C. Interests of Experts and Counsel................................................................25

ITEM 8.      FINANCIAL INFORMATION..............................................................................25
             A. Consolidated Statements and Other Financial Information.........................................25
                  Consolidated Financial Statements for the Fiscal Year Ended December 31, 2002.................25
                  Legal and Arbitration Proceedings.............................................................25
                  Dividend Policy...............................................................................26
             B. Significant Changes.............................................................................27

ITEM 9.      THE OFFER AND LISTING..............................................................................27
             A. Offer and Listing Details.......................................................................27
             B. Plan of Distribution............................................................................27
             C. Markets.........................................................................................28
             D. Selling Shareholders............................................................................28
             E. Dilution........................................................................................28
             F. Expenses of the Issue...........................................................................28

ITEM 10.     ADDITIONAL INFORMATION.............................................................................28
             A. Share Capital...................................................................................28
             B. Memorandum and Articles of Association (By-Laws)................................................28
             C. Material Contracts..............................................................................28
             D. Exchange Controls...............................................................................28
             E. Taxation .......................................................................................29


                                                        vii
<PAGE>


                                                 TABLE OF CONTENTS


                  United States Federal Income Tax Consequences.................................................29
                  U.S. Holders..................................................................................29
                  Distributions on Common Shares................................................................29
                  Foreign Tax Credit............................................................................30
                  Disposition of Common Shares of the Company...................................................30
                  Other Considerations..........................................................................30
                  Foreign Personal Holding Company..............................................................31
                  Foreign Investment Company....................................................................31
                  Passive Foreign Investment Company............................................................31
                  Controlled Foreign Corporation................................................................33
                  Canadian Federal Income Tax Considerations....................................................33
                  Dividends on Common Shares and Other Income...................................................34
                  Dispositions of Common Shares.................................................................34
             F. Dividends and Paying Agents.....................................................................34
             G. Statements by Experts...........................................................................34
             H. Documents on Display............................................................................35
             I. Subsidiary Information..........................................................................35

ITEM 11.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........................................35

ITEM 12.     DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.............................................35

ITEM 13.     DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES....................................................36

ITEM 14.     MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
             USE OF PROCEEDS....................................................................................36

ITEM 15.     CONTROLS AND PROCEDURES............................................................................36

ITEM 16.     RESERVED...........................................................................................36

ITEM 17.     FINANCIAL STATEMENTS...............................................................................37

ITEM 18.     FINANCIAL STATEMENTS...............................................................................37

ITEM 19.     EXHIBITS...........................................................................................37

             (a)Index to Financial Statements...................................................................37
             (b)Index to Exhibits...............................................................................38



                                                       viii
</TABLE>

<PAGE>



                                     PART I


ITEM 1.      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

This Form 20-F is being filed as an annual report under the Exchange Act and, as
such, there is no requirement to provide any information under this item.


ITEM 2.      OFFER STATISTICS AND EXPECTED TIMETABLE

This Form 20-F is being filed as an annual report under the Exchange Act and, as
such, there is no requirement to provide any information under this item.


ITEM 3.      KEY INFORMATION


A.       Selected Financial Data

The following  table sets forth selected  financial  information for the Company
for the periods and as at the dates indicated.  It should be read in conjunction
with the  information  appearing  under  the  heading  "ITEM 5 -  Operating  and
Financial  Review  and  Prospects"  and  the  Company's  consolidated  financial
statements  and related notes for the year ended  December 31, 2002 contained in
"ITEM 17 - Financial  Statements."  The consolidated  financial  statements have
been prepared in United States dollars and in accordance with generally accepted
accounting  principles in Canada ("Canadian GAAP").  Note 12 of the consolidated
financial  statements  included  herein sets forth the  measurement  differences
where such  information is to be presented in accordance  with the United States
generally accepted  accounting  principles ("U.S.  GAAP").  Where application of
U.S.  GAAP results in material  measurement  differences  from those of Canadian
GAAP,  the  comparable  data is presented  after the  application  of U.S. GAAP.
Information  for the  period  ended  December  31,  1999 is for an  eleven-month
period.  All  other  information  is for the  twelve-month  period  ended on the
indicated date.

<TABLE>
<CAPTION>


End of Year                      December        December       December        December        January
                                 31, 2002        31, 2001       31, 2000        31, 1999       31, 1999
----------------------------------------------------------------------------------------------------------
<S>                           <C>             <C>             <C>             <C>             <C>
Current Assets                $  1,932,766    $  1,410,310    $  3,534,239    $  5,337,604    $  8,044,866
Current Liabilities              1,324,470         188,346       2,313,025       2,538,608       2,267,651
Working Capital (Deficit)          608,296       1,221,964       1,221,214       2,798,996       5,777,215
Mineral Properties and
 Deferred Exploration Costs
   Canadian GAAP                         1               1      18,680,742      17,525,630      15,219,777
   U.S. GAAP                          --              --              --              --              --
Total Assets
   Canadian GAAP                 1,932,767       1,414,831      22,216,971      22,872,338      23,288,669
   U.S. GAAP                     1,932,766       1,414,830       3,536,229       5,346,708       8,068,892
Long-Term Obligation
   Canadian GAAP                      --              --              --              --              --
   U.S. GAAP                          --              --              --              --              --
Net Assets
  Canadian GAAP                    608,297       1,226,485      19,903,946      20,333,730      21,021,018
  U.S. GAAP                        608,296       1,226,484       1,223,204       2,808,100       5,801,241
Share Capital and
 Contributed
Surplus                         34,284,250      31,046,368      31,046,368      31,046,368      31,046,368
Net Gain/(Loss) for Period
  Canadian GAAP                 (3,856,070)    (18,677,461)       (429,784)       (687,288)       (792,476)
  U.S. GAAP                     (4,501,070)          3,280      (1,584,896)     (2,993,141)     (5,838,729)
Loss per Common Share
  Canadian GAAP               ($      0.09)   ($      0.44)   ($      0.01)   ($      0.02)   ($      0.02)
  U.S. GAAP                   ($      0.10)   ($      0.00)   ($      0.04)   ($      0.07)   ($      0.15)
Shares Issued and
 Outstanding                    72,234,558      42,234,558      42,234,558      42,234,558      42,234,558
</TABLE>










                                       1
<PAGE>


The loss per common  share was  calculated  by dividing the loss for the year by
the weighted average number of shares  outstanding  during the year. The Company
has not paid a  dividend  on its  Common  Shares to date.  It is  unlikely  that
earnings will be available for the payment of dividends in the near future.


B.       Capitalization and Indebtedness

This Form 20-F is being filed as an annual report under the Exchange Act and, as
such, there is no requirement to provide any information under this item.


C.       Reasons for the Offer and Use of Proceeds

This Form 20-F is being filed as an annual report under the Exchange Act and, as
such, there is no requirement to provide any information under this item.


D.       Risk Factors


Introduction

The  Company  is  currently  engaged  in  the  exploration  for   diamondiferous
kimberlite  pipes for the purpose of mining diamonds in the Russian  Federation.
Diamond  exploration  in the Russian  Federation  may be  affected by  political
instability, emerging laws and regulations and their enforcement, and government
requirements related to the industry, all of which continue to evolve.

An investment in the Common Shares of the Company must be considered speculative
due to the  nature  of the  Company's  business.  Prospective  investors  should
consider the following factors and other information  contained in this document
before making an investment decision.

Licence Dispute

As more  particularly  described  in "ITEM 4 -  INFORMATION  ON THE COMPANY - D.
Verkhotina  Area,   Licence  Dispute,"  the  Company   commenced   international
arbitration   proceedings  with  the  Arbitration  Tribunal  in  Stockholm  (the
"Tribunal")  in  August  1998  against  AGD for its  non-performance  of the VDV
Agreement  and its  obligation  to transfer the Licence  into the Russian  joint
stock  company.  On June 27, 2001,  the Tribunal  issued a split ruling that the
Company's  claim was not arbitrable in Sweden,  thereby  overturning  their 1999
acceptance of jurisdiction over the dispute.  The Company appealed this decision
to the Swedish  District  Court and, in May 2002,  the  Swedish  District  Court
accepted the Company's  petition.  A pre-trial  hearing is scheduled for June 2,
2003, with a date for the main hearing not yet fixed.

During 2002, three different claims brought by Open Joint Stock Company, LUKoil,
the  largest  oil company in Russia,  and/or its 74.1%  owned  subsidiary,  AGD,
against the Company in August  2001 were heard by the  Arbitration  Court of the
Arkhangel'sk Region in Russia (the "Arbitration  Court"). On March 21, 2002, the
Arbitration  Court  rejected  the claim  brought by LUKoil that the  arbitration
clause in the VDV  Agreement  be  declared  invalid  and this  decision  was not
appealed.  On May 21, 2002, the Arbitration  Court  dismissed  LUKoil's claim to
have the 1999  Agreement  declared  invalid,  finding that the 1999 Agreement is
valid,  and this  decision  was also not  appealed.  On October  28,  2002,  the
Arbitration  Court ruled in favour of AGD's petition and declared the Memorandum
between  the  Company  and  AGD   unconcluded.   The  Company's  appeal  to  the
Arkhangel'sk  Court of Appeals against this decision was heard on January 23 and
27, 2003. The  Arkhangel'sk  Court of Appeal rejected the appeal,  whereupon the
original  decision  declaring the Memorandum  unconcluded (and hence of no force
and effect as a matter of Russian law) entered into force on February 4, 2003. A
second level appeal against the decision was filed with the St. Petersburg Court
of Cassation on March 23, 2003, and this case is pending. Following the entering
into force of the decision declaring the Memorandum unconcluded,  on February 4,
2003, the Arbitration  Court resumed  consideration  of AGD's claim to terminate
the VDV  Agreement  on the grounds  that the Company  has  breached  its funding
obligations. Hearings in this case are scheduled to commence on April 28, 2003.

In November 2001, the Company filed a lawsuit in Denver District Court, State of
Colorado,  against  LUKoil  and AGD (the  "Defendants"),  seeking  to recover in
excess of US$1  billion in damages for harm caused by a scheme of fraud,  breach
of contract, civil conspiracy and related claims. On October 15, 2002 the Denver


                                       2
<PAGE>

District  Court issued an order  dismissing  the  Company's  action  against the
Defendants.  On November 27, 2002,  the Company filed a motion with the Colorado
Court of Appeals  appealing the October 15, 2002 decision.  The appeal is likely
to be heard during the last quarter of 2003.

Should the Company not attain  jurisdiction in Colorado or should it not prevail
in this  lawsuit,  the  Company  could  lose  any and all  rights  it has to the
Verkhotina Area.

Inasmuch  as the  Licence to the  Verkhotina  Area is issued to and held by AGD,
there is a possibility  that the rights to the Licence could be rescinded in the
event that  conditions  requisite to maintaining the Licence are not met by AGD.
The Licence could also be rescinded  should AGD declare  bankruptcy.  Should the
Licence be  rescinded,  it is unclear as to whether the  Company  would have any
continuing  rights  concerning  participation  in  development of the Verkhotina
Area.

Should the Company  ultimately  prevail in winning a judgement  that the Licence
should be transferred or in being awarded damages, given the current uncertainty
regarding  enforcement of contractual  law and of arbitration  awards in Russia,
there is no assurance that the Licence will be  transferred or that damages,  if
awarded, can be recovered.

Russian Political Environment

Russia is currently in its thirteenth  year of  transforming  its economy from a
State-controlled  planned economy to a market-oriented  economy. There can be no
assurances  that  the  transition  to a  market-oriented  economy  will  not  be
adversely affected by political  pressures or that the reforms will successfully
achieve greater political and economic liberalization and stability. The current
legislative  framework governing  investment in the Russian Federation continues
to be under legislative scrutiny.

On  March  26,  2000,  Vladimir  Putin  was  elected  President  of the  Russian
Federation.  The new President  stated that his government will continue working
to create an investment climate attractive to foreign investors.  However, there
is no  assurance  that the policy of  encouraging  foreign  investment  will not
change.  On August 7, 2001, the Russian  President signed amendments to Russia's
existing  legislation on joint stock companies that may dramatically  affect the
ownership   and  operation  of  AB,  the  Company's  40  percent  owned  company
established  in 1994.  Among other  things,  the new  amendments,  which  became
effective  January 1, 2002,  provide  that a  shareholder  that has more than 50
percent of the shares has full  control over the  management  of the joint stock
company and may elect the board of directors, the director general and the chief
accountant  at its sole  discretion.  As a  result  of this  legislation,  it is
possible  that AGD could gain  complete  control of AB  sometime  in the future,
contrary to the  original  charter and  agreement  amongst  AGD, the Company and
IBME.

Such changes could include revisions or rejections of current policies,  laws or
regulations that may have favoured foreign investment. Further policies that are
hostile   to   foreign   investment    including    prohibiting   the   use   of
production-sharing  agreements  or any  alteration  of laws  regulating  mineral
concessions or other mineral rights could have a material  adverse effect on the
Company.

There can be no assurance that economic reforms will continue or that industries
deemed of national or strategic  importance like mineral  production will not be
nationalized.  Renationalization  of the diamond mining  industry may occur;  or
other  governmental  limitations,  restrictions or  requirements  not at present
foreseen,  may be implemented.  There can be no assurance that the assets of the
Company will not be subject to  nationalization,  requisition  or  confiscation,
whether  legitimate or not, by any authority or body. While there are provisions
for   compensation   and   reimbursement  of  losses  to  investors  under  such
circumstances, there can be no assurance that such provisions would be effective
to restore to the Company the market value or value of the original investment.

Possible political or economic  instability in the Russian Federation may result
in the impairment or loss of mineral  concessions or other mineral  rights,  and
may  adversely  affect the  Company  and its ability to carry on business in the
Russian  Federation.  Changes in laws or regulations or their  interpretation or
shifts in  political  attitudes  that are beyond the  control of the Company may
adversely affect its business.  Operations may be affected in varying degrees by
government  regulations  with  respect  to  restrictions  on  production,  price
controls,  export controls,  foreign  exchange  controls,  taxes,  environmental
legislation  and mine safety.  Taxes and other  fiscal  measures and customs and
other import  regulations are particularly  susceptible to revisions in reaction
to  political  changes and the  pressure on the Russian  Government  to generate
revenue or to conserve hard currency.


                                       3
<PAGE>

Uncertain Legal Environment in Russia

The  current  legal   environment  is   characterized  by   poorly-drafted   and
inconsistent  legislation,  gaps where  legislation  is not yet  available,  and
uncertainty   in  application   due  to  frequent   policy  shift  and  lack  of
administrative and judicial  experience.  As part of the effort to transform its
planned  economy  into  a  market  economy,   however,  the  Russian  government
introduced  laws (including Part I and Part II of the Civil Code adopted in 1995
and 1996,  respectively),  regulation  and  legal  structures  intended  to give
participants in the economy a greater degree of confidence in the legal validity
and enforceability of their obligations.  Additional  legislation  remains to be
put in place.

Russian  laws often  provide  general  statements  of  principles  rather than a
specific  guide to  operations  and  government  officials  may be  delegated or
exercise broad authority to determine  matters of significance to the operations
and business of the Company. Such authority may be exercised in an unpredictable
way and effective appeal processes may not be available.  In addition,  breaches
of Russian law,  especially in the areas of taxation and currency  control,  may
involve severe penalties and consequences  regarded as  disproportionate  to the
offence.

Exploration  for and the  extraction  of minerals in the Russian  Federation  is
primarily governed by the Subsoil Law. Given that the legislative scheme and the
regulatory  bodies governing this scheme are of relatively  recent origin,  such
Law and ancillary  legislation have been subject to varying  interpretations and
inconsistent  application.  Therefore,  it can be difficult  to  determine  with
certainty in any given  instance  the exact nature of legal rights  possessed by
persons  using the subsoil or the degree to which such person can deal with such
rights.

It is sometimes  difficult to obtain all necessary  information  about  required
permits, approvals and Licences as there is no comprehensive index or system for
accessing all relevant legislation or administrative regulations.  Additionally,
officials often interpret  regulations in an arbitrary or unpredictable way. The
present  laws  might  be  arbitrarily   interpreted  and  applied  in  a  manner
inconsistent  with the Company's present  understanding.  It is also likely that
the laws will change.

There can be no assurance that the Company has complied with all applicable laws
or  obtained  all  necessary  approvals  in  Russia.  In  addition,  there is no
established  system of title  registration or certification on which the Company
can rely, as is typically done in a standard western title opinion.

There can be no  assurance  that  laws,  orders,  rules,  regulations  and other
Russian  legislation  currently  relating  to the  Company's  investment  in the
Russian  Federation will not be altered,  in whole or in part, or that a Russian
court or  other  authority  will not  interpret  existing  Russian  legislation,
whether  retroactively  or  otherwise,  in such a way that would have an adverse
impact on the Company.  While there are some civil protections available against
the retroactive effects of legislation,  it may often be difficult to rely on or
enforce such protections.

In general,  there remains great  uncertainty  as to the extent to which Russian
parties and entities,  particularly  governmental agencies,  will be prepared to
respect the contractual  and other rights of the non-Russian  parties with which
they deal and also as to the  extent  to which the "rule of law" has taken  hold
and will be upheld in the Russian  Federation.  Procedures for the protection of
rights,  such  as  the  taking  of  security,  the  enforcement  of  claims  and
proceedings  for injunctive  relief or to obtain damages,  are still  relatively
undeveloped  in the  Russian  Federation.  Accordingly,  there  may  be  greater
difficulty and  uncertainty  in respect of the Company's  ability to protect and
enforce its rights  (including  contractual  rights).  There can be no assurance
that this will not have a material adverse effect upon the Company.

In particular, remedies at law or in equity that might otherwise be available to
the  Company  under the VDV  Agreement  may not be  available.  Contractual  and
legislative  ambiguities,  in particular in the  documentation  and  legislation
relating  to AB, the VDV  Agreement  and the other  agreements  relating  to the
Verkhotina  Area  to  which  the  Company  is  a  party,  would  be  subject  to
interpretation  by  the  courts  of  the  Russian   Federation,   whether  legal
proceedings are conducted within or outside the Russian Federation.  Such courts
may or may not  have the  commercial  sophistication  required  to  resolve  any
disputes involving the Company in a manner which is favourable to the Company.

There is also a possibility that the rights to the Licence could be rescinded in
the event that  conditions  requisite to maintaining  the Licence are not met by
AGD or should AGD declare  bankruptcy.  Should the Licence be  rescinded,  it is
unclear as to whether the Company would have any  continuing  rights  concerning
participation in development of the Verkhotina Area.


                                       4
<PAGE>

Controlling Shareholder

As more particularly described in "ITEM 7 - MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS - A. Major Shareholders," Cencan S.A., a wholly-owned subsidiary of
De Beers S.A., is the Company's largest shareholder and has four representatives
on the Company's board of directors.  Cencan S.A.  beneficially  owns 45,305,226
Common Shares of the Company representing  approximately 62.7% of the issued and
outstanding  share  capital  of the  Company.  Cencan  S.A.  may use  its  share
ownership or representation on the Company's board of directors to substantially
influence  corporate  actions that  conflict with the interests of the Company's
other public shareholders including,  without limitation,  changing the size and
composition of the board of directors and  committees of the Company's  board of
directors,  causing the issuance of further securities of the Company,  amending
the  Company's  governing  documents  or  otherwise  controlling  the outcome of
shareholder votes.

Need for Additional Funding

Should the  Company  prevail in having the Licence  transferred  and a new field
work  program  be  agreed  upon,  the  Company  would  need to  seek  additional
financing.  The development of the Verkhotina  area would therefore  depend upon
the  Company's  ability  to obtain  financing  through  debt  financing,  equity
financing,  or other  means.  There is no  assurance  that the Company  would be
successful in obtaining the required financing. Failure to obtain such financing
would  result  in the  delay  or  indefinite  postponement  of  exploration  and
development  work on the  Verkhotina  Area,  as well as the possible loss of the
Company's investment in the Licence in the Verkhotina Area and Grib Pipe.

If the Company's  exploration  programs on the Verkhotina  Area are  successful,
additional funds will be required for the development of an economically minable
diamondiferous deposit and to place it into commercial production.

The Company's  cash balance at December 31, 2002 was  approximately  $1,925,700.
The Company believes it has sufficient  funds to continue the Company's  primary
activities  for the next 9 months and various  options are being  explored  with
respect to  obtaining  financing.  During  the  2002-2003  timeframe,  it is the
Company's  intention to conserve cash wherever it can while  pursuing the claims
it has filed in the United States against LUKoil and AGD. Should a settlement of
some nature take place or should the various legal proceedings  continue,  it is
fully expected that the  Corporation  will be successful in raising the required
funds to meet its operating requirements.

Dilution

Future  issuance of the  Company's  Common Shares will result in dilution to the
existing shareholders. Additionally, future sales of the Company's Common Shares
into the public  market may lower the market price which may result in losses to
the Company's shareholders.

As of December 31, 2002,  the Company had  72,234,558  Common  Shares issued and
outstanding.  A further  4,815,000  Common  Shares are issuable upon exercise of
outstanding stock options, all of which may be exercised in the future resulting
in  dilution to the  Company's  shareholders.  Of these  amounts,  officers  and
directors  of the  Company  own,  as a group,  628,000  Common  Shares and stock
options to acquire an additional  400,000 Common  Shares.  The Company may, from
time to time, issue further stock options to purchase  additional  Common Shares
in  accordance  with in Incentive  Stock Option Plan and the policies of the TSX
Venture Exchange. Most of these Common Shares, including the Common Shares to be
issued upon exercise of the  outstanding  options,  are freely  tradable after a
four-month restriction period.

Sales of  substantial  amounts of the  Company's  Common  Shares into the public
market,  or even the  perception  by the market  that such sales may occur,  may
lower the market price of its Common Shares.

Price and Volume Volitility

The Company's Common Shares may experience  extreme price and volume  volatility
which may result in losses to the  shareholders of the Company.  On December 31,
2002, the Company's  Common Shares closed at a price of $0.44. For the six month
period ending December 31, 2002, the high and low trading price of the Company's
Common Shares was $0.75 and $0.05,  respectively,  with a total monthly  volumes
ranging from 2,297 to 113,255 Common Shares.

                                       5
<PAGE>

Trading volume in the Company's common stock has historically  been limited with
daily trading volumes varying significantly.  Accordingly,  the trading price of
the Company's Common Shares could be subject to wide fluctuations in response to
a variety of factors  including  announcement  of  material  events  such as the
outcome or settlement of material  litigation or arbitration,  political events,
mineral  exploration  results,   changes  in  diamond  prices  and  general  and
industry-specific economic conditions.

Additionally,  the  securities  markets  in the United  States  and Canada  have
recently experienced a high level of price and volume volatility, and the market
price of  securities  of many  diamond and mineral  exploration  companies  have
experienced  wide  fluctuations in price which have not necessarily been related
to the  operating  performance,  underlying  asset  values or  prospects of such
companies. It is expected that such fluctuations in price will continue to occur
which may make it difficult for a shareholder to sell shares at a price equal to
or above the price at which the shares were purchased.

Market Factors and Volatility

The marketability of natural  resources,  which may be acquired or discovered by
the  Company,  will be affected by  numerous  factors  beyond the control of the
Company.  These factors  include market  fluctuations  in the prices of minerals
sought,  the management and continuing role of the Diamond Trading Company,  the
successor to the Central Selling Organisation, with respect to diamonds mined in
the  Russian  Federation,  and  government  regulations,  including  regulations
relating to prices,  taxes,  royalties,  land tenure,  land use,  importing  and
exporting of minerals and environmental protection.

The government of the Russian Federation maintains a monopoly over the export of
diamonds.  Alrosa,  the Russian diamond mining company which currently  produces
about 98% of Russia's  rough  diamonds,  is jointly  owned by the Russian  State
Property  Ministry,  the Yakut State  Property  Fund,  its  employees  and local
operating  districts.  In 2000,  almost two-thirds of its production on a dollar
basis was sold to De Beers pursuant to a three-year marketing agreement in place
until the end of 2001.  In 2001 Alrosa sold about one half of its total  diamond
production  to De Beers,  and at the end of the year  entered  into a new buying
agreement  wherein De Beers will  purchase  from Alrosa at least $800 million of
diamonds annually for the next five years.

There are many  internal  parties  that  influence  the supply of Russian  rough
diamonds onto the market.  The Russian government  annually  establishes a quota
system and licences Alrosa to sell a certain quantity of diamonds. This quantity
of diamonds is  administered  by the Ministry of Finance through three agencies:
the Central Bank of Russia,  the Gokhran (a precious  metals and  gemstone  fund
which acts as the State Depository), and the State Trading Agency. The interplay
among these  agencies as they vie for diamond trade  positions  complicates  the
Russian industry and leads to uncertainty.

The effect of these factors  cannot be accurately  predicted as the Company does
not know what conditions may be placed upon it by the Russian  government or its
agencies.  Any of the  foregoing  may result in the  Company  not  receiving  an
adequate return on invested capital.

Future prices of diamonds cannot be accurately predicted.  However, for the past
50  years,  prices  have  generally  increased  incrementally  with  the rate of
inflation.  A decline in the price of diamonds  would have a material  effect on
the Company.

No Commercial Reserves

While significant  exploration and evaluation work has been conducted within the
Verkhotina  Area,  the Company has not developed an estimate of reserves for the
Grib Pipe deposit and, as such,  it is not known whether a  commercially  viable
diamondiferous  deposit is present.  The Company  intends to continue to explore
the  Verkhotina  Area with the  objective  of  establishing  whether  there is a
commercially viable diamondiferous  deposit. It is not known if the expenditures
to be made by the Company on its mineral  properties  will result in discoveries
of commercial quantities of ore.

No Earnings History

The Company has no history of earnings or cash flow from mining  operations.  To
December 31, 2002 the Company has generated no revenues  from mining  operations
and the timing of any such revenue in the future cannot be reasonably estimated.


                                       6
<PAGE>

The auditors' report on the December 31, 2002 consolidated  financial statements
include  additional  comments that indicate  that the financial  statements  are
affected by conditions and events that cast  substantial  doubt on the Company's
ability to continue as a going concern.  The financial statements do not include
any adjustments as a result of that uncertainty.

Title to Properties

The Licence  covering the Verkhotina  Area may be subject to prior  unregistered
agreements or transfers,  and title may be affected by undetected  defects.  The
Company's  properties have not been surveyed and the precise location and extent
thereof may be in doubt.

The Company is currently in a legal  dispute with its Russian  venture  partner,
AGD. The final  outcome of this dispute  could affect the  Company's  ability to
exploit the Verkhotina Area. (See preceding paragraph "Licence Dispute.")

Regulation

Mining  operations  and  exploration  activities in the Russian  Federation  are
subject to various  governmental  laws and  regulations  governing  prospecting,
development,  mining,  production,  importing and exporting of minerals;  taxes;
labor  standards;   occupational  health;  waste  disposal;  protection  of  the
environment; mine safety; toxic substances; and other matters. Federal authority
over all exploration throughout the Russian Federation resides with the Ministry
of Natural  Resources  of the  Russian  Federation.  Licences  and  permits  are
required to conduct  exploration  and mining  operations.  There is no assurance
that such  permits will be granted.  Amendment  to current laws and  regulations
governing  operations  and  activities  of mining  companies  or more  stringent
implementation  thereof  could have a material  adverse  impact on the  Company.
Under certain  circumstances,  the Company may be required to close an operation
until a particular problem is remedied or to undertake other remedial actions.

Environmental Laws

The  exploration  programs  conducted by the Company are subject to governmental
regulations regarding environmental considerations.  The Company's mining claims
are on public lands in the Russian  Federation.  The  administrative  system for
environmental  protection  in the Russian  Federation  includes  the Ministry of
Natural Resources of the Russian Federation,  the State Committee of the Russian
Federation  for  Environmental   Protection  and  its  territorial  bodies,  and
specifically  authorized  State  Committees of the Russian  Federation and their
territorial  bodies,  each one dealing  with the  regulation  and use of certain
types of natural resources. Most operations involving the exploration for or the
production of minerals are subject to existing laws and regulations  relating to
exploration  procedures,  safety  precautions,  employee health and safety,  air
quality standards,  pollution of stream and fresh water sources,  odour,  noise,
dust,  and other  environmental  protection  controls  adopted  by  governmental
authorities as well as the rights of adjoining  property owners. The Company may
be required to prepare and present to governmental  authorities  data pertaining
to the effect or impact that any proposed  exploration or production of minerals
may have upon the  environment.  As well,  the Company will be  responsible  for
reclamation costs.  Reclamation  requirements vary depending on the location and
the managing agency, but they are similar in that they aim to minimize long-term
effects of exploration and mining disturbance by requiring the operating company
to control  possible  deleterious  effluents and to  re-establish to some degree
pre-disturbance  landforms  and  vegetation.  It  is  premature  to  attempt  to
determine the cost of reclamation at the date hereof.  All requirements  imposed
by  any  such  authorities  may  be  costly,  time  consuming,   and  may  delay
commencement  or continuation  of exploration or production  operations.  Future
legislation may significantly  emphasize the protection of the environment,  and
that,  as a  consequence,  the  activities  of the Company  may be more  closely
regulated to further the cause of environmental protection. Such legislation, as
well  as  future  interpretation  of  existing  laws,  may  require  substantial
increases  in  equipment  and  operating   costs  to  the  Company  and  delays,
interruptions,  or a termination  of  operations,  the extent of which cannot be
predicted.

Competition

Numerous  companies are engaged in the  exploration  and  development of mineral
properties and have substantially greater technical and financial resources than
the  Company.  In fiscal  1993,  the  Company  decided to focus its  exploration
efforts and resources on properties  in the  Arkhangel'sk  Oblast of the Russian
Federation  with the  potential  for  commercial  recoveries  of  diamonds.  The
Arkhangel'sk  Oblast is one of only a few  provinces or republics in the Russian
Federation  where  foreign  entities  are  allowed  to  participate  in  diamond
exploration.  This has led to increased interest,  speculation and investment in
properties in the Arkhangel'sk  Oblast.  As a result,  the Company is faced with
heightened  competition in the  acquisition of properties with the potential for
the commercial recovery of diamonds in the Russian Federation.


                                       7
<PAGE>

Conflicts of Interest

Some of the  directors  of the  Company  are  also  directors  of  other  mining
companies that are also engaged in mineral  exploration  and the  acquisition of
mineral properties. Currently none of the Company's directors are deemed to have
any  conflict  of  interest.  It is  possible  that  situations  could  arise in
connection with potential  acquisitions  and investments  where the interests of
these  individuals  as directors of other  companies  could  conflict with their
interest as  directors  of the Company.  These  individuals  will deal with such
matters  according  to prudent  business  judgment  and the  relative  financial
abilities  and needs of the various  companies  with which they are  associated.
They have been advised of their fiduciary duties to the Company.

Processing Facility

Most of the  kimberlite  material  from the  Verkhotina  Area is  processed at a
facility sited in the village of Pomorye,  located  approximately  28 kilometers
from the project.  The process  facility is owned or controlled by the Company's
Russian  joint  venture  partner,  AGD,  and  AGD's  associates  or  affiliates.
Processing of the kimberlite  material from the Verkhotina Area is considered to
be the most  cost-effective  alternative,  given that the next nearest  suitable
processing facility is located in the Ukraine,  although,  for the purpose of an
independent assessment,  or audit, the Company may occasionally process material
at a third party facility.  The Company  carries out  independent  audits of the
processing  operations  at Pomorye from time to time,  although  there can be no
assurance that biased or misrepresentative  results from the processing will not
occur.  An  independent  assessment  or  audit  of the  diamondiferous  material
processed at the  processing  facility at Pomorye may be  undertaken  to confirm
that data has been  generated  with proper  procedures  and has been  accurately
transcribed from the original source.  As the processing  facility at Pomorye is
owned  or   controlled  by  the   Company's   Russian  joint  venture   partner,
Arkhangelskgeoldobycha  and its associates and  affiliates,  it may be held that
the processing  facility is not at arms' length.  As such the Company  routinely
sends  samples of material  previously  assayed in Russia to be re-assayed at an
independent accredited laboratory,  usually located outside of Russia, to verify
the data.

Diamond Exploration and Development Risks

Diamond  exploration  and mining  operations  are subject to all the hazards and
risks typically  inherent to the mining  industry,  any of which could result in
damage to life or property,  environmental  damage and possible legal  liability
for any or all damage.  Personnel are exposed to numerous risks  associated with
mining, such as unstable geological conditions,  and processing of large volumes
of materials using mechanized equipment. In addition, there is no certainty that
the  expenditures  to be made by the  Company  will  result  in  discoveries  of
commercial  quantities  of diamonds.  There are no known  proven  diamondiferous
reserves on the property in which the Company has mineral  rights  (whether held
directly or  indirectly).  Risk of loss by theft by employees is relatively high
and a high degree of security is required to mitigate such loss. The Company may
become  subject to liability for  pollution,  cave-ins or other hazards  against
which it cannot  insure or  against  which it may  elect not to  insure.  As the
Company does not carry  liability  insurance,  the payment of such  liabilities,
were they to be incurred,  could have a material adverse effect on the Company's
financial position.

Diamond Marketing

The  marketability of diamonds that may be acquired or discovered by the Company
will be affected by numerous  factors  beyond the control of the Company.  These
factors  include  market  fluctuations,  the  proximity  and capacity of diamond
markets and processing equipment, government regulations,  including regulations
relating to prices,  taxes,  royalties,  land tenure,  land use,  importing  and
exporting of diamonds and  environmental  protection.  The exact effect of these
factors cannot be accurately predicted, but the combination of these factors may
result in the Company not receiving an adequate return on invested capital.  The
price of diamonds is, among other  things,  based on the size,  cut,  colour and
quality  of the  individual  diamonds  sold,  the  market  supply and demand for
diamonds  in  general,  and the  marketing  arrangements  the Company is able to
establish.

Calculation of Reserves and Mineral Recovery

There is a degree of uncertainty attributable to the calculation of reserves and
corresponding  grades  being  mined or  dedicated  to future  production.  Until
reserves are actually mined and  processed,  the quantity of reserves and grades
must be  considered  as  estimates  only.  Whether  a  diamond  deposit  will be


                                       8
<PAGE>

commercially  viable  depends  on a number  of  factors,  some of which  are the
particular  attributes of the deposit,  such as the deposit's size,  quality and
quantity  of the  diamonds,  proximity  to  infrastructure,  financing  cost and
government  regulations.  Any  material  change  in the  quantity  of  reserves,
resource   grade,   stripping  ratio  or  diamond  prices  may  render  reserves
uneconomic,  require a  restatement  of ore  reserves  and affect  the  economic
viability of the Company's  properties.  Short term factors  relating to the ore
reserves,  such  as the  need  for  orderly  development  of ore  bodies  or the
processing of variable ore grades, or other operational problems, may impair the
profitability of a mine.

Currency Fluctuations and Foreign Exchange

Although the Company raises a significant  portion of its equity from financings
in Canadian  dollars and  maintains  some of its  accounts in Canadian  dollars,
effective January 31, 1999, the Company adopted the United States (US) dollar as
its currency of display and  measurement.  The Company changed its currency from
Canadian  dollars  due to the fact that the  majority  of its  transactions  are
denominated  in US  dollars.  All  commitments  of the Company in respect of its
Russian mineral  properties are denominated in and satisfied through the payment
of US dollars.

Taxation Risks

The tax risks of  investing  in  Russia  are  substantial.  Tax  legislation  is
evolving  and is  subject  to  varying  interpretations,  frequent  changes  and
inconsistent  enforcement at the federal,  regional and local levels. In certain
instances,  new taxes  have been  given  retroactive  effect.  Taxes  payable by
Russian  companies to federal,  regional and local  budgets are high and include
corporate  profits tax, VAT,  payments for subsoil use,  assets tax, excise tax,
road fund taxes,  transport taxes and payroll taxes. Changes to Russian taxation
rates may have a material adverse impact on the Company.

U.S. Shareholders' Federal Income Tax Consequences


The  Company  believes  that it fits  the  classification  of  "passive  foreign
investment company" ("PFIC") as defined in the Internal Revenue Code of 1986, as
amended  (the  "Code"),  causing  all or part  of any  gain  realized  by a U.S.
shareholder selling or exchanging Common Shares to be treated as ordinary income
rather than  capital  gains.  This  classification  of the Company as a PFIC may
affect  shareholders who are United States  citizens,  resident aliens or United
States  corporations,  estates or trusts other than foreign estates or trusts (a
"U.S. shareholder") regardless of the extent of the U.S. shareholder's ownership
of Company stock. A U.S.  shareholder  who holds stock  indirectly  (i.e.,  is a
partner in a  partnership,  a shareholder  in a corporation  which holds Company
stock or a beneficiary in an estate or trust) is also subject to these rules.

U.S.  shareholders  of a PFIC who held stock after December 31, 1986 are subject
to certain adverse tax consequences, however, other than the loss of the step-up
basis at death,  these adverse tax  consequences can be avoided if: (i) the U.S.
shareholder  has  elected  to treat  the PFIC as a  qualified  electing  fund (a
"QEF"), with respect to that U.S. shareholder,  effective for each of the PFIC's
taxable years  beginning on or after January 1, 1987,  which include any portion
of the U.S.  shareholder's  holding period,  and (ii) the Company  complies with
reporting requirements to be prescribed by the Secretary of the Treasury.

(See  "ITEM 10 -  INFORMATION  ON THE  COMPANY  - E,  Taxation,"  for a  further
discussion  of income tax  considerations  in  connection  with the ownership of
Common Shares of the Company by both U.S. and Canadian shareholders.)

Reliance on Strategic Relationships

In conducting  its business,  the Company will rely on continuing  relationships
with key individuals in the Russian mining industry and with various departments
within the Canadian and Russian  governments.  The relationship  between LUKoil,
its 74.1%  owned  subsidiary,  AGD,  and the  Company  has been  affected by the
Licence Dispute. (See "ITEM 4 - INFORMATION ON THE COMPANY - D. Property, Plants
and Equipment, Verkhotina Area, Licence Dispute" located below on page 12.)


                                       9
<PAGE>


Penny Stock Rules

The Company's shares are "penny stock" as defined by the Securities and Exchange
Commission,  which might affect the trading market for the shares.  Penny stocks
are  generally  equity  securities  with a price of less than U.S.$5  other than
securities  registered on certain national securities exchanges or quoted on the
NASDAQ National Market. The Securities and Exchange Commission has adopted rules
that regulate  broker-dealer  practices in connection with transactions in penny
stocks. The penny stock rules require a broker-dealer, prior to a transaction in
a penny stock not  otherwise  exempt from the rules,  to deliver a  standardized
risk disclosure document prepared by the Securities and Exchange Commission that
provides information about penny stocks and the nature and level of risks in the
penny stock  market.  The  broker-dealer  also must  provide the  customer  with
current bid and offer  quotations for the penny stock,  the  compensation of the
broker-dealer  and  its  salesperson  in the  transaction  and  monthly  account
statements  showing the market value of each penny stock held in the  customer's
account.  The bid and  compensation  information  must be given to the  customer
orally or in writing  before or with the customer's  confirmation.  In addition,
the penny stock rules require that prior to a  transaction  in a penny stock not
otherwise exempt from such rules, the broker-dealer  must make a special written
determination  that the penny stock is a suitable  investment  for the purchaser
and  receive  the  purchaser's  written  agreement  to  the  transaction.  These
disclosure  requirements  may have the effect of  reducing  the level of trading
activity in the secondary  market for a stock that is subject to the penny stock
rules,  such as the Company's  shares which are considered  "penny  stock",  and
therefore make it more difficult to sell those shares.


ITEM 4.      INFORMATION ON THE COMPANY


A.       History and Development of the Company

The Company was incorporated on July 3, 1987 under the name "Gold Parl Resources
Ltd." by  registration  of its  Memorandum  and  Articles  under the Company Act
(British  Columbia).  On  September  3, 1993,  the  Company  changed its name to
"Canmet  Resources  Limited" and  consolidated its share capital on the basis of
two pre-consolidation Common Shares for one post-consolidation  common share. On
August 5, 1994, the Company changed its name to "Archangel Diamond Corporation,"
and on September 16, 1996,  the Company was continued  from British  Columbia to
the Yukon Territory, Canada.

The  registered  office  of the  Company  is  Suite  200,  204  Lambert  Street,
Whitehorse,  Yukon  Territory,  Y1A 3T2, Canada,  telephone (867) 667-7885.  The
executive  office and principal  office  address of the Company is Suite 400, 65
Overlea Boulevard, Toronto, Ontario M4H 1P1, telephone (416) 423-1600.

During the year ended  December 31, 2002,  the Company's  efforts were primarily
directed toward resolution of the dispute regarding transfer of the Licence.  As
such, the majority of mineral  property costs during the year were for legal and
arbitration-related  expenses. No expenditures were made for the Verkhotina Area
and none are  anticipated  until such time as the  Licence  transfer  dispute is
resolved.  All  expenditures  during the year ended  December 31, 2002 were paid
from existing cash balances.

Effective  December 19, 2002, a change of control of the Company was effected by
way of a private  placement  of  28,000,000  Common  Shares to  Cencan  S.A.,  a
wholly-owned  subsidiary of De Beers S.A..  Concurrently,  Cencan S.A.  acquired
17,305,226 Common Shares in a private  transaction Task Holdings  Limited.  As a
result of these  transactions  Cencan S.A.  now  beneficially  owns 62.7% of the
Company's issued and outstanding shares.


B.       Business Overview

The Company is an international  exploration stage company engaged in the search
for  commercially  viable   diamondiferous   deposits.   The  Company's  current
exploration  focus  is on  the  diamondiferous  kimberlitic  Grib  Pipe  deposit
(formerly Pipe 441) located in the Verkhotina Area in the northwestern region of
the  Russian  Federation.   It  is  not  known  whether  a  commercially  viable
diamondifeous  deposit is present within the Verkhotina Area. The Company has no
other  mineral  interest.  In the  event  that one or more  commercially  viable
diamondiferous  deposits are identified by the Company,  the Company may seek to
sell its interest in such deposit to a mining company or engage a mining company
to become the operator of the particular project for the purpose of developing a
mine.

Potential  prospects are examined by  independent  consultants  engaged for that
purpose. In most instances where a decision has been made to acquire a property,
preliminary  exploration  activities  are  conducted  directly by the  Company's
staff.  Contractors are usually engaged to carry out the more involved stages of

                                       10
<PAGE>

the Company's exploration programs, such as drilling.  Independent  laboratories
are used to analyze drill core for mineralization.  The Company's activities are
financed  primarily  through  the sale and  issuance  of  Common  Shares  or the
issuance of debentures convertible into Common Shares.

Exploration and development  work programs are carried out by the Company on the
Verkhotina Area through a 40% owned joint venture interest described below under
"D. Property, Plants and Equipment,  Verkhotina Area, Verkhotina Diamond Venture
Agreement."


C.       Organizational Structure


                               [GRAPHIC OMITTED]


                         ARCHANGEL DIAMOND CORPORATION
                             (a Yukon Corporation)
      ___________________________________________________________________
                |                                              |
                |                                              |
          100%  | Owned                                    40% |  Owned
                |                                              |
 Archangel Overseas Holdings Limited                      Almazny Bereg
       (a Cyprus company)                           (a Russian joint company)







D.       Property, Plants and Equipment

Verkhotina Area

Location, Access and Climate

The 400-square  kilometer  Verkhotina  Area is located in the Winter Coast area,
approximately   115km  northeast  of  Arkhangel'sk,   a  north-western   Russian
industrial port city with a population of 500,000+.  The city serves as the main
administrative  center  within  the  Arkhangel'sk  Oblast  and  has a  range  of
commercial  facilities,  provides  power to the  region and is served by regular
flights  from  Western  Europe and other  parts of the Russian  Federation.  The
nearest  settlement  to the  Verkhotina  Area is the village of Pomorye  located
approximately 100km from Arkhangel'sk and approximately 28km from the Verkhotina
Area.  Access is  achieved  by air or a six- hour road  trip.  Temperatures  are
usually  sub-zero  for much of the year and are about 10(0)C  during  summer and
early fall.  Transport of drilling  equipment and  consumables to the Verkhotina
Area is best achieved when the ground is frozen, which cuts down on travel time.



                                       11
<PAGE>

Exploration and Diamond Mining Licence

On  December  30,  1993,  a 25-year  Licence for the  exploration  and mining of
diamonds  over the  Verkhotina  Area (the  "Licence")  was  granted to a Russian
enterprise,  Arkhangelskgeoldobycha  ("AGD").  The  Licence  was  granted by the
Administration of the Arkhangel'sk Oblast and the Northern Committee for Geology
and  Bowels  Utilization  ("Severgeolkom").  AGD  was  formerly  a  State  owned
enterprise,  Arkhangel'sk  Geologia  Enterprises,  owned in part by the  Russian
Province of Arkhangel'sk. AGD was subsequently privatized.

According to the Licence, during the first five years of prospecting, evaluation
and detailed  exploration  (the "first stage") of the  Verkhotina  Area, AGD and
indirectly the Company had a requirement to pay to Severgeolkom a tax of 1.5% of
the annual expenditure costs associated with prospecting and evaluation, 4.0% of
the expenditure costs during the period of detailed exploration, and 4.0% of the
value of any diamonds recovered during the first stage.  Should this first stage
extend beyond five years, the required tax payments could increase by 50%.

In August 1999,  application was made by AGD to the appropriate Russian agencies
requesting an extension of the five-year  term of the first stage.  In September
1999,  this request for an extension was granted for the  Verkhotina  Area until
December 31, 2002 and the tax for prospecting  and evaluation  during this stage
was increased to 2.25%.  As part of the Licence  extension,  the Licence holder,
AGD, was to produce a report by September  30, 2001,  detailing  the  evaluation
completed on the Grib Pipe. It is management's understanding that the report was
issued by AGD September 30, 2001.

Under the Licence,  a  feasibility  study must be prepared  prior to  commencing
mining,  which must be approved by Severgeolkom.  If and when mining  commences,
annual mining plans must be prepared for presentation to Severgeolkom,  and work
must be performed on the Licence  area in  accordance  with such plans and mined
areas must be rehabilitated.

Verkhotina Diamond Venture Agreement (VDV Agreement)

Pursuant to the VDV Agreement with AGD, the Company acquired the right to earn a
40% interest in any profits from the Verkhotina  Area. The VDV Agreement  (prior
to  subsequent  amendment)  requires  the  Company to fund all  exploration  and
evaluation costs, the costs of completing  feasibility studies on the Verkhotina
Area, the funding of all agreed-to expenses associated with the registration and
maintenance  of the  Licence,  and all Licence  fees,  bonuses and  payments for
geological  information  until  such time as the  decision  is made to place the
Verkhotina  Area into  commercial  production.  As of December 31,  2002,  these
expenditures,  including  those  for  legal  and  certain  administrative  costs
associated  with the  Licence  transfer  dispute,  totaled  approximately  $20.0
million.

Under the VDV Agreement,  if a feasibility study were to recommend  commencement
of  commercial  production,  the parties  further  agreed to establish a Russian
joint stock company (the "Stock Company"),  of which the Company would own a 40%
interest.  AGD agreed to grant to the Stock  Company sole and  exclusive  rights
within the  Verkhotina  Area for the  conducting  of  development  and mining as
determined as a result of the feasibility  study.  The parties would  contribute
through  the Stock  Company to all  expenditures  incurred  in  relation  to the
Verkhotina  Project in  proportion  to their  respective  interests in the Stock
Company.

At the time of formation of the Stock Company, the prior expenditures of each of
the parties were to be reflected in the initial  contributed  capital.  For this
purpose,  the past expenditures of AGD were estimated to be approximately  US$20
million,  subject to such  expenditures  being  substantiated  and  verified  by
independent  audit.  All  profits  derived  from  commercial  mining  are  to be
distributed between the parties in proportion to their share holding interest in
the Stock  Company.  Should the Company  withdraw  from the VDV  Agreement,  the
Company will be required to reassign  its interest to AGD without  compensation.
Should the Company breach its financial obligations under the VDV Agreement, AGD
has a right to withdraw from the VDV Agreement.

Establishment of the Russian Joint Stock Company, AB

In  anticipation  of changes to Russian  Legislation  which  would allow for the
transfer of the Licence  under  certain  circumstances,  in February  1994,  the
Company and AGD signed the  Memorandum  amending  the VDV  Agreement  and which,
among other  matters,  set out the ownership  structure of a Russian joint stock
company  and  provided  for AGD to  transfer  the  Licence to such  joint  stock
company.  In May 1994,  pursuant to such amended VDV Agreement,  the Company and
the other parties to the project  incorporated  the Russian joint stock company,
AB, with AGD owning 50%, the Company owning 40% and IBME Ltd.  owning 10% of the
ordinary   shares.   At  the  time  that  AB  was   incorporated,   the  initial

                                       12
<PAGE>

capitalization  was 10.0 billion  rubles with 1 million  common shares issued to
the   parties  in   proportion   to   ownership   percentage.   Of  the  initial
capitalization,  the  Company's  contribution  was  4.0  billion  (approximately
$664,000 at the historical  exchange rate) comprised of technical expertise (3.5
billion rubles or  approximately  $580,000 at the historical  exchange rate) and
500 million rubles in cash  (approximately  $83,000 at the  historical  exchange
rate).

By means of a public  offering  through a prospectus in 1994, AB issued  300,000
preferred,  non-voting shares with a par value of 20,000 Russian rubles each, at
a price of 40,000 Russian rubles each. Effective December 1996, the offering was
closed and no preferred shares have been subsequently issued.

As  of  December  31,  2002,  AB  had  received  1.66  billion   Russian  rubles
(approximately  $274,000  at the  historical  exchange  rate and  $52,000 at the
exchange  rate at December 31, 2002) in cash  relating to the issuance of 41,500
preferred  shares and had received  promissory  notes in the aggregate amount of
10.34  billion  Russian  rubles  (approximately  $1,712,000  at  the  historical
exchange rate and $325,000 at the exchange  rate at December 31, 2002)  relating
to the issuance of 258,500 preferred shares.  All amounts for Russian rubles are
before the January 1, 1998 re-denomination of 1,000 old rubles for 1 new ruble.

The  terms of the  preferred  shares,  according  to the  prospectus  and the AB
Charter, include the right of preferred shareholders to receive dividends of not
less  than 10% per  annum of the  shares'  nominal  value.  According  to the AB
Charter,  the preferred shares of AB are not cumulative  preferred shares. While
the  AB  Charter   contains  no  specific   provisions  which  provide  for  the
accumulation  of unpaid  dividends,  it does refer back to its  prospectus.  The
provisions of the prospectus are not clear, and it cannot be completely excluded
that a Russian court might decide that the preferred shares are cumulative.

As no  shareholders'  resolution  has been  passed  to pay any  dividend  on the
preferred shares, the owners of the preferred shares have the same voting rights
as the common shareholders. When the first full dividend on the preferred shares
is paid by AB, preferred  shareholders will have voting rights only as regards a
limited number of matters such as voting on liquidation or  reorganization of AB
and voting on amendments or additions to the AB Charter that restrict the rights
of such  preferred  shareholders.  While  preferred  shareholders  have the same
voting rights as the common  shareholders,  the Company has the right to vote an
aggregate of 32.4% of the voting shares of AB on a fully diluted basis.

On August 7, 2001, the Russian  President signed amendments to Russia's existing
legislation on joint stock companies that may dramatically  affect the ownership
and operation of AB, the Company's 40 percent owned company established in 1994.
Among other things, the new amendments,  which become effective January 1, 2002,
provide that a shareholder  that has more than 50 percent of the shares has full
control over the  management  of the joint stock company and may elect the board
of  directors,  the  director  general  and the  chief  accountant  at its  sole
discretion. As a result of this legislation,  it is possible that AGD could gain
complete control of AB sometime in the future and employ the well-known  Russian
business  practice of issuing large  quantities of new shares to themselves that
will effectively dilute the Corporation's  current 40 percent  shareholding to a
negligible  amount,  contrary to the original charter and agreement amongst AGD,
the Company and IBME.

Russian law provides  inter alia the  following  condition for the transfer of a
mineral  licence to a subsidiary  of a subsoil  user.  The  shareholding  of the
previous subsoil user in the charter capital of such subsidiary at the moment of
re-registration of a licence must be at least 50%. The total shareholding of AGD
in AG has decreased  below 50% (following a decrease in its holding of preferred
shares),  as a result of which AB does not  currently  qualify  as a company  to
which the Licence can be transferred.

Licence Dispute

During May 1995, new Russian  legislation  was introduced  which, in the view of
the  Company,  enabled  AGD to  transfer  the  Licence  in  accordance  with the
Memorandum. Although AGD has disputed the legality of this legislation, in April
1997, the AGD Board of Directors resolved that the transfer of the Licence to AB
would take place upon  completion  and  payment by the Company of an agreed upon
work program (the "Work  Program") on the Verkhotina Area for 1997 and the first
quarter of 1998 and that a  supplemental  agreement  would be prepared to record
this. In December  1997 the Work Program was agreed upon by the parties,  and in


                                       13
<PAGE>

March 1998,  the General  Director of AGD confirmed to the Company that that the
Company  had  satisfied  all of its  requirements  regarding  the Work  Program.
However,  no  supplemental  agreement  was  provided  by AGD to the  Company and
transfer of the Licence to AB as resolved by the AGD Board did not take place.

The Company repeatedly failed in its attempts to get AGD to transfer the Licence
to AB and in June 1998 the Company  advised AGD that a dispute  existed and that
it was  temporarily  suspending  further funding for the Verkhotina Area as from
July 1, 1998  until  AGD  complied  with its  contractual  obligations.  AGD has
continued  to  perform  exploration  in the area  and,  as a result  of this the
Company began accruing the costs for continuing  exploration work as invoiced by
AGD associated with the Verkhotina Area.

As the parties were unable to reach an agreement concerning Licence transfer, in
August 1998 the Company  commenced  international  arbitration  of the matter in
Stockholm as provided for in the VDV Agreement.  The  Arbitration  Tribunal (the
"Tribunal") was constituted and unanimously accepted preliminarily  jurisdiction
of the dispute.

In 1998, it became public  knowledge that Open Joint Stock Company  LUKoil,  the
largest oil company in Russia and one of the largest oil companies in the world,
had acquired a controlling  interest in AGD. With the  assistance of the Russian
Government,  agreement  was  reached  between  the Company and AGD in 1999 that,
among other matters,  the Company would, within a period not to exceed 180 days,
transfer or  re-register  the Licence to a new Russian joint stock company to be
established, of which the Company would also own a 40% interest. At a meeting at
which senior representatives of the LUKoil group participated,  the Board of AGD
unanimously  approved the terms and the 1999  Agreement  was  executed  July 15,
1999. As part of the 1999 Agreement, the Company agreed to suspend international
arbitration for 180 days, after which time the arbitration would be discontinued
if the Licence had been transferred under the terms of the 1999 Agreement.

Within  weeks of executing  the 1999  Agreement,  AGD brought  forth new demands
requesting  the right,  but not the  obligation,  to jointly fund the Verkhotina
project through  completion of the feasibility study, the right to reimburse the
Company for 50% of its past costs, and the right to appoint the General Director
of AGD on an  alternating  basis  if they  did so  fund  and  reimburse.  As all
previous  agreements,  including the 1999 Agreement,  specifically  contemplated
that  these  rights  and  obligations  were to be held or  borne  solely  by the
Company,  these new AGD requests erected new roadblocks in effecting transfer of
the Licence.

In January  2000,  with the  transfer of the Licence  having not been  completed
within the allotted  180-day period,  the Company  formally filed a request with
the Tribunal to reinstate the arbitration proceedings.  The Company subsequently
filed its  detailed  statement of case on April 14, 2000.  After  several  legal
submissions by both parties,  the Tribunal  established February 26, 2001 as the
final date for submission of pleadings.

During  the week of March 5,  2001 the  Tribunal  heard the  Company's  claim in
regard to AGD's  alleged  non-performance  of the amended VDV  Agreement and its
obligation to transfer the Licence to the Russian  joint stock company  referred
to in the  Memorandum.  On the basis of new  arguments  put forward by AGD,  the
Tribunal agreed to hear new arguments as to its jurisdiction over the dispute.

On June 27, 2001,  the  Tribunal  issued a split ruling that the dispute was not
arbitrable  in  Sweden,  a finding  that  overturned  their 1999  acceptance  of
jurisdiction over the dispute.  The Company filed a Summons Application with the
Swedish  District  Court on July 23,  2001,  seeking to  determine  the majority
arbitrators'  competence regarding their majority decision of "no jurisdiction,"
and in May 2002, the Swedish District Court accepted the Corporation's petition.
Detailed  pleadings now been submitted by both parties.  Submission of pleadings
was  postponed  a  number  of  times  upon  the  request  of both  parties  and,
consequently,  the main hearing scheduled for mid-December 2002 was postponed. A
new  pre-trial  hearing is scheduled for June 2, 2003. A date for a main hearing
is not yet fixed, however, this is not likely to take place before autumn 2003.

On August 23,  2001,  LUKoil,  the 74.1%  owner of AGD,  filed  claims  with the
Arbitration  Court  of  the  Arkhangel'sk   Region  in  the  Russian  Federation
("Arbitration Court") seeking a ruling, in the case of the first claim, that the
arbitration  provisions in the VDV Agreement are invalid and, in the case of the
second claim,  that the 1999  Agreement is invalid.  In addition,  on August 31,
2001, AGD filed a claim with the Arbitration  court of the  Arkhangel'sk  region
seeking a ruling that the  Memorandum be declared not concluded and invalid and,
further, on January 14, 2002, AGD filed a claim with the same court to terminate
the VDV Agreement on the grounds that the VDV Agreement funding  provisions have
been breached by the Company.


                                       14
<PAGE>

During 2002, a number of hearings were held with respect to these claims. First,
on March 21, 2002, the  Arbitration  Court at first instance  rejected the claim
brought by LUKoil that the  arbitration  clause in the VDV Agreement be declared
invalid  and this  decision  was not  appealed.  Second,  on May 21,  2002,  the
Arbitration  Court at first instance  dismissed  LUKoil's claim to have the 1999
Agreement  declared invalid,  finding that the 1999 Agreement is valid, and this
decision was also not appealed.  Third,  AGD's  petition that the  Memorandum be
declared  unconcluded and invalid was initially remanded until July 26, 2002, at
which hearing original specimens of AGD's signatory to the Memorandum, Dr. Grib,
were presented to the Arbitration Court for examination by handwriting  experts.
The case  was  subsequently  again  remanded  until  such  examination  could be
completed.  On  October 1,  2002,  the  hearings  with  respect to AGD's  claims
concerning the VDV Agreement were suspended until a final decision regarding the
Memorandum  came into  force at which  time the  hearing  would  recommence.  On
October 28, 2002, the  Arbitration  Court ruled that the Memorandum  between the
Company and AGD is  unconcluded.  The  decision  was  appealed by the Company in
November 2002 was heard on January 23 and 27, 2003.  The  Arkhangel'sk  Court of
Appeal  rejected the appeal,  whereupon  the  original  decision  declaring  the
Memorandum  unconcluded (and hence of no force and effect as a matter of Russian
law) entered  into force on February 4, 2003. A second level appeal  against the
decision was filed with the St. Petersburg Court of Cassation on March 23, 2003,
and this case is pending.  Following  the  entering  into force of the  decision
declaring the Memorandum unconcluded, on February 4, 2003, the Arbitration Court
resumed  consideration  of AGD's claim to  terminate  the VDV  Agreement  on the
grounds that the Company has breached its funding obligations.  Hearings in this
case are scheduled to commence on April 28, 2003.

As a direct  result of the  actions  by LUKoil  and AGD,  in  November  2001 the
Company filed a lawsuit in the Denver District Court, State of Colorado, against
LUKoil and AGD (the "Defendants")  seeking to recover in excess of $1 billion in
damages  for harm  caused  by a scheme  of  fraud,  breach  of  contract,  civil
conspiracy  and related  claims.  On October 15, 2002 the Denver  District Court
issued an order  dismissing  the Company's  action  against LUKoil and AGD based
solely  on a  determination  that  it  lacked  personal  jurisdiction  over  the
Defendants,   but  rejecting  all  of  the   Defendants'   other   arguments  on
jurisdiction.  As the Company  believed that the Court's  decision was erroneous
for a number of reasons, including the Court's failure to consider the Company's
fraud and other  tort  claims  against  LUKoil  and AGD as a basis for  personal
jurisdiction, on November 27, 2002, the Company filed a motion with the Colorado
Court of Appeals  appealing the October 15, 2002 decision.  The appeal is likely
to be heard during the last quarter of 2003.

Rock Formations and Mineralization of the Arkhangel'sk Region

The  regional  geology  of the  Winter  Coast  region of the  northwest  Russian
Federation comprises Archaean to Lower Proterozoic crystalline basement rocks of
the Kuloi  Craton,  which is one of several  cratonic  fragments  in the region.
Kimberlites  in the region are typified by extensive  alteration to red clays to
depths of up to 1000m below surface and by having  extremely low  concentrations
of the typical kimberlitic indicator minerals.

Discovery of the Grib Pipe Deposit within the Verkhotina Area

The  diamondiferous  kimberlitic  Grib Pipe  deposit was  discovered  within the
Verkhotina  Area in February 1996 when Hole 441  intersected  38m of kimberlite.
Approximately  85kg of core material were  recovered  producing  0.075 carats of
diamonds  and  yielding a grade of 88 carats per 100  tonnes.  Magnetic  surveys
indicated a large  geophysical  anomaly  possibly  consisting of three  distinct
zones.  The Company  commenced a  delineation  drilling  program on the first of
these zones,  containing the Grib Pipe, to quantify the pipe's  overall  extent,
grade and quality.

Work Completed on the Grib Pipe Deposit

Since  the  discovery  of the  Grib  Pipe  deposit,  68  boreholes  intersecting
diamondiferous  material and totaling 19,557m (64,100ft) have been drilled. This
fieldwork  has included the drilling of five  wide-diameter  (560mm)  holes,  36
vertical (112mm) holes (originally drilled on 80m centers and later with in-fill
drilling on approximately 50m centers),  and 27 angle (112mm in diameter) holes.
Overlain  by an  average  of 67m of  overburden,  the  areas of the  crater  and
diatreme  facies are 16h and 11h,  respectively,  as projected to the surface of
the ground.  The  higher-grade  diatreme  facies has been shown to persist to at
least 500m below surface and remains open at depth.

Bulk   sampling   based  on  recovery  of   diamondiferous   material  from  the
wide-diameter holes was completed to an average depth of 300m. Two wide-diameter
holes,  in  addition to the five for which  drilling  has been  completed,  were
started  in 1999 but were  subsequently  conserved  by  casing at the top of the
crater facies until funding by the Company resumes. The bulk sampling program is
designed  to  provide  large  tonnages  of sample  material  for grade and value
confirmation with each hole yielding  approximately 150 tonnes of diamondiferous
sample.


                                       15
<PAGE>

The initial vertical hole drilling  program,  completed in 1998, was designed to
determine  both the  approximate  lateral  extent  and depth of the  crater  and
diatreme facies, to gather necessary data to support mine planning efforts,  and
to supplement technical data from bulk sampling programs.

The angle hole program provided improved definition of wallrock contacts as well
as  other  geotechnical  characteristics  and  the 3D  shape  of the  pipe as is
required for mine planning and design.

Although the Company  suspended  funding in July 1998, work was continued by AGD
on  the  Grib  Pipe  deposit  until  June  1999  when  all  previously  acquired
consumables   were  depleted.   To  date  the  Company  has  received  data  for
approximately  890 tonnes of kimberlite  sample material that has been recovered
and processed.  From this material,  nearly 13,920 (+1mm) diamonds  weighing 726
carats  were  recovered.  The  Company  is close to  attaining  its  established
objective  of  recovering  a minimum of 1000  carats for  valuation  purposes in
support of a final feasibility study.

To the date of suspension  of the financing in July 1998,  the Company had spent
$8.1 million on the work programs on the Verkhotina Area.

Planned Exploration Activities

During  the  summer  of  1999,  the  Company  tentatively  agreed  with AGD on a
fieldwork  program on the  Verkhotina  Area for calendar year 2000. The proposed
work on the Grib  Pipe was  developed  so as to  provide  adequate  data for the
completion  of a  Russian  feasibility  study  within  about  fifteen  months of
commencement  and lead directly into the  preparation  of a Western  feasibility
study.  Such a program would have  included the drilling of select  anomalies on
the Verkhotina Area plus additional delineation drilling and the completion of a
detailed  hydro-geological  drilling  program;   engineering  and  environmental
studies;  financial and legal  analyses;  and the  preparation and submission of
appropriate  documentation  as required  for  Russian  State  Expert  Review and
approval by the State Mineral Reserves Committee.

At that time,  the  Company  estimated  the cost of the  proposed  program to be
approximately $4 million,  which included $2.1 million for work conducted by AGD
on the Grib Pipe deposit  from July 1998  through June 1999.  Due to the ongoing
dispute  regarding  the transfer of the  Licence,  however,  the  proposed  work
program was not conducted. It is reported, but independently  unsubstantiated by
the Company,  that AGD has completed some  exploration  on the  Verkhotina  Area
subsequent  to 1999.  Assuming  the dispute with AGD  regarding  transfer of the
Licence can be satisfactorily resolved, the Company will need to review all work
done on the  property  to date and the  parties  will need to agree on a revised
fieldwork program.

Plant and Equipment

In the mid 1980s, AGD constructed a kimberlite processing facility in Pomorye to
process  regional ores. The Company and AGD have continued to primarily use this
facility  for  processing  of  samples  from the Grib Pipe  deposit.  Pomorye is
accessible on a year round basis by road or helicopter.


ITEM 5.      OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following  should be read in  conjunction  with the  Company's  consolidated
financial  statements  for the year ended  December  31, 2002 and notes  thereto
appearing under "ITEM 17 - FINANCIAL  STATEMENTS" and listed under "ITEM 19(a) -
Exhibits."

A.       Operating Results

The Company's  consolidated financial statements are prepared in accordance with
Canadian generally accepted accounting  principles  ("Canadian GAAP").  Material
measurement  differences  resulting from the  application of generally  accepted
accounting  principles  in the  United  States are  described  in Note 12 to the
consolidated financial statements.



                                    16
<PAGE>

Under  Canadian GAAP and  accounting  policies of the Company,  expenditures  to
acquire mineral  properties and incur exploration costs are capitalized  pending
the   determination  and  production  of  commercially   recoverable   reserves.
Administration costs are generally expensed in the year that they are incurred.

During the year ended  December  31, 2001,  the Canadian  Institute of Chartered
Accountants,  Accounting  Guideline 11 - Enterprises in the  Development  Stage,
became  effective  for the  Company.  As a result of the  impairment  evaluation
requirements  in the  Guideline,  combined  with  the  disputes  concerning  the
Verkhotina  mineral  property and the Company's  extended  delay in  exploration
activity, the Company wrote down deferred mineral property costs and exploration
costs,  net of a reversal  of accrued  Verkhotina  exploration  costs that would
arise from the VDV Agreement as amended (see Note 4 to the Financial  Statements
contained  in Item 19.  FINANCIAL  STATEMENTS),  to a nominal  value of $1.  The
Company  continues  to  believe  there  is  significant  potential  value in the
Verkhotina  mineral  property.  However,  the Company believes the write-down is
prudent given the nature of the legal proceedings and extended length of time to
reach an outcome  thereof.  During the year ended  December  31,  2002,  mineral
property costs  incurred with respect to the  resolution of the licence  dispute
have been expensed.

Critical Accounting Policies
----------------------------

Management periodically reviews the carrying value of its investments in mineral
leases and properties with internal and external mining related professionals. A
decision  to  abandon,  reduce or  expand a  specific  project  is based on many
factors  including   general  and  specific   assessment  of  mineral  reserves,
anticipated  future  mineral  prices,  the  anticipated  costs of  developing  a
producing  mine, the expiration  term, if any, of leased mineral  properties and
the general likelihood that the Company will continue  exploration.  The Company
does not set a  pre-determined  holding  period  for  properties  with  unproven
reserves.  However,  properties  that  have not  demonstrated  suitable  mineral
concentrations  at the  conclusion of each phase of an  exploration  program are
re-evaluated  to determine  if the future  exploration  is  warranted  and their
carrying  values  are  appropriate.  If there  has  been a delay in  exploration
activity that extends beyond three years, the Company writes off any exploration
or acquisition costs related to that property unless persuasive  evidence exists
to the contrary.

If an area of interest is abandoned or it is determined  that its carrying value
cannot be  supported by future  production  or sale or  significant  uncertainty
exists as to access  and  operations,  the  related  costs are  charged  against
operations in the year of abandonment  or  determination  of value.  The amounts
recorded  as mineral  leases  and  properties  and  deferred  exploration  costs
represent costs to date less write-downs and do not necessarily  reflect present
or future values.

The Company's  consolidated financial statements have been prepared assuming the
Company will continue on a going  concern  basis.  To date,  the Company has not
generated  revenue  from its  principal  business  activities  and has relied on
equity financing to meet its obligations. The ability of the Company to continue
as a going concern is dependent on continuation of the Company's interest in the
underlying mineral claims, the discovery of economically  recoverable  reserves,
the continued financial support of the controlling  shareholder,  the ability of
the  Company  to  obtain  necessary  financing  to  complete   exploration  and,
ultimately, development and future production.

Fiscal Year Ended  December 31, 2002 Compared to the Fiscal Year Ended  December
31, 2001

The Company  incurred a loss of $3,856,070 for the year ended December 31, 2002,
compared to a loss of  $18,677,461  for the same period ended December 31, 2001.
The loss per share for the year ended  December  31, 2002 was $0.09  compared to
$0.44 for the year ended December 31, 2001. The significant  decrease in loss of
$14,821,391  is  primarily  attributable  to the  absence of the  write-down  of
deferred  exploration and mineral property cost of $18,145,299 which occurred in
2001, which was offset by 2002  restructuring  costs of $267,830 relating to the
change  in  management  control  that  occurred  when  Cencan  S.A.  became  the
controlling  shareholder  and mineral  property costs of $2,256,293.  During the
year  ended  December  31,  2002,   the  Company   adopted  the  new  accounting
recommendations  with  respect  to  stock-based   compensation.   As  a  result,
$1,347,776 of  stock-based  compensation,  representing  the fair value of stock
options  granted,  to be granted,  or modified,  to non-employees of the Company
during  2002  was  expensed.  Of this  amount  $955,776  has  been  recorded  in
administration costs and $392,000 in mineral property costs - legal and permits.

Administration  costs  during the year ended  December  31, 2002 versus the same
period  ended  December 31, 2001  increased  $712,724  from  $629,870 in 2001 to
$1,342,594  in  2002.  Apart  from  the  increase   resulting  from  stock-based
compensation  expense,  the decrease in administration cost was primarily due to
decreased  Investor  relations,  Office  administration,  Salaries and benefits,


                                       17
<PAGE>

Consulting and Travel costs.  Investor Relations costs decreased from $52,115 in
2001  to  $2,778  in  2002  due to the  elimination  of the  investor  relations
consulting   position  due  to  the  lack  of   shareholder   activity.   Office
administration  costs were reduced from $128,366 for the year ended December 31,
2001 to $87,580 for the same period in 2002 primarily due to decreased insurance
coverages and associated premiums, the absence of the office moving costs during
first  quarter  2001 and an overall  cutback in office  spending  in 2002 due to
limited  funds.  Salaries and benefits  decreased  significantly  from  $209,905
during 2001 to $119,095 in 2002 due to the voluntary salary reductions agreed to
by the former  officers of the Company,  which also  decreased  related  payroll
taxes and other employee benefit programs. Consulting costs decreased by $26,010
to $35,523 for the year ended  December 31, 2002 due to the decrease in board of
director's  fees due to the  resignation  of two board members  during the year.
Travel costs were  reduced for the year ended  December 31, 2002 to $19,043 from
$50,118  in 2001  due to the  elimination  all  non-essential  travel  in  2002.
Interest income  decreased  $87,031 from $97,708 in 2001 to $10,677 in 2002 as a
result of lower cash balances during the year and lower interest rates.

During the year ended  December  31,  2002,  $nil was  capitalized  as  deferred
exploration relating to the Verkhotina Area, compared to $1,630,090 for the year
ended December 31, 2001.  During 2002, all costs  associated with the Verkhotina
property were expensed as mineral property costs,  which totaled  $2,256,293 for
the year  including  $392,000 in stock-based  compensation.  The change in costs
associated  with the Verkhotina  property  included  slightly higher legal fees,
including stock-based  compensation,  associated with the litigation,  offset by
lower holding costs.

Fiscal Year Ended  December 31, 2001 Compared to the Fiscal Year Ended  December
31, 2000

The Company had a loss of $18,677,461  during the fiscal year ended December 31,
2001,  compared to a loss of $429,784  for the same period  ended  December  31,
2000.  The loss per share for the fiscal year ended  December 31, 2001 was $0.44
compared to $0.01 for the fiscal year ended December 31, 2000.  The  significant
increase  in  loss is  primarily  attributable  to the  write-down  of  deferred
exploration and mineral property cost of $18,145,299.

Administration  costs  during the year ended  December  31, 2001 versus the same
period  ended  December  31, 2000  decreased  $61,858  from  $691,728 in 2000 to
$629,870 in 2001. Administration costs were reduced primarily due to lower costs
in the areas of Investor  Relations,  Printing and  Shareholder  Information and
Travel.  Investor  Relations  costs decreased from $98,440 in 2000 to $52,115 in
2001 due to the decreased  use of the investor  relations  consultant  resulting
from  limited  shareholder   activity  during  the  period  of  arbitration  and
subsequent ruling in 2001. Printing and Shareholder  Information costs decreased
from $30,553 for the year ended December 31, 2000 to $18,070 for the same period
in 2001,  primarily due to the simplification of the 2000 annual report.  Travel
costs were reduced for the year ended  December 31, 2001 to $50,118 from $61,994
in 2000 due to the overall effort to eliminate all non-essential  travel.  These
reductions in  Administrative  costs were partially  offset by increased  Office
Administration  costs of $128,366 in 2001 versus  $116,109 in 2000 due to higher
insurance premiums.  Interest income decreased $164,236 from $261,944 in 2000 to
$97,708  in 2001 as a result of lower  cash  balances  during the year and lower
interest rates.

During the year ended December 31, 2001, $1,630,090 was initially capitalized as
deferred  exploration  costs  relating  to  the  Verkhotina  Area,  compared  to
$1,155,112  for the year ended  December 31,  2000.  Costs  associated  with the
Verkhotina  Area  increased in 2001 primarily due to the increase in Permits and
Legal fees from  $591,420 in 2000 to  $1,092,278 in 2001 as a result of the work
performed for the arbitration  hearing in March 2001, the subsequent appeal, and
the work performed relating to the lawsuit filed against the Company in Russia.

During the year ended  December  31, 2001,  the Canadian  Institute of Chartered
Accountants,  Accounting  Guideline 11 - Enterprises  in the  Development  Stage
became  effective  for the  Company.  As a result of the  impairment  evaluation
requirements  in the  Guideline,  combined  with  the  disputes  concerning  the
Verkhotina  mineral  property and the Company's  extended  delay in  exploration
activity,  the Company wrote down the capitalized  deferred mineral property and
exploration  costs of the  Verkhotina  project to $1 at December 31,  2001.  The
reversal of associated  accrued  liabilities  related to Verkhotina  were netted
against  the  deferred  exploration  write-down,  resulting  in a net  charge to
operations of $18,145,299.


B.       Liquidity and Capital Resources

The  Company is in the  exploration  stage on the  Verkhotina  Area  project and
therefore has no cash flow from operations.  The level of exploration activities
is  determined  by results  from the  project  and the  availability  of capital
resources,  the sources of which are not  predictable.  To date, the Company has


                                       18
<PAGE>

received  funding from various  investors.  The  Company's  long-term  financial
success  will  be  dependent  on  whether  it is able to  discover  and  exploit
economically viable mineralization on its properties. Such developments may take
years to  complete,  and the  amount of the  resulting  income is  difficult  to
determine with any certainty.  The sales value of any minerals discovered by the
Company is largely dependent on factors beyond the Company's control.

Net  proceeds of  $1,890,106  were  received  upon the  completion  of a private
placement of  30,000,000  Common  Shares in the capital  stock of the Company at
Cdn$0.10 per share,  in December  2002, of which  28,000,000  Common Shares were
placed with Cencan S.A., a wholly-owned  subsidiary of De Beers S.A. The Company
currently  has  working  capital  sufficient  for its  requirements  until about
September  2003. As additional  funding for future  operations will be required,
the Company is considering various financing options.

The Company had working  capital of $608,297 as of December 31, 2002 compared to
$1,221,964  as of December  31, 2001.  As of December 31, 2002,  the Company had
$1,925,688 in cash and  equivalents  compared with $1,379,480 as of December 31,
2001. The decrease in working  capital is due to increased  accrued  liabilities
relating to litigation of $1,025,000,  deferred compensation payable of $192,252
and cash used for  operations  of  $1,341,830,  which were  partially  offset by
completion of a private  placement in December 2002, of 30,000,000 Common Shares
of the Company at Cdn$0.10  per share,  for net  proceeds of  $1,890,106.  As at
December 31, 2002, the Company's  cash and cash  equivalents  are  substantially
denominated in Canadian dollars.

During  the  summer  of  1999,  the  Company  tentatively  agreed  with AGD on a
fieldwork  program on the Verkhotina Area for calendar year 2000. Such a program
would have included the drilling of select anomalies on the Verkhotina Area plus
additional   delineation   drilling   and   the   completion   of   a   detailed
hydro-geological  program on the Grib Pipe.  The proposed  work on the Grib Pipe
was  developed so as to provide  adequate  data for the  completion of a Russian
feasibility  study within about fifteen months of commencement and lead directly
into the preparation of a Western  feasibility  study. At that time, the Company
estimated the cost of the proposed program to be approximately $4 million, which
includes all or part of the $2.1  million for work  conducted by AGD on the Grib
Pipe from July 1998 through June 1999. Due to the ongoing dispute  regarding the
transfer of the Licence,  however,  the proposed work program was not conducted.
It is reported,  but independently  unsubstantiated by the Company, that AGD has
completed some  exploration on the Verkhotina Area subsequent to 1999.  Assuming
the dispute  with AGD  regarding  transfer of the Licence can be  satisfactorily
resolved,  the Company will need to review all work done on the property to date
and the parties will need to agree on a revised fieldwork program.

During the 2003-2004  timeframe,  it is the Company's intention to conserve cash
wherever  it can while  pursuing  the appeal it has filed in the  United  States
against LUKoil and AGD and pursuing  negotiations in Russia. Should a settlement
of some nature take place or should the various legal proceedings  continue,  it
is fully  expected  that the Company will be  successful in raising the required
funds to meet its operating requirements.

From  the  inception  of the  project  in  1993,  approximately  $20.0  million,
including  accruals,  has been  invested by the Company in the  acquisition  and
exploration of the Verkhotina Area, for legal and certain  administrative  costs
with respect to the Licence transfer dispute, and on the delineation of the Grib
Pipe deposit itself.


C.       Research and Development, Patents and Licences, etc.

As the Company is in the exploration  stage, with no producing  properties,  the
information required by this section is not applicable.


D.       Trend Information

As the Company is in the exploration  stage, with no producing  properties,  the
information required by this section is not applicable.


                                       19
<PAGE>


ITEM 6.      DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES


A.       Directors and Senior Management

The following  table sets forth,  as of May 2, 2003,  the names of the directors
and senior  management of the Company and the offices held by them. There are no
family relationships between any director or member of senior management and any
other director or member of senior management.

<TABLE>
<CAPTION>

--------------------------------------------------------------------------------------------------------------------
Name                        Age     Position and Offices with the Company              Date of First Appointment
--------------------------------------------------------------------------------------------------------------------
<S>                        <C>      <C>                                                 <C>
  Gary M. Ralfe              58     Chairman and Director                                    Dec. 19, 2002
--------------------------------------------------------------------------------------------------------------------
  Raymond A. Clark           53     Chief Executive Officer, President and Director          Dec. 19, 2002
--------------------------------------------------------------------------------------------------------------------
  David Massola              43     Chief Financial Officer and Corporate Secretary          Dec. 19, 2002
--------------------------------------------------------------------------------------------------------------------
  Michael J.M. Farmiloe      56     Director                                                 Dec. 19, 2002
--------------------------------------------------------------------------------------------------------------------
  L. Lamont Gordon(1)(2)     71     Director                                                 Mar. 25, 1997
--------------------------------------------------------------------------------------------------------------------
  Clive Raymond Hartz(1)(2)  58     Director                                                 July 31, 1997
--------------------------------------------------------------------------------------------------------------------
  Robert Shirriff(1)(2)      72     Director                                                 Dec. 19, 2002 (3)
--------------------------------------------------------------------------------------------------------------------

(1)  Member of the Audit Committee.
(2)  Member of the Corporate Governance Committee.
(3) Mr.  Shirriff had  previously  served as Chairman and Director from July 22,
1998 to June 20, 2002.


</TABLE>

The following is a brief description of the principal business activities of the
directors and senior management of the Company:

Gary M. Ralfe

Mr. Ralfe,  Managing Director De Beers S.A. since January 1998, joined the Board
of Directors of the Company in December 2002 and is the Company's  Chairman.  He
has also served as a Director of De Beers  Consolidated  Mines Ltd.  since March
1990,  and as a Director of De Beers  Centenary AG since May 1990,  both private
subsidiaries  of De Beers S.A., the world's  largest  diamond miner and marketer
and an investment  holding company owned by Anglo American plc, Debswana Diamond
Company  (Proprietary)  Ltd.  and Central  Holdings  Ltd.  Mr.  Ralfe has been a
Director of Consolidated Co Bultfontein Mine, which company trades on the London
Exchange, since May 1998.

Raymond A. Clark

Mr. Clark  joined the Board of Directors of the Company in December  2002 and is
President and Chief Executive Officer.  He has been with the Diamond Trading Co.
Ltd.  ("DTC")  since 1985,  first as Head of  Information  Services from 1985 to
1994,  and then as Head of the Moscow Office of the  London-based  rough diamond
marketing arm of the De Beers Group.  DTC sources the rough diamonds from the De
Beers Group of mines and through  agreements  with other mining  companies.  DTC
currently  sorts and values about  two-thirds  of the world's  annual  supply of
rough diamonds by value.

David Massola

Mr. Massola was appointed Chief Financial Officer and Corporate Secretary to the
Company in December 2002. He has been Chief Financial Officer of De Beers Canada
Corporation since August 2001. Prior to his appointment at De Beers, Mr. Massola
was employed by BHP Minerals from  September 1981 through August 2001 and served
in  various  financial  positions  including  Vice  President,  Finance,  of BHP
Diamonds Inc. from April 1997 to August 2001.

Michael J.M. Farmiloe

Mr.  Farmiloe  joined the Board of Directors of the Company in December 2002. He
has been a Director of Diamond Trading Co. Ltd. ("DTC"),  the London-based rough
diamond marketing arm of the De Beers Group,  since 1995, a director of De Beers
Centenary  since April 2002 and a member of the  Executive  Committee  of the De
Beers Group since 2002.  DTC sources the rough  diamonds from the De Beers Group
of mines and through agreements with other mining companies. DTC currently sorts
and values about  two-thirds of the world's  annual supply of rough  diamonds by
value.


                                       20
<PAGE>

L. Lamont Gordon

Mr.  Gordon was  elected to the board of the Company in July 1997.  In 1978,  he
founded Gordon,  Lloyd-Price  Investments Ltd., a securities  dealer,  and still
serves as Chairman and a director  thereof.  In September 1987, he joined Sprott
Securities  Limited,  a  securities  dealer,  and served as its  Chairman  and a
director  until  December 31, 2001.  He has been a director of Zoom  Telephonics
Inc. since June 1992 and Gulf International Minerals Ltd. since August 1999.

Clive Raymond Hartz

Mr.  Hartz  joined the Company as a director in March 1997.  In 1976,  Mr. Hartz
established  Commercial  Properties  Group,  a company  engaged  in real  estate
development,  construction  and  mining.  Mr.  Hartz is  Chairman  and  Managing
Director of the Commercial Properties Group and the Commercial & General Capital
Group of Companies,  a diverse private investment group based in Perth,  Western
Australia,  with  interests  in property,  mining,  construction  and  financial
services. He was a director of Fibertel Limited (formerly  International Mineral
Resources  N.L.) from October 1997 to March 2000.  He has been  Chairman,  Chief
Executive  Officer and  President and director of  International  Green Ice Inc.
since December 1999 and a director of Great  Southern  Resources Pty. Ltd. since
July 2000.

Robert Shirriff

Mr.  Shirriff  re-joined the Board of Directors in December  2002. He previously
served as  Chairman  and  Director  from July 1998 to June  2002.  He has been a
partner in the law firm of Fasken  Martineau  DuMoulin LLP since 1965 and is now
of Counsel  to the firm.  Mr.  Shirriff  has been a director  and  secretary  of
Chamberlain Lake Limited since May 1970; a director of Diapros Canada Inc. since
October 1977; a director of De Beers Canada  Exploration Inc. since May 1980 and
Chairman  since  February  1996;  a director  and  Chairman  of De Beers  Canada
Corporation  since June 2000; a director and Chairman of De Beers Canada  Mining
Inc. since August 2000; and a director of AXMIN Inc. since November 2001.


B.       Compensation

During the fiscal year ended  December  31,  2002,  the Company  paid a total of
$168,000   in  cash   compensation   to  its   directors   and  members  of  its
administrative, supervisory or management bodies, as follows:
<TABLE>
<CAPTION>

                                           Summary Compensation Table

-------------------------------- -------------------------------------- ------------------ -----------------------
Name of Director                 Principal Position with the Company     Salary Paid in    All Other Compensation
                                                                        Fiscal Year 2002            ($)
                                                                               ($)
-------------------------------- -------------------------------------- ------------------ -----------------------
<S>                              <C>                                    <C>                <C>
Gary M. Ralfe                    Chairman and Director                               Nil            Nil
-------------------------------- -------------------------------------- ------------------ -----------------------
Raymond A. Clark                 President, CEO and Director(1)                      Nil            Nil
-------------------------------- -------------------------------------- ------------------ -----------------------
Timothy J. Haddon                President , CEO  and Director(1)                $84,000            600 (2)
-------------------------------- -------------------------------------- ------------------ -----------------------
David Massola                    CFO and Corporate Secretary(3)                      Nil            Nil
-------------------------------- -------------------------------------- ------------------ -----------------------
Gary E. Davis                    CFO and Corporate Secretary(3)                  $84,000            Nil
-------------------------------- -------------------------------------- ------------------ -----------------------
Michael J.M. Farmiloe            Director                                            Nil            Nil
-------------------------------- -------------------------------------- ------------------ -----------------------
Robert Shirriff                  Director                                            Nil            Nil
-------------------------------- -------------------------------------- ------------------ -----------------------
L. Lamont Gordon                 Director                                            Nil          5,000 (4)
-------------------------------- -------------------------------------- ------------------ -----------------------
Clive Raymond Hartz              Director                                            Nil          5,000 (4)
-------------------------------- -------------------------------------- ------------------ -----------------------
Alasdair Pein (5)                Director                                            Nil            Nil
-------------------------------- -------------------------------------- ------------------ -----------------------
Richard Wake-Walker              Director                                            Nil          5,000 (6)
-------------------------------- -------------------------------------- ------------------ -----------------------

(1)  Mr. Haddon served as Chief  Executive  Officer and President  from November
     28, 1997 to December  19,  2002.  Mr.  Raymond  Clark was  appointed  Chief
     Executive  Officer and  President on December 19, 2002 but was not paid any
     compensation  for the balance of the fiscal year. Mr.  Haddon's  employment
     was terminated effective December 19, 2002.
(2)  This amount constitutes life insurance premiums for a life insurance policy
     naming the Corporation as beneficiary.
(3)  Mr.  Davis  served as Chief  Administrative  Officer  from July 31, 1997 to
     November 28, 1997, Acting Chief Financial Officer from November 28, 1997 to
     July 22, 1998, Corporate Secretary from July 31, 1997 to December 19, 2002,
     Acting Chief Financial Officer from November 28, 1997 to July 22, 1998, and
     Chief Financial  Officer from July 22, 1998 to December 19, 2002. Mr. David
     Massola was appointed  Chief Financial  Officer and Corporate  Secretary on
     December 19, 2002 but was not paid any  compensation for the balance of the
     fiscal year. Mr. Davis'  employment was terminated  effective  December 19,
     2002.

</TABLE>


                                       21
<PAGE>

(4)  This compensation was accrued, but not paid.
(5)  Mr. Wake-Walker served as a Director until December 19, 2002.
(5)  Mr.  Pein  served as a  Director  until  June 20,  2002.This  compensation,
     consisting  of $5,000 for accrued  2001 fees and $5,000 for 2002 fees,  was
     paid  upon  receipt  of Mr.  Wake-Walker's  resignation  from the  Board on
     December 19, 2002.

During the fiscal year ended  December 31, 2002,  stock  options were granted to
directors and members of its  administrative,  supervisory or management bodies,
as follows:
<TABLE>
<CAPTION>

                              Summary Option Table

--------------------------- -------------- -------------------- --------------- ----------------
                                            Exercise Price of
                              Number of          Options        Expiry Date
Name                        Options Held      (Canadian $)      of Options      Purchase Price
--------------------------- -------------- -------------------- --------------- ----------------
<S>                         <C>             <C>                 <C>             <C>
Timothy J. Haddon             1,000,000           $0.10         Nov. 28, 2007         N/A
--------------------------- -------------- -------------------- --------------- ----------------
Gary E. Davis                    75,000           $0.23         Oct. 09, 2007         N/A
--------------------------- -------------- -------------------- --------------- ----------------
L. Lamont Gordon                 50,000           $0.23         Oct. 09/2007          N/A
                                100,000           $0.19         May 01, 2007          N/A
--------------------------- -------------- -------------------- --------------- ----------------
Clive Raymond Hartz              50,000           $0.23         Oct. 09, 2007         N/A
                                100,000           $0.17         May 09, 2007          N/A
                                100,000           $0.19         May 01, 2007          N/A
--------------------------- -------------- -------------------- --------------- ----------------
Richard Wake-Walker              50,000           $0.23         Oct. 09, 2007         N/A
                                 50,000           $0.17         May 09, 2007          N/A
                                100,000           $0.19         May 1, 2007           N/A
--------------------------- -------------- -------------------- --------------- ----------------
</TABLE>

Beginning  February 17, 1999,  annual cash  compensation  to the Chairman in the
amount of $7,500 and to each non-executive  director in the amount of $5,000 was
payable  during the first quarter of the fiscal year for services to be rendered
during  the  remainder  of the fiscal  year,  as well as  reimbursement  for all
related out-of-pocket expenses. As of November 24, 2000, payment of such fees to
Directors was deferred until the transfer of the Verkhotina  Licence is effected
at which time each Director will receive payment of all fees so deferred.

Other  than  the  figures  shown  in the  above  table,  there  was no  deferred
compensation   payable  to  any   directors   and   members  of  the   Company's
administrative,  supervisory or management bodies. Directors performing work for
the Company that is outside of that considered normal for directorship positions
are reimbursed at the rate of $100 per hour,  plus  reimbursement  of associated
expenses.  Other than as set out above,  there were no deferred  expenses due to
related parties as of December 31, 2002.


C.       Board Practices


Directors and Officers Term of Office and Length of Service

The directors of the Company are elected annually and hold office until the next
Annual Meeting of the  shareholders of the Company or until their  successors in
office are duly elected or  appointed.  All directors are elected for a one-year
term. All officers serve at the pleasure of the board of directors.  The Company
is scheduled to hold its 2002 Annual  Meeting on June 12, 2003.  The next Annual
General  Meeting of the  Shareholders  of the Company has not been scheduled but
must be held no later than June 30, 2004.

Service Contracts with Directors and Officers

Currently,  there are no directors' service contracts with the Company or any of
its subsidiaries providing for benefits upon termination of employment.

Committees of the Board of Directors

Committees  are  appointed  by the Board of  Directors  of the  Company  and its
members  hold office  until  removed by the Board of Directors or until the next
annual general meeting of the Company,  at which time their appointments  expire
and they are then  eligible for  re-appointment.  The Company  currently  has an
Audit  Committee  and  a  Corporate  Governance   Committee.   As  there  is  no
compensation  paid to the  current  officers  of the  Company,  nor any  present
intention to pay such  compensation,  there is no  Compensation  Committee.


                                       22
<PAGE>

The mandate of the Audit Committee is to:

     (i)  ensure  that at all times  there  are  direct  communication  channels
          between the Audit Committee and the Company's auditors;

     (ii) provide  oversight of the Company's  financial  management  and of the
          design and implementation of an effective system of internal financial
          controls; and

     (iii)review and report to the Board of Directors  on all audited  financial
          statements prepared by the Company.

The role of the  Corporate  Governance  Committee  is to develop and monitor the
Company's  overall  approach to  corporate  governance  issues  and,  subject to
approval by the Board of Directors,  implement and  administer  the system.  The
Corporate Governance Committee is responsible for:

     (i)  the  development  and  annual  updating  of a  long-term  plan for the
          composition of the Board of Directors;

     (ii) the  development and review,  annually,  of the Terms of Reference for
          the Board of Directors as a whole, each of the committees of the Board
          of Directors, the Chairman and the CEO, define any limitations imposed
          on any of those positions, and to make recommendations to the Board of
          Directors, as appropriate;

     (iii)authorizing a committee or an individual  director to engage  separate
          independent counsel and/or advisors at the expense of the Company;

     (iv) the  assessment  of the  effectiveness  of the Board of Directors as a
          whole,  committees of the Board and the contribution of its individual
          members, and to make recommendations to the Board of Directors;

     (v)  the  periodical  examination of the size of the Board of Directors and
          to recommend to the Board of Directors a program to increase or reduce
          the number of directors;

     (vi) recommending,  in consultation with the CEO, for approval of the Board
          of Directors,  new nominees for election to the Board of Directors and
          the  establishment  of a process for  identifying  and  recruiting new
          directors; and

     (vii) providing an orientation and education program for new directors.


D.       Employees

During the fiscal year ended December 31, 2002, excluding Officers,  the Company
had one employee,  in an  administrative  role,  who worked out of the Company's
executive  office. No temporary or casual employees were retained by the Company
during the last  fiscal  year.  As at  December  19,  2002,  the  Company had no
employees.


E.       Share Ownership

The  following  table sets out the share  ownership of those  persons  listed in
subsection 6.B above and includes details of all stock options granted as of May
2, 2003. None of the stock options granted have been exercised.
<TABLE>
<CAPTION>

--------------------------- ------------ -------------- ------------ --------------- ---------------- -----------
                             Number of   Percentage of
                              Common      Outstanding    Number of      Exercise
                            Shares Held  Common Shares    Options       Price of     Expiry Date of   Purchase
Name                                                       Held         Options      Options          Price
                                                                      (Canadian $)
--------------------------- ------------ -------------- ------------ --------------- ---------------- -----------
<S>                          <C>          <C>             <C>          <C>           <C>              <C>
Timothy J. Haddon               9,000        3.46%        1,000,000       $0.10      Nov. 28, 2007    N/A
                                                          1,500,000       $0.11      Nov. 25, 2006    N/A
--------------------------- ------------ -------------- ------------ --------------- ---------------- -----------
Gary E. Davis                   2,100        1.63%           75,000       $0.23      Oct. 09, 2007    N/A
                                                            900,000       $0.11      Nov. 26, 2006    N/A
                                                            125,000       $0.50      Feb. 18, 2004    N/A
                                                             75,000       $0.50      Feb. 18, 2004    N/A
--------------------------- ------------ -------------- ------------ --------------- ---------------- -----------
L. Lamont Gordon                  Nil        0.35%           50,000       $0.23      Oct. 09/2007     N/A
                                                            100,000       $0.19      May 01, 2007     N/A
                                                             50,000       $1.00      Apr. 14, 2005    N/A
                                                             50,000       $1.00      Feb. 18, 2004    N/A
--------------------------- ------------ -------------- ------------ --------------- ---------------- -----------



                                       23
<PAGE>

                             Number of   Percentage of
                              Common      Outstanding    Number of      Exercise
                            Shares Held  Common Shares    Options       Price of     Expiry Date of   Purchase
Name                                                       Held         Options      Options          Price
                                                                      (Canadian $)
--------------------------- ------------ -------------- ------------ --------------- ---------------- -----------
Clive Raymond Hartz           603,000        0.35%           50,000       $0.23      Oct. 09, 2007    N/A
                                                            100,000       $0.17      May 09, 2007     N/A
                                                            100,000       $0.19      May 01, 2007     N/A
--------------------------- ------------ -------------- ------------ --------------- ---------------- -----------
Richard Wake-Walker               Nil        0.28%           50,000       $0.23      Oct. 09, 2007    N/A
                                                             50,000       $0.17      May 09, 2007     N/A
                                                            100,000       $0.19      May 1, 2007      N/A
--------------------------- ------------ -------------- ------------ --------------- ---------------- -----------
</TABLE>



The Company  currently  maintains  an equity  incentive  plan (the  "Amended and
Restated  1999 Equity  Incentive  Plan")  adopted by the Board of Directors  and
ratified  and  approved  by the  disinterested  Shareholders  of the  Company in
February 2002 (the "Plan").  The Plan authorizes the Board of Directors to grant
incentive stock options to directors,  officers,  consultants,  and employees of
the Company  (including  an  employee  who is an officer  and  director)  of the
Company or any subsidiary  thereof, in accordance with the terms of the Plan and
the rules and policies of the TSX Venture Exchange. Under the terms of the Plan,
the aggregate  number of Common  Shares  reserved for issuance to any person may
not  exceed 5% of the  number  of  outstanding  Common  Shares,  subject  to the
approval of the disinterested  shareholders of the Company,  and the term of any
option is not to exceed ten years from the date of grant.


ITEM 7.      MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS


A.       Major Shareholders

To the  knowledge of the  Company,  as at May 2, 2002,  no person,  corporation,
foreign  government or any other Pursuant to the terms of the private  placement
completed in December,  2002, Cencan S.A., a Luxembourg company and wholly-owned
subsidiary  of  De  Beers  S.A.,   subscribed  for  28,000,000   Common  Shares,
representing  38% of the total issued share capital of the Company at a price of
$0.10 per share. Cencan S.A. also concurrently acquired 17,305,226 Common Shares
in a private transaction with the Company's then-controlling  shareholder,  Task
Holdings  Limited.  As a  result  of these  transactions  Cencan  S.A.  acquired
ownership and control of a total of 45,305,226 Common Shares, representing 62.7%
of the  Company's  issued  and  outstanding  share  capital  and as such  can be
considered to control the Company.

To  the  knowledge  of  the  Company,  as at  May  2,  2002,  no  other  person,
corporation,  foreign  government  or  any  other  natural  or  legal  person(s)
severally or jointly,  beneficially  own,  directly or indirectly,  or exercises
control or direction  over Common Shares  carrying more than 5% of voting rights
attached  to all  outstanding  shares of the  Company,  and the  Company  is not
controlled by any other person.


There are no arrangements known to the Company,  the operation of which may at a
subsequent  date  result in a change of control of the  Company.  The  Company's
major shareholders do not have different voting rights than other shareholders.

As of May 2, 2003, there were 72,234,558 Common Shares of the Company issued and
outstanding.  Based upon the records of the  Company's  registrar  and  transfer
agent, Pacific Corporate Trust Company, of Vancouver,  British Columbia, Canada,
as at such date there were 56 registered  holders of the Company's Common Shares
resident in the United States,  holding an aggregate of 7,594,347 Common Shares.
This number represents  approximately 10.51% of the total issued and outstanding
Common Shares of the Company.


B.       Related Party Transactions

Mr.  Clive  Hartz,  a  director  of the  Company,  participated  in the  private
placement  described  above through the indirect  acquisition  of 500,000 Common
Shares in the capital of the Company at $0.10 per share.

In connection with the acquisition of control by Cencan S.A. Timothy Haddon, the
Company's then Chief Executive  Officer,  President and a Director;  Gary Davis,
the Company's then Chief Financial Officer,  Corporate Secretary and a Director;
and Richard Wake-Walker, a Director of the Company, each resigned from the Board


                                       24
<PAGE>

of  Directors  of the  Company.  Messrs.  Haddon and Davis also  resigned  their
respective  current offices of the Company and executed a termination of release
agreement in favor of the Company.  The vacancies created were filled by persons
to be named by Cencan S.A.

Timothy Haddon  entered into a consulting  agreement with the Company to provide
strategic  management,  planning and  budgeting  with  respect to the  Company's
diamond exploration interests.  The agreement commenced on December 31, 2002 and
has a term of three years.  The Company has agreed to pay Mr. Haddon fees in the
amount of $250,000 per annum,  plus  reimburse Mr. Haddon for eligible  expenses
incurred by Mr. Haddon.

Gary Davis also entered into a consulting  agreement with the Company to provide
financial  management,  planning and  budgeting  with  respect to the  Company's
diamond exploration interests.  The agreement commenced on December 31, 2002 and
has a term of two years.  The  Company  has agreed to pay Mr.  Davis fees in the
amount of $134,322 per annum,  plus  reimburse  Mr. Davis for eligible  expenses
incurred by Mr. Davis.

During the year ended December 31, 2002, no loans or guarantees of any kind have
been made by the  Company  to or for the  benefit of any of the  persons  listed
above,  with the exception of receipt by the Company,  on a cost recovery basis,
of $24,742 related to office space and administration costs from a company whose
chief financial officer was the Chief Financial Officer and Corporate  Secretary
of the Company prior to the change in management  control effective December 19,
2002.


C.       Interests of Experts and Counsel

This Form 20-F is being filed as an annual report under the Exchange Act and, as
such, there is no requirement to provide any information under this item.



ITEM 8.      FINANCIAL INFORMATION


A.       Consolidated Statements and Other Financial Information


Consolidated Financial Statements for the Fiscal Year Ended December 31, 2002

This annual report contains the audited consolidated financial statements of the
Company for the fiscal year ended December 31, 2002 with an Auditors' Report and
Comments by Auditor for U.S. Readers on Canada-U.S.  Reporting Differences, both
dated March 14,  2003  (except as to note 4 which is as of March 23 2003) and is
comprised of:

     (a)  Balance Sheets as at December 31, 2002 and 2001;

     (b)  Statements of Operations  and Deficit for the years ended December 31,
          2002, 2001 and 2000;

     (c)  Statements of Deferred  Exploration Costs for the years ended December
          31, 2002, 2001 and 2000;

     (d)  Statements of Cash Flows for the years ended  December 31, 2002,  2001
          and 2000; and

     (e)  Notes to the consolidated financial statements.

Legal and Arbitration Proceedings

As more  particularly  described  in "ITEM 4 -  INFORMATION  ON THE COMPANY - D.
Property,  Plants and Equipment,  Verkhotina Area, Licence Dispute," the Company
commenced international arbitration proceedings with the Arbitration Tribunal in
Stockholm (the "Tribunal") in August 1998 against AGD for its non-performance of
the amended VDV  Agreement  and its  obligation  to transfer  the Licence into a
Russian joint stock company,  the ordinary  shares of which would be owned as to
40% by the Company.  On June 27, 2001,  the Tribunal  issued a split ruling that
the dispute was not arbitrable in Sweden,  a finding that overturned  their 1999
acceptance  of  jurisdiction  over the  dispute.  The  Company  filed a  Summons
Application  with  the  Swedish  District  Court on July 23,  2001,  seeking  to
determine the majority arbitrators' competence regarding their majority decision
of "no  jurisdiction,"  and in May 2002, the Swedish District Court accepted the
Corporation's  petition.  Detailed  pleadings  have now been  submitted  by both
parties.  Submission  of  pleadings  was  postponed  a number of times  upon the
request of both  parties  and,  consequently,  the main  hearing  scheduled  for
mid-December  2002 was postponed.  A new pre-trial hearing is scheduled for June
2, 2003. A date for a main hearing is not yet fixed, however, this is not likely
to take place before autumn 2003.


                                       25
<PAGE>

On August 23,  2001,  LUKoil,  the 74.1%  owner of AGD,  filed  claims  with the
Arbitration  Court  of  the  Arkhangel'sk   Region  in  the  Russian  Federation
("Arbitration Court") seeking a ruling, in the case of the first claim, that the
arbitration  provisions in the VDV Agreement are invalid and, in the case of the
second claim,  that the 1999  Agreement is invalid.  In addition,  on August 31,
2001, AGD filed a claim with the Arbitration  court of the  Arkhangel'sk  region
seeking a ruling that the  Memorandum be declared not concluded and invalid and,
further, on January 14, 2002, AGD filed a claim with the same court to terminate
the VDV Agreement on the grounds that the VDV Agreement funding  provisions have
been breached by the Company.

During  2002,  a number of  hearings  were held with  respect  to these  claims.
Firstly, on March 21, 2002, the Arbitration Court at first instance rejected the
claim  brought by LUKoil that the  arbitration  clause in the VDV  Agreement  be
declared invalid and this decision was not appealed.  Secondly, on May 21, 2002,
the  Arbitration  Court at first instance  dismissed  LUKoil's claim to have the
1999 Agreement  declared invalid,  finding that the 1999 Agreement is valid, and
this decision was also not appealed. Thirdly, AGD's petition that the Memorandum
be declared  unconcluded and invalid was initially remanded until July 26, 2002,
at which hearing  original  specimens of AGD's signatory to the Memorandum,  Dr.
Grib,  were presented to the  Arbitration  Court for  examination by handwriting
experts.  The case was subsequently  again remanded until such examination could
be  completed.  On October 1, 2002,  the  hearings  with respect to AGD's claims
concerning the VDV Agreement were suspended until a final decision regarding the
Memorandum  came into  force at which  time the  hearing  would  recommence.  On
October 28, 2002, the  Arbitration  Court ruled that the Memorandum  between the
Company and AGD is  unconcluded.  The  decision  was  appealed by the Company in
November 2002 and, until the  then-scheduled  appeal date hearing of January 23,
2003, the October 28, 2002 ruling would not come into effect.

The appeal against the decision  declaring the Memorandum  unconcluded was heard
on  January 23 and 27,  2003.  The  Arkhangel'sk  Court of Appeal  rejected  the
appeal,  whereupon the original  decision  declaring the Memorandum  unconcluded
(and hence of no force and effect as a matter of Russian law) entered into force
on February 4, 2003. A second  level appeal  against the decision was filed with
the St.  Petersburg  Court of  Cassation  on March  23,  2003,  and this case is
pending.  Following  the  entering  into  force of the  decision  declaring  the
Memorandum  unconcluded,  on February 4, 2003,  the  Arbitration  Court  resumed
consideration  of AGD's claim to terminate the VDV Agreement on the grounds that
the Company has  breached  its  funding  obligations.  Hearings in this case are
scheduled to commence on April 28, 2003.

As a direct  result of the  actions  by LUKoil  and AGD,  in  November  2001 the
Company filed a lawsuit in the Denver District Court, State of Colorado, against
LUKoil and AGD (the "Defendants")  seeking to recover in excess of $1 billion in
damages  for harm  caused  by a scheme  of  fraud,  breach  of  contract,  civil
conspiracy  and related  claims.  On October 15, 2002 the Denver  District Court
issued an order  dismissing  the Company's  action  against LUKoil and AGD based
solely  on a  determination  that  it  lacked  personal  jurisdiction  over  the
Defendants,   but  rejecting  all  of  the   Defendants'   other   arguments  on
jurisdiction.  The  Company's  legal  advisors were of the view that the Court's
decision was erroneous for a number of reasons, including the Court's failure to
consider the Company's  fraud and other tort claims  against LUKoil and AGD as a
basis for personal jurisdiction.  Accordingly, on November 27, 2002, the Company
filed a motion with the Colorado Court of Appeals appealing the October 15, 2002
decision. The appeal is likely to be heard during the last quarter of 2003.

Other  than the  foregoing,  the  Company  is not aware of any other  pending or
threatened litigation, claims, or assessments against it.

Dividend Policy

The Board of Directors  of the Company may from time to time  declare  dividends
payable to the shareholders according to their respective rights and interest in
the Company,  however,  the Company has not paid a dividend on its Common Shares
to date and it is unlikely  that  earnings  will be available for the payment of
dividends in the near future. The Company has adopted the policy of using all of
its funds to finance its mineral exploration activities.


                                       26
<PAGE>



B.       Significant Changes

Since the date of the  consolidated  financial  statements  for the fiscal  year
ended  December  31,  2002,  which  financial  statements  are  included in this
document, there have been no significant changes.



ITEM 9.      THE OFFER AND LISTING


A.       Offer and Listing Details

This Form 20-F is being filed as an annual report under the Exchange Act and, as
such,  there is no requirement to provide any information  under paragraphs A(1)
through (3) inclusive and paragraphs A(5) through (7).  Response to paragraph A4
follows:

                           History of the Stock Price

The following table sets forth the high and low prices for the Company's  Common
Shares on the TSX Venture Exchange reported on an annual basis for the five most
recent full financial  years,  on a fiscal quarter basis for the two most recent
fiscal years ending  December 31, 2002 and for the first quarter of 2003, and on
a monthly basis for the most recent six months.


  ----------------------------------- ----------------- -------------------
                                          High (Cdn$)        Low (Cdn$)
  ----------------------------------- ----------------- -------------------
  Annually
  ----------------------------------- ----------------- -------------------
  2002                                     $0.75              $0.05
  ----------------------------------- ----------------- -------------------
  2001                                     $0.45              $0.10
  ----------------------------------- ----------------- -------------------
  2000                                     $1.00              $0.18
  ----------------------------------- ----------------- -------------------
  1999                                     $1.50              $0.27
  ----------------------------------- ----------------- -------------------
  1998                                     $1.85              $0.31
  ----------------------------------- ----------------- -------------------

  ----------------------------------- ----------------- -------------------
  2002 Quarters
  ----------------------------------- ----------------- -------------------
  Fourth Quarter ended December 31         $0.75              $0.05
  ----------------------------------- ----------------- -------------------
  Third Quarter ended September 30         $0.28              $0.14
  ----------------------------------- ----------------- -------------------
  Second Quarter ended June 30             $0.45              $0.20
  ----------------------------------- ----------------- -------------------
  First Quarter ended March 31             $0.45              $0.20
  ----------------------------------- ----------------- -------------------

  ----------------------------------- ----------------- -------------------
  2001 Quarters
  ----------------------------------- ----------------- -------------------
  Fourth Quarter ended December 31         $0.22              $0.13
  ----------------------------------- ----------------- -------------------
  Third Quarter ended September 30         $0.25              $0.10
  ----------------------------------- ----------------- -------------------
  Second Quarter ended June 30             $0.45              $0.17
  ----------------------------------- ----------------- -------------------
  First Quarter ended March 31             $0.45              $0.17
  ----------------------------------- ----------------- -------------------

  ----------------------------------- ----------------- -------------------
  Monthly 2003
  ----------------------------------- ----------------- -------------------
  March                                    $0.53              $0.30
  ----------------------------------- ----------------- -------------------
  February                                 $0.47              $0.27
  ----------------------------------- ----------------- -------------------
  January                                  $0.54              $0.38
  ----------------------------------- ----------------- -------------------

  ----------------------------------- ----------------- -------------------
  Monthly 2002
  ----------------------------------- ----------------- -------------------
  December                                 $0.75              $0.16
  ----------------------------------- ----------------- -------------------
  November                                 $0.12              $0.05
  ----------------------------------- ----------------- -------------------
  October                                  $0.27              $0.05
  ----------------------------------- ----------------- -------------------
  September                                $0.28              $0.17
  ----------------------------------- ----------------- -------------------



B.       Plan of Distribution


This Form 20-F is being filed as an annual report under the Exchange Act and, as
such, there is no requirement to provide any information under this item.


                                       27
<PAGE>

C.       Markets

The  Company's  Common  Shares  have traded on the TSX  Venture  Exchange  under
trading symbol "AAD" since September 8, 1989.


D.       Selling Shareholders

This Form 20-F is being filed as an annual report under the Exchange Act and, as
such, there is no requirement to provide any information under this item.


E.       Dilution

This Form 20-F is being filed as an annual report under the Exchange Act and, as
such, there is no requirement to provide any information under this item.


F.       Expenses of the Issue

This Form 20-F is being filed as an annual report under the Exchange Act and, as
such, there is no requirement to provide any information under this item.



ITEM 10.     ADDITIONAL INFORMATION


A.       Share Capital

This Form 20-F is being filed as an annual report under the Exchange Act and, as
such, there is no requirement to provide any information under this item.


B.       Memorandum and Articles of Association


The  Company  previously  filed its  Articles of  Continuance  and  By-laws,  as
amended,  in its registration  statement on Form 20-F and as the information has
not changed it is incorporated herein by reference.


C.       Material Contracts

The Company  has not entered  into any  material  contracts  during the past two
years preceding the date of this document.


D.       Exchange Controls

There is no law or  governmental  decree or regulation in Canada that  restricts
the  export or import of  capital,  or  affects  the  remittance  of  dividends,
interest or other payments to a non-resident holder of Common Shares, other than
withholding  tax  requirements.  (See  "ITEM 10 -  ADDITIONAL  INFORMATION  - E.
Taxation" below.)

There are no limitations imposed by Canadian law or by the constituent documents
of the Company on the right of a  non-resident  to hold or vote  common  shares,
other than as provided in the  Investment  Canada Act  (Canada).  The  following
summarizes the principal features of the Investment Canada Act (Canada).

The Investment Canada Act (Canada) requires certain "non-Canadian"  individuals,
governments,  corporations  or other  entities  who wish to acquire a  "Canadian
business"  (as  defined in the  Investment  Canada  Act),  or  establish  a "new
Canadian  business" (as defined in the  Investment  Canada Act) to file either a
notification  of an application  for review with a governmental  agency known as
"Investment Canada."

The  Investment  Canada Act requires that certain  acquisitions  of control of a
Canadian  business  by a  "non-Canadian"  must be reviewed  and  approved by the
Minister  responsible  for the  Investment  Canada  Act on the  basis  that  the
Minister is  satisfied  that the  acquisition  is "likely to be a net benefit to
Canada",  having regard to criteria set forth in the Investment Canada Act. Only
acquisitions of control are reviewable under the Investment Canada Act; however,
the  Investment  Canada Act provides  detailed  rules for the  determination  of
whether control has been acquired and,  pursuant to those rules, the acquisition
of  one-third  or  more of the  voting  shares  of a  corporation  may,  in some
circumstances,  be considered to constitute an acquisition  of control.  Certain


                                       28
<PAGE>

reviewable  acquisitions of control may not be implemented before being approved
by the  Minister;  if the  Minister  does not  ultimately  approve a  reviewable
acquisition  that has been  completed,  the acquired  Canadian  business must be
divested.  Failure to comply with the review provisions of the Investment Canada
Act could  result  in,  among  other  things,  an  injunction  or a court  order
directing disposition of assets or shares.


E.       Taxation

The following paragraphs set forth certain United States and Canadian income tax
considerations in connection with the ownership of Common Shares of the Company.
These tax  considerations  are stated in general  terms.  There may be  relevant
state, provincial or local income tax considerations that are not discussed.

United States Federal Income Tax Consequences

This  discussion does not address all  potentially  relevant  federal income tax
matters and it does not  address  consequences  peculiar  to persons  subject to
special  provisions of federal income tax law, such as those  described below as
excluded from the definition of a U.S. Holder. In addition, this discussion does
not cover any estate,  state,  local or foreign tax consequences.  (See Canadian
tax  consequences  below at "Canadian  Federal  Income Tax  Consequences").  The
following  discussion is based upon the sections of the Internal Revenue Code of
1986, as amended (the "Code"), Treasury Regulations,  published Internal Revenue
Service ("IRS") rulings, published administrative positions of the IRS and court
decisions that are currently applicable, any or all of which could be materially
and  adversely  changed,  possibly  on a  retroactive  basis,  at any  time.  In
addition,  this discussion does not consider the potential effects, both adverse
and beneficial,  of recently proposed  legislation  which, if enacted,  could be
applied, possibly on a retroactive basis, at any time. Accordingly,  holders and
prospective  holders of Common  Shares are  encouraged  to consult their own tax
advisors about the federal,  estate,  state,  provincial,  local and foreign tax
consequences of purchasing, owning and disposing of Common Shares.

U.S. Holders
As used  herein,  a "U.S.  Holder"  includes a holder of Common  Shares who is a
citizen or resident of the United States, a corporation  created or organized in
or under the laws of the United States or of any political  subdivision thereof,
an entity  created or  organized  under the laws of the United  States which has
elected (under Regulation Section 301.7701-3) to be treated as a corporation for
United States  federal  income tax purposes and any other person or entity whose
ownership of Common Shares is effectively  connected with the conduct of a trade
or business in the United States. A U.S. Holder does not include persons subject
to  special   provisions   of  federal   income  tax  law,  such  as  tax-exempt
organizations,  qualified retirement plans,  financial  institutions,  insurance
companies,  real  estate  investment  trusts,  regulated  investment  companies,
broker-dealers,  non-resident  alien individuals or foreign  corporations  whose
ownership of Common Shares is not  effectively  connected  with the conduct of a
trade or business in the United States and shareholders who acquired their stock
through the exercise of employee stock options or otherwise as compensation.

Distributions on Common Shares
U.S. Holders receiving dividend distributions (including constructive dividends)
with respect to Common Shares are required to include in gross income for United
States federal income tax purposes the gross amount of such distributions to the
extent that the Company has current or accumulated earnings and profits, without
reduction  for any Canadian  income tax withheld from such  distributions.  Such
Canadian tax withheld may be credited,  subject to certain limitations,  against
the U.S.  Holder's  federal  income  tax  liability,  or  alternatively,  may be
deducted in computing the U.S.  Holder's United States federal taxable income by
those  individuals  who itemize  deductions.  (See more  detailed  discussion at
"Foreign Tax Credit" below). To the extent that distributions  exceed current or
accumulated earnings and profits of the Company, they will be treated first as a
return of capital up to the U.S.  Holder's  adjusted  basis in the Common Shares
and thereafter as gain from the sale or exchange of the Common Shares.

Dividend  income  will be taxed at  marginal  tax rates  applicable  to ordinary
income while  preferential  tax rates are  applicable  for net long term capital
gains of a U.S.  Holder  which is an  individual,  estate  or  trust.  There are
currently  no  preferential  tax rates for  long-term  capital  gains for a U.S.
Holder that is a corporation.

In the case of foreign currency  received as a dividend that is not converted by
the recipient into U.S. dollars on the date of receipt,  a U.S. Holder will have
a tax basis in the foreign  currency equal to its U.S.  dollar value on the date
of receipt.  Generally,  any gain or loss  recognized  upon a subsequent sale or


                                       29
<PAGE>

other  disposition  of the foreign  currency,  including  the  exchange for U.S.
dollars,  will be ordinary income or loss. However, for tax years after 1997, an
individual  whose realized  foreign exchange gain does not exceed U.S. $200 will
not recognize  that gain,  to the extent that there are not expenses  associated
with the transaction  that meet the requirement for  deductibility as a trade or
business expense (other than travel expenses in connection with a business trip)
or as an expense for the production of income.

Dividends  paid on the Common  Shares will not  generally  be  eligible  for the
dividends received deduction provided to corporations  receiving  dividends from
certain United States  corporations.  A U.S. Holder which is a corporation  may,
under certain circumstances, be entitled to a 70% deduction of the United States
source portion of dividends  received from the Company  (unless the Company is a
"foreign personal holding company" or a "passive foreign investment company", as
defined below) if such U.S. Holder owns shares  representing at least 10% of the
voting power and value of the Company.  The  availability  of this  deduction is
subject  to  several  complex  limitations  which are  beyond  the scope of this
discussion.

Foreign Tax Credit
A U.S. Holder who pays (or has withheld from distributions)  Canadian income tax
with respect to the ownership of Common Shares may be entitled, at the option of
the U.S. Holder, to either a deduction or a tax credit for such foreign tax paid
or withheld. Generally, it will be more advantageous to claim a credit because a
credit reduces United States federal income taxes on a dollar-for-dollar  basis,
while a deduction  merely  reduces the  taxpayer's  income  subject to tax. This
election is made on a  year-by-year  basis and applies to all foreign taxes paid
by (or withheld from) the U.S.  Holder during that year.  There are  significant
and complex  limitations  which apply to the credit,  among which is the general
limitation  that the credit  cannot exceed the  proportionate  share of the U.S.
Holder's  United  States  income tax liability  that the U.S.  Holder's  foreign
source  income  bears  to  his  or  its  world-wide   taxable  income.   In  the
determination of the application of this limitation, the various items of income
and deduction  must be  classified  into foreign and domestic  sources.  Complex
rules govern this classification  process.  There are further limitations on the
foreign tax credit for certain types of income such as "passive  income",  "high
withholding tax interest",  "financial services income",  "shipping income", and
certain other  classifications  of income.  The  availability of the foreign tax
credit and the  application  of the  limitations on the credit are fact specific
and holders and  prospective  holders of Common Shares should  consult their own
tax advisors  regarding their particular  circumstances.  For individuals  whose
entire  income from  sources  outside the United  States  consists of  qualified
passive  income,  the total amount of  creditable  foreign taxes paid or accrued
during  the  taxable  year  does not  exceed  $300  ($600 in the case of a joint
return) and an election is made under section  904(j),  the limitation on credit
does not apply.

Disposition of Common Shares of the Company
A U.S.  Holder will recognize gain or loss upon the sale of Common Shares of the
Company equal to the difference, if any, between (i) the amount of cash plus the
fair market value of any property received, and (ii) the U.S. Holder's tax basis
in the Common Shares of the Company.  Preferential  tax rates apply to long-term
capital gains of U.S. Holders who are individuals,  estates or trusts. This gain
or loss will be capital gain or loss if the Common Shares are capital  assets in
the hands of the U.S. Holder,  and will be long-term capital gain or loss if the
Common  Shares with respect to which the gain or loss is realized have been held
for more than one year.  Lower  long-term  capital  gain rates will apply if the
U.S. Holder is an individual,  estate or trust and such U.S. Holder has held the
Common Shares for more than one year.

For U.S. Holders that are corporations  (other than corporations  electing under
Subchapter  S of the  Code),  capital  losses  are  deductible  to the extent of
capital gains and an unused net capital loss may be carried back three years and
carried forward five years from the loss year to be offset against capital gains
until such net capital loss is thereby  exhausted.  Non-corporate  taxpayers may
deduct net capital losses,  whether  short-term or long-term,  up to U.S. $3,000
per year (U.S. $1,500 in the case of a married individual filing separately) and
an unused  capital  loss may be carried over to be used in later tax years until
such capital loss is thereby exhausted.

Other Considerations
In the following  circumstances,  the above sections of this  discussion may not
describe the United States  federal income tax  consequences  resulting from the
holding and disposition of Common Shares of the Company:


                                       30
<PAGE>

Foreign Personal Holding Company
If at any time during a taxable year more than 50% of the total combined  voting
power or the total value of the Company's  outstanding shares is owned, actually
or constructively, by five or fewer individuals who are citizens or residents of
the United States and 60% (50% in some  circumstances)  or more of the Company's
gross income for such year was derived from certain passive sources, the Company
would be treated as a  "foreign  personal  holding  company"  ("FPHC").  In that
event,  U.S.  Holders that hold Common  Shares on the earlier of the last day of
the  Company's  taxable year, or the last day on which the Company is classified
as a FPHC,  would be  required  to include  in gross  income for such year their
allocable  portions of such  passive  income to the extent the Company  does not
actually distribute such income.

Foreign Investment Company
If 50% or more of the  combined  voting  power or total  value of the  Company's
outstanding shares is held, actually or constructively, by citizens or residents
of the United States,  United States domestic  partnerships or corporations,  or
estates or trusts  other  than  foreign  estates  or trusts (as  defined by Code
Section  7701(a)(31)),  and the Company is found to be engaged  primarily in the
business of investing, reinvesting or trading in securities,  commodities or any
interest  therein,  it is possible that the Company may be treated as a "foreign
investment  company" as defined in Section 1246 of the Code, causing all or part
of any gain realized by a U.S. Holder selling or exchanging  Common Shares to be
treated as ordinary income rather than capital gains.

Passive Foreign Investment Company
In  General.   Under  the  Code,   certain  tax  consequences  may  result  from
classification  of  a  corporation  as  a  passive  foreign  investment  company
("PFIC"). A corporation not formed in the United States is a PFIC if 75% or more
of its  gross  income  for the  taxable  year is from  passive  sources  such as
interest, dividends and certain rents and royalties or if the average percentage
of assets by value (or, in the case of a controlled foreign corporation,  if the
Company elects,  the adjusted basis) held by such corporation during the taxable
year which  produce  passive  income is at least 50%. In each case,  the Company
must take into  account a pro rata  share of the  income  and the  assets of any
company in which the Company owned,  directly or indirectly,  25% or more of the
stock by value (the  "look-through"  rules).  Classification of the Company as a
PFIC may affect shareholders who are United States citizens,  resident aliens or
United  States  corporations,  estates or trusts other than  foreign  estates or
trusts (a "U.S. shareholder") regardless of the extent of the U.S. shareholder's
ownership of Company stock. A U.S. shareholder who holds stock indirectly (i.e.,
is a partner in a  partnership,  a  shareholder  in a  corporation  which  holds
Company stock or a  beneficiary  in an estate or trust) is also subject to these
rules. The Company believes that it fits within the PFIC definition.

U.S.  shareholders of a company that is a PFIC who held stock after December 31,
1986 are  subject to certain  adverse  tax  consequences.  For  example,  a gain
recognized on disposition of PFIC stock or on receipt of an excess  distribution
from a PFIC is considered  earned pro rata over the U.S.  shareholder's  holding
period and is treated as ordinary  income and is generally  taxed at the highest
marginal  rates in effect  during  that  period (an excess  distribution  is the
amount of any distribution  received by the U.S.  shareholder during the taxable
year over 125% of the  average  amount  received in respect of the PFIC stock by
the U.S.  shareholder  during  the three  preceding  taxable  years,  subject to
certain  adjustments).  U.S. shareholders must also pay an interest charge based
on the value of tax deferral when the U.S.  shareholder disposes of its stock or
receives an excess distribution.  Additionally, a U.S. shareholder who uses PFIC
stock as security for a loan is treated as having  disposed of the stock,  and a
transfer of the PFIC stock where there is not full  recognition  of gain will be
treated as a taxable disposition in some circumstances.

Shareholder Election and Company Record Keeping Requirements.  These adverse tax
consequences,  other  than the loss of the  step-up  in basis at  death,  can be
avoided,  if (i) the  U.S.  shareholder  has  elected  to  treat  the  PFIC as a
qualified  electing  fund  (a  "QEF")  with  respect  to that  U.S.  shareholder
effective for each of the PFIC's taxable years  beginning on or after January 1,
1987, which include any portion of the U.S.  shareholder's  holding period,  and
(ii) the Company  complies with reporting  requirements  to be prescribed by the
Secretary of the Treasury.

The QEF  election  for a  taxable  year  must be  filed  by the due  date  (plus
extension)  for filing the U.S.  shareholder's  income tax return for that year.
Such an  election,  once made with  respect to the  Company,  shall apply to all
subsequent  taxable years of the U.S. Holder with respect to such Company unless
revoked by the U.S.  Holder with the consent of the  Secretary of the  Treasury.
Once the  election  is made with  respect to the  Company,  it cannot be revoked
without permission from the Secretary of the Treasury.


                                       31
<PAGE>

For tax years of a U.S.  shareholder  beginning  after  January 1, 1998,  a U.S.
shareholder  must make the QEF  election by  attaching  Form 8621 to its federal
income tax return.  The  shareholder  must also receive and reflect in Form 8621
the information  provided in the PFIC Annual Information  Statement,  the Annual
Intermediary Statement, or the applicable combined statement for the tax year of
the PFIC  ending  with or within the  taxable  year for which Form 8621 is being
filed. If the PFIC Annual Information Statement contains the statement described
in Regulation Section 1.1295-1(g)(1), the shareholder must attach a statement to
Form 8621 that indicates that the shareholder rather than the QEF calculated the
QEF's ordinary  earnings and net capital gain. A copy of Form 8621 must be filed
with the Philadelphia Internal Revenue Service Center.

When a PFIC becomes a QEF with respect to a U.S.  shareholder and an election by
the U.S.  shareholder to treat the PFIC as a QEF has not been in effect for each
of the PFIC's  taxable  years  beginning  on or after  January  1,  1987,  which
includes  any  portion  of the  U.S.  shareholder's  holding  period,  the  U.S.
shareholder  must elect to recognize  (i) under the rules of Section 1291 of the
Code (discussed below),  any gain that he would otherwise  recognize if the U.S.
shareholder sold his stock on the first day of the taxable year in which the QEF
election is made or (ii) if the Company is a controlled foreign corporation, the
U.S.  shareholder's  pro rata  share of the  Company's  post-1986  earnings  and
profits as of the first day of the  taxable  year in which the QEF  election  is
made.  The U.S.  shareholder  will  treat  that  deemed  sale  transaction  as a
disposition of PFIC stock and will  thereafter be subject to the rules described
below applicable to U.S. shareholders of a QEF.

The  Company  intends  to  comply  with  the  reporting  requirements  that  are
prescribed in Treasury  Regulations.  In  particular,  the Company will maintain
information  so that the  ordinary  earnings and net capital gain of the Company
may be determined. However, the Regulations contain reporting and record keeping
requirements  which may not be practicable for the Company to comply.  If, after
review of the  requirements,  the  Company  decides  not to comply with the PFIC
record keeping requirements, the Company will so notify its shareholders.

Qualified  Electing  Funds. In general,  U.S.  shareholders of a QEF are taxable
currently on their pro rata share of the QEF's  ordinary  income and net capital
gain,  unless they elect to defer payments of tax on amounts  included in income
for which no distribution has been received (subject to an interest charge).

Mark-to-Market Election. Effective for tax years of U.S. Holders beginning after
December 31, 1997, U.S. Holders who hold, actually or constructively, marketable
stock of a foreign  corporation  that qualifies as a PFIC may elect to mark such
stock to the market (a "mark-to-market  election"). If such an election is made,
such U.S.  Holder  will not be subject to the  special  taxation  rules of PFICs
described above for the taxable years for which the  mark-to-market  election is
made.  A U.S.  Holder who makes such an election  will include in income for the
taxable year an amount equal to the excess,  if any, of the fair market value of
the  shares  of the  Company  as of the  close of such tax year  over  such U.S.
Holder's adjusted basis in such shares. In addition,  the U.S. Holder is allowed
a  deduction  for the lesser of (i) the excess,  if any,  of such U.S.  Holder's
adjusted tax basis in the shares over the fair market value of such shares as of
the close of the tax year, or (ii) the excess, if any, of (A) the mark-to-market
gains for the shares in the Company  included by such U.S.  Holder for prior tax
years,  including  any amount which would have been  included for any prior year
but for Section 1291 interest on tax deferral rules discussed above with respect
to a U.S. Holder who has not made a timely QEF election during the year in which
he holds (or is deemed to have held)  shares in the Company and the Company is a
PFIC ("Non-Electing U.S. Holder"), over (B) the mark-to-market losses for shares
that were allowed as deductions  for prior tax years. A U.S.  Holder's  adjusted
tax basis in the shares of the Company will be increased or decreased to reflect
the amount  included  or deducted as a result of a  mark-to-market  election.  A
mark-to-market  election  will apply to the tax year for which the  election  is
made and to all later tax years,  unless the PFIC stock ceases to be  marketable
or the IRS consents to the revocation of the election.

Because the Company believes that it fits within the PFIC definition,  each U.S.
shareholder of the Company  should consult its tax advisor to determine  whether
it wishes to make the QEF election and with respect to how the PFIC rules affect
its tax situation generally.

While the interest  charge regime under the PFIC rules  generally does not apply
to  distributions  from and  dispositions of stock of a PFIC where a U.S. Holder
has  elected  to mark the  stock  to  market,  coordination  rules  for  limited
application  will apply in the case of a U.S.  Holder  that marks to market PFIC
stock later than the beginning of the U.S.  Holder's holding period for the PFIC
stock.



                                       32
<PAGE>

Controlled Foreign Corporation

If more than 50% of the voting  power of all classes of stock or the total value
of the stock of the  Company is owned,  directly or  indirectly,  by citizens or
residents  of  the  United  States,  United  States  domestic  partnerships  and
corporations or estates or trusts other than foreign estates or trusts,  each of
whom own 10% or more of the total combined  voting power of all classes of stock
of the Company ("United States shareholders"), the Company could be treated as a
"controlled  foreign  corporation"  ("CFC")  under  Subpart F of the Code.  This
classification   would  effect  many  complex  results  including  the  required
inclusion by such United States  shareholders in income of their pro rata shares
of  "Subpart F income" (as  specially  defined by the Code) of the  Company.  In
addition,  under  Section  1248 of the Code, a gain from the sale or exchange of
stock by a holder of Common Shares who is or was a United States  shareholder at
any time during the five year period ending with the sale or exchange is treated
as ordinary dividend income to the extent of earnings and profits of the Company
attributable  to the stock sold or exchanged,  accumulated  in the Company's tax
years  beginning  after 1962,  but only while the shares were held and while the
Company was  controlled.  If the  Company is both a PFIC and a CFC,  the Company
generally  will  not  be  treated  as a  PFIC  with  respect  to  United  States
shareholders of the CFC. This rule generally will be effective for taxable years
of United States shareholders  beginning after 1997 and for taxable years of the
Company ending with or within such taxable years of United States  shareholders.
(The PFIC provisions  continue to apply in the case of a PFIC that is also a CFC
with respect to U.S.  Holders that are less than 10%  shareholders.)  Because of
the complexity of Subpart F, a more detailed review of these rules is outside of
the scope of this discussion.

U.S.  Information  Reporting  and Backup  Withholding.  Dividends  are generally
subject to the information reporting  requirements of the Code. Dividends may be
subject  to  backup  withholding  at the rate of 3030%  unless  the U.S.  Holder
provides a taxpayer  identification  number on a properly  completed Form W-9 or
otherwise  establishes an exemption.  The amount of any backup  withholding will
not  constitute  additional tax and will be allowed as a credit against the U.S.
Holder's federal income tax liability.

Filing of Information Returns. Under a number of circumstances,  a United States
Investor  acquiring shares of the Company may be required to file an information
return with the Internal  Revenue Service Center where they are required to file
their tax returns with a duplicate copy to the Internal  Revenue Service Center,
Philadelphia,  PA 19255.  In particular,  any United States Investor who becomes
the owner,  directly or indirectly,  of 10% or more of the shares of the Company
will be required to file such a return.

OTHER FILING  REQUIREMENTS MAY APPLY, AND UNITED STATES INVESTORS ARE ENCOURAGED
TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THESE REQUIREMENTS AND WITH RESPECT
TO THEIR PARTICULAR CIRCUMSTANCES.

Canadian Federal Income Tax Considerations

The  discussion  under this heading  summarizes the principal  Canadian  federal
income tax consequences of acquiring,  holding and disposing of shares of common
stock of the Company for a  shareholder  of the Company who is not a resident of
Canada but is a  resident  of the United  States and who will  acquire  and hold
shares of common  stock of the Company as capital  property  for the purposes of
the Income Tax Act  (Canada)  (the  "Canadian  Tax Act").  This summary does not
apply to a  shareholder  who carries on business in Canada  through a "permanent
establishment"  situated in Canada or performs  independent personal services in
Canada  through  a fixed  base in  Canada if the  shareholder's  holding  in the
Company is  effectively  connected with such  permanent  establishment  or fixed
base.  This summary is based on the  provisions  of the Canadian Tax Act and the
regulations  thereunder and on an understanding of the administrative  practices
of  Canada  Customs &  Revenue  Agency,  and takes  into  account  all  specific
proposals to amend the Canadian Tax Act or  regulations  made by the Minister of
Finance of Canada as of the date hereof.  It has been assumed that there will be
no other  relevant  amendment of any  governing law although no assurance can be
given in this respect.  This  discussion is general only and is not a substitute
for independent advice from a shareholder's own Canadian and U.S. tax advisors.

The  provisions  of the  Canadian  Tax Act are subject to income tax treaties to
which  Canada  is  a  party,  including  the  Canada-United  States  Income  Tax
Convention (1980), as amended (the "Convention").


                                       33
<PAGE>

Dividends on Common Shares and Other Income

Under the Canadian  Tax Act, a  non-resident  of Canada is generally  subject to
Canadian  withholding  tax at the rate of 25 percent on dividends paid or deemed
to have been paid to him or her by a corporation resident in Canada. The Company
is responsible for withholding of tax at the source.  The Convention  limits the
rate to 15 percent if the shareholder is a resident of the United States and the
dividends  are  beneficially  owned  by and paid to such  shareholder,  and to 5
percent if the shareholder is also a corporation that beneficially owns at least
10 percent of the voting stock of the payor corporation.

The amount of a stock  dividend (for tax purposes)  would  generally be equal to
the amount by which the paid up or stated  capital of the Company had  increased
by reason of the payment of such dividend.  The Company will furnish  additional
tax information to  shareholders in the event of such a dividend.  Interest paid
or deemed  to be paid on the  Company's  debt  securities  held by  non-Canadian
residents may also be subject to Canadian  withholding  tax,  depending upon the
terms and provisions of such securities and any applicable tax treaty.

The Convention  generally  exempts from Canadian  income tax dividends paid to a
religious, scientific, literary, educational or charitable organization or to an
organization  constituted  and  operated  exclusively  to  administer a pension,
retirement or employee  benefit fund or plan, if the  organization is a resident
of the United  States and is exempt from income tax under the laws of the United
States.

Dispositions of Common Shares

Under the  Canadian  Tax Act, a  taxpayer's  capital gain or capital loss from a
disposition of a share of common stock of the Company is the amount,  if any, by
which  his  or  her  proceeds  of  disposition   exceed  (or  are  exceeded  by,
respectively)  the  aggregate of his or her adjusted  cost base of the share and
reasonable expenses of disposition. The capital gain or loss must be computed in
Canadian  currency  using a weighted  average  adjusted  cost base for identical
properties.  Fifty  percent of the capital  gains net of losses are  included in
income.  The amount by which a  shareholder's  capital  loss exceeds the capital
gain in a year may be deducted from a capital gain  realized by the  shareholder
in the  three  previous  years  or  any  subsequent  year,  subject  to  certain
restrictions in the case of a corporate shareholder.

Under the Canadian Tax Act, a non-resident  of Canada is subject to Canadian tax
on taxable capital gains, and may deduct allowable capital losses, realized on a
disposition  of  "taxable  Canadian  property."  Shares of  common  stock of the
Company  will  constitute  taxable  Canadian  property  of  a  shareholder  at a
particular  time if the  shareholder  used the shares in carrying on business in
Canada,  or if  at  any  time  in  the  five  years  immediately  preceding  the
disposition  25% or more of the  issued  shares  of any  class or  series in the
capital  stock  of the  Company  belonged  to one or  more  persons  in a  group
comprising the  shareholder  and persons with whom the  shareholder  and persons
with whom the  shareholder  did not deal at arm's  length and in  certain  other
circumstances.

The Convention  relieves United States residents from liability for Canadian tax
on capital gains derived on a disposition of shares unless

      (a)  the value of the shares is derived  principally  from "real property"
           in  Canada,  including  the right to explore  for or exploit  natural
           resources and rights to amounts computed by reference to production,

      (b)  the  shareholder  was  resident  in Canada for 120 months  during any
           period of 20 consecutive years preceding,  and at any time during the
           10 years immediately  preceding,  the disposition and the shares were
           owned by him when he or she ceased to be resident in Canada, or

      (c)  the shares  formed  part of the  business  property  of a  "permanent
           establishment"  that the  holder  has or had in Canada  within the 12
           months preceding the disposition.


F.       Dividends and Paying Agents

This Form 20-F is being filed as an annual report under the Exchange Act and, as
such, there is no requirement to provide any information under this item.


                                       34
<PAGE>

G.       Statements by Experts

This Form 20-F is being filed as an annual report under the Exchange Act and, as
such, there is no requirement to provide any information under this item.


H.       Documents on Display

Any documents  referred to in this Form 20-F may be inspected at the  registered
office  of the  Company,  Suite  200,  204  Lambert  Street,  Whitehorse,  Yukon
Territory, Y1A 3T2, during normal business hours.


I.       Subsidiary Information

Effective  December 1999,  Archangel  Overseas  Holdings  Limited,  a 100% owned
subsidiary of the Company, was incorporated in Cyprus.

International Natural Resources Management Company, incorporated in the State of
Colorado  on July 6, 2001,  was a 100% owned  subsidiary  of the  Company  until
December 19, 2002, when it was sold for nominal consideration.


ITEM 11.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company  does not hold any market  risk-sensitive  instruments  and does not
intend to purchase or sell  derivative  instruments  for  speculative or hedging
purposes and, therefore, no disclosure is required under this item.



ITEM 12.     DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

This Form 20-F is being filed as an annual report under the Exchange Act and, as
such, there is no requirement to provide any information under this item.




                                       35
<PAGE>


                                     PART II


ITEM 13.     DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

There has not been a material default in the payment of principal,  interest,  a
sinking or purchase fund  installment,  or any other material  default not cured
within  thirty  days,  relating to  indebtedness  of the  Company.  There are no
payments of  dividends  by the Company in arrears,  nor has there been any other
material  delinquency  relating to any class of preference shares of the Company
(of which there is none) and the Company has not  defaulted  on any payment with
respect to the indebtedness of the Company.


ITEM 14.     MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
             PROCEEDS

There have been no changes  made to the rights of the  holders of the  Company's
securities.


ITEM 15.     CONTROLS AND PROCEDURES

(a)  Within 90 days prior to the date of this report,  the Company  performed an
     evaluation  of  the  effectiveness  of  the  design  and  operation  of our
     disclosure controls and procedures.  Disclosure controls and procedures are
     designed  to  ensure  that  the  material   financial   and   non-financial
     information  required  to be  disclosed  on Form  20-F and  filed  with the
     Securities and Exchange Commission is recorded,  processed,  summarized and
     reported  in a  timely  manner.  Based  on  the  foregoing,  the  Company's
     management,  including the CEO and CFO, have  concluded  that the Company's
     disclosure  controls  and  procedures  (as defined in Rules  13a-14(c)  and
     15d-14(c) of the Exchange Act are effective.

(b)  There have been no significant  changes in the Company's  internal controls
     or  in  other  factors  that  could  significantly  affect  these  controls
     subsequent to the date of the evaluation thereof.  Therefore, no corrective
     actions with regard to  significant  deficiencies  and material  weaknesses
     were taken.


ITEM 16.     RESERVED




                                       36
<PAGE>


                                    PART III


ITEM 17.     FINANCIAL STATEMENTS

See  Item  8A.  "Financial  Information  -  Consolidated  Statements  and  Other
Financial Information." The consolidated financial statements of the Company for
the  fiscal  years  ended  December  31,  2002 and 2001,  have been  audited  in
accordance  with  Canadian   generally  accepted  auditing  standards  and  U.S.
generally  accepted auditing  standards.  Differences  between Canadian and U.S.
generally  accepted  accounting  principles  are  set  forth  in  Note 12 to the
consolidated financial statements.


ITEM 18.     FINANCIAL STATEMENTS

Not Applicable.



ITEM 19.     exhibits


(a)      Index to Financial Statements

<TABLE>
<CAPTION>

---------------------------------------------------------------------------------------------------- -------
                                                                                                      Page
---------------------------------------------------------------------------------------------------- -------
<S>                                                                                                  <C>
Auditors' Report to the Directors                                                                        46
---------------------------------------------------------------------------------------------------- -------
Comments by Auditor for U.S. Readers on Canada-U.S. Reporting Difference                                 46
---------------------------------------------------------------------------------------------------- -------
Consolidated Balance Sheets as at December 31, 2002 and 2001                                             47
---------------------------------------------------------------------------------------------------- -------
Consolidated Statements of Operations and Deficit for the fiscal years ended December 31, 2002,          48
2001 and 2000
---------------------------------------------------------------------------------------------------- -------
Consolidated Statements of Deferred Exploration Costs for the fiscal years ended December 31,            49
2002, 2001 and 2000
---------------------------------------------------------------------------------------------------- -------
Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2002, 2001 and  2000       50
---------------------------------------------------------------------------------------------------- -------
Notes to Consolidated Financial Statements                                                               51
---------------------------------------------------------------------------------------------------- -------




                                                 37
</TABLE>




<PAGE>



(b)      Index to Exhibits
<TABLE>
<CAPTION>

------------ --------------------------------------------------------------------------------- -------- ------
<S>          <C>                                                                               <C>      <C>
Exhibit No.  The following documents were previously filed as exhibits to the Company's
             Registration Statement on Form 20-F filed May 1996 and are incorporated by
             reference herein:
------------ --------------------------------------------------------------------------------- -------- ------
1.1          Certificate of Incorporation                                                        (1)
------------ --------------------------------------------------------------------------------- -------- ------
1.2          Certificates of Name Change                                                         (1)
------------ --------------------------------------------------------------------------------- -------- ------
1.3          Memorandum and Articles                                                             (1)
------------ --------------------------------------------------------------------------------- -------- ------
2.1          Form of Share Certificate for the Company's Common Shares                           (1)
------------ --------------------------------------------------------------------------------- -------- ------
2.2          Form of Warrant Certificate for warrants issued December 1, 1993                    (1)
------------ --------------------------------------------------------------------------------- -------- ------
2.3          Form of Warrant Certificate for warrants issued September 13, 1994                  (1)
------------ --------------------------------------------------------------------------------- -------- ------
3.1          Escrow Agreement dated November 28, 1988 among the Company, Pacific Corporate       (1)
             Services Limited and principal shareholders
------------ --------------------------------------------------------------------------------- -------- ------
3.2          Deed of Assignment of Diamond Licence Rights dated October 12, 1993 among the       (1)
             Company and Austgold and Ardross, as amended
------------ --------------------------------------------------------------------------------- -------- ------
3.3          Deed of Assignment of Consulting Agreement dated February 10, 1994 among the        (1)
             Company and Austgold and Ardross and Michael Z. Krel Pty. Ltd.
------------ --------------------------------------------------------------------------------- -------- ------
3.4          Mining Licence granted by Severogeolcom to Arkhangelsk Geologia Enterprises         (1)
             ("AGE") dated December 30, 1993
------------ --------------------------------------------------------------------------------- -------- ------
3.5          Licence Agreement between Severogeolcom and AGE dated December 30, 1993             (1)
------------ --------------------------------------------------------------------------------- -------- ------
3.6          Diamond Venture Agreement between AGE and the Company dated November 24, 1993       (1)
------------ --------------------------------------------------------------------------------- -------- ------
3.7          Contract for Exploration and Evaluation Services between AGE and the Company        (1)
             dated November 24, 1993
------------ --------------------------------------------------------------------------------- -------- ------
3.8          Consultancy Agreement between Research Institute Horizon ("RIH") and the            (1)
             Company dated November 15, 1993
------------ --------------------------------------------------------------------------------- -------- ------
3.9          Amendment to Consultancy Agreement between RIH and the Company dated                (1)
             January 18, 1994
------------ --------------------------------------------------------------------------------- -------- ------
3.10         Licence granted by Severogeolcom to RIH dated December 30, 1993                     (1)
------------ --------------------------------------------------------------------------------- -------- ------
3.11         Licence Agreement between Severogeolcom and RIH dated December 30, 1993             (1)
------------ --------------------------------------------------------------------------------- -------- ------
3.12         Diamond Venture Agreement between RIH and the Company dated November 15, 1993       (1)
------------ --------------------------------------------------------------------------------- -------- ------
3.13         Memorandum of Understanding between RIH and the Company dated September 20, 1994    (1)
------------ --------------------------------------------------------------------------------- -------- ------
3.14         Contract for Services between RIH and the Company dated November 15, 1993           (1)
------------ --------------------------------------------------------------------------------- -------- ------
3.15         Amendment to Contract for Services between RIH and the Company dated                (1)
             January 15, 1994
------------ --------------------------------------------------------------------------------- -------- ------
3.16         Amendment to Contract for Services between RIH and the Company dated                (1)
             September 20, 1994
------------ --------------------------------------------------------------------------------- -------- ------
3.17         Charter of Almazny Bereg                                                            (1)
------------ --------------------------------------------------------------------------------- -------- ------
3.18         Founding minutes of Almazny Bereg                                                   (1)
------------ --------------------------------------------------------------------------------- -------- ------
3.19         Prospectus of Almazny Bereg with respect to the issuance of 6 billion Rubles        (1)
------------ --------------------------------------------------------------------------------- -------- ------
3.20         Agreement between Almazny Bereg and AGE dated May 10, 1994                          (1)
------------ --------------------------------------------------------------------------------- -------- ------


                                                 38
<PAGE>


      (b)Index to Exhibits (continued)

------------ ---------------------------------------------------------------------------------- -------
Exhibit      No. The following  documents were  previously  filed as exhibits to
             the Company's Annual Report on Form 20-F for the year ended January
             31, 1997 and are incorporated by reference herein:
------------ ---------------------------------------------------------------------------------- -------
2            Release dated July 30, 1997 acknowledging the termination of the Remuneration       (1)
             Agreement with the Andrei Sinitsyn, Chairman of the Advisory Board,
             dated November 15, 1993, as amended May 31, 1996
------------ ---------------------------------------------------------------------------------- -------
3            Release dated July 19, 1997 acknowledging the termination of the Agreement For      (1)
             Access and Success Fees For Windy Ridge Licence Area with RIH dated May 31, 1996.
------------ ---------------------------------------------------------------------------------- -------
4            Release dated May 16, 1996 acknowledging the termination of the Consulting          (1)
             Agreement for Financial Public Relations Services with Skyline Capital
             Corporation dated July 19, 1995
------------ ---------------------------------------------------------------------------------- -------
5            Agreement dated May 28, 1997 with Hill & Knowlton wherein Hill & Knowlton agreed    (1)
             act as communications counsel to the Company
------------ ---------------------------------------------------------------------------------- -------
6            Agreement dated July 8, 1997 with Canaccord Capital Corporation ("Canaccord")       (1)
             whereby Canaccord agreed to act as the principal financial advisor to the Company
------------ ---------------------------------------------------------------------------------- -------
7            Agreement dated July 8, 1997 with Canaccord Capital Corporation ("Canaccord")       (1)
             whereby Canaccord agreed to act as fiscal agent for the Company
------------ ---------------------------------------------------------------------------------- -------
             The following  documents were  previously  filed as exhibits to the
             Company's Annual Report on Form 20-F for the year ended January 31,
             1998 and are incorporated by reference herein:
------------ ---------------------------------------------------------------------------------- -------
1.01         Amendment to By-Law #1 of the Company approved by the shareholders January 30,      (2)
             1998.
------------ ---------------------------------------------------------------------------------- -------
1.02         December 19, 1997 Amendment to the Verkhotina Diamond Venture Agreement dated       (1)
             November 24, 1993 between the Company and Arkhangelskgeoldobycha.
------------ ---------------------------------------------------------------------------------- -------
2.01         Incentive Stock Option Plan approved by the shareholders on July 31, 1997 and       (2)
             amendment thereto approved by the shareholders January 30, 1998.
------------ ---------------------------------------------------------------------------------- -------
2.02         Amendment to Stock Option Plan approved by the shareholders on January 30, 1998.    (2)
------------ ---------------------------------------------------------------------------------- -------
2.03         Form of Warrant Certificate with respect to a May 30, 1997 brokered private         (1)
             placement of 1,000,000 special warrants at $1.28 per special warrant.  Each
             special warrant was exchanged for 1.1 Common Shares and 0.55 of one common share
             purchase warrant.  Each full common share purchase warrant entitles the holder
             to purchase one share of the Company at $1.80 per share until May 30, 1999.
------------ ---------------------------------------------------------------------------------- -------
2.04         Form of Warrant Certificates with respect to Special Warrant offering consisting    (1)
             of two separate tranches of 2,500,000 Phase II Special Warrants on August 13,
             1997 and 500,000 Phase III Special Warrants on September 3, 1997 at a price of
             $1.25 per special warrant.  Each special warrant was exchanged for 1.1 Common
             Shares and 0.55 of one common share purchase warrant.  Each Phase II full common
             share purchase warrant is exercisable at $1.70 per share until August 13, 1999
             and each Phase III common share purchase warrant is exercisable at $1.70 per
             share until September 3, 1999.
------------ ---------------------------------------------------------------------------------- -------
2.05         Form of Warrant Certificate with respect to private placement to Task Holdings      (1)
             Ltd. of 11,924,166 equity units (the "Units") of the Company at $1.20 per
             share.  Each Unit was exchanged for one common share and one common share
             purchase warrant.  The common share purchase warrants are exercisable at $1.68
             per share until April 22, 1999.
------------ ---------------------------------------------------------------------------------- -------
2.06         Executive Employment Agreement dated November 28, 1997 between the Company and      (1)
             Timothy J. Haddon, Chief Executive Officer and President of the Company.
------------ ---------------------------------------------------------------------------------- -------
2.07         Executive Employment Agreement dated January 1, 1998 between the Company and        (1)
             Roy G.S. Spencer, Vice-President, Exploration of the Company.
------------ ---------------------------------------------------------------------------------- -------
2.08         Executive Employment Agreement dated January 1, 1998 between the Company and        (1)
             Gerald E. Davis, CFO, CAO and Corporate Secretary of the Company.
------------ ---------------------------------------------------------------------------------- -------



                                                39
<PAGE>


(b)      Index to Exhibits (continued)


      ----------- ------------------------------------------------------------------------------- --------
      Exhibit     The following  documents  were  previously  filed as exhibits to the Company's
      No.         Annual  Report  on Form  20-F  for the year  ended  January  31,  1999 and are
                  incorporated by reference herein:
      ----------- ------------------------------------------------------------------------------- --------
      1.01        Amendment to By Law #1 of the Company  approved by the  shareholders  July 22,    (2)
                  1998.
      ----------- ------------------------------------------------------------------------------- --------
      1.02        Amendment to the Incentive  Stock Option Plan approved by the  shareholders on    (2)
                  July 31,  1997 as approved by the  shareholders  January 30, 1998, as approved
                  by the shareholders on July 22, 1998.
      ----------- ------------------------------------------------------------------------------- --------
      1.03        Letter  Agreement  dated March 25, 1999, as amended April 27, 1999,  extending    (1)
                  the exercise  period from April 22, 1999 to April 22, 2000, of the  11,924,166
                  share purchase  warrants acquired through a private placement to Task Holdings
                  Ltd.  on  April 22,  1998 of  11,924,166  equity  Units (the  "Units")  of the
                  Company at Cdn$1.20 per share.  Each Unit was  exchanged  for one common share
                  and one common share  purchase  warrant.  The  exercise  price of Cdn$1.68 per
                  common share purchase warrant remains the same.
      ----------- ------------------------------------------------------------------------------- --------
      2.01        Consulting Agreement dated June 16, 1998 between John Haigh, an independent       (2)
                  investor relations' consultant, and the Company.
      ----------- ------------------------------------------------------------------------------- --------
                  The following  document was previously  filed as an exhibit to
                  the  Company's  Transition  Report on Form 20-F for the eleven
                  months  ended  December  31,  1999,  and  is  incorporated  by
                  reference herein:
      ----------- ------------------------------------------------------------------------------- --------
      1.01        1999 Equity Plan to replace the stock  option  incentive  plan
                  adopted by the (1) Company  effective July 31, 1997 as amended
                  January 1998 as amended July 1998.
      ----------- ------------------------------------------------------------------------------- --------
                  The following  document was previously  filed as an exhibit to
                  the Company's  Annual Report on Form 20-F/A for the year ended
                  December 31, 2000.
      ----------- ------------------------------------------------------------------------------- --------
      1.04        Articles and By-Laws of the Company                                               (1)
      ----------- ------------------------------------------------------------------------------- --------
                  The following  documents were previously  filed as exhibits to
                  the  Company's  Annual  Report on Form 20-F for the year ended
                  December 31, 2002 and are incorporated by reference herein:
      ----------- ------------------------------------------------------------------------------- --------
      4.1         Amended  and  Restated  1999  Equity  Incentive  Plan  adopted by the  Company    (1)
                  effective November 26, 2001, to replace the 1999 Equity Plan.
      ----------- ------------------------------------------------------------------------------- --------
      4.4         Executive  Employment  Agreement  dated November 28, 1997,  amended  effective    (1)
                  January 1, 2002,  between the Company and Timothy J. Haddon,  Chief  Executive
                  Officer and President of the Company.
      ----------- ------------------------------------------------------------------------------- --------
      4.5         Executive  Employment  Agreement  dated  January  1, 1998,  amended  effective    (1)
                  January 1,  2002,  between the Company and Gerald E.  Davis,  Chief  Financial
                  Officer and Corporate Secretary of the Company.
      ----------- ------------------------------------------------------------------------------- --------
      (1)         Previously filed with the Company's Registration Statement, Annual Reports or
                  Transition Report on Form 20-F, as set out above.
      ----------- ------------------------------------------------------------------------------- --------
      (2)         Previously filed on Form 6K.
      ----------- ------------------------------------------------------------------------------- --------


                                                  39
<PAGE>


(b)      Index to Exhibits (continued)

      ----------- ------------------------------------------------------------------------------- --------
      Exhibit The following  documents are filed  herewith,  as exhibits to this
      Annual No.  Report on Form 20-F for the fiscal  year  ended  December  31,
      2002.
      ----------- ------------------------------------------------------------------------------- --------
      4.01        Form of Subscription Agreement between the Company and Cencan S.A., dated
                  December 19, 2002, for 28,000,000 Common Shares at $0.10 per share.
      ----------- ------------------------------------------------------------------------------- --------
      4.02        Form  of  Subscription  Agreement  dated  December  19,  2002,
                  between the Company and various  placees for 2,000,000  Common
                  Shares at Cdn$0.10 per share.
      ----------- ------------------------------------------------------------------------------- --------
      4.03        Termination & Release dated December 19, 2002, between the Company and
                  Timothy J. Haddon, former President and Chief Executive Officer of the
                  Company.
      ----------- ------------------------------------------------------------------------------- --------
      4.04        Termination & Release dated December 19, 2002, between the Company and Gary
                  E. Davis, former Chief Financial Officer and Corporate Secretary of the
                  Company.
      ----------- ------------------------------------------------------------------------------- --------
      4.05        Release  dated  December  19,  2002,  between  the Company and
                  Richard Wake-Walker, a former Director of the Company.
      ----------- ------------------------------------------------------------------------------- --------
      4.06        Option and Deferred Compensation Agreement dated December 19, 2002, between
                  the Company and Gary E. Davis, former Chief Financial Officer and Corporate
                  Secretary of the Company.
      ----------- ------------------------------------------------------------------------------- --------
      4.07        Option and Deferred Compensation Agreement dated December 19, 2002, between
                  the Company and Timothy J. Haddon, former President and Chief Executive
                  Officer of the Company.
      ----------- ------------------------------------------------------------------------------- --------
      4.08        Consultant Retainer Agreement dated December 31, 2002, between the Company
                  and Timothy J. Haddon, former President and Chief Executive Officer of the
                  Company.
      ----------- ------------------------------------------------------------------------------- --------
      4.09        Consultant Retainer Agreement dated December 31, 2002, between the Company
                  and Gary E. Davis, former Chief Financial Officer and Corporate Secretary of
                  the Company.
      ----------- ------------------------------------------------------------------------------- --------
      12.1        Certification   of  President  and  Chief  Executive   Officer
                  Pursuant To Rule 13a-14 Or 15d-14 Of The  Securities  Exchange
                  Act  Of  1934,  As  Adopted  Pursuant  To  Section  302 Of The
                  Sarbanes-Oxley Act Of 2002.
      ----------- ------------------------------------------------------------------------------- --------
      12.2        Certification  of Chief  Financial  Officer  Pursuant  To Rule
                  13a-14 Or 15d-14 Of The  Securities  Exchange Act Of 1934,  As
                  Adopted Pursuant To Section 302 Of The  Sarbanes-Oxley  Act Of
                  2002.
      ----------- ------------------------------------------------------------------------------- --------
      (1)         Previously filed with the Company's Registration Statement, Annual Reports or
                  Transition Report on Form 20-F, as set out above.
      ----------- ------------------------------------------------------------------------------- --------
      (2)         Previously filed on Form 6K.
      ----------- ------------------------------------------------------------------------------- --------


                                                        40
</TABLE>

<PAGE>



                                   SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of the
Securities  Exchange Act of 1934,  the Company  certifies  that it meets all the
requirements  for filing on Form 20-F and has duly caused this annual  report to
be signed on its behalf by the undersigned, thereunto duly authorized.


                                         ARCHANGEL DIAMOND CORPORATION


DATE     May 2, 2003                     /s/ RAYMOND A. CLARK
                                         ---------------------------------------
                                         RAYMOND A. CLARK
                                         PRESIDENT and CHIEF EXECUTIVE OFFICER




                                       41
<PAGE>


CERTIFICATION  OF THE PRESIDENT  AND CHIEF  EXECUTIVE  OFFICER  PURSUANT TO RULE
13A-14 OR 15D-14 OF THE SECURITIES  EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Raymond A. Clark, certify that:

     1.   I have reviewed  this annual report on Form 20-F of Archangel  Diamond
          Corporation;

     2.  Based on my  knowledge,  this  annual  report on does not  contain  any
         untrue  statement of a material  fact or omit to state a material  fact
         necessary to make the  statements  made, in light of the  circumstances
         under which such  statements  were made, not misleading with respect to
         the period covered by this annual report;

     3.  Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this annual report.
     4.  The  registrant's  other  certifying  officer and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated subsidiaries,  is made known to us during the period
               in which this annual report is being prepared;

          b)   evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and

          c)   presented  in  this  annual  report  our  conclusions  about  the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.  The registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  to the  registrant's  auditors and the
         audit  committee  of  registrant's   board  of  directors  (or  persons
         performing the equivalent function):

          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weaknesses in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

     6.  The registrant's  other certifying officer and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.

April 25, 2003
                                   /s/ Raymond A. Clark
                                   ---------------------------------------
                                   Raymond A. Clark
                                   President and Chief Executive Officer


<PAGE>


CERTIFICATION  OF CHIEF FINANCIAL  OFFICER  PURSUANT TO RULE 13A-14 OR 15D-14 OF
THE SECURITIES  EXCHANGE ACT OF 1934, AS ADOPTED  PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002

I, David Massola, certify that:


     1.   I have reviewed  this annual report on Form 20-F of Archangel  Diamond
          Corporation;

     2.  Based on my  knowledge,  this annual report does not contain any untrue
         statement of a material fact or omit to state a material fact necessary
         to make the statements made, in light of the circumstances  under which
         such  statements  were made, not misleading  with respect to the period
         covered by this annual report;
     3.  Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this annual report.
     4.  The  registrant's  other  certifying  officer and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
         we have:

          a)   designed such  disclosure  controls and procedures to ensure that
               material  information  relating to the registrant,  including its
               consolidated subsidiaries,  is made known to us during the period
               in which this annual report is being prepared;

          b)   evaluated  the  effectiveness  of  the  registrant's   disclosure
               controls and  procedures as of a date within 90 days prior to the
               filing date of this annual report (the "Evaluation Date"); and

          c)   presented  in  this  annual  report  our  conclusions  about  the
               effectiveness of the disclosure  controls and procedures based on
               our evaluation as of the Evaluation Date;

     5.  The registrant's other certifying  officer and I have disclosed,  based
         on our most recent  evaluation,  to the  registrant's  auditors and the
         audit  committee  of  registrant's   board  of  directors  (or  persons
         performing the equivalent function):

          a)   all  significant  deficiencies  in the  design  or  operation  of
               internal  controls which could adversely  affect the registrant's
               ability to record,  process,  summarize and report financial data
               and have  identified for the  registrant's  auditors any material
               weaknesses in internal controls; and

          b)   any fraud,  whether or not material,  that involves management or
               other employees who have a significant  role in the  registrant's
               internal controls; and

     6.  The registrant's  other certifying officer and I have indicated in this
         annual report whether or not there were significant changes in internal
         controls or in other factors that could  significantly  affect internal
         controls  subsequent  to  the  date  of  our  most  recent  evaluation,
         including   any   corrective   actions   with  regard  to   significant
         deficiencies and material weaknesses.

April 25, 2003
                              /s/ David W. Massola
                              -------------------------------------------------
                              David W. Massola
                              Chief Financial Officer and Corporate Secretary



                                       44
<PAGE>


                      Consolidated Financial Statements
                      (Expressed in United States dollars)



                      archangel diamond corporation



                      Years ended December 31, 2002, 2001 and 2000




<PAGE>





AUDITORS' REPORT


To the Board of Directors
Archangel Diamond Corporation

We have audited the consolidated balance sheets of Archangel Diamond Corporation
as at December 31, 2002 and 2001 and the  consolidated  statements of operations
and deficit,  deferred exploration costs and cash flows for each of the years in
the three-year  period ended December 31, 2002.  These financial  statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with Canadian  generally accepted auditing
standards  and auditing  standards  generally  accepted in the United  States of
America.  Those  standards  require  that we plan and perform an audit to obtain
reasonable  assurance  whether  the  financial  statements  are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management, as well as evaluating the overall financial statement presentation.
In our opinion,  these consolidated  financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and 2001 and the  results of its  operations  and its cash flows for each of the
years in the  three-year  period  ended  December  31, 2002 in  accordance  with
Canadian generally accepted accounting principles.

/s/  KPMG LLP
Chartered Accountants
Vancouver, Canada
   March 14, 2003, except as to note 4
   which is as of March 23, 2003



COMMENTS BY AUDITOR FOR US READERS ON CANADA-US REPORTING DIFFERENCES


In the United States,  reporting  standards for auditors require the addition of
explanatory  paragraphs  (following  the opinion  paragraph)  when the financial
statements are affected by conditions and events that cast substantial  doubt on
the Company's ability to continue as a going concern, such as those described in
note 2 to the consolidated  financial statements,  and when there is a change in
accounting  principles  that has a material effect on the  comparability  of the
Company's financial  statements,  such as the change described in note 3(g). Our
report to the board of directors dated March 14, 2003, except as to note 4 which
is as of March 23, 2003,  is expressed in  accordance  with  Canadian  reporting
standards  which do not permit  references  to such events and  conditions or to
such a change in accounting  principles  in the auditors'  report when these are
adequately  disclosed and the change is properly  accounted for in the financial
statements.


/s/  KPMG LLP
Chartered Accountants
Vancouver, Canada
  March 14, 2003, except as to note 4
  which is as of March 23, 2003



                                       46
<PAGE>
<TABLE>
<CAPTION>


ARCHANGEL DIAMOND CORPORATION
Consolidated Balance Sheets
(Expressed in United States dollars)

December 31, 2002 and 2001

--------------------------------------------------------------------------------------------------------------
                                                                                 2002                 2001
--------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>                 <C>
Assets

Current assets:
        Cash and cash equivalents                                     $       1,925,688   $        1,379,480
        Accounts receivable                                                       4,386                5,057
        Prepaid expenses                                                          2,692               25,773
        -----------------------------------------------------------------------------------------------------
                                                                              1,932,766            1,410,310

Mineral property (note 4)                                                             1                    1

Property, plant and equipment                                                    49,474               80,650
        Accumulated amortization                                                (49,474)             (76,130)
        -----------------------------------------------------------------------------------------------------
                                                                                      -                4,520
--------------------------------------------------------------------------------------------------------------

                                                                      $       1,932,767   $        1,414,831
--------------------------------------------------------------------------------------------------------------

Liabilities and Shareholders' Equity

Current liabilities
        Accounts payable and accrued liabilities                      $       1,132,218   $          188,346
        Deferred compensation payable (note 6)                                  192,252                    -
        -----------------------------------------------------------------------------------------------------
                                                                              1,324,470              188,346

Shareholders' equity:
        Share capital (note 5)                                               32,936,474           31,046,368
        Contributed surplus (note 5(c))                                       1,347,776                    -
        Deficit                                                             (33,675,953)         (29,819,883)
        -----------------------------------------------------------------------------------------------------
                                                                                608,297            1,226,485
--------------------------------------------------------------------------------------------------------------

                                                                      $       1,932,767   $        1,414,831
--------------------------------------------------------------------------------------------------------------

Continuing operations (note 2) Contingencies (note 4) Subsequent events (notes 4
and 11) Commitments (note 10)


/s/ Robert Shirriff                           /s/ Clive Hartz
------------------------------                ---------------------------------

Director Director See accompanying notes to consolidated financial statements.


                                       47
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

ARCHANGEL DIAMOND CORPORATION
Consolidated Statements of Operations and Deficit
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000

-----------------------------------------------------------------------------------------------------------------
                                                                      2002                2001               2000
-----------------------------------------------------------------------------------------------------------------
<S>                                                      <C>                <C>                 <C>
    Administration costs in the year:
        Amortization                                      $         2,153   $           2,444   $          5,832
        Bank charges                                                3,452               4,521               4,250
        Consulting                                                 35,523              61,533              68,556
        Foreign exchange loss (gain)                               30,507               7,249                (410)
        Investor relations                                          2,778              52,115              98,440
        Legal and accounting                                       38,602              47,898              44,033
        Listing fees                                                1,578               2,160               3,406
        Office and administration                                  87,580             128,366             116,109
        Printing and shareholder information                       13,822              18,070              30,553
        Rent                                                       20,386              32,112              31,144
        Salaries and benefits                                     119,095             209,905             214,860
        Stock-based compensation (note 5(c))                      955,776                   -                   -
        Telephone                                                   4,714               7,605               6,375
        Transfer agent                                              7,615               5,774               6,586
        Travel                                                     19,043              50,118              61,994
        ----------------------------------------------------------------------------------------------------------
                                                                1,342,624             629,870             691,728
    Mineral property costs:
        Contract services and salaries                            145,163                   -                   -
        Legal and permits (note 5(c))                           2,006,181                   -                   -
        Russian office administration                             104,949                   -                   -
        ----------------------------------------------------------------------------------------------------------
                                                                2,256,293                   -                   -

Interest and other income                                         (10,677)            (97,708)           (261,944)

Deferred exploration costs and mineral property
  write-down (note 4)                                                   -          18,145,299                  -

Restructuring costs (note 6)                                      267,830                  -                   -
-----------------------------------------------------------------------------------------------------------------

Loss for the year                                              (3,856,070)       (18,677,461)            (429,784)

Deficit, beginning of year                                    (29,819,883)       (11,142,422)         (10,712,638)
-----------------------------------------------------------------------------------------------------------------

Deficit, end of year                                     $    (33,675,953)  $     (29,819,883)  $    (11,142,422)
-----------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share                         $          (0.09)  $           (0.44)  $          (0.01)

Weighted average number of shares outstanding                  43,312,640          42,234,558         42,234,558

-----------------------------------------------------------------------------------------------------------------

See accompanying notes to consolidated financial statements.



                                                      48
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

ARCHANGEL DIAMOND CORPORATION
Consolidated Statements of Deferred Exploration Costs
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000

-------------------------------------------------------- ------------------ ------------------- ------------------
                                                                     2002              2001                2000
-------------------------------------------------------- ------------------ ------------------- ------------------
<S>                                                      <C>                 <C>                <C>
Deferred exploration costs in the year:
        Amortization                                     $              -               $450                1,283
        Consulting and field work                                       -                  -               31,214
        Contract services and salaries                                  -             310,213             297,967
        Report, drafting and mapping                                    -              28,857              35,739
        Russian office administration                                   -             129,477             125,965
        Permits and legal                                               -           1,092,278             591,420
        Site administration and communication                           -              25,937              25,235
        Travel                                                          -              42,878              46,289
        ------------------------------------------------ ------------------ ------------------- ------------------
                                                                        -           1,630,090           1,155,112

Balance, beginning of year                                              -          18,187,248         17,032,136

Amounts written off (note 4)                                            -         (19,817,338)                -
-------------------------------------------------------- ------------------ ------------------- -------------------

Balance, end of year                                     $              -   $              -    $     18,187,248
-------------------------------------------------------- ------------------ ------------------- -------------------

See accompanying notes to consolidated financial statements.


                                                    49

</TABLE>

<PAGE>
<TABLE>
<CAPTION>



ARCHANGEL DIAMOND CORPORATION
Consolidated Statements of Cash Flows
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000

-------------------------------------------------------- ------------------- ------------------ ------------------
                                                                     2002               2001              2000
-------------------------------------------------------- ------------------- ------------------ ------------------
<S>                                                      <C>                 <C>                <C>
Cash provided by (used in):

Operations:
        Loss for the year                                $      (3,856,070) $   (18,677,461)    $       (429,784)
        Items not involving cash:
            Amortization                                            2,153              2,444               5,832
            Deferred   exploration  costs  and  mineral
              property write-down (note 4)                             -          18,145,299                 -
            Restructuring costs (note 6)                            4,435                 -                  -
            Stock-based compensation (note 5(c))                1,347,776                 -                  -
        Changes in non-cash working capital:
            Accounts receivable                                       671               (426)   1          2,043
            Prepaid expenses                                       23,081             13,092             (17,469)
            Accounts payable and accrued liabilities              943,872             40,853            (132,296)
            Deferred compensation payable (note 6)                192,252                 -                  -
        ------------------------------------------------ ------------------ ------------------- -------------------
                                                               (1,341,830)          (476,199)           (561,674)

Investments:
        Deferred exploration costs                                     -          (1,629,640)         (1,247,117)
        Purchase of property, plant and equipment                  (2,068)            (5,424)                -
        ------------------------------------------------ ------------------ ------------------- -------------------
                                                                   (2,068)        (1,635,064)         (1,247,117)

Financing:
        Issuance of shares, net of issue costs                  1,890,106                 -                  -
-------------------------------------------------------- ------------------ ------------------- -------------------

Increase (decrease) in cash and cash equivalents                  546,208         (2,111,263)         (1,808,791)

Cash and cash equivalents, beginning of year                    1,379,480          3,490,743           5,299,534
-------------------------------------------------------- ------------------ ------------------- -------------------

Cash and cash equivalents, end of year                   $       1,925,688  $       1,379,480   $      3,490,743
-------------------------------------------------------- ------------------ ------------------- -------------------

Supplementary information:
        Income taxes paid                                $              -   $            -      $            -
        Interest received (paid)                                    10,677           97,708              261,944

-------------------------------------------------------- --- -------------- --- --------------- -- ---------------

See accompanying notes to consolidated financial statements.

</TABLE>
                                                    50
<PAGE>


ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________


1.      General:

         The Company was  incorporated  under the laws of British  Columbia  and
         continued under the Business Corporations Act of the Yukon Territory on
         September 16, 1996. The Company's principal business activities are the
         exploration for development of natural resource properties.


2.      Continuing operations:

        The Company is engaged in mineral  exploration in Russia.  The Company's
        mineral  property  is  subject  to  disputes  (note  4) and the  Russian
        corporation  which  holds the  mineral  property  licence has refused to
        transfer the licence to an entity that is 40% owned by the Company.  The
        disputes  are  subject to legal  proceedings  in the  United  States and
        Russia  and an appeal of an  arbitration  ruling as to  jurisdiction  in
        Stockholm,  Sweden.  If the Company  receives  favourable  decisions  in
        respect of the legal proceedings or arbitration,  the ability to enforce
        such  decisions in Russia  could be affected by the Russian  regulatory,
        legal and political systems, some of which are still evolving.

        To date  the  Company  has not  generated  revenue  from  its  principal
        business  activities  and has  relied on equity  financings  to meet its
        obligations.  The ability of the Company to continue as a going  concern
        is dependent on confirmation of the Company's interest in the underlying
        mineral claims, the discovery of economically  recoverable reserves, the
        continued financial support of the controlling shareholder (note 6), the
        ability  of the  Company  to  obtain  necessary  financing  to  complete
        exploration,   and,   ultimately,   development  and  future  profitable
        production.


3.      Significant accounting policies:

        These consolidated financial statements have been prepared in accordance
        with Canadian generally accepted accounting  principles.  The results of
        applying  measurement  accounting  principles  generally accepted in the
        United States are set out in note 12. Specific policies are as follows:

        (a)   Basis of presentation:

              These  consolidated  financial  statements include the accounts of
              the Company,  its wholly owned  subsidiary  and its  proportionate
              investment  in an  incorporated  joint  venture  (note 3(e)).  All
              intercompany  balances and  transactions  have been  eliminated on
              consolidation.

        (b)   Cash equivalents:

              Cash equivalents are comprised of highly liquid investments having
              original terms to maturity of 90 days or less when purchased.

        (c)   Mineral property and deferred exploration costs:

                                       51
<PAGE>


ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________


3.      Significant accounting policies (continued):

        (c)   Mineral property and deferred exploration costs (continued):

              Expenditures to acquire mineral  properties and incur  exploration
              costs are capitalized  pending the determination and production of
              commercially   recoverable  reserves.   Administration  costs  are
              expensed in the year that they are incurred.

              Management   periodically   reviews  the  carrying  value  of  its
              investments  in mineral  leases and  properties  with internal and
              external  mining  related  professionals.  A decision  to abandon,
              reduce or expand a specific  project  is based  upon many  factors
              including general and specific  assessments of exploration results
              to date and mineral reserves,  anticipated  future mineral prices,
              the  anticipated  costs of  developing  and  operating a producing
              mine,  the expiration  term, if any, of leased mineral  properties
              and  the  general   likelihood  that  the  Company  will  continue
              exploration.  The Company  does not set a  pre-determined  holding
              period for properties with unproven reserves.  However, properties
              that have not demonstrated suitable mineral  concentrations at the
              conclusion   of  each  phase  of  an   exploration   program   are
              re-evaluated  to determine if the future  exploration is warranted
              and their carrying values are appropriate.

              If there has been a delay in  exploration  activity  that  extends
              beyond  three years,  the Company  writes off any  exploration  or
              acquisition  costs  related  to that  property  unless  persuasive
              evidence exists to the contrary.

              If an area of interest is  abandoned,  it is  determined  that its
              carrying value cannot be supported by future production or sale or
              significant  uncertainty  exists as to access and operations,  the
              related  costs  are  charged  against  operations  in the  year of
              abandonment or  determination  of impairment in value. The amounts
              recorded as mineral leases and properties and deferred exploration
              costs  represent  costs  to  date  less  write-downs  and  do  not
              necessarily reflect present or future values.

        (d)   Property, plant and equipment:

              Property,  plant and equipment are stated at cost. Amortization is
              provided over three years using the straight-line method.

        (e)   Investments:

              In May 1994,  the  Company  and other  parties  involved  with the
              Verkhotina mineral property  incorporated the International  Joint
              Stock Public Company Almazny Bereg ("AB"), a Russian  company.  AB
              is an incorporated joint venture,  with the Company owning 514,400
              (2001 - 514,400) of the 1,286,000 (2001 - 1,286,000) issued common
              shares  or  40%.  The   Company's   investment   in  AB's  assets,
              liabilities  and results of  operations  are not material to these
              consolidated financial statements.

                                       52
<PAGE>


ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________


3.      Significant accounting policies (continued):

        (f)   Share capital:

              The Company  records  proceeds  from share  issuances net of issue
              costs.  Shares issued for other than cash consideration are valued
              at the quoted  price on the TSX  Venture  Exchange on the date the
              agreement to issue the shares was reached.

              Shares to be issued  which are  contingent  upon future  events or
              actions  will be  recorded by the  Company  when it is  reasonably
              determinable that the shares will be issued.

        (g)   Stock-based compensation:

               The  Company  has  a  stock   option  plan  as  approved  by  its
               shareholders (see note 5(c)).

               Effective   January  1,  2002,   the  Company   adopted  the  new
               recommendations   of  the   Canadian   Institute   of   Chartered
               Accountants regarding stock-based  compensation.  The Company now
               applies  the  fair  value  method  of   accounting   for  certain
               stock-based transactions, which includes stock options granted by
               the Company to  non-employees.  The Company  continues to account
               for stock options  granted to employees by the settlement  method
               whereby  consideration  paid to the  Company on the  exercise  of
               stock  options  is  recorded  as  share  capital  at the  time of
               exercise.  The pro forma effect of accounting for the granting of
               employee  stock  options  using the fair  value  based  method is
               disclosed in note 5(c).

        (h)   Loss per share:

              Basic loss per share is calculated  by dividing loss  available to
              common  shareholders  by the  weighted  average  number  of common
              shares outstanding in the period. For all periods presented,  loss
              available to common shareholders equals the reported loss. Diluted
              loss per share is calculated by the treasury  stock method.  Under
              the treasury stock method,  the weighted  average number of common
              shares  outstanding  for the calculation of diluted loss per share
              assumes  that the  proceeds  to be  received  on the  exercise  of
              dilutive  stock options are applied to repurchase  common share at
              the average market price of the period. For all periods presented,
              the  impact  of stock  options  has been  excluded  as it would be
              anti-dilutive.

        (i)   Future income taxes:

              The Company uses the asset and liability  method of accounting for
              income taxes. Under the asset and liability method,  future income
              tax assets and  liabilities  are  determined  based on differences
              between  the  financial   statement   carrying  values  and  their
              respective income tax basis (temporary differences) and loss carry
              forwards.  Future income tax assets and  liabilities  are measured
              using the enacted or  substantively  enacted tax rates expected to
              be in effect when the temporary differences are likely to reverse.
              The effect on future income tax assets and liabilities of a change
              in tax rates is included in  operations in the period in which the
              change is substantively  enacted.  The amount of future income tax
              assets  recognized  is limited to the amount  that is more  likely
              than not to be realized.


                                       53
<PAGE>

3.           Significant accounting policies (continued):

        (j)   Foreign currency transactions:

              These financial statements are presented in United States dollars,
              the  Company's  functional  currency.   Transactions  and  amounts
              denominated in other  currencies  have been translated into United
              States dollars as follows:

               (i)  monetary  items at the rate of  exchange  prevailing  at the
                    balance sheet date; and

               (ii) non-monetary  and revenue  and expense  items at the rate of
                    exchange prevailing at the time of the transactions.

              Any gains or losses arising thereon are charged to operations.

        (k)   Use of estimates:

              The  preparation  of  financial   statements  in  conformity  with
              Canadian  generally  accepted   accounting   principles   requires
              management  to make  estimates  and  assumptions  that  affect the
              reported  amounts  of assets and  liabilities  and  disclosure  of
              contingent  assets and  liabilities  at the date of the  financial
              statements  and the  reported  amounts of  revenues  and  expenses
              during the reporting  period.  Significant areas requiring the use
              of management  estimates  include the assessment of recoverability
              of   mineral   properties   and   deferred    exploration   costs,
              determination of tax base in foreign jurisdictions and reclamation
              obligations. Actual results could differ from those estimates.




4.      Mineral property and exploration:

        The Company's mineral property consists of the following:

        ------------------------------------------------------------------------
                                                          2002           2001
        ------------------------------------------------------------------------

        Verkhotina, Arkhangel'sk, Russia:
            Mineral property                           $        1    $        1

        ------------------------------------------------------------------------


        On October 12, 1993, the Company  acquired rights to acquire an interest
        in the Verkhotina area mineral licence in Russia.

        On December 30, 1993, a 25-year  licence for the  exploration and mining
        of diamonds (the "Licence") for an  approximately  400-square  kilometer
        area located northwest of Arkhangel'sk,  Russia (the "Verkhotina  Area")
        was  granted  to a Russian  enterprise,  Arkhangelskgeoldobycha  ("AGD")
        (formerly Arkhangel'sk Geologia Enterprises). Pursuant to the Verkhotina
        Diamond Venture  Agreement (the "VDV Agreement") dated November 24, 1993
        (as  amended)  with AGD,  the Company  acquired  the right to earn a 40%
        interest in any profits from the Verkhotina Area.





                                       54
<PAGE>


ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________



4.      Mineral property and exploration (continued):

        The VDV  Agreement  requires  the  Company to fund all  exploration  and
        evaluation  costs,  the costs of completing  feasibility  studies on the
        Verkhotina  Area, the funding of all agreed to expenses  associated with
        the registration  and maintenance of the Licence,  and all Licence fees,
        bonuses and payments for geological  information  until such time as the
        decision  is  made  to  place  the  Verkhotina   Area  into   commercial
        production.  Under the VDV  Agreement,  if a  feasibility  study were to
        recommend  commencement  of commercial  production,  the parties further
        agreed to establish a Russian joint stock company (the "Stock Company"),
        of which the Company  would own a 40%  interest.  AGD agreed to grant to
        the Stock Company sole and exclusive  rights within the Verkhotina  Area
        for the conducting of  development  and mining as determined as a result
        of the feasibility study. The parties would contribute through the Stock
        Company to all  expenditures  incurred  in  relation  to the  Verkhotina
        Project  in  proportion  to  their  respective  interests  in the  Stock
        Company.  At the time of  formation  of the  Stock  Company,  the  prior
        expenditures  of each of the parties were to be reflected in the initial
        contributed capital. For this purpose, the past expenditures of AGD were
        estimated  to  be   approximately   US$20   million,   subject  to  such
        expenditures being  substantiated and verified by independent audit. All
        profits derived from commercial mining are to be distributed between the
        parties in  proportion  to their  share  holding  interest  in the Stock
        Company.

        Should the Company withdraw from the VDV Agreement,  the Company will be
        required to reassign  its interest to AGD without  compensation.  Should
        the Company  breach its financial  obligations  under the VDV Agreement,
        AGD has a right to withdraw from the VDV Agreement.

        In February  1994,  the Company and AGD signed a  memorandum  (the "1994
        Memorandum")  that  amended  the VDV  Agreement  and which,  among other
        matters,  established  the ownership  structure of a Russian joint stock
        company,  and  provided  for AGD to  transfer  the Licence to such joint
        stock company when Russian legislation permitted such a transfer. In May
        1994, pursuant to such amended VDV Agreement,  the Company and the other
        parties to the project  incorporated  AB, a Russian joint stock company,
        with the Company owning 40% of the ordinary shares.

        By means of a public  offering  through a prospectus  in 1994, AB issued
        300,000  preferred,  non-voting  shares  with a par value of 20,000  old
        Russian  rubles  each,  at a price of 40,000 old  Russian  rubles  each.
        Effective December 1996, the offering was closed and no preferred shares
        have been subsequently issued.

        As of December 31, 2002, AB had received 1.66 billion old Russian rubles
        (approximately  $274,000 at the historical  exchange rate and $52,000 at
        the exchange rate at December 31, 2002) in cash relating to the issuance
        of 41,500  preferred  shares and had  received  promissory  notes in the
        aggregate   amount  of  10.34  billion  Russian  rubles   (approximately
        $1,712,000 at the historical  exchange rate and $325,000 at the exchange
        rate at December 31, 2002) relating to the issuance of 258,500 preferred
        shares.  All  amounts of Russian  rubles are before the  January 1, 1998
        redenomination of 1,000 old rubles for 1 new ruble.


                                       55
<PAGE>


ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________


4.      Mineral property and exploration (continued):

        The terms of the preferred  shares,  according to the prospectus and the
        AB Charter,  include the right of shareholders  to receive  dividends of
        not less than 10% per annum of the shares'  nominal value.  According to
        the AB Charter,  the preferred shares of AB are not cumulative preferred
        shares. The AB Charter contains no specific provisions which provide for
        the  accumulation  of  unpaid  dividends  but  does  refer  back  to the
        prospectus.  The  provisions  of the  prospectus  are not clear,  and it
        cannot be completely excluded that a Russian court might decide that the
        preferred shares are cumulative.

        As no  shareholders'  resolution  has been passed to pay any dividend on
        the preferred  shares,  the owners of the preferred shares have the same
        voting rights as the common shareholders. When the first dividend on the
        preferred shares is paid by AB, preferred  shareholders will have voting
        rights only as regards to a limited number of matters.  While  preferred
        shareholders have the same voting rights as the common shareholders, the
        Company has the right to vote an aggregate of 32.4% of the voting shares
        of AB on a fully diluted basis.

        During May 1995, new Russian  legislation  was introduced  which, in the
        view of the Company,  enabled AGD to transfer the Licence in  accordance
        with the 1994 Memorandum. Although AGD has disputed the legality of this
        legislation,  in April 1997 the AGD Board of Directors resolved that the
        transfer  of the  Licence to AB would take  place  upon  completion  and
        payment  by the  Company  of an agreed  upon  work  program  (the  "Work
        Program") on the Verkhotina Area for 1997 and the first quarter of 1998.
        In December  1997,  the Work Program was agreed upon by the parties.  In
        March 1998,  the General  Director of AGD  confirmed to the Company that
        AGD had no claims in regard to the Work Program.

        On May 7, 1998, the Company requested AGD to transfer the Licence to AB,
        and notified AGD in June that a dispute  existed.  On June 17, 1998, the
        Company advised AGD that it was temporarily  suspending  further funding
        for the Verkhotina Area as from July 1, 1998 until AGD complied with its
        obligations  under the amended VDV  Agreement.  AGD continued to perform
        exploration  in  the  area  and  the  Company  accrued  for  all  of the
        exploration costs associated with the Verkhotina Area.

        Russian law provides inter alia the following condition for the transfer
        of a mineral licence to a subsidiary of a subsoil user. The shareholding
        of the previous  subsoil user in the charter  capital of such subsidiary
        at the moment of  re-registration of a licence must be at least 50%. The
        total  shareholding  of AGD in AB has decreased  below 50%  (following a
        decrease in its holding of  preferred  shares),  as a result of which AB
        does not  currently  qualify  as a company to which the  Licence  can be
        transferred.

        As the parties  were  unable to reach an  agreement  concerning  Licence
        transfer, in August 1998 the Company commenced international arbitration
        of the matter in Stockholm. The Arbitration Tribunal was constituted and
        preliminarily accepted jurisdiction of the dispute.


                                       56
<PAGE>


ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________


4.      Mineral property and exploration (continued):

        A new agreement between the parties was reached and executed on July 15,
        1999 (the "1999  Agreement").  Among other  matters,  the 1999 Agreement
        stipulated AGD would,  within a period not to exceed 180 days,  transfer
        or  re-register  the Licence to a new Russian  joint stock company to be
        established, of which the Company would also own a 40% interest. As part
        of the 1999  Agreement,  the  Company  agreed to  suspend  international
        arbitration  for 180 days,  after  which time the  arbitration  would be
        discontinued if the Licence had been transferred  under the terms of the
        1999 Agreement.

        In  January  2000,  with the  transfer  of the  Licence  having not been
        completed within the allotted 180-day period, the Company formally filed
        a request with the Arbitration Tribunal in Stockholm (the "Tribunal") to
        reinstate the arbitration  proceedings.  The Company  subsequently filed
        its detailed  statement of case on April 14, 2000.  After  several legal
        submissions by both parties,  the Tribunal established February 26, 2001
        as the final date for submission of all pleadings.

        During the week of March 5, 2001, the Tribunal heard the Company's claim
        in regard to AGD's alleged  non-performance of the amended VDV Agreement
        and its  obligation to transfer the Licence to the Russian stock company
        referred  to in the  1994  Memorandum.  Moreover,  on the  basis  of new
        arguments put forward by AGD, the Tribunal  agreed to hear new arguments
        as to its jurisdiction over the dispute.  On June 27, 2001, the Tribunal
        ruled  that  they  did not  have  jurisdiction  in the  dispute  and all
        arbitration ceased.

        The Company appealed this decision to the Swedish District Court and, in
        May 2002, the Swedish District Court accepted the Company's petition for
        hearing  of an  appeal.  A new  pre-trial  hearing  for the appeal as to
        jurisdiction  is  scheduled  for June 2,  2003 and the main  hearing  is
        expected to take place in late 2003.

        On August 23, 2001,  LUKoil,  the controlling  shareholder of AGD, filed
        claims with the Arbitration  court of the Arkhangel'sk  region seeking a
        ruling, in the case of the first claim, that the arbitration  provisions
        in the VDV  Agreement  are invalid and, in the case of the second claim,
        that the 1999 Agreement is invalid. In addition, on August 31, 2001, AGD
        filed a claim  with the  Arbitration  court of the  Arkhangel'sk  region
        seeking a ruling that the 1994  Memorandum be declared not concluded and
        invalid and,  further,  on January 14, 2002,  AGD filed a claim with the
        same court to  terminate  the VDV  Agreement on the grounds that the VDV
        Agreement funding provisions have been breached by the Company.




                                       57
<PAGE>


ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________



4.      Mineral property and exploration (continued):

        The decision was  appealed by the Company in November  2002,  the appeal
        was  heard  during  January  2003,  and the  Arkhangel  Court of  Appeal
        rejected  the appeal.  A second  level  appeal  against the decision was
        filed with the St.  Petersburg  Court of Cassation on March 23, 2003 and
        this case is pending.  On October 1, 2002,  the hearings with respect to
        AGD's claims  concerning the VDV Agreement were suspended  until a final
        decision regarding the 1994 Memorandum came into force at which time the
        hearing  would  recommence.  Following  the  entering  into force of the
        decision declaring the 1994 Memorandum unconcluded, on February 4, 2003,
        the Arkhangel'sk  Arbitration Court resumed consideration of AGD's claim
        to  terminate  the VDV  Agreement  on the  grounds  that the Company has
        breached its funding obligations. Hearings in this case are scheduled to
        commence on April 28, 2003.

        As a direct  result of the actions by LUKoil and AGD,  in November  2001
        the Company filed a lawsuit in Denver District Court, State of Colorado,
        against LUKoil and AGD (the  "Defendants")  seeking to recover in excess
        of US$1 billion in damages for harm caused by a scheme of fraud,  breach
        of contract,  civil conspiracy and related claims.  On October 15, 2002,
        the Denver  District  Court  issued an order  dismissing  the  Company's
        action  against LUKoil and AGD based solely on a  determination  that it
        lacked  personal  jurisdiction  over the Defendants but rejecting all of
        the  Defendants'  other arguments on  jurisdiction.  The Company's legal
        advisers were of the view that the Court's  decision was erroneous for a
        number of  reasons,  including  the  Court's  failure  to  consider  the
        Company's  fraud and other tort claims against LUKoil and AGD as a basis
        for personal jurisdiction. Accordingly, on November 27, 2002 the Company
        filed a motion with the Colorado Court of Appeals  appealing the October
        15,  2002,  decision.  The appeal is likely to be heard  during the last
        quarter of 2003.

        According  to the  Licence  issued to AGD in December  1993,  during the
        first five years of  prospecting,  evaluation  and detailed  exploration
        (the  "First  Stage")  of  the  Verkhotina   Area,  the  Company  had  a
        requirement  to  pay a tax  of  1.5%  of the  annual  expenditure  costs
        associated  with  prospecting  and  evaluation,  4.0% of the expenditure
        costs during the period of detailed  exploration,  and 4.0% of the value
        of any  diamonds  recovered  during the First  Stage.  Should this First
        Stage extend beyond five years, the required tax payments could increase
        by 50%.

        In August 1999,  application was made by AGD to the appropriate  Russian
        agencies  requesting  an  extension  of the five  year term of the First
        Stage.  In September 1999, this request for an extension was granted for
        the Verkhotina  Area until December 31, 2002 and the tax for prospecting
        and evaluation  during this stage was increased to 2.25%. As part of the
        Licence extension,  the license holder,  AGD, was to produce a report by
        September 30, 2001, detailing the evaluation completed on the Grib Pipe.
        It is  management's  understanding  that the report was issued by AGD by
        September 30, 2001.


                                       58
<PAGE>


ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________




4.      Mineral property and exploration (continued):

        Due to the disputes  discussed above and the Company's extended delay in
        exploration  activity,  the Company wrote down deferred mineral property
        costs, exploration costs, net of a reversal of accrued exploration costs
        that  would  arise  from the VDV  Agreement,  as  amended,  included  in
        accounts payable and accrued liabilities, associated with the Verkhotina
        Area during the year ended December 31, 2001 as follows:

        ------------------------------------------------------------------------

         Mineral property                                $          493,493
         Exploration costs                                       19,817,338
         Reversal of accrued exploration costs                   (2,165,532)
        ------------------------------------------------------------------------

        Write-down                                       $       18,145,299
        ------------------------------------------------------------------------



5.      Share capital:

        (a)   Authorized:

                Unlimited common shares without par value

        (b)  Issued:

        ------------------------------------------------------------------------
                                                        Number
                                                     of shares      Amount
        ------------------------------------------------------------------------

             Balance, December 31, 2001 and 2000   42,234,558   $  31,046,368
        ------------------------------------------------------------------------

             Shares issued during year:
                By private placement for cash at
                  CDN$0.10 per share (note 6)      30,000,000       1,933,117
                Less share issuance costs                   -         (43,011)
        ------------------------------------------------------------------------
                                                   30,000,000       1,890,106

             Balance, December 31, 2002            72,234,558      32,936,474
        ------------------------------------------------------------------------


                                       59
<PAGE>



ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________


5.      Share capital (continued):
        (c)  Common share options:

             The  Company  has  adopted a stock  option plan in order to provide
             incentive to its employees.  Stock options are granted by the board
             of directors  and have an expiry  period of no more than ten years.
             For stock options granted  subsequent to December 31, 2000,  unless
             specifically resolved,  one-third of the stock options granted will
             vest  immediately,  one-third  of the  stock  options  will vest 12
             months from date of grant and the balance of stock options  granted
             will  vest 24  months  from  the date of  grant.  All  options  are
             exercisable in Canadian dollars.

             Outstanding director and employee options are as follows:
<TABLE>
<CAPTION>

         ---------------------- ---------- -------------- ----------- ------------ -------------- --------------
                                 Exercise    Outstanding     Granted   Exercised       Expired /    Outstanding
                                    price   December 31,      during      during       cancelled   December 31,
         Expiry date                 CDN$           2001      period      period   during period           2002
         ---------------------- ---------- -------------- ----------- ------------ -------------- --------------
         <S>                     <C>        <C>            <C>        <C>         <C>            <C>
         February 14, 2002          $2.06         65,000            -           -     (65,000)              -
         May 9, 2002                $2.00        215,000            -           -    (215,000)              -
         October 9, 2002            $1.03        395,000            -           -    (395,000)              -
         October 9, 2002            $0.50         93,000            -           -     (93,000)              -
         November 28, 2002          $0.50      1,000,000            -           -  (1,000,000)              -
         February 18, 2004          $1.00        150,000            -           -    (100,000)         50,000
         February 18, 2004          $0.50        300,000            -           -           -         300,000
         April 14, 2005             $1.00        150,000            -           -    (100,000)         50,000
         June 14, 2005              $0.50         35,000            -           -           -          35,000
         November 28, 2005          $0.50         50,000            -           -           -          50,000
         November 25, 2006          $0.11      2,400,000            -           -           -        2,400,00
         May 1, 2007                $0.19              -      550,000           -           -         550,000
         May 8, 2007                $0.17              -      150,000           -           -         150,000
         October 9, 2007            $0.23              -      230,000           -           -         230,000
         November 28, 2007          $0.10              -    1,000,000           -           -       1,000,000
         ---------------------- ---------- -------------- ----------- ------------ -------------- --------------
                                               4,853,000    1,930,000           -   (1,968,000)     4,815,000
         ---------------------- ---------- -------------- ----------- ------------ -------------- --------------

         Weighted average exercise price          $ 0.47       $0.15            -        $0.87          $0.17

         --------------------------------- -------------- ----------- ------------ -------------- --------------

</TABLE>

                                       60

<PAGE>


ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________





5.      Share capital (continued):

        (c)  Common share options (continued):
<TABLE>
<CAPTION>

         ---------------------- ---------- -------------- ----------- ------------ -------------- --------------
                                 Exercise    Outstanding     Granted   Exercised       Expired /    Outstanding
                                    price   December 31,      during      during       cancelled   December 31,
         Expiry date                 CDN$           2000      period      period   during period           2001
         ---------------------- ---------- -------------- ----------- ------------ -------------- --------------
         <S>                     <C>         <C>           <C>          <C>         <C>            <C>
         May 16, 2001               $1.75        300,000          -           -        (300,000)             -
         September 9, 2001          $1.75        100,000          -           -        (100,000)             -
         September 18, 2001         $2.50         45,000          -           -         (45,000)             -
         February 14, 2002          $2.06         65,000          -           -               -          65,000
         May 9, 2002                $2.00        215,000          -           -               -         215,000
         October 9, 2002            $1.03        395,000          -           -               -         395,000
         October 9, 2002            $0.50         93,000          -           -               -          93,000
         November 28, 2002          $0.50      1,000,000          -           -               -       1,000,000
         February 18, 2004          $1.00        150,000          -           -               -         150,000
         February 18, 2004          $0.50        300,000          -           -               -         300,000
         April 14, 2005             $1.00        150,000          -           -               -         150,000
         June 14, 2005              $0.50         35,000          -           -               -          35,000
         November 28, 2005          $0.50         50,000          -           -               -          50,000
         November 25, 2006          $0.11             -    2,400,000          -               -       2,400,000
         ---------------------- ---------- -------------- ----------- ------------ -------------- --------------

                                               2,898,000   2,400,000          -        (445,000)      4,853,000
         ---------------------- ---------- -------------- ----------- ---------- ---------------- --------------

         Weighted average exercise price         $ 0.97      $ 0.11   -                   $ 1.83        $ 0.47
         --------------------------------- -------------- ----------- ------------ -------------- --------------


         ---------------------- ---------- -------------- ------------ ----------- -------------- --------------
                                 Exercise    Outstanding     Granted    Exercised      Expired /    Outstanding
                                    price   December 31,      during       during      cancelled   December 31,
         Expiry date                 CDN$           1999      period       period  during period           2000
         ---------------------- ---------- -------------- ------------ ----------- -------------- --------------

         November 30, 2000          $1.50        225,000            -            -    (225,000)             -
         May 16, 2001               $1.75        300,000            -            -          -         300,000
         September 9, 2001          $1.75        100,000            -            -          -         100,000
         September 18, 2001         $2.50         45,000            -            -          -          45,000
         February 14, 2002          $2.06         65,000            -            -          -          65,000
         May 9, 2002                $2.00        215,000            -            -          -         215,000
         October 9, 2002            $1.03        445,000            -            -     (50,000)       395,000
         October 9, 2002            $0.50         93,000            -            -          -          93,000
         November 28, 2002          $0.50      1,000,000            -            -          -       1,000,000
         February 18, 2004          $1.00        150,000            -            -          -         150,000
         February 18, 2004          $0.50        300,000            -            -          -         300,000
         April 14, 2005             $1.00              -      150,000            -          -         150,000
         June 14, 2005              $0.50              -       35,000            -          -          35,000
         November 28, 2005          $0.50              -       50,000            -          -          50,000
         ---------------------- ---------- -------------- ------------ ----------- -------------- --------------

                                               2,938,000      235,000            -    (275,000)     2,898,000
         ---------------------- ---------- -------------- ------------ ----------- -------------- --------------

         Weighted average exercise price          $ 1.03       $ 0.82            -      $ 1.41         $ 0.97

         --------------------------------- -------------- ------------ ----------- -------------- --------------

</TABLE>

                                       61
<PAGE>


ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________




5.      Share capital (continued):

        (c)  Common share options (continued):

             On February 25, 2002,  the Company  received  shareholder  approval
             with respect to the November 25, 2001  granting of stock options to
             certain  employees.  For  accounting  purposes,  these  options are
             considered  to have been granted on February 25, 2002.  The Company
             granted  2,400,000 stock options with an exercise price of CDN$0.11
             expiring  November  25,  2006.   1,600,000  of  such  options  vest
             immediately, while 800,000 vested on November 25, 2002. On December
             19, 2002 the options were modified to maintain the original  expiry
             dates despite the resignation of the recipients.


             On May 2, 2002, the Company  granted  550,000 stock options with an
             exercise  price of CDN$0.19,  expiring May 1, 2007.  Of these stock
             options, 450,000 vest immediately, while the remaining 100,000 vest
             as to 25% every three months after  issuance.  On May 9, 2002,  the
             Company  granted  150,000 stock  options with an exercise  price of
             CDN$0.17,  expiring  May 8,  2007.  All  of  these  options  vested
             immediately.

             On October 9, 2002,  an  aggregate  of 230,000  stock  options were
             granted to certain of the Company's directors and consultants.  The
             options are exercisable at $0.23 until October 9, 2007. On December
             19,  2002,  75,000 of the  options  granted on October 9, 2002 were
             modified  to  maintain  the   original   expiry  date  despite  the
             resignation of the recipient.

             On November 28, 2002,  1,000,000  stock  options were granted to an
             officer  of the  Company  at an  exercise  price of  CDN$0.10.  The
             options vested  immediately and are exercisable  until November 28,
             2007.  On December 19, 2002 all of these  options were  modified to
             maintain the original  expiry date despite the  resignation  of the
             recipient.

             During the year ended  December  31,  2000,  the Company  re-priced
             1,428,000  existing  share  options to be exercised at CDN$0.50 per
             share.

             During  the year  ended  December  31,  2002,  options  granted  to
             non-employees   and  options  modified  for  former  employees  who
             continue  to  provide  services  to the  Company  as  non-employees
             resulted in  stock-based  compensation  expense of  $1,347,776,  of
             which  $392,000 is included in mineral  property  costs - legal and
             permits. This stock-based compensation expense was calculated using
             the fair value method. Under the settlement method, no compensation
             cost has been recognized in these financial  statements for options
             granted  to  employees.  However,  if  the  fair  value  method  of
             accounting had been applied to employee stock options granted since
             January 1, 2002,  the effect  would have been to record  additional
             stock  compensation  expense of $608,000.  The  Company's pro forma
             loss and  basic  and  diluted  loss per  share  would  have been as
             follows:

                                       62
<PAGE>

ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________

5.      Share capital (continued):

        (c)  Common share options (continued):

             -------------------------------------------------------------------

              Loss:
                As reported                                 $        3,856,070
                Pro forma                                            4,464,070

              Basic and diluted loss per share:
                As reported                                 $            0.09
                Pro forma                                                0.10

             -------------------------------------------------------------------


          The  stock-based  compensation  expense  recorded  in these  financial
          statements   and  pro  forma   expense  were   calculated   using  the
          Black-Scholes  option pricing model assuming an expected life of three
          to five years,  volatility  of 265%,  a dividend  yield of nil, a risk
          free interest rate of 3.94%, and includes the amortization of the fair
          value calculated over the vesting period of the stock options.

          As at December 31, 2002,  4,765,000  stock options can be exercised by
          the holders at an average exercise price of $0.17.


6.       Change in management, control and restructuring:

         During  December  2002,  the  Company  arranged  a  private   placement
         financing  of   CDN$3,000,000   through  the  issuance  of  30  million
         additional  common shares of the Company at CDN$0.10 per share.  Cencan
         S.A. ("Cencan"), a wholly-owned subsidiary of De Beers S.A. acquired 28
         million  common shares through the private  placement and  concurrently
         acquired  17,305,226  shares of the  Company  previously  owned by Task
         Holdings   Limited.   Cencan's   total   investment   after  the  above
         transactions resulted in a 62.7% ownership of the Company. Effective at
         the  closing  of  the  private  placement  with  Cencan,  a  change  in
         management and control  occurred  whereby the previous  officers of the
         Company   resigned  and  Cencan   appointed   new  managing   officers.
         Subsequently,  the Company entered into consulting  agreements with the
         resigning  officers  to  advance  the  Company's  interests  during the
         transition  to the new  management  team (note 10).  As a result of the
         change  in   management   and   control,   the  Company  has   recorded
         restructuring  costs of $267,830 relating to the closing of the Denver,
         USA  office  and  deferred  compensation  agreements  with  the  former
         officers.

                                       63
<PAGE>




ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________



7.       Future income taxes:

          At December 31, 2002, the Company has available  losses for income tax
          purposes in Canada totalling approximately nil (2001 - $8,601,000).

          As at December 31, 2002, the tax effect of the significant  components
          within the Company's future tax asset (liability) are as follows:
<TABLE>
<CAPTION>

         -----------------------------------------------------------------------------------
                                                                   2002              2001
         -----------------------------------------------------------------------------------
          <S>                                               <C>            <C>
          Mineral property and deferred exploration costs   $         -    $     5,838,000
          Loss carry forwards                                         -          2,752,000
          Other                                                   10,294           110,000
         -----------------------------------------------------------------------------------
                                                                  10,294         8,700,000
          Valuation allowance                                    (10,294)       (8,700,000)
         -----------------------------------------------------------------------------------

         Net future income tax asset                        $          -    $            -
         -----------------------------------------------------------------------------------
</TABLE>

          The tax benefit of pools related to the mineral  property and deferred
          exploration  costs and loss carry forwards have not been recognized as
          the recognition of these tax pool's is unlikely due to the acquisition
          of control on December 19, 2002 (note 6).

          Income tax expense  (recovery)  differs  from the amounts  computed by
          applying the combined federal and provincial  income tax rate of 38.6%
          (2001  -  38.1%;  2000 -  39.1%)  to  pretax  income  from  continuing
          operations as a result of the following:
<TABLE>
<CAPTION>

         -----------------------------------------------------------------------------------------------
                                                               2002             2001               2000
         -----------------------------------------------------------------------------------------------
          <S>                                       <C>              <C>                <C>
          Loss for the year                         $   (3,856,070)  $   (18,677,461)   $      (429,784)
         -----------------------------------------------------------------------------------------------

          Computed expected tax recovery                (1,488,443)       (7,116,113)          (168,046)
          Increase in valuation allowance                       -          7,116,113            168,046
          Losses not recognized due to change of
           control                                       1,488,443                -                  -
         -----------------------------------------------------------------------------------------------

         Income tax expense (recovery)              $           -    $            -     $            -
         -----------------------------------------------------------------------------------------------
</TABLE>


8.       Financial instruments:

         The carrying amounts of cash and cash equivalents,  accounts receivable
         and accounts  payable and accrued  liabilities  approximate  their fair
         values because of the short-term to maturity of those instruments.  The
         fair value of deferred  compensation payable is not determinable due to
         uncertainties as to the timing of its payment.



                                       64
<PAGE>

ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________



9.       Related party transactions:

         During the year ended  December 31, 2002, the Company  recovered,  on a
         cost  recovery  basis,  $24,742  (2001 - $670;  2000 - nil)  related to
         office  space  and  administration  costs  from a company  whose  chief
         financial  officer was the chief financial officer and secretary of the
         Company prior to the change in management and control (note 6).


10.      Commitments:

         On December  31, 2002 the Company  entered into  consulting  agreements
         with the former  president and chief  executive  officer and the former
         chief financial officer and secretary. Under the terms of the agreement
         the Company is committed to consulting costs as follows:

         ------------------------------------------------------------------

          2003                                         $         384,322
          2004                                                   384,322
          2005                                                   250,000

         ------------------------------------------------------------------


11.      Subsequent events:

         On January 20, 2003, the Company  granted  1,500,000 stock options with
         an exercise price of CDN$0.35 each to consultants  expiring January 20,
         2007.  The options  vested  immediately.  As these options were granted
         pursuant to an agreement dated December 13, 2002, for services rendered
         in  the  year  ended   December  31,  2002,   $392,000  of  stock-based
         compensation expense was recorded in mineral property costs - legal and
         permits during the year ended December 31, 2002.


12.      Reconciliation between Canadian and United States generally accepted
         accounting principles:

         These  financial  statements  have been  prepared  in  accordance  with
         Canadian generally accepted accounting  principles ("Canadian GAAP"). A
         description of United States generally accepted  accounting  principles
         ("US GAAP") and rules  prescribed by the United States  Securities  and
         Exchange  Commission  ("SEC")  that  result  in  material   measurement
         differences from Canadian GAAP follows:


                                       64
<PAGE>

ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________



12.      Reconciliation between Canadian and United States generally accepted
         accounting principles:

         (a)   Mineral property and deferred exploration cost:

               US  GAAP  requires  that   long-lived   assets  be  reviewed  for
               impairment  whenever events or changes in circumstances  indicate
               that the carrying amount of an asset may not be  recoverable.  In
               performing the review for recoverability, the Company is required
               to estimate the future cash flows expected to result from the use
               of the  asset  and its  eventual  disposition.  If the sum of the
               expected  future cash flows  (undiscounted  and without  interest
               charges)  is less  than the  carrying  amount  of the  asset,  an
               impairment  loss is  recognized.  SEC staff have  indicated  that
               their   interpretation  of  US  GAAP  requires  mineral  property
               exploration  and  acquisition  costs to be  expensed  as incurred
               until  commercially  minable  deposits  are  determined  to exist
               within a particular  property as cash flows cannot be  reasonably
               estimated  prior  to  such  determination.  Accordingly,  for all
               periods presented,  the Company has expensed all mineral property
               exploration  and  acquisition  costs  as  incurred  for  US  GAAP
               purposes.

               For  Canadian  GAAP,  cash flows  relating  to  mineral  property
               exploration and acquisition costs which include the effect of the
               change in  exploration  costs  recorded in  accounts  payable and
               accrued liabilities,  are reported as investing activities in the
               consolidated  statements of cash flows.  For US GAAP, these costs
               would  be   characterized   as   operating   activities   in  the
               consolidated statements of cash flows.

               During the year ended  December 31, 2001,  the Company wrote down
               mineral   property   and   deferred   exploration   cost  in  its
               consolidated  financial  statements  prepared in accordance  with
               Canadian  GAAP (note 4). The  mineral  property  exploration  and
               acquisition  costs  incurred  prior  to  January  1,  2001  would
               previously  have been written down for US GAAP and, as such, have
               been  added  back to loss  from  operations  for the  year  ended
               December 31, 2001.


         (b)   Stock-based compensation:

               The  Financial  Accounting  Standards  Board in the US has issued
               Financial   Accounting   Standards   Board   Statement  No.  123,
               "Accounting for Stock-Based  Compensation" which became effective
               for  fiscal  years  after   December  15,  1995.   The  statement
               encourages   entities  to  adopt  a  fair  value  methodology  of
               accounting  for  stock-based  compensation.  As  permitted by the
               statement,   the  Company  has  elected  to  continue   measuring
               stock-based  compensation  to employees and  directors  using the
               intrinsic value based method of accounting.



                                       66
<PAGE>

ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________




12.      Reconciliation between Canadian and United States generally accepted
         accounting principles (continued):

         (b)  Stock-based compensation (continued):

               In  addition,  pursuant to EITF 00-23 Issue 31,  certain  options
               granted  after  January  18, 2001 are  accounted  for as variable
               options as the exercise  price of the options is denominated in a
               currency  (CDN$) other than the currency of the primary  economic
               environment  or either the  employer or  employee.  As the market
               price at  December  31, 2001 was not  greater  than the  exercise
               price of these  options,  the  compensation  expense for the year
               ended  December  31,  2001 for these  options  is nil for US GAAP
               purposes.  For the year ended  December  31,  2002,  $333,000  of
               compensation  expense would be charged to operations  for US GAAP
               purposes for these options.

               Stock options granted to non-employees  for services  rendered to
               the Company are  required to be  accounted  for based on the fair
               value of the services provided or the consideration  issued. This
               method is similar to the Canadian  standard  adopted in 2002.  As
               the  Company  did  not  grant  any  material   stock  options  to
               non-employees  during the years ended December 31, 2001 and 2000,
               the Company has determined  that the adoption of this  accounting
               policy for US GAAP purposes does not result in a Canadian/US GAAP
               difference for those years.

               During the year ended  December 31, 2000,  the Company  re-priced
               certain employee options.  As a result,  the Company has variable
               stock option awards. As the Company's stock price for all periods
               presented  is  lower  than  the  revised   exercise   price,   no
               compensation expense was recorded.

         (c)   Restructuring costs:

               Pursuant  to EITF 94-3,  a  reconciliation  of the  restructuring
               obligations   is  to  be  disclosed.   As  such,   the  Company's
               restructuring costs are broken down as follows:

               -----------------------------------------------------------------

               -----------------------------------------------------------------

                Cash costs paid by December 31, 2002                 $    71,143
                Property, plant and equipment transferred for
                  consideration                                            4,435
                Amounts to be paid subsequent to December 31, 2002       192,252
               -----------------------------------------------------------------

               Restructuring Costs                                   $   267,830
               -----------------------------------------------------------------





                                       67
<PAGE>

ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________




12.      Reconciliation between Canadian and United States generally accepted
         accounting principles (continued):

         (d)   Reconciliation:

               The effect of the measurement  differences  between Canadian GAAP
               and US GAAP on the balance  sheets and  statements  of operations
               and cash flows is summarized as follows:
<TABLE>
<CAPTION>

               -----------------------------------------------------------------------------------------
                                                                                    2002           2001
               -----------------------------------------------------------------------------------------
               <S>                                                       <C>              <C>
                Total assets under Canadian GAAP                         $    1,932,767   $   1,414,831
                Adjustment for mineral properties and deferred
                  exploration (note 12(a))                                           (1)             (1)
               -----------------------------------------------------------------------------------------

               Total assets under US GAAP                                $    1,932,766   $   1,414,830
               -----------------------------------------------------------------------------------------

                Shareholders' equity, under Canadian GAAP                $      608,297   $   1,226,485
                Adjustment for mineral properties and deferred
                exploration (note 12(a))                                             (1)             (1)
               -----------------------------------------------------------------------------------------

               Shareholders' equity, under US GAAP                       $      608,296   $   1,226,484
               -----------------------------------------------------------------------------------------




               -----------------------------------------------------------------------------------
                                                             2002            2001             2000
               -----------------------------------------------------------------------------------

                Loss for the  year, under Canadian  $  (3,856,070)   $ (18,677,461)  $   (429,784)
                GAAP
                Adjustment for mineral properties
                 and deferred exploration (note                -        18,680,741     (1,155,112)
                 12(a))
                Adjustment for stock-based
                 compensation (note 12(b))               (645,000)              -               -
               -----------------------------------------------------------------------------------

               Earnings (loss) for the year,
                 under US GAAP                      $  (4,501,070)   $       3,280   $ (1,584,896)
               -----------------------------------------------------------------------------------

               Earnings (loss) per share, under
                 US GAAP                            $       (0.10)   $        0.00   $      (0.04)
               -----------------------------------------------------------------------------------


</TABLE>




                                       68
<PAGE>

ARCHANGEL DIAMOND CORPORATION
Notes to Consolidated Financial Statements
(Expressed in United States dollars)

Years ended December 31, 2002, 2001 and 2000
________________________________________________________________________________


12.     Reconciliation between Canadian and United States generally accepted
        accounting principles (continued):

        (d)  Reconciliation (continued):
<TABLE>
<CAPTION>

             ----------------------------------------------------------------------------------------
                                                              2002             2001             2000
             ----------------------------------------------------------------------------------------
             <S>                                    <C>               <C>              <C>
             Cash used in operating activities,
               under  Canadian GAAP                 $   (1,341,830)   $     (476,199)  $   (561,674)
              Adjustment for mineral properties
               and deferred exploration (note                   -         (1,629,640)    (1,247,117)
               12(a))
             ----------------------------------------------------------------------------------------

              Cash used in operating activities
               under US GAAP                        $   (1,341,830)   $   (2,105,839)  $ (1,808,791)
             ----------------------------------------------------------------------------------------

              Cash used in investing activities,
               under Canadian GAAP                  $       (2,068)   $   (1,635,064)  $ (1,247,117)
              Adjustment for mineral properties
               and deferred exploration (note                   -          1,629,640      1,247,117
               12(a))
             ----------------------------------------------------------------------------------------

              Cash used in investing activities
               under US GAAP                        $       (2,068)   $       (5,424)  $         -
             ----------------------------------------------------------------------------------------



</TABLE>


                                       69