Crystallex International
Corporation
 
 
 
 
 
 Consolidated
Financial Statements
 
 December
31, 2007 and 2006
 
 
 (Expressed
in United States Dollars)
   
 
  Crystallex International
Corporation
 
 RESPONSIBILITY FOR FINANCIAL
REPORTING
 
 The
Board of Directors which, among other things, is responsible for the
consolidated financial statements of the Company, delegates to management the
responsibility for the preparation of the financial statements and internal
controls. The Board of Directors delegates to the Audit Committee the
responsibility for ensuring that management fulfils its responsibilities in
respect of financial reporting and internal control. Each year the shareholders
appoint independent auditors to audit and report directly to them on the
financial statements.
 
 The
consolidated financial statements have been prepared using appropriate generally
accepted accounting principles and estimates considered necessary by management
to present fairly and consistently the consolidated financial position and the
results of operations.
 
 The
Company’s Audit Committee is appointed by the Board of Directors annually and is
currently comprised of three independent directors. The Committee meets
regularly with management and with the independent auditors to satisfy itself
that each group is properly discharging its responsibilities and to review the
financial statements and the independent auditors’ report.
PricewaterhouseCoopers LLP, the independent auditors appointed by the
shareholders to audit the consolidated financial statements, have full and
unrestricted access to the Audit Committee. The Audit Committee reports its
findings to the Board of Directors for consideration in approving the financial
statements for issuance to the shareholders.
 
 As
enunciated below, the Company has determined that internal control over
financial reporting was not effective in preventing possible material
misstatements without further substantive work. Accordingly, additional
substantive procedures were applied subsequently to provide assurance that such
misstatements do not exist, and accordingly believes that the consolidated
financial statements are now free from material misstatements. In addition, the
Company has commenced a number of remediation steps to rectify such weaknesses
in order to diminish the possibility of a material misstatement in 2008. These
are outlined below.
 
 MANAGEMENT’S REPORT ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
 
 Management
is responsible for establishing and maintaining adequate control over financial
reporting for the Company.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with policies or procedures may deteriorate.
 
 Management
has evaluated the effectiveness of the Company’s internal control over financial
reporting as at December 31, 2007 based on the criteria set forth in “Internal
Control–Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO”).
 
 A
material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the company's annual financial statements will
not be prevented or detected.
 
 As
at December 31, 2007, the Company identified material weaknesses as
follows:
 
 (a)           There
are insufficient controls to monitor and prevent the override of established
controls at the Company’s subsidiaries with respect to existing policies and
procedures, communication of the delegation of authority and the timeliness of
financial analysis and reporting, primarily in remote locations.
 
 (b)           The
Company did not consistently maintain implementation of effective controls over
the purchasing function relating to the documentation of the arrangement with
certain suppliers at the parent entity level and the authorization and approval
of both suppliers and services at remote locations.
 
 (c)           The
Company did not design and maintain effective controls over the identification
and recognition of timing differences in accounting for future income taxes.
This resulted in an audit adjustment to the Company’s December 31, 2007
consolidated financial statements and the restatement of the Company’s December
31, 2006 and 2005 consolidated financial statements with respect to mineral
properties, future income taxes and operations.
   
 Crystallex International
Corporation
  Each
of these material weaknesses could result in a material misstatement to the
Company’s annual consolidated financial statements that would not be prevented
or detected.  Material weaknesses (a) and (b) noted above could also
result in unauthorized acquisition, use, or disposition of the Company’s assets
that could have a material effect on the consolidated financial
statements.
 
 As
a result of the material weaknesses described above, Management has concluded
that, as at December 31, 2007, the Company’s internal control over financial
reporting was not effective.
 
 The
effectiveness of the Company’s internal control over financial reporting as at
December 31, 2007 has been audited by PricewaterhouseCoopers LLP, our
independent auditors, as stated in their report which appears
herein.
 
 MANAGEMENT’S PLANS TO REMEDIATE MATERIAL
WEAKNESSES
 
 Management,
under the Board’s direction, has undertaken significant additional work to
ensure the consolidated financial statements are free from material misstatement
that may not have been prevented or detected as a result of the material
weaknesses noted.  Furthermore, Management has identified and
commenced the implementation of additional internal control procedures,
particularly in remote locations, to ensure the acquisition, use or disposal of
the Company’s assets are appropriately authorized.
 
 Management
has taken the following steps to address the weaknesses identified:
 
 (a)
Monitoring and override of established controls:   Management
continues to work with the subsidiary managers, particularly at remote
locations, to ensure corporate policies and internal control procedures are
respected by all and information is provided on a timely
basis.  Training and coordination of activities amongst the senior
managers of the subsidiaries is ongoing.
 
 (b)
Controls over the purchasing function:   Management has begun a
process of renewing and updating the physical documentary support for existing
service providers and suppliers and establishing a regimen of pre-qualifying
potential new service providers and suppliers.  Management has
implemented additional controls at the subsidiary level to ensure appropriate
approval and timely authorization of suppliers.  We are continuing to
reinforce compliance with these controls.
 
  (c)
Controls over accounting for income tax timing
differences:   Management continues to work with independent
expert advisors, in both Canada and Venezuela, to ensure the timely
identification of those items giving rise to timing differences for income tax
purposes.  Management has implemented controls to ensure the valuation
basis, for both accounting and tax reporting purposes, of the Company’s assets,
is identified, recorded and retained for financial reporting
purposes.
  
 
 Johan
      van’t Hof
              Gordon
      Thompson
              Hemdat
      SawhChairman
      of the Audit Committee
              President
      & Chief Executive Officer
              Chief
      Financial Officer
 
   
 Crystallex International
Corporation
 INDEPENDENT
AUDITORS’ REPORT
 
 To
the Shareholders of Crystallex International Corporation
 
 We
have completed an integrated audit of the consolidated financial statements and
internal control over financial reporting of Crystallex International
Corporation (the “Company”) as at December 31, 2007.  Our opinions,
based on our audit, arepresented
below.
 
 Consolidated
financial statements
 
 We
have audited the accompanying consolidated balance sheet of Crystallex
International Corporation as at December 31, 2007, and the related consolidated
statement of operations and comprehensive operations, cash flows and
shareholders’ equity for the year ended December 31, 2007.  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 audit.
 
 We
conducted our audit of the Company’s financial statements as at December 31,
2007 and for the year then ended in accordance with Canadian generally accepted
auditing standards and the standards of the Public Company Accounting Oversight
Board (United States).  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 of financial statements
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  A financial statement audit
also includes assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our
opinion.
 
 
  Crystallex International
Corporation




In
our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as at
December 31, 2007 and the results of its operations and its cash flows for the
year ended December 31, 2007 in accordance with Canadian generally accepted
accounting principles.
 
 Internal
control over financial reporting
 
 We
have also audited the Company’s internal control over financial reporting as at
December 31, 2007, based on criteria established in Internal Control -
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).  The Company’s management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in the accompanying Management’s Report on Internal Control Over
Financial Reporting.  Our responsibility is to express an opinion on
the effectiveness of the Company’s internal control over financial reporting
based on our audit.
 
 We
conducted our audit of internal control over financial reporting in accordance
with the standards of the Public Company Accounting Oversight Board (United
States).  Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects.  An audit
of internal control over financial reporting includes obtaining an understanding
of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other
procedures as we consider necessary in the circumstances.  We believe
that our audit provides a reasonable basis for our opinion.
 
 A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles.  A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
 
 Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
 
  A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the annual financial statements will not be
prevented or detected on a timely basis. As at December 31, 2007, the following
material weaknesses have been identified and described in Management's Report On
Internal Control Over Financial Reporting: insufficient controls to monitor and
prevent the override of established controls at the Company's subsidiaries, lack
of effective controls over the purchasing function relating to the authorization
and approval of both suppliers and services, and lack of the design and
operation of controls over the identification and recognition of timing
differences in accounting for income taxes.
 
 We
considered these material weaknesses in determining the nature, timing, and
extent of audit tests applied in our audit of the December 31, 2007 consolidated
financial statements, and our opinion regarding the effectiveness of the
Company’s internal control over financial reporting does not affect our opinion
on those consolidated financial statements.
 
 In
our opinion, the Company did not maintain, in all material respects, effective
internal control over financial reporting as at December 31, 2007, based on
criteria established in Internal Control - Integrated Framework issued by the
COSO.
   /s/ PricewaterhouseCoopers
LLP
 
 Chartered
Accountants, Licensed Public Accountants
 Toronto,
Canada
 March
31, 2008
  
 
 Crystallex International
Corporation
   REPORT
OF INDEPENDENT REGISTERED CHARTERED ACCOUNTANTS
 
 To
the Shareholders of Crystallex International Corporation
  We
have audited the consolidated balance sheet of Crystallex International
Corporation as at December 31, 2006 and the related consolidated statements of
operations, shareholders’ equity and cash flows for each of the years in the
two-year period ended December 31, 2006. 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. 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 Crystallex International
Corporation as at December 31, 2006 and the results of its operations and its
cash flows for each of the years in the two-year period ended December 31, 2006
in accordance with Canadian generally accepted accounting
principles.
  As
described in Note 11 to the consolidated financial statements, the consolidated
financial statements as at December 31, 2006 and for each of the years in the
two-year period ended December 31, 2006 have been restated.  We
therefore withdraw our previous audit report dated March 27, 2007, except as to
then Note 17, which is as at March 29, 2007, and October 22, 2007 as to the
effects of the previous restatement described in then Note 19.
  The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control
over financial reporting. Accordingly we express no such opinion.
   /s/ Deloitte &
Touche LLP
 Independent
Registered Chartered Accountants
  Licensed
Public Accountants
  
  Toronto,
Ontario
  March
27, 2007, except as to Note 18 which is as of October 22, 2007, and March 28,
2008 as to the effects of the restatement described in Note 11.
   
  Crystallex International
Corporation
 Consolidated
Balance Sheets
 As
at December 31, 2007 and 2006
 (Expressed
in United States dollars)
 
 2007
              
              
              2006Restated
                (Note
      11)ASSETSCURRENTCash
      and cash equivalents
              
              $
              16,065,203
              
              
              $
              28,573,142Accounts
      receivable
              
              
              1,169,312
              
              
              
              490,090Inventories
      (Note 4)
              
              
              2,142,374
              
              
              
              4,867,577Prepaid
      expenses and other
              
              
              1,978,953
              
              
              
              4,250,97021,355,842
              
              
              
              38,181,779PROPERTY,
      PLANT AND EQUIPMENT (Note 5)
              
              
              317,179,327
              
              
              
              283,407,219DEFERRED
      FINANCING FEES (Note 6)
              
              
              -
              
              
              
              2,595,627OTHER
              
              
              705,327
              
              
              
              510,029TOTAL
      ASSETS
              
              $
              339,240,496
              
              
              $
              324,694,654LIABILITIESCURRENTAccounts
      payable and accrued liabilities
              
              $
              10,868,261
              
              
              $
              12,791,456Current
      portion of debt (Note 6)
              
              
              -
              
              
              
              3,172,559Current
      portion of asset retirement obligations (Note 7)
              
              
              566,786
              
              
              
              239,40811,435,047
              
              
              
              16,203,423DEBT
      (Note 6)
              
              
              83,291,377
              
              
              
              84,524,929ASSET
      RETIREMENT OBLIGATIONS (Note 7)
              
              
              1,864,240
              
              
              
              971,167FUTURE
      INCOME TAXES (Note 10)
              
              
              14,242,886
              
              
              
              23,514,101TOTAL
      LIABILITIES
              
              
              110,833,550
              
              
              
              125,213,620SHAREHOLDERS’
      EQUITYSHARE
      CAPITAL (Note 8)
              
              
              503,489,584
              
              
              
              448,100,697CONTRIBUTED
      SURPLUS
              
              
              27,123,608
              
              
              
              23,135,187ACCUMULATED
      OTHER COMPREHENSIVE INCOME
              
              
              11,958,981
              
              
              
              11,958,981DEFICIT
              
              
              (314,165,227
              )
              
              
              (283,713,831
              )TOTAL
      SHAREHOLDERS’ EQUITY
              
              
              228,406,946
              
              
              
              199,481,034$
              339,240,496
              
              
              $
              324,694,654
 
 COMMITMENTS
      AND CONTINGENCIES (Note 14)Gordon
      M. Thompson, Director
              
              Johan
      van’t Hof, Director
  Page 1 of
35
  Crystallex International
Corporation
  Years
ended December 31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 
 2007
              
              
              2006
              
              
              2005Restated
              
              
              Restated(Note
      11)
              
              
              (Note
      11)MINING
      REVENUE
              
              $
              13,565,167
              
              
              $
              28,087,764
              
              
              $
              24,989,681OPERATING
      EXPENSESOperations
              
              
              19,628,681
              
              
              
              26,244,665
              
              
              
              22,117,746Amortization
              
              
              -
              
              
              
              949,996
              
              
              
              2,366,312Accretion of asset retirement obligations
              
              
              211,256
              
              
              
              288,376
              
              
              
              345,460Depletion
              
              
              -
              
              
              
              833,427
              
              
              
              330,47219,839,937
              
              
              
              28,316,464
              
              
              
              25,159,990OPERATING
      LOSS
              
              
              (6,274,770
              )
              
              
              (228,700
              )
              
              
              (170,309
              )OTHER
      EXPENSESGeneral and administrative
              
              
              21,688,357
              
              
              
              22,860,917
              
              
              
              23,126,395Interest on Debt
              
              
              13,009,439
              
              
              
              12,945,985
              
              
              
              11,809,087Amortization of property, plant and equipment
              
              
              63,464
              
              
              
              104,165
              
              
              
              705,414Amortization of deferred financing fees
              
              
              -
              
              
              
              597,710
              
              
              
              342,88234,761,260
              
              
              
              36,508,777
              
              
              
              35,983,778COMMODITY
      CONTRACT LOSS
              
              
              -
              
              
              
              -
              
              
              
              (3,770,835
              )LOSS
      BEFORE OTHER ITEMS
              
              
              (41,036,030
              )
              
              
              (36,737,477
              )
              
              
              (39,924,922
              )OTHER
      ITEMSInterest
      and other income
              
              
              1,094,198
              
              
              
              1,159,586
              
              
              
              1,926,425Foreign
      exchange gain
              
              
              9,732,746
              
              
              
              459,734
              
              
              
              249,888Gain
      on settlement of debt (Note 6)
              
              
              -
              
              
              
              -
              
              
              
              875,610Investment
      in subsidiaries (Note 9)
              
              
              -
              
              
              
              -
              
              
              
              (6,600,000
              )10,826,944
              
              
              
              1,619,320
              
              
              
              (3,548,077
              )NET
      LOSS BEFORE INCOME TAX EXPENSE
              
              
              (30,209,086
              )
              
              
              (35,118,157
              )
              
              
              (43,472,999
              )INCOME
      TAX EXPENSE (Note 10)
              
              
              (242,310
              )
              
              
              (566,072
              )
              
              
              (291,436
              )NET
      LOSS AND COMPREHENSIVE
                LOSS
      FOR THE YEAR
              
              
              (30,451,396
              )
              
              
              (35,684,229
              )
              
              
              (43,764,435
              )DEFICIT,
      BEGINNING OF YEAR
              
              
              (283,713,831
              )
              
              
              (248,029,602
              )
              
              
              (204,265,167
              )DEFICIT,
      END OF YEAR
              
              $
              (314,165,227
              )
              
              $
              (283,713,831
              )
              
              $
              (248,029,602
              )NET
      LOSS PER SHARE–
      Basic and diluted
              
              $
              (0.12
              )
              
              $
              (0.15
              )
              
              $
              (0.22
              )WEIGHTED
      AVERAGE NUMBER OF
                SHARES
      OUTSTANDING–
      Basic and diluted
              
              
              256,668,551
              
              
              
              230,229,162
              
              
              
              194,729,931
  The
accompanying notes are an integral part of the consolidated financial
statements.
  Page 2 of
35




Crystallex International
Corporation


Consolidated
Statements of Cash Flows


Years
ended December 31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 2007
              
              
              2006
              
              
              2005Restated(Note
      11)CASH
      FLOWS FROM (USED) IN OPERATING ACTIVITIESNet
      loss for the year
              
              $
              (30,451,396
              )
              
              $
              (35,684,229
              )
              
              $
              (43,764,435
              )Items
      not affecting cash:Amortization and
      depletion
              
              
              63,464
              
              
              
              2,485,298
              
              
              
              3,745,080Interest accretion on
      debt
              
              
              3,567,170
              
              
              
              2,960,413
              
              
              
              2,672,895Stock-based
      compensation
              
              
              3,111,561
              
              
              
              2,463,691
              
              
              
              3,665,894Accretion of asset retirement
      obligations
              
              
              211,256
              
              
              
              288,376
              
              
              
              345,460Increases (reductions) in
      asset retirementobligations
              
              
              1,009,195
              
              
              
              (598,539
              )
              
              
              (1,095,903
              )Directors’ fees paid in
      shares
              
              
              148,000
              
              
              
              60,000
              
              
              
              190,000Investment in
      subsidiaries
              
              
              -
              
              
              
              -
              
              
              
              6,600,000Gain on settlement of
      debt
              
              
              -
              
              
              
              -
              
              
              
              (875,610
              )Unrealized gain on translation
      of future incometaxes (Note
10)
              
              
              (14,322,229
              )
              
              
              -
              
              
              
              (1,442,481
              )Unrealized foreign exchange
      loss
              
              
              2,274,657
              
              
              
              -
              
              
              
              -Unrealized commodity contract
      gain
              
              
              -
              
              
              
              -
              
              
              
              (8,265,111
              )Warrants issued for
      professional fees
              
              
              -
              
              
              
              1,365,839
              
              
              
              -Changes
      in other operating assets and liabilities:Decrease (increase) in
      accounts receivable
              
              
              (579,772
              )
              
              
              391,444
              
              
              
              (351,627
              )Decrease (increase) in
      inventories
              
              
              2,725,203
              
              
              
              (2,300,756
              )
              
              
              (782,033
              )Decrease (increase) in
      prepaidexpenses and
    other
              
              
              609,840
              
              
              
              (1,166,947
              )
              
              
              (2,231
              )Increase (decrease) in
      accounts payableand accrued
      liabilities
              
              
              (2,676,135
              )
              
              
              (940,265
              )
              
              
              5,107,126(34,309,186
              )
              
              
              (30,675,675
              )
              
              
              (34,252,976
              )CASH
      FLOWS FROM (USED) IN INVESTING ACTIVITIESInvestment in property, plant
      andequipment
              
              
              (26,892,775
              )
              
              
              (49,787,854
              )
              
              
              (92,831,304
              )Decrease in restricted cash
      andcash
    equivalents
              
              
              -
              
              
              
              21,323,163
              
              
              
              76,682,473Decrease in short-term
      investments
              
              
              -
              
              
              
              -
              
              
              
              30,277,280(26,892,775
              )
              
              
              (28,464,691
              )
              
              
              14,128,449CASH
      FLOWS FROM (USED) IN FINANCING ACTIVITIESIssuance of common
      shares
              
              
              52,792,543
              
              
              
              82,951,454
              
              
              
              15,892,242Issuance of
      warrants
              
              
              -
              
              
              
              5,972,069
              
              
              
              272,926Debt
borrowings
              
              
              -
              
              
              
              -
              
              
              
              7,673,793Debt
repayments
              
              
              (3,577,355
              )
              
              
              (5,202,552
              )
              
              
              (4,512,500
              )Deferred financing
      fees
              
              
              -
              
              
              
              (77,482
              )
              
              
              (898,657
              )49,215,188
              
              
              
              83,643,489
              
              
              
              18,427,804INCREASE
      (DECREASE) IN CASHAND CASH
      EQUIVALENTS
              
              
              (11,986,773
              )
              
              
              24,503,123
              
              
              
              (1,696,723
              )EFFECTS
      OF EXCHANGE RATE FLUCTUATIONSON CASH
              
              
              (521,166
              )
              
              
              -
              
              
              
              -CASH
      AND CASH EQUIVALENTS,BEGINNING OF
    YEAR
              
              
              28,573,142
              
              
              
              4,070,019
              
              
              
              5,766,742CASH
      AND CASH EQUIVALENTS,END OF YEAR
              
              $
              16,065,203
              
              
              $
              28,573,142
              
              
              $
              4,070,019
 
 Supplemental
disclosures with respect to cash flows (Note 12)




Page 3 of
35




Crystallex International
Corporation


Consolidated
Statements of Shareholders’ Equity
 Years
ended December 31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
  Equity
      Component
              Cumulative
              Accumulated
      OtherNumber
      of
              
              Number
      of
              Contributed
              of
      Exchangeable
              Translation
              ComprehensiveCommon
      Shares
              Amount
              Warrants
              Surplus
              Bank
      Loan
              Adjustment
              Income
              Deficit
              
              Total(Restated)
              
              (Restated)(Note
      11)
              
              (Note
      11Balance
      at December 31, 2004
              189,836,735
              $  306,031,783
              13,008,235
              $  31,824,328
              $                  
       -
              $      
       11,958,981
              $                       
      -
              $    
       (204,265,167)
              
              $     
       145,549,925Retroactive
      adjustment (Note 3)
              -
              -
              -
              -
              -
              (11,958,981)
              11,958,981
              -
              
              -Shares
      issuedUnit offering
              200,000
              466,549
              450,000
              272,926
              -
              -
              -
              -
              
              739,475Exercise of
    options
              775,000
              1,196,957
              -
              (143,934)
              -
              -
              -
              -
              
              1,053,023Issuance of shares under

                    equity draw down
      facility
              12,273,236
              17,394,493
              -
              -
              -
              -
              -
              -
              
              17,394,493Acquisition of non-controlling

                  interest
              1,467,136
              3,000,000
              -
              -
              -
              -
              -
              -
              
              3,000,000Exercise of
      warrants
              3,418,500
              8,210,355
              (3,418,500)
              (3,129,998)
              -
              -
              -
              -
              
              5,080,357Directors’ fees
              65,186
              190,000
              -
              -
              -
              -
              -
              -
              
              190,000Share exchange – El
      Callao
              523
              1,487
              -
              -
              -
              -
              -
              -
              
              1,487Exchangeable
      debt
              -
              -
              -
              -
              2,564,366
              -
              -
              -
              
              2,564,366Stock-based
      compensation
              -
              -
              -
              3,665,894
              -
              -
              -
              -
              
              3,665,894Warrants
      expired
              -
              -
              (1,042,008)
              -
              -
              -
              -
              -
              
              -Loss
      for the year (Restated)
              -
              -
              -
              -
              -
              -
              -
              (43,764,435)
              
              (43,764,435)Balance
      at December 31, 2005 (Restated)
              208,036,316
              $  336,491,624
              8,997,727
              $  32,489,216
              $  2,564,366
              $                         
        -
              $  11,958,981
              $  
       (248,029,602)
              
              $  135,474,585Shares
      issued:Unit offerings
              20,924,000
              51,208,985
              17,312,500
              5,972,069
              -
              -
              -
              -
              
              57,181,054Exercise of
    options
              1,641,800
              5,490,735
              -
              (1,838,981)
              -
              -
              -
              -
              
              3,651,754Issuance of shares underequity draw down
       facility
              1,661,130
              4,317,661
              -
              -
              -
              -
              -
              -
              
              4,317,661Settlement of promissory
      note
              611,300
              1,800,000
              -
              -
              -
              -
              -
              -
              
              1,800,000Settlement of bank
      loan
              3,765,841
              7,641,266
              -
              -
              (2,564,366)
              -
              -
              -
              
              5,076,900Exercise of
      warrants
              8,764,682
              41,089,701
              (8,764,682)
              (17,316,647)
              -
              -
              -
              -
              
              23,773,054Directors’ fees
              19,170
              60,000
              -
              -
              -
              -
              -
              -
              
              60,000Share exchange – El
      Callao
              255
              725
              -
              -
              -
              -
              -
              -
              
              725Stock-based  compensation
              -
              -
              -
              2,463,691
              -
              -
              -
              -
              
              2,463,691Warrants
      issued for professional fees
              -
              -
              500,000
              1,365,839
              -
              -
              -
              -
              
              1,365,839Warrants
      issued in exchange for earlyexercise of
      warrants
              -
              -
              875,000
              -
              -
              -
              -
              -
              
              -Warrants
      expired
              -
              -
              (233,045)
              -
              -
              -
              -
              -
              
              -Loss
      for the year
              -
              -
              -
              -
              -
              -
              -
              (35,684,229)
              
              (35,684,229)Balance
      at December 31, 2006 (Restated)
              245,424,494
              $  448,100,697
              18,687,500
              $  23,135,187
              $                  
      -
              $                          
      -
              $  11,958,981
              $  
       (283,713,831)
              
              $  199,481,034Shares
      issued:Public offering
              14,375,000
              50,701,111
              -
              -
              -
              -
              -
              -
              
              50,701,111Exercise of
    options
              858,591
              1,622,286
              -
              (411,734)
              -
              -
              -
              -
              
              1,210,552Settlement of promissory
      note
              460,900
              1,800,000
              -
              -
              -
              -
              -
              -
              
              1,800,000Exercise of
      warrants
              501,500
              1,117,190
              (501,500)
              (236,310)
              -
              -
              -
              -
              
              880,880Directors’ fees
              38,508
              148,000
              -
              -
              -
              -
              -
              -
              
              148,000Share exchange – El
      Callao
              79
              300
              -
              -
              -
              -
              -
              -
              
              300Stock-based
      compensation
              -
              -
              -
              4,636,465
              -
              -
              -
              -
              
              4,636,465Loss
      for the year
              -
              -
              -
              -
              -
              -
              -
              (30,451,396)
              
              (30,451,396)Balance
      at December 31, 2007
              261,659,072
              $  503,489,584
              18,186,000
              $  27,123,608
              $                 
        -
              $                          
       -
              $  11,958,981
              $  (314,165,227)
              (1)
              $  228,406,946
 (1)
Includes total comprehensive deficit for the twelve months ended December 31,
2007 of $302,206,246 (2006 - $271,754,850).






Page 4 of
35




Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)





1.     
NATURE OF OPERATIONS AND CONTINUATION OF BUSINESS
 
 Crystallex
International Corporation (“Crystallex” or the “Company”) is engaged in the
production of gold and related activities including exploration, development,
mining and processing in Venezuela.  As reflected in these financial
statements, the Company has not generated sustainable operating capital from its
business activities and has relied on debt, equity and other forms of financing
to meet its obligations.  On February 11, 2008, the Company completed
a public offering for gross proceeds of CDN$69,069,000 (Note 17). Management is
of the opinion that additional financing is available to continue its planned
activities in the normal course upon completion of the permitting process (refer
below); however, while the Company has been successful in the past, there can be
no assurance it will be able to raise sufficient funds in the
future.
 
 The
Company’s principal asset is the Las Cristinas project, currently under
development in Venezuela.  Continued development and the ultimate
commencement of commercial production are dependent upon receipt of the
Authorization to Affect Natural Resources (the “Permit”) which will allow
management to proceed to put in place financing to fund
construction.  These financial statements have been prepared on a
going concern basis which assumes that the Company will be successful in
obtaining the Permit and will be able to obtain the necessary financing to
complete the Las Cristinas project through project debt, other forms of public
market debt, or equity financing; thereby fulfilling its commitment under its
Mine Operating Agreement.  The Company continues to believe that it
will be successful in obtaining the Permit and any other government approvals
that are necessary to complete the mine development and commence commercial
production. The Company received official notice in March 2006 from the
Venezuelan Ministry of Basic Industries and Mining (“MIBAM”) advising that MIBAM
has formally approved the technical, economic and financial Feasibility Study
for the Las Cristinas project. The Company further received notice in June 2007
from the Corporación Venezolana de Guayana (“CVG”), that the requirements of the
Ministry of the Environment and Natural Resources of Venezuela (“MinAmb”
formerly referred to as “MARN”) for the issuance of the environmental permit to
commence construction of the Las Cristinas Project have been fulfilled upon the
posting of a Compliance Guarantee Bond and payment of certain
taxes.
 
 The
carrying value of the Las Cristinas assets could be subject to material
write-down in the event that the Permit or any other permits are not received or
that financing efforts are not successful, and, in addition, other adjustments
to amounts and classification of assets and liabilities may be necessary to
these consolidated financial statements should such circumstances impair the
Company’s ability, in the future, to continue as a going concern as contemplated
under accounting principles generally accepted in Canada.
 
 2.      SIGNIFICANT
ACCOUNTING POLICIES
 
 The
principal accounting policies followed by the Company, which have been
consistently applied in the preparation of these consolidated financial
statements, except for certain new pronouncements which have been adopted
effective January 1, 2007 as described in Note 3, are summarized as
follows.
 
 These
policies are consistent with accounting principles generally accepted in the
United States in all material respects except as outlined in Note
18.
 
 Basis
of presentation of consolidated financial statements
 
 The
consolidated financial statements of Crystallex are prepared by management in
accordance with accounting principles generally accepted in Canada.
  Page 5 of
35
  Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 
 2.
              SIGNIFICANT
      ACCOUNTING POLICIES (continued)
 
 Principles
of consolidation
 
 These
consolidated financial statements include the accounts of the Company and its
majority-owned subsidiaries, all of which are controlled through the ownership
of a majority voting interest.  All inter-company balances and
transactions have been eliminated.
 
 Translation
of foreign currency subsidiaries and foreign currency balances
 
 The
accounts of subsidiaries, all of which are considered to be integrated foreign
operations, are translated from the local currency into U.S. dollars using the
temporal method.  Under this method, monetary assets and liabilities
are translated into U.S. dollars at the year end exchange rates, and
non-monetary assets and liabilities are translated into U.S. dollars using
historical rates of exchange.  Revenues and expenses, except for
expenses related to non-monetary assets which are not historical, are translated
into U.S. dollars at average rates for the year.  Exchange gains and
losses on translation are included in the Consolidated Statement of Operations
and Comprehensive Operations.
 
 The
Company translates monetary assets and liabilities that are denominated in
foreign currencies at the rate of exchange in effect at the balance sheet date
and non-monetary assets and liabilities at historical exchange
rates.  Revenues and expenses are translated at average rates in the
month except for depreciation and amortization, which are translated using the
same rates as the related assets.  Foreign exchange gains and losses
on monetary items are recorded on the statement of operations as they
occur.
 
 Cash
and cash equivalents
 
 Cash
and cash equivalents include highly liquid investments with original maturities
of three months or less.
 
 Short-term
investments
 
 Short-term
investments include highly liquid investments with original maturities greater
than three months and less than one year.
 
 Property,
plant and equipment
 
 Property,
plant and equipment are recorded at cost less accumulated
amortization.  Amortization of plant and equipment used directly in
the mining and production of gold is included in operating
costs.  Amortization is being provided for using the straight-line
method over the following periods, not to exceed the mine’s estimated
life:
  Buildings
              5
              yearsField
      vehicles
              5
              yearsFurniture
      and equipment
              5
              yearsMill
      and plant
              20
              yearsMining
      equipment
              10
              years


Page 6 of
35
  Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 2. SIGNIFICANT
ACCOUNTING POLICIES (continued)
 
 Mineral
properties and deferred exploration and development expenditures
 
 Mineral
exploration costs such as topographical, geochemical and geophysical studies are
capitalized and carried at cost until the properties to which they relate are
placed into production, sold or where management has determined there to be a
permanent impairment in value.  Development costs incurred to access
ore bodies identified in the current mining plan are expensed as incurred after
production has commenced.  Development costs necessary to extend a
mine beyond those areas identified in the current mining plan and which are
incurred to access additional reserves are deferred until the incremental
reserves are mined.  Mineral properties and development costs,
including the mineral acquisition and direct mineral exploration costs relating
to the current mining plan, are depleted and amortized using the
unit-of-production method over the estimated life of the ore body based on
proven and probable reserves.
 
 Asset
retirement obligations
 
 The
Company records a liability for its long-term asset retirement obligations,
equal to the fair value of the obligation for asset retirement, and records a
corresponding increase to the carrying amount of the related asset which is
amortized and charged to amortization expense over the life of the associated
asset.  The liability is increased over the period of expected cash
flows with a corresponding charge to operating expenses.  The fair
value of the obligation for asset retirement is re-assessed
annually.
 
 Impairment
of long lived assets
 
 The
Company reviews and evaluates the recoverability of the carrying amounts of all
its producing properties and related plant and equipment annually or when events
or changes in circumstances indicate that the carrying amount may not be
recoverable.  Estimated future net cash flows, on an undiscounted
basis, are calculated using estimated recoverable ounces of gold (considering
current proven and probable mineral reserves and the value beyond proven and
probable which includes those mineral resources expected to be converted into
mineral reserves), estimated future commodity price realization (considering
historical and current prices, price trends and related factors) and operating
costs, future capital expenditures, project financing costs and reclamation
costs.
 
 The
amount of the impairment loss is determined as the excess of the carrying value
of the asset over its fair value, which is measured using discounted cash
flows.
 
 Non-producing
mineral properties are evaluated for impairment based on management’s intentions
and are written down when the long-term expectation is that the net carrying
amount will not be recovered.
 
 Production
inventories
 
 Gold in
doré, gold in process and stockpiled ore are stated at the lower of average
production cost which includes all direct and indirect costs, including
amortization of equipment and facilities, and net realizable value.
 
 Consumables
and spare parts inventory are valued at the lower of average and replacement
cost.
 
 Page 7 of
35
  Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 2. SIGNIFICANT
ACCOUNTING POLICIES (continued)
 
 Income
taxes
 
 The
Company uses the asset and liability method of accounting for income taxes
whereby future income taxes are recognized for the tax consequences of timing
differences by applying substantively enacted statutory income tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax basis of certain assets and
liabilities.  The Company provides a valuation allowance against the
recorded future income tax asset when it is more likely than not that some or
all of the future income tax assets will not be realized.
 
 Revenue
recognition
 
 Revenue
from mining operations are recognized upon shipment of gold, when title has
passed to the customer, when persuasive evidence of an arrangement exists, and
collection of the sale is reasonably assured.
 
 Deferred
financing fees and debt
 
 Until
December 31, 2006, transaction costs related to the Company’s debt financings
were deferred and amortized over the term of the related
financing.  As a result of new accounting standards effective January
1, 2007, the Company has elected to record debt net of transaction costs. Debt
is subsequently stated at amortized cost; any difference between the proceeds
(net of transaction costs) and the redemption value is recognised in the income
statement over the period of the debt using the effective interest
method.
 
 Loss
per share
 
 Loss
per share is calculated by dividing net loss by the weighted-average number of
common shares outstanding during the year plus outstanding warrants that are
unconditionally convertible into common shares.  Diluted per share
amounts are calculated using the treasury stock method.  In 2007, 2006
and 2005, the potential effect of the outstanding convertible notes, stock
options and warrants were anti-dilutive.
 
 Stock-based
compensation plan
 
 The
Company has a stock-based compensation plan which is described in Note
8.  The Company accounts for stock options using the fair value
method, whereby compensation expense for stock options is measured at the fair
value at the grant date using the Black-Scholes valuation model and is
recognized over the vesting period of the options granted.
 
 Fair
value of financial instruments
 
 The
balance sheet carrying amounts for cash and cash equivalents, accounts
receivable and accounts payable and accrued liabilities approximate fair value
due to their short-term nature.  The fair value of debt is disclosed
in Note 6.
 
 Page 8 of
35
  Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 2. SIGNIFICANT
ACCOUNTING POLICIES (continued)
 
 Use
of estimates
 
 The
preparation of financial statements in conformity with accounting principles
generally accepted in Canada requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements.  Significant estimates used include those
relating to the timing and receipt of the Permit, gold prices, recoverable
proven and probable reserves, available resources, available operating capital,
fair value of stock options and warrants, income taxes and required asset
retirement obligations.  These estimates each affect management’s
evaluation of asset impairment and the recorded balances of inventories, site
closure and asset retirement obligations.
 
 While
management believes these estimates and assumptions are reasonable, actual
results could vary significantly.
 
 Comparative
figures
 
 The
comparative figures have been reclassified, where necessary, to conform to the
presentation adopted for 2007.
 
 3.      CHANGES
IN ACCOUNTING POLICIES AND FUTURE ACCOUNTING PRONOUNCEMENTS
 
 In2005, the
CICA issued three new accounting standards: Handbook Section 1530, Comprehensive
Income (Section 1530), Handbook Section 3855, Financial Instruments –
Recognition and Measurement (Section 3855), and Handbook Section 3865, Hedges
(Section 3865).  These new standards became effective for the Company
on January 1, 2007.
 
 Section
1530 – Comprehensive Income
 
 Comprehensive
income is composed of net income and other comprehensive income
(“OCI”).  OCI is the change in shareholders’ equity, which results
from transactions and events from sources other than the Company’s
activities.  These transactions and events include changes in the
currency translation adjustment relating to self-sustaining foreign operations
and unrealized gains and losses resulting from changes in fair value of certain
financial instruments.  The Company has included a Consolidated
Statement of Operations and Comprehensive Operations for changes in these items
for the year ended December 31, 2007, while the cumulative changes in OCI are
included in accumulated other comprehensive income (“AOCI”), which is presented
as a new category of shareholders’ equity in the Consolidated Balance
Sheet.  The cumulative translation adjustment has been retroactively
reclassified to AOCI.
 
 Section
3855 – Financial Instruments – Recognition and Measurement
 
 Under
the new standards, financial assets, financial liabilities and derivatives are
initially recognized at fair value and their subsequent measurement depends on
their classification as described below.  All financial assets or
liabilities, with the exception of those securities designated as
“held-to-maturity” (“HTM”), financial assets designated as “available-for-sale”
(“AFS”), financial assets that are loans and receivables and other financial
liabilities, are measured at fair value on each balance sheet date, with changes
in fair value recorded in the Consolidated Statement of Operations and
Comprehensive Operations.  Financial instruments classified as HTM,
loans and receivables or other financial liabilities are recorded at amortized
cost.  Financial instruments classified as AFS are measured at fair
value,
  Page 9 of
35
  Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 
 3. CHANGES
IN ACCOUNTING POLICIES AND FUTURE ACCOUNTING PRONOUNCEMENTS
 (continued)
 
 with
changes in fair value recorded in OCI, with the exception of AFS equity
securities that do not have quoted market prices in an active market which are
measured at cost.
 
 Derivative
instruments are carried at fair value, including those derivative instruments
that are embedded in financial or non-financial contracts which are not closely
related to the host contracts.  Changes in the fair values of
derivative instruments are recognized in income of the current period, with the
exception of derivative instruments designated in effective cash flow hedges or
hedges of foreign currency exposure in a self-sustaining foreign
operation.
 
 Section
3865 – Hedges
 
 Section
3865 specifies the criteria that must be satisfied in order for hedge accounting
to be applied and the accounting for each of the permitted hedging strategies:
fair value hedges and cash flow hedges.  These criteria have not
changed substantially.  Any hedge ineffectiveness is measured and
recorded in income of the current period.  Hedge accounting is
discontinued prospectively when the derivative no longer qualifies as an
effective hedge, or the derivative is terminated or sold, or upon the sale or
early termination of the hedged item.
 
 The
Company did not have any outstanding hedging contracts as at December 31, 2007
and December 31, 2006.
 
 There
was no material impact to the Company’s financial statements on adoption
Sections 1530, 3855 and 3865.
 
 Sections
1535, 3862 and 3863
 
 In
2007, the CICA issued Handbook Section 3862, Financial Instruments –
Disclosures, and Handbook Section 3863, Financial Instruments – Presentation,
and Handbook Section 1535, Capital Disclosures.  Handbook Sections
3862 and 3863 together supersede Handbook Section 3861, Financial Instruments –
Disclosure and Presentation and provide disclosure and presentation requirements
for financial instruments.  Handbook Section 1535, Capital Disclosures
specifies the disclosure of (i) an entity’s objectives, policies and processes
for managing capital; (ii) quantitative data about what the entity regards as
capital; (iii) whether the entity has complied with any capital requirements;
and (iv) if it has not complied, the consequences of such non compliance. These
new standards apply to interim and annual financial statements relating to
fiscal years beginning on or after October 1, 2007 with early adoption
permitted. The Company has elected to apply these standards for the year-ended
December 31, 2007.
 
 Future
accounting pronouncements
 
 The
CICA issued new accounting standards which are effective for interim and annual
consolidated financial statements for the Company’s reporting period beginning
on January 1, 2008 and 2009.
 
 Handbook
Section 1400, “General Standards of Financial Statement
Presentation”.  This section was amended so as to include the criteria
for determining and presenting the Company’s ability to continue as a going
concern.
  Page 10 of
35
  Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
  3. CHANGES
IN ACCOUNTING POLICIES AND FUTURE ACCOUNTING PRONOUNCEMENTS
 (continued)
 
 Future
accounting pronouncements (continued)
 
 Handbook
Section 3031, “Inventories”.  This section establishes standards for
the measurement of inventories, allocations of overhead accounting for
write-down and disclosures.
 
 Handbook
Section 3251, “Equity”.  This section establishes standards for the
presentation of equity and changes in equity during the reporting
period.  The requirements in this section are in addition to Section
1535.
 The
Company is currently assessing the impact of this new accounting standard on its
consolidated financial statements.
 
 The
CICA has issued a new standard which may affect the financial disclosures and
results of operations of the Company for interim and annual periods beginning
January 1, 2009. Section 3064, Goodwill and intangible assets, establishes
revised standards for recognition, measurement, presentation and disclosure of
goodwill and intangible assets. Concurrent with the introduction of this
standard, the CICA withdrew EIC 27, Revenues and Expenses during the
pre-operating period. As a result of the withdrawal of EIC 27, the Company will
no longer be able to defer costs and revenues incurred prior to commercial
production at new mine operations.
 
 The
Company has not yet assessed the impact of Sections 1400, 3031, 3064 and 3251 on
its consolidated financial statements.
 
 4.    INVENTORIES
  2007
                  
                  
                  2006Gold
      in doré
                  
                  $
                  397,543
                  
                  
                  $
                  524,360Gold
      in process
                  
                  
                  296,538
                  
                  
                  
                  563,746Stockpiled
      ore
                  
                  
                  33,229
                  
                  
                  
                  958,271Consumables and spare parts
                  
                  
                  1,415,064
                  
                  
                  
                  2,821,200$
                  2,142,374
                  
                  
                  $
                  4,867,577
 5.    PROPERTY,
PLANT AND EQUIPMENT
 
 The
components of property, plant and equipment are as follows:
 
 2007Cost
                
                
                Accumulated
      Amortization and Depletion
                
                
                Net
      Book
                  ValuePlant
      and equipment
                
                $
                121,890,469
                
                
                $
                9,066,587
                
                
                $
                112,823,882Mineral
      properties
                
                
                212,262,022
                
                
                
                7,906,577
                
                
                
                204,355,445334,152,491
                
                
                $
                16,973,164
                
                
                $
                317,179,327






Page 11 of
35




Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)






5.
              PROPERTY,
      PLANT AND EQUIPMENT (continued)
 
 
 2006
      Restated (Note 11)Cost
              
              
              Accumulated
                Amortization
                and
      Depletion
              
              
              Net
      Book
                ValuePlant
      and equipment
              
              $
              113,865,685
              
              
              $
              9,003,122
              
              
              $
              104,862,563Mineral
      properties
              
              
              186,451,233
              
              
              
              7,906,577
              
              
              
              178,544,656$
              300,316,918
              
              
              $
              16,909,699
              
              
              $
              283,407,219
 
 
 The net
book values of property, plant and equipment by location are as
follows:
 
 2007Plant
      and
                Equipment
              
              
              Mineral
                Properties
              
              
              TotalLas
      Cristinas
              
              $
              112,723,890
              
              
              $
              204,355,445
              
              
              $
              317,079,335Corporate
              
              
              99,992
              
              
              
              -
              
              
              
              99,992$
              112,823,882
              
              
              $
              204,355,445
              
              
              $
              317,179,327
 
 2006
      Restated (Note 11)Plant
      and
                Equipment
              
              
              Mineral
                Properties
              
              
              TotalLas
      Cristinas
              
              $
              104,691,650
              
              
              $
              178,544,656
              
              
              $
              283,236,306Corporate
              
              
              170,913
              
              
              
              -
              
              
              
              170,913$
              104,862,563
              
              
              $
              178,544,656
              
              
              $
              283,407,219
 
 Plant
and equipment for Las Cristinas are not subject to amortization as they have not
been placed in use.
 
 Property,
plant and equipment is summarized as follows:
 
 Las
Cristinas
 
 On
September 17, 2002, the Company entered into a non-assignable mining agreement
(the “Agreement”) with the Corporación Venezolana de Guayana (“CVG”), acting
under the authority of the Ministry of Energy and Mines of Venezuela (“MEM”),
pursuant to Venezuelan mining law, under which the Company was granted the
exclusive right to explore, develop and exploit the Las Cristinas 4, 5, 6 and 7
properties including the processing of gold for its subsequent commercialization
and sale. As a result of entering into the Agreement, the Company has
discontinued previous legal proceedings to confirm its title rights to the Las
Cristinas 4 and 6 concessions.
 
 The
aggregate cost incurred by the Company to December 31, 2007 to obtain the right
to exploit the area is $317,079,335, represented by $266,627,080 of payments in
cash, $32,003,206 related to future income taxes, $16,924,146 made through the
issuance of common shares of the Company, and $1,524,903 made through stock
options issues by the Company. Costs are comprised of property payment and
finders’ fees of $36,170,393 ($24,978,317 in cash and $11,192,076 through
shares); professional fees and related expenses of $136,151,846 ($130,419,776 in
cash and $5,732,070 through shares); and equipment purchases of $112,753,890 (in
cash).  Share issuances are valued at the prior 5 day weighted
average trading price for the common shares on the American Stock
Exchange.  The preceding amounts include payments relating to travel
and administrative costs of  $3,515,806, during the year ended
December 31, 2007 (2006 - $793,557; 2005 - $370,579).
  Page 12 of
35
  Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
  6.       DEBT
 
 2007
              
              
              2006Notes
      payable
              
              $
              83,291,377
              
              
              $
              82,734,477Bank
      loan
              
              
              -
              
              
              
              3,163,011Exchangeable
      promissory note
              
              
              -
              
              
              
              1,800,00083,291,377
              
              
              
              87,697,488Less:
      Current portion of debt
              
              
              -
              
              
              
              3,172,559$
              83,291,377
              
              
              $
              84,524,929
 
 
 Deferred
Financing Fees
 
 Effective
January 1, 2007 deferred financing fees of $2,595,627 were reclassified to debt
as a result of new accounting standards.  Accordingly, the Notes
payable balance as at December 31, 2007 is reflected net of financing
fees.
 
 Notes
Payable
 
 In
conjunction with a Unit offering on December 23, 2004 the Company issued
$100,000,000 principal amount senior unsecured notes (the “Notes”) with a coupon
rate of 9.375%, due on December 23, 2011 for net proceeds of $75,015,250, after
expenses and equity allocation.  Interest is payable semi-annually on
January 15 and July 15 of each year, beginning July 15, 2005.  The
Company may redeem the Notes, in whole or in part, at any time after December
31, 2008 at a redemption price of between 100% and 102% of the principal amounts
of the Notes, depending on the redemption date, plus accrued and unpaid interest
and additional interest, if any, to the date of the redemption.  In
addition, the Company may be required to redeem the Notes for cash under certain
circumstances, such as a change in control in the Company or where the Company
ceases to beneficially own, directly or indirectly, at least a majority interest
in the Las Cristinas Project; or the Company may redeem the Notes, in whole but
not in part, for cash at its option under certain circumstances, such as a
change in the applicable Canadian withholding tax legislation.
 
 The
carrying value of the Notes was derived from a financial offering that contained
both a liability and equity component.  As a result, the equity
component was allocated based on the fair value of the shares issued with the
Unit offering, calculated at $21,450,000 with $78,550,000 being the discounted
fair value of the Notes.  The discounted fair value of the Notes is
accreted to the face value of the Notes using the effective interest rate method
over its seven year term, with the resulting charge recorded to interest
expense.
 
 Bank
Loan
 
 In May
2007, the loan balance was repaid.
 
 On
December 23, 2005 the Company and its subsidiaries restructured their
outstanding obligations to Standard Bank Plc (“SB”) to close out all outstanding
gold forward sales and call option transactions and to amend its existing credit
agreement.
 
 Pursuant
to the restructuring, (1) the gold forward sales and call options transactions
were closed out and the resulting liability of approximately $14,315,000 was
converted into a fully drawn term loan facility, and amortized over two years
until maturity on December 31, 2008 and (2) the payment obligation under the
existing credit agreement due in January 2006 was restructured and coordinated
with the payment terms of the new term loan facility.
  Page 13 of
35
  Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 6.        
DEBT (continued)
 
 The
principal amounts outstanding under the new term loan facility and the
restructured credit agreement bore interest at a rate per annum equal to LIBOR
plus 2.5%. The Company was required to make a single aggregate payment of
$150,000 per month on account of interest and principal under the term loan
facility and the restructured credit agreement. The Company was also required to
make additional principal repayments under the new term loan facility and the
restructured credit agreement in certain circumstances, including the issuance
of equity or convertible or exchangeable debt securities other than issuances
pursuant to existing credit arrangements.  Accordingly, upon
completion of the private placement unit offerings in February 2006 and August
2006 (Note 8), the Company repaid $2,123,800 and $1,889,324, respectively, of
principal due to SB.
 
 Of the
principal amount outstanding under the new term loan facility, $7,500,000 was
exchangeable at the option of SB for Crystallex common shares at a price per
common share equal to the lesser of the average market price of Crystallex
common shares on the Toronto Stock Exchange (“TSX”) for the five trading days
preceding December 23, 2005 and the average market price of Crystallex common
shares on the TSX for the five trading days preceding the exchange
date.
 
 Of the
$7,500,000 exchangeable portion of the debt, $4,935,634 and $2,564,366
respectively, was allocated between the liability and equity components of the
debt.  The liability component represented the present value of the
exchangeable portion discounted using the interest rate that would have been
applicable to the non-exchangeable debt.  The equity component
represented the present value of the interest payments which the Company could
settle through the issuance of shares or by cash, discounted at the same rate as
the liability component (the interest component) and the right of SB to convert
the principal of the debt into common shares, determined as the residual amount
at the date of the new term loan facility.
 
 As a
result of restructuring the $2,054,000 principal payment due in January 2006
under the previous credit agreement with SB, the Company recorded a gain of
$875,610 in December 2005.
 
 In May
2006, SB elected to convert into common shares $7,500,000 principal amount of
the loan in accordance with the terms of the credit agreement.  As a result
of the conversion, Crystallex issued 3,765,841 common shares to SB as settlement
of the $7,500,000 face value amount of the loan as well as including the accrued
interest, accretion and deferred financing fees all of which resulted in a value
of $7,641,266 being assigned to the shares issued.
 
 Exchangeable
Promissory Note
 
 In July
2007, the promissory note was settled in full.
 
 On
December 31, 2005, the Company, through ECM (Venco) Ltd, (“ECM”), an indirect
wholly-owned subsidiary, issued to Corporación Vengroup, S.A. (“Vengroup”) a
$3,600,000 exchangeable promissory note of ECM.
 
 Under
the terms of the exchangeable promissory note, either party may elect to have
the instalment payment satisfied by the delivery of Crystallex common
shares.  The number of shares to be delivered to Vengroup is based on
the weighted average trading price of the Crystallex common shares on the TSX
during the five trading days immediately preceding delivery of an exchange
notice.
 
 Page 14 of
35
  Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 6.      DEBT
(continued)
 
 In
March 2006 Vengroup exercised its right to exchange the June 29, 2006 principal
instalment payment of $900,000 for common shares of Crystallex.  The
Company issued 307,213 common shares as settlement of this principal instalment
payment.
 
 In July
2006 Vengroup exercised its right to exchange the December 29, 2006 principal
instalment payment of $900,000 for common shares of Crystallex.  The
Company issued 304,087 common shares as settlement of this principal instalment
payment
 
 In
January 2007 Vengroup exercised its right to exchange the June 29, 2007
principal instalment payment of $900,000 for common shares of
Crystallex.  The Company issued 245,710 common shares as settlement of
this principal instalment payment.
 
 In July
2007, Vengroup exercised its right to exchange the December 29, 2007 final
principal instalment payment of $900,000 for common shares of
Crystallex.  The Company issued 215,190 common shares as settlement of
this final principal instalment payment.  This obligation was settled
in full after the July 2007 exercise.
 
 Interest
accretion
 
 Interest
accretion on the Notes and bank loan of $3,567,170was expensed during the
year ended December 31, 2007 (December 31, 2006 – $ 2,960,413) as a component of
interest expense.
 
 Fair
value of debt
 
 The
estimated fair value of debt, which is not recognized in these consolidated
financial statements, is $82,000,000 (2006: $84,878,219) and is determined by
discounting the contractual cash flows using market interest rates for debt with
similar terms and risks.
 
 7.       ASSET
RETIREMENT OBLIGATIONS
 
 The key
assumptions on which the fair value of the asset retirement obligations are
based include the estimated future cash flows, the timing of those cash flows,
and the credit-adjusted risk-free rate or rates at which the estimated cash
flows have been discounted.  The Company used a discount rate of
15%.  As at December 31, 2007, undiscounted cash outflows
approximating $3,400,000 are expected to occur over a five year
period.
 
 In view
of the uncertainties concerning future asset retirement and progressive
reclamation costs, the ultimate costs to the Company could differ materially
from the amounts estimated.  The estimate for the future liability is
subject to change based on possible amendments to applicable laws and
legislation, the nature of ongoing operations and technological
innovations.  Future changes, if any, due to their nature and
unpredictability, could have a significant impact and would be reflected
prospectively, as a change in an accounting estimate.
 Page 15 of
35
 Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 
 7.       ASSET
RETIREMENT OBLIGATIONS (continued)
 
 The
following table explains the change in the asset retirement
obligations:
 
 2007
              
              
              2006Asset
      retirement obligations, beginning of year
              
              $
              1,210,575
              
              
              $
              1,520,738Accretion
      expense
              
              
              211,256
              
              
              
              288,376Revisions
      in estimated cash flows
              
              
              1,009,195
              
              
              
              (598,539
              )2,431,026
              
              
              
              1,210,575Less:
      current portion
              
              
              566,786
              
              
              
              239,408Asset
      retirement obligations, end of year
              
              $
              1,864,240
              
              
              $
              971,167
 
 
 8.       SHARE
CAPITAL
 
 2007
              
              
              2006AuthorizedUnlimited
      common shares, without par valueUnlimited
      Class “A” preference shares, no par valueUnlimited
      Class “B” preference shares, no par valueIssued261,659,072
      Common Shares(2006 –
      245,424,494)
              
              $
              503,489,584
              
              
              $
              448,100,697
 
 
 Warrants
 
 As at
December 31, 2007 common share purchase warrants were outstanding enabling the
holders to acquire common shares as follows:
 
 Exercise
      Price
              Number
      ofWarrants
              
              Weighted
      Average
                Remaining
      Contractual
                Life
      (Years)$4.30
      ($4.25 CDN)
              5,061,000
              1
              0.12$4.00
              875,000
              
              0.54$4.25
              12,250,000
              2
              -18,186,000
 
 
 1
      These warrants expired at maturity on February 11,
  2008.
 
 2
      These warrants become exercisable for an eighteen month period commencing
      on the date which is 45 days following the receipt of the Permit for the
      Company’s Las Cristinas project.
  Page 16 of
35
 Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 
 8.      SHARE
CAPITAL (continued)
 
 Warrants
(continued)
 
 A
summary of common share purchase warrants outstanding as at December 31 and
changes during each of the years then ended is as follows:
 
 2007
              
              
              2006Weighted
                Number
      of
                Warrants
              
              
              Average
                Exercise
      Price
              
              
              Weighted
                Number
      of
                Warrants
              
              
              Average
                Exercise
      PriceBalance
      – beginning of year
              
              
              18,687,500
              
              
              
              4.01
              
              
              
              8,997,727
              
              
              
              2.71Granted
              
              
              -
              
              
              
              -
              
              
              
              18,687,500
              
              
              
              4.01Exercised
              
              
              (501,500
              )
              
              
              1.76
              
              
              
              (8,764,682
              )
              
              
              2.71Expired
      or forfeited
              
              
              -
              
              
              
              -
              
              
              
              (233,045
              )
              
              
              2.75Balance
      – end of year
              
              
              18,186,000
              
              
              
              4.25
              
              
              
              18,687,500
              
              
              
              4.01
 
 
 Stock
options
 
 The
Company has an Incentive Share Option Plan (the “Plan”) that provides for the
granting of options to executive officers, directors, employees and service
providers of the Company to a maximum of 10% of the issued and outstanding
common shares of the Company on a non-dilutive basis.  Under the Plan,
the exercise price of each option cannot be less than the closing price of the
Company’s common shares on the Toronto Stock Exchange, on the trading day
immediately preceding the date of the grant.  Stock options granted to
service providers and employees, executive officers, and directors have a life
of two, five and ten years, respectively.  Stock options may vest
immediately, or over periods ranging from one year to three years.  In
June 2007 the shareholders of the Company approved amendments to the Plan
whereby the Board of Directors may permit an optionee to elect to receive
without payment by the optionee of any additional consideration, common shares
equal to the value of options surrendered.
 
 The
Company determines the fair value of the employee stock options using the
Black-Scholes option pricing model.  The estimated fair value of the
options is expensed over their respective vesting periods.  The fair
value of stock options was determined using the following weighted average
assumptions:
   2007
                
                
                2006
                
                
                2005Risk
      free interest rate
                
                
                4.10
                %
                
                
                4.13
                %
                
                
                3.61
                %Expected
      life (years)
                
                
                3.0
                
                
                
                3.70
                
                
                
                3.97Expected
      volatility over expected life
                
                
                111
                %
                
                
                119
                %
                
                
                105
                %Expected
      dividends
                
                
                -
                
                
                
                -
                
                
                
                -
   The
fair value compensation recorded for the year ended December 31, 2007 was
$4,636,465 (2006 - $2,463,691; 2005 - $3,665,894) of which $3,111,561 (2006 -
$2,463,691; 2005 - $3,665,894) was expensed and $1,524,904 (2006 – nil; 2005 –
nil) was capitalized to mineral properties.
 Page 17 of
35
 Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 
 8.       SHARE
CAPITAL (continued)
 
 Stock
options (continued)
 2007
              
              
              2006
              
              
              2005Weighted
      average fair
                value
      of options granted
                during
      the year-CDN$
              
              $
              2.49
              
              
              $
              2.63
              
              
              $
              2.75
 
 
 
 As at
December 31, 2007 stock options were outstanding enabling the holders to acquire
common shares
as follows:
 
 Outstanding Options
              Exercisable OptionsRange
      of
                Exercise
      Price-Cdn
              Number
                of
      Options
              Weighted
      Average
                Remaining
                Contractual
                Life
      (Years)
              Weighted
                Average
                Exercise
                Price-CDN$
              Number
                Exercisable
              Weighted
                Average
                Exercise
                Price-CDN$$1.00
      to $1.50
              797,500
              0.64
              $      1.46
              797,500
              $  
      1.46$1.75
      to $2.60
              4,139,935
              3.48
              2.22
              4,010,435
              2.23$2.65
      to $3.60
              4,260,754
              4.83
              3.12
              3,800,754
              3.09$4.00
      to $4.65
              3,329,233
              5.12
              4.33
              2,632,733
              4.2612,527,422
              4.20
              $     3.04
              11,241,422
              $2.94
 
 A
summary of the status of the Plan as at December 31 and changes during each year
then ended is as follows:
 
 
 2007
              
              
              2006
              
              
              2005Number
                Of
      Options
              
              
              Weighted
                Average
                Exercise
                Price-CDN$
              
              
              Number
                of
      Options
              
              
              Weighted
                Average
                Exercise
                Price-CDN$
              
              
              Number
                of
      Options
              
              
              Weighted
                Average
                Exercise
                Price-
      CDN$Balance
      -
                beginning
      of year
              
              
              11,394,085
              
              
              $
              2.80
              
              
              
              11,327,394
              
              
              $
              2.63
              
              
              
              10,950,250
              
              
              $
              2.46Granted
              
              
              2,067,004
              
              
              
              3.66
              
              
              
              1,773,400
              
              
              
              3.73
              
              
              
              1,407,644
              
              
              
              3.28Exercised
              
              
              (864,000
              )*
              
              
              1.62
              
              
              
              (1,641,800
              )
              
              
              (2.31
              )
              
              
              (775,000
              )
              
              
              (1.66
              )Expired
      or forfeited
              
              
              (69,667
              )
              
              
              3.81
              
              
              
              (64,909
              )
              
              
              (2.51
              )
              
              
              (255,500
              )
              
              
              (2.02
              )Balance
      - end of year
              
              
              12,527,422
              
              
              $
              3.04
              
              
              
              11,394,085
              
              
              $
              2.80
              
              
              
              11,327,394
              
              
              $
              2.63
  *Includes 6,500 options which were
exercised for 1,091 common shares of the Company on a cashless
basis
 
 Financing
Transactions
 
 Fiscal
2007 Activities
 
 On
April 24, 2007, the Company issued 14,375,000 common shares at CDN$4.25 per
common share, in a bought deal with a syndicate of underwriters, for proceeds of
CDN$57,103,000 ($50,701,111) after underwriting fees and expenses.
 
 In
January and July, 2007, under the terms of the exchangeable promissory note
between Vengroup and ECM (Note 6), the Company issued a total of 460,900 common
shares to Vengroup as settlement of $1,800,000 due to Vengroup.
 Page 18 of
35
 Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 
 8.        
SHARE CAPITAL (continued)
 
 Fiscal
2006 Activities
 
 In
January 2006, the Company issued 1,661,130 common shares for net proceeds of
$4,317,661 under the terms of its equity draw down facility.
 
 In
February 2006, the Company completed a private placement of 10,799,000
units.  Each unit was comprised of one common share and 1.1344 common
share purchase warrants.  Each whole warrant entitles the holder to
purchase one common share at a price of US$4.25.  The warrants are
non-transferable and are exercisable for an 18 month period commencing 45 days
following receipt of the Permit for the Company’s Las Cristinas project in
Venezuela.  Certain events, including change in control of the Company
or in the Company’s interest in the Las Cristinas project, make the warrants
immediately exercisable.  The net proceeds received by the Company,
after considering issuance costs of $991,972, was $30,325,132.  The
issuance costs were allocated proportionately to the amounts recorded as share
capital of $28,233,744 and contributed surplus of $2,091,388.
 
 In
March and July 2006, under the terms of the exchangeable promissory notes
between Vengroup and ECM (Note 6), the Company issued a total of 611,300 common
shares to Vengroup as settlement of $1,800,000.
 
 In May
2006, upon SB’s exercise of its exchange rights, the Company issued 3,765,841
common shares to SB as settlement of the $7.5 million exchangeable portion of
the bank loan (Note 6).
 
 In July
2006, the Company agreed to amend the terms of 2,197,727 unlisted common share
purchase warrants (the “Warrants”). Each Warrant entitled the holder to acquire
one common share of the Company at an exercise price of US$2.75 per share until
September 15, 2006. Pursuant to the terms of the amendment to the Warrants and
their subsequent exercise, the Company issued approximately 0.398 new common
share purchase warrants (the “New Warrants”) in exchange for each Warrant
exercised, for an aggregate of 875,000 New Warrants. Each New Warrant issued
entitles the holder to acquire one common share in the capital of the Company at
an exercise price of US$4.00 per share until July 14, 2008.
 
 The
Company agreed to amend the terms of warrants granted to its project finance
advisor (“Advisor”). The Company previously issued 500,000 common share purchase
warrants to its Advisor in April 2003 that would only become exercisable to the
Advisor should the Advisor secure financing for the Las Cristinas project (“the
Financing Condition”). In July 2006 the Company agreed to remove the Financing
Condition from these warrants and, accordingly, recorded professional fees of
$1,365,839.
 
 In
August 2006, the Company completed a public offering of 10,125,000
units.  Each unit was comprised of one common share and one half of
one common share purchase warrant.  Each whole warrant entitles the
holder to purchase one common share at a price of CDN$4.25.  The
warrants are exercisable on or before February 10, 2008. The net proceeds
received by the Company, after considering issuance costs of CDN$2,309,331
($2,061,078), was CDN$30,090,669 ($26,855,922). The issuance costs were
allocated proportionately to the amounts recorded as share capital of
CDN$25,742,567 ($22,975,241) and contributed surplus of CDN$4,348,102
($3,880,681).
 Page 19 of
35
 Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 
 8.        
SHARE CAPITAL (continued)
 
 Fiscal
2005 Activities
 
 On July
29, 2005, the Company filed a preliminary short form base shelf prospectus with
the Ontario Securities Commission and a corresponding registration statement
with the United States Securities and Exchange Commission pursuant to the
multijurisdictional disclosure system. On August 23, 2005 the preliminary short
form base shelf prospectus and registration statement became effective. This
prospectus enables the Company to offer at its option, over a 25-month period,
up to an aggregate of CDN$75 million of senior unsecured notes, common shares,
warrants and units in one or more offerings.
 
 On
September 14, 2005 the Company established, as covered under the short form base
shelf prospectus, a CDN$60 million equity draw down facility with a counterparty
and also issued and sold to them for gross proceeds of CDN$10 million (received
on closing), units comprising CDN$10,000,000 principal amount of 5% Series 2
Notes due March 13, 2006, 200,000 common shares, and warrants to acquire 450,000
common shares exercisable on or before September 13, 2006 at a price of CDN$3.19
per share. The securities comprising the units separated immediately upon issue
(Note 6).  During the period October 5, 2005 through to December 16,
2005 the Company issued 12,273,236 common shares for net proceeds of $17.8
million under its equity draw down facility.  In accordance with the
terms of the draw down facility a portion of the proceeds were used to repay the
outstanding Series 2 Notes.
 
 On
December 30, 2005, the Company acquired the non-controlling shareholder
interests in the holding companies which own or control the interests in certain
of Lo Incréible mining properties located in Bolivar State, Venezuela (including
the La Victoria deposit).  Under the terms of the transaction ECM
purchased the 49% outstanding interest in Osmin Holdings Limited (“Osmin”) and
the 30% outstanding interest in Tamanaco Holdings Limited (“Tamanaco”) owned by
Vengroup and a related company, for consideration consisting of $6,600,000
payable as follows:
 
 -
              $3,000,000
      by the issuance and delivery to Vengroup of 1,467,136 Crystallex common
      shares;
 -
              $3,600,000
      by the issuance and delivery to Vengroup of a $3,600,000 exchangeable
      promissory note of ECM (Note 6).
 
 In
addition, the arbitration proceedings between Crystallex and Vengroup were
terminated and the parties delivered mutual releases with respect to the subject
matter of the arbitration proceedings.  As a result of the
transaction, the joint venture arrangements between ECM and Vengroup have been
terminated and the Company, through its subsidiaries, now owns 100% of Osmin and
Tamanaco. ECM’s obligations under the exchangeable promissory note are
guaranteed by a subsidiary of ECM and secured by a pledge of the shares of ECM’s
Venezuelan subsidiary that directly holds the interest in the Lo Increible
properties.
 
 As part
of the transaction, Crystallex also entered into a consulting agreement with the
principals of Vengroup pursuant to which Crystallex has agreed to pay aggregate
consulting fees of $600,000.  These amounts were expensed during 2005
and included in general and administrative expenses in the consolidated
statement of operations.
 Page 20 of
35
 Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 
 8.        
SHARE CAPITAL (continued)
 
 Shareholder
Rights Plan
 
 On
October 30, 2006 the shareholders of the Company voted to ratify, confirm and
approve a new shareholder Rights Plan (the “Rights plan”) which was originally
approved by the Board of Directors of the Company on June 22,
2006.  The rights issued under the Rights plan are subject to
reconfirmation at every third annual meeting of shareholders and will expire at
the close of the Company’s annual meeting in 2016 (the “Expiration
Time”).
 
 Pursuant
to the Rights plan, the Board of Directors declared a distribution of one right
(a “Right”) for each outstanding Common Share of the Company to shareholders of
record at the close of business on the Record Date and authorized the issuance
of one Right for each Common Share issued after the Record Date and prior to the
Separation Time (described below) and the Expiration Time.  The Rights
will separate from the Common Shares at the time (the “Separation Time”) which
is the close of business on the eighth trading day (or such later day as
determined by the Board of Directors) after the public announcement of the
acquisition of, or intention to acquire, beneficial ownership of 20% of the
Common Shares of the Company by any person other than in accordance with the
terms of the Rights plan.
 
 In
order to constitute a “Permitted Bid”, an offer must be made in compliance with
the Rights plan and must be made to all shareholders (other than the offeror),
must be open for at least 60 days and be accepted by shareholders holding more
than 50% of the outstanding voting shares and, if so accepted, must be extended
for a further 10 business day period.
 
 9. INVESTMENT
IN SUBSIDIARIES
 
 In
November 2004, Vengroup delivered a notice of arbitration to the Company and
ECM.  On December 29, 2005 the Company and ECM reached a settlement
with Vengroup.  As part of this settlement ECM acquired the
non-controlling shareholder interests in the holding companies which own or
control the mining rights to certain of its Lo Increible mining properties for
consideration of $6.6 million.  As part of the transaction to acquire
the non-controlling shareholder interests, the Company also entered into a
two-year consulting agreement for total fees of $600,000.  This
investment in ECM and its subsidiaries was subsequently written down to $ Nil in
2005, as the Company had previously written off its controlling interest in the
related underlying mining assets.
 
 Effective
August 19, 2004, the Company acquired, under a plan of arrangement, all of the
outstanding shares of El Callao Mining Corporation (“El Callao”) not previously
owned.  As a result of this transaction 0702259 B.C. Ltd., a successor
company to El Callao under the plan of arrangement and a subsequent
amalgamation, is now a wholly-owned subsidiary of Crystallex.  As
consideration, shareholders of El Callao (other than Crystallex) received
0.01818 of a Crystallex common share for each of their El Callao shares
representing a total obligation to issue 172,975 Crystallex common
shares.  The value associated with acquiring these shares was
$493,702.  This investment was subsequently written down to $ Nil in
2004.  As at December 31, 2007, the Company had issued 164,815 common
shares and is obligated to issue the remaining 8,160 common shares.
 Page 21 of
35
 Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 10.     INCOME
TAXES
 
 The
Company did not record a benefit for income taxes for the years ended December
31, 2007, 2006 and 2005, due to the recurrence of operating losses and the
Company’s determination that it is not more likely than not that future income
tax assets will be realized. The Company recorded a provision for income taxes
related to one of its subsidiaries in Venezuela.
 
 The
provision for income taxes reported differs from the amounts computed by
applying the cumulative Canadian federal and provincial income tax rates to the
loss before tax provision due to the following:
 
 2007
              
              
              2006
              
              
              2005
                Restated
                (Note
      11)Statutory
      tax rate
              
              
              35.08
              %
              
              
              35.88
              %
              
              
              36.12
              %Loss
      before income tax provision
              
              $
              (30,209,086
              )
              
              $
              (35,118,157
              )
              
              $
              (43,472,999
              )Expected
      income taxes recoverable
              
              $
              (10,597,347
              )
              
              $
              (12,600,395
              )
              
              $
              (15,702,447
              )Change
      in valuation allowance
              
              
              (6,957,710
              )
              
              
              9,645,913
              
              
              
              8,406,291Change
      in substantively enacted tax rates
              
              
              4,869,757
              
              
              
              2,772,385
              
              
              
              -Change
      in foreign exchange rates
              
              
              (10,060,082
              )
              
              
              (1,513,694
              )
              
              
              (951,840
              )Non-deductible
      items
              
              
              6,850,578
              
              
              
              1,946,169
              
              
              
              1,768,547Reduction
      in loss carry forwards
              
              
              16,026,915
              
              
              
              284,071
              
              
              
              6,484,430Difference
      in foreign tax rates
              
              
              110,199
              
              
              
              31,623
              
              
              
              286,455Actual
      income tax provision
              
              $
              242,310
              
              
              $
              566,072
              
              
              $
              291,436
 
 The tax
effects of temporary differences that would give rise to significant portions of
the future tax assets and future tax liabilities at December 31 are as
follows:
 
 
 2007
              
              
              2006
                Restated
                (Note
      11)Future
      income tax assets:Loss
      carry forwards and deferred financing fees
              
              $
              60,739,199
              
              
              $
              68,083,102Asset
      retirement obligations
              
              
              826,549
              
              
              
              411,596Less:  valuation
      allowance
              
              
              (57,938,069
              )
              
              
              (64,895,779
              )Net
      future income tax asset
              
              
              3,627,679
              
              
              
              3,598,919Future
      income tax liabilitiesProperty,
      plant and equipment
              
              
              (17,870,565
              )
              
              
              (27,113,020
              )Net
      future income taxes
              
              $
              (14,242,886
              )
              
              $
              (23,514,101
              )
 
 Future
income tax assets are recognized to the extent that realization is considered
more likely than not.  Since the Company has determined that it is
more likely than not that the future income tax assets are not recoverable, the
net future income tax assets have been fully offset by a valuation
allowance.  The prior years’ presentation has been amended to conform
to the current year’s presentation.
 Page 22 of
35
 Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 10. INCOME
TAXES (continued)
 
  The
components of the Company’s future income tax balance include a future income
tax estimate of 34% of the carrying value of the Las Cristinas asset recorded in
the parent entity for accounting purposes which may not have deductibility for
income tax purposes in the Venezuela Branch in the foreseeable future. The
Company recognized unrealized non-cash foreign currency translation gains of
$14,322,229 during the year ended December 31, 2007 (2006: $nil; 2005:
$1,442,481). These translation gains result from the translation into U.S.
dollars at the end of the year of the Venezuelan-denominated future income tax
liabilities that are recognized in connection with these expenditures on the Las
Cristinas asset. Such currency translation gains and losses have been recorded
in the determination of net loss.
  At
December 31, 2007 the Company has the following unused tax losses available for
tax purposes:
 
 CountryYear of
      Expiry
              
              Canada
              
              
              Venezuela2008
              
              $
              1,874,000
              
              
              $
              2,191,4642009
              
              $
              45,965,000
              
              
              $
              265,0292010
              
              $
              38,962,000
              
              
              $
              8992014
              
              $
              17,670,000
              
              
              $
              -2015
              
              $
              37,152,000
              
              
              $
              -2026
              
              $
              28,335,000
              
              
              $
              -2027
              
              $
              22,468,000
              
              
              $
              -
 
 
 11.    RESTATEMENT
OF PRIOR YEARS DUE TO FUTURE INCOME TAXES
 
 In 2007, the Company reviewed its
accounting practices in respect of certain expenditures made in connection with
its Venezuela Branch but funded by its Canadian parent entity with respect to
Las Cristinas. The Company determined that such expenditures, previously treated
as deductible for tax purposes, that have been capitalized in the Canadian
parent entity are not likely to be deductible neither in Venezuela nor in Canada
thereby creating a difference between their accounting and tax values. The
resulting future tax liability is subject to foreign exchange translation gains
and losses at each reporting period when it is re-valued into US
dollars.
 
 The
following table summarizes information relating to the restatement of prior
years as a result of this review:
 Canadian
      GAAP
              
              
              U.S.
      GAAPCumulative
      non-deductible expenditures2006
              
              $
              52,318,966
              
              
              $
              28,622,5542005
              
              $
              39,356,965
              
              
              $
              15,660,5532004
              
              $
              30,048,783
              
              
              $
              6,352,371Related
      Future income tax liabilities2006
              
              $
              23,514,101
              
              
              $
              14,394,8772005
              
              $
              16,836,707
              
              
              $
              7,717,4812004
              
              $
              13,484,065
              
              
              $
              3,272,433Capitalized
      to Mineral Properties during the year2006
              
              $
              6,677,395
              
              
              $
              6,677,3952005
              
              $
              4,795,124
              
              
              $
              4,795,1242004
              
              $
              3,506,014
              
              
              $
              3,272,433Unrealized
      foreign currency translation gains2006
              
              $
              -
              
              
              $
              -2005
              
              
              1,442,481
              
              
              
              350,0722004
              
              
              1,995,610
              
              
              
              -Cumulative
      effect on net loss
              
              $
              3,438,091
              
              
              $
              350,072
 
 Page 23 of
35
 Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 11.          RESTATEMENT
OF PRIOR YEARS DUE TO FUTURE INCOME TAXES (continued)
 
 
 As
      at December 31, 2006As
      Previously
                Reported
              
              
              Adjustment
              
              
              As
      RestatedCanadian
      GAAPProperty,
      plant and equipment
              
              $
              256,455,027
              
              
              $
              26,952,192
              
              
              $
              283,407,219Future
      income taxes
              
              $
              -
              
              
              $
              23,514,101
              
              
              $
              23,514,101Opening
      Deficit
              
              $
              (251,467,693
              )
              
              $
              3,438,091
              
              
              $
              (248,029,602
              )Net
      Loss for the Year
              
              
              (35,684,229
              )
              
              
              -
              
              
              
              (35,684,229
              )Deficit,
      End of Year
              
              $
              (287,151,922
              )
              
              $
              3,438,091
              
              
              $
              (283,713,831
              )U.S.
      GAAPProperty,
      plant and equipment
              
              $
              195,346,705
              
              
              $
              14,744,949
              
              
              $
              210,091,654Future
      income taxes
              
              $
              -
              
              
              $
              14,394,877
              
              
              $
              14,394,877Shareholders’
      Equity
              
              $
              134,934,621
              
              
              $
              350,072
              
              
              $
              135,284,693
 
 
 As
      at December 31, 2005As
      Previousl
                Reported
              
              
              Adjustment
              
              
              As
      RestatedCanadian
      GAAPProperty,
      plant and equipment
              
              $
              215,260,043
              
              
              $
              20,274,801
              
              
              $
              235,534,844Future
      income taxes
              
              $
              -
              
              
              $
              16,836,707
              
              
              $
              16,836,707Opening
      Deficit
              
              $
              (206,260,777
              )
              
              $
              1,995,610
              
              
              $
              (204,265,167
              )Net
      Loss for the Year
              
              
              (45,206,916
              )
              
              
              1,442,481
              
              
              
              (43,764,435
              )Deficit,
      End of Year
              
              $
              (251,467,693
              )
              
              $
              3,438,091
              
              
              $
              (248,029,602
              )Net
      Loss per Share
              
              $
              (0.23
              )
              
              $
              0.01
              
              
              $
              (0.22
              )U.S.
      GAAPProperty,
      plant and equipment
              
              $
              144,559,985
              
              
              $
              8,067,557
              
              
              $
              152,627,542Future
      income taxes
              
              $
              -
              
              
              $
              7,717,481
              
              
              $
              7,717,481Shareholders’
      Equity
              
              $
              58,772,070
              
              
              $
              350,072
              
              
              $
              59,122,142Net
      Loss for the Year
              
              $
              (41,911,000
              )
              
              $
              350,072
              
              
              $
              (41,560,928
              )Net
      Loss per Share
              
              $
              (0.22
              )
              
              $
              $0.01
              
              
              $
              $(0.21
              )
 
 
 The estimated future income taxes
represent a net accounting entry derived from the current lack of deductibility
in the Venezuela Branch of certain expenditures related to Las Cristinas which
were funded by the parent Company in Canada. These costs will be amortized for
accounting purposes but may not be for income tax purposes. Accordingly, the
future income taxes represent an undiscounted estimate of the tax effect of this
difference, and therefore are not payable at the present.
 Page 24 of
35
 Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 12.          SUPPLEMENTAL
DISCLOSURES WITH RESPECT TO CASH FLOWS
 
 2007
              
              
              2006Cash
      and cash equivalents consist of:Cash
              
              $
              2,157,518
              
              
              $
              8,492,231Commercial
      paper with interest rate of 5%
              
              
              -
              
              
              
              20,080,911Canadian
      Treasury Bills with interest rate of 2.05%
              
              
              13,907,685
              
              
              
              -$
              16,065,203
              
              
              $
              28,573,142
 
 Cash
paid during the years ended December 31
 
 2007
              
              
              2006
              
              
              2005For
      interest
              
              $
              9,458,625
              
              
              $
              9,985,572
              
              
              $
              5,239,726For
      income taxes
              
              $
              385,725
              
              
              $
              338,353
              
              
              $
              317,656
 
 
 Investment
in property, plant and equipment for the years ended December
31
 
 2007
              
              
              2006
              
              
              2005Restated
                (Note
      11)
              
              
              Restated
                (Note
      11)Net
      book value of property, plant and equipmentJanuary
      1
              
              $
              283,407,219
              
              
              $
              235,534,843
              
              
              $
              132,809,013Net
      book value of property, plant and equipmentDecember
      31
              
              
              317,179,327
              
              
              
              283,407,219
              
              
              
              235,534,843Net
      additions to property, plant and equipment(after
      amortization and depletion) during theyear
      ended December 31
              
              
              33,772,108
              
              
              
              47,872,376
              
              
              
              102,725,830Capitalization
      of stock compensation
              
              
              (1,524,904
              )
              
              
              -
              
              
              
              -Future
      income taxes
              
              
              (5,051,011
              )
              
              
              (6,677,395
              )
              
              
              (4,795,124
              )Amortization
      and depletion expenses
              
              
              63,464
              
              
              
              1,887,588
              
              
              
              3,402,198Net
      additions to property, plant and equipmentduring
      the year ended December 31
              
              
              27,259,657
              
              
              
              43,082,569
              
              
              
              101,332,904Changes
      in working capital related toproperty,
      plant and equipment acquisitions
              
              
              (366,882
              )
              
              
              6,705,285
              
              
              
              (8,501,600
              )Cash
      investment in property, plant and equipmentduring
      the year ended December 31
              
              $
              26,892,775
              
              
              $
              49,787,854
              
              
              $
              92,831,304
 
 Issuance
of common shares for cash for the years ended December 31
 
 2007
              
              
              2006
              
              
              2005Cash
      received from:Public
      offerings
              
              $
              50,701,111
              
              
              $
              51,208,985
              
              
              $
              466,549Exercise
      of options
              
              
              1,210,552
              
              
              
              3,651,754
              
              
              
              1,053,023Exercise
      of warrants
              
              
              880,880
              
              
              
              23,773,054
              
              
              
              5,080,357Issuance
      of shares under equitydraw
      down facility before financing costs
              
              
              -
              
              
              
              4,317,661
              
              
              
              17,751,313Loan
      repayment from equity drawdown facility
              
              
              -
              
              
              
              -
              
              
              
              (8,459,000
              )Issuance
      of common shares for cashduring
      the year ended December 31
              
              $
              52,792,543
              
              
              $
              82,951,454
              
              
              $
              15,892,242


Page 25 of
35
 Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)


12.    SUPPLEMENTAL
DISCLOSURES WITH RESPECT TO CASH FLOWS (continued)
 
 Significant
non-cash transactions for the years ended December 31
  2007
                  
                  
                  2006
                  
                  
                  2005Issuance
      of common shares and warrants for:Settlement of promissory note460,900 shares (2006 – 611,300 shares)
                  
                  
                  
                  
                  $
                  1,800,000
                  
                  
                  $
                  1,800,000
                  
                  
                  $
                  -Directors’ fees 38,508 shares(2006 – 19,170 shares; 2005 – 65,186 shares)
                  
                  
                  
                  
                  $
                  148,000
                  
                  
                  $
                  60,000
                  
                  
                  $
                  190,000Acquisition of non-controlling interest(2005: 1,467,136 shares)
                  
                  
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  3,000,000Settlement of bank loan (2006: 3,765,841 shares)
                  
                  
                  
                  
                  
                  $
                  -
                  
                  
                  $
                  7,641,266
                  
                  
                  $
                  -Settlement of professional fees(2006: 500,000 warrants)
                  
                  
                  
                  
                  
                  $
                  -
                  
                  
                  $
                  1,365,839
                  
                  
                  $
                  -
   13.    SEGMENTED
INFORMATION
 
 Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker, or decision-making group, in deciding how to allocate
resources and in assessing performance.  All of the Company’s
operations are within the mining sector.  Due to geographic and
political diversity, the Company’s mining operations are decentralized, whereby
mine general managers are responsible for business results and regional
corporate offices provide support to the mines in addressing local and regional
issues.  The Company’s operations are therefore segmented on a
district basis.  The Company’s only product is gold, produced from
mines located in Venezuela.
 
 The
segments’ accounting policies are the same as those described in the summary of
significant accounting policies except that other expenses, the commodity
contract gain/loss and other items are not allocated to the individual operating
segments when determining profit or loss, but rather are attributed to the
corporate office.




Page 26 of
35




Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)


13.    SEGMENTED
INFORMATION (continued)
 
 Geographic
information:
 
 Substantially
all revenues generated and capital assets held by the Company are in Venezuela,
except for long-lead time capital assets required for the development of Las
Cristinas, of which significant amounts are located temporarily in Houston,
U.S.A ,  Antwerp, Belgium and Cape Town,  South
Africa.
  Venezuelan
                
                
                Las
      CristinasCorporate
                
                
                Operations
                
                
                Development
                
                
                TotalYear
      ended – December 31, 2007Mining
      revenue
                
                $
                -
                
                
                $
                13,565,167
                
                
                $
                -
                
                
                $
                13,565,167Mining
      operations
                
                $
                -
                
                
                $
                (19,628,681
                )
                
                $
                -
                
                
                $
                (19,628,681
                )Depletion,
      amortization and accretion
                
                $
                (63,464
                )
                
                $
                (211,256
                )
                
                $
                -
                
                
                $
                (274,720
                )Interest
      and other income
                
                $
                1,094,198
                
                
                $
                -
                
                
                $
                -
                
                
                $
                1,094,198Interest
      expense
                
                $
                (12,594,795
                )
                
                $
                (414,644
                )
                
                $
                -
                
                
                $
                (13,009,439
                )Segment
      income (loss)
                
                $
                (34,617,618
                )
                
                $
                (8,221,090
                )
                
                $
                12,387,312
                
                
                $
                (30,451,396
                )Segment
      assets
                
                $
                15,222,923
                
                
                $
                5,268,472
                
                
                $
                318,749,101
                
                
                $
                339,240,496Capital
      expenditures
                
                $
                -
                
                
                $
                -
                
                
                $
                26,892,795
                
                
                $
                26,892,775Year
      ended – December 31, 2006Mining
      revenue
                
                $
                -
                
                
                $
                28,087,764
                
                
                $
                -
                
                
                $
                28,087,764Mining
      operations
                
                $
                -
                
                
                $
                (26,244,665
                )
                
                $
                -
                
                
                $
                (26,244,665
                )Depletion,
      amortization and accretion
                
                $
                (701,875
                )
                
                $
                (1,783,423
                )
                
                $
                -
                
                
                $
                (2,485,298
                )Interest
      and other income
                
                $
                1,159,586
                
                
                $
                -
                
                
                $
                -
                
                
                $
                1,159,586Interest
      expense
                
                $
                (12,389,335
                )
                
                $
                (556,650
                )
                
                $
                -
                
                
                $
                (12,945,985
                )Segment
      loss
                
                $
                (34,096,015
                )
                
                $
                (1,588,214
                )
                
                $
                -
                
                
                $
                (35,684,229
                )Segment
      assets (Restated – Note
      11)
                
                $
                31,536,272
                
                
                $
                9,922,076
                
                
                $
                283,236,306
                
                
                $
                324,694,654Capital
      expenditures
                
                $
                -
                
                
                $
                -
                
                
                $
                49,787,854
                
                
                $
                49,787,854Year
      ended – December 31, 2005Mining
      revenue
                
                $
                -
                
                
                $
                24,989,681
                
                
                $
                -
                
                
                $
                24,989,681Mining
      operations
                
                $
                -
                
                
                $
                (22,117,746
                )
                
                $
                -
                
                
                $
                (22,117,746
                )Depletion,
      amortization and accretion
                
                $
                (1,048,296
                )
                
                $
                (2,696,784
                )
                
                $
                -
                
                
                $
                (3,745,080
                )Interest
      and other income
                
                $
                1,926,425
                
                
                $
                -
                
                
                $
                -
                
                
                $
                1,926,425Interest
      expense
                
                $
                (11,532,146
                )
                
                $
                (276,941
                )
                
                $
                -
                
                
                $
                (11,809,087
                )Segment
      income (loss) (Restated –
      Note 11)
                
                $
                (44,468,230
                )
                
                $
                (738,686
                )
                
                $
                1,442,481
                
                
                $
                (43,764,435
                )Segment
      assets (Restated – Note
      11)
                
                $
                29,543,350
                
                
                $
                7,895,306
                
                
                $
                233,476,342
                
                
                $
                270,914,998Capital
      expenditures
                
                $
                54,571
                
                
                $
                855,961
                
                
                $
                91,920,772
                
                
                $
                92,831,304
    14.    COMMITMENTS
AND CONTINGENCIES
 
 Under
the terms of the Las Cristinas Mine Operation Agreement with the Corporacion
Venezolana de Guayana dated September 17, 2002 the Company has undertaken to
make all investments necessary to develop and exploit the Las Cristinas
deposits.
 
 The
capital cost of the project was revised to $356 million in November 2007
(previous estimate August 2005 $293 million), of which $102 million has been
spent to date.  Once construction begins the remaining $254 million
will need to be spent to complete the project.
 
 The
Company is committed to spend approximately $2.8 million to complete certain
social projects at Las Cristinas.
   Page 27 of
35




Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)


14.        COMMITMENTS
AND CONTINGENCIES (continued)
 
 Lease
agreements
 
 The
Company has entered into various operating lease agreements which expire over
the next four years.  Total rent expense charged to operations under
these agreements was $236,222 (2006 - $181,686; 2005 - $178,135).
 
 Minimum
lease payments under operating leases in effect through 2011 are as
follows:
   2008
                
                $
                274,4512009
                
                
                74,1202010
                
                
                23,6812011
                
                
                17,761$
                390,013
 
 Other
 
 On May
23, 2006 the Company and certain directors and officers were served with a
Statement of Claim by an individual alleging misrepresentation, conspiracy and
breach of contract, and claiming damages of approximately CDN$1,750,000. The
Company has filed its Statement of Defense and believes that there is little
likelihood of any ultimate liability. However, as the outcome of this matter
cannot be determined at this time, the Company has made no provision for this
contingency as at December 31, 2007.
 
 In the
normal course of business, the Company may enter into contracts that contain
commitments to pay amounts dependent upon future events.  Such
amounts, if any, are not determinable as yet; consequently, no amounts have been
accrued in the financial statements with respect to these
commitments.
 
 
 15.       RELATED
PARTY AND OTHER TRANSACTIONS
 
 During
the year, the Company entered into the following transactions with related and
other parties:
 
 a)
              Paid
      consulting and underwriting fees of $3,371,257 (2006 - $2,947,156; 2005 -
      $120,900) to a company which retains the Chairman of the Company as an
      employee.
 
 b)
              Paid
      consulting fees of $94,038 to a company which retains the Chairman of the
      Company as a director.
 
 c)
              Paid
      legal fees of $729,901 in 2005 to a law firm, while a partner of whom was
      a director of the Company.
 
 The
amounts charged to the Company for the services provided have been determined by
negotiation among the parties.  These transactions were in the normal
course of operations and were measured at the exchange value which represented
the amount of consideration established and agreed to by the related
parties.
  Page 28 of
35




Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
  16. RISK
MANAGEMENT
 
 The
Company’s activities expose it to currency risk and liquidity
risk.  The Company is not exposed to significant credit risk as
payment in full is typically collected at the time of sale or delivery, and
other receivables involve counterparties that are government agencies which do
not expose the Company to significant credit risk.  The Company is not
exposed to significant cash flow or fair value interest rate risk in respect of
its financial instruments.
 
 Currency Risk
 
 The
Company has important operations in Venezuela, where currently there is an
exchange control regime and is exposed to foreign exchange risk from the
exchange rate of the Venezuelan Bolivar relative to the U.S. dollar. Foreign
exchange risk is mainly derived from assets and liabilities shown in Venezuelan
Bolivars.
 
 The
Company limits its foreign exchange risk by the acquisition of short-term
financial instruments and, when possible, minimizes its Bolivar monetary asset
position.
 
 As of
December 31, 2007 and 2006 the Company had the following monetary assets and
liabilities denominated in foreign currencies other than the U.S. dollar, shown
at their equivalent amounts in Venezuelan Bolivars with its carrying value in
U.S. dollars:
  2007
                      
                      
                      2007
                      
                      
                      2006
                      
                      
                      2006Bs(000)
                      
                      
                      US $
                      
                      
                      Bs(000)
                      
                      
                      US $Monetary
      assets
                      
                      
                      23,812,936
                      
                      
                      
                      4,329,625
                      
                      
                      
                      13,430,996
                      
                      
                      
                      6,246,975Monetary liabilities
                      
                      
                      (86,772,444
                      )
                      
                      
                      (15,776,808
                      )
                      
                      
                      (57,413,604
                      )
                      
                      
                      (26,704,002
                      )Total
      net monetary liabilities
                      
                      
                      (62,959,508
                      )
                      
                      
                      (11,447,183
                      )
                      
                      
                      (43,982,608
                      )
                      
                      
                      (20,457,027
                      )
  
 On
January 21, 2003, the Venezuelan government announced the closure of the foreign
exchange market in Venezuela and, on February 5, 2003, the Ministry of Finance
and the Central Bank of Venezuela (BCV) began to publish the legal instruments
regulating the exchange control regime, one of which established initial
official exchange rates of Bs 1,596/US$1 (purchase) and Bs 1,600/US$1
(sale).  On that same date, the government created the Commission for
the Administration of Foreign Currency (CADIVI) with the task of establishing
the detailed rules and regulations and generally administering the exchange
control regime.
 
 Among
other things, one of these legal instruments requires the sale of all incoming
currency to BCV and temporarily suspends all purchases and sales in local
currency of securities issued by the Venezuelan government in foreign
currency.  BCV now centralizes all currency purchases and sales in the
country.
 
 CADIVI
has subsequently issued resolutions on a number of requirements in connection
with the administration of the exchange control regime, such as user
registration, guidelines for importers and exporters, and the registration of
private-sector foreign debt as of January 22, 2003.
 
 On
February 9, 2004, the Ministry of Finance and BCV established new official
exchange rates, as from that date, of Bs 1,915.20/US$1 (purchase) and Bs
1,920/US$1 (sale).  On March 2, 2005, the Ministry of Finance and BCV
further modified the exchange rates, as from that date, to Bs 2,144.60/US$1
(purchase) and Bs 2,150/US$1 (sale).
  Page 29 of
35
  Crystallex International
Corporation


Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
  16.       RISK
MANAGEMENT (continued)
 
 In
October 2005 the Venezuelan government enacted the Currency Exchange Offenses
Law, whereby any demand, offer, purchase or sale of U.S. dollars failing to
comply with CADIVI requirements is considered illegal.  Similarly,
transactions exceeding US$10,000 should be declared to CADIVI.  In
addition, exporters of goods and services are required to sell their income from
business transactions in foreign currency to BCV.  Transactions with
securities, as well as Government Bonds denominated in U.S. dollars and issued
in local currency are exempt. In January 2008 a reform of the Currency Exchange
Offenses Law entered into force. Among the main additional requirements and
limitations introduced are the obligation to indicate the origin of the foreign
currency on the import declaration; making it compulsory for anyone offering
goods and services acquired with foreign currency authorized by CADIVI to post
notices to that effect; anyone who quotes the buying, selling or leasing of an
asset in foreign currency will be fined with twice the quoted price, even if the
offer is conducted in private; forbids individuals or companies to offer,
publicize or disseminate financial or stock exchange information on the prices
of foreign currency in writing, by broadcasting it or by audiovisual or any
other means.
 
 At
December 31, 2007, if the Bolivar had weakened or strengthened by 15% against
the U.S. dollar, with all other variables held constant, post-tax income for the
year would have been $1,717,077 lower or higher, respectively, as a result of
the change in the fair value of the Company’s net monetary asset denominated in
U.S. dollars.
 
 Liquidity
Risk
 
 The
Company faces liquidity risk to the extent that it will be unable to settle
liabilities as they come due.  In order to manage this risk,
management monitors rolling forecasts of the Company’s liquidity reserve on the
basis of expected cash flow.  The maturities of the Company’s
financial liabilities are as follows:
  1
      Month
                        
                        
                        1
      to 3
                          Months
                        
                        
                        3
      Months to 1 Year
                        
                        
                        1
      Year to 5 YearsAccounts
      payable and accrued liabilities
                        
                        $
                        10,868,261
                        
                        
                        $
                        -
                        
                        
                        $
                        -Debt
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        
                        
                        
                        $
                        100,000,000Total
                        
                        $
                        10,868,261
                        
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        100,000,000
  16.  SUBSEQUENT
EVENT
 
 On
February 11, 2008, the Company completed a public offering of 32,890,000 units
at CDN$2.10 per unit for gross proceeds of CDN$69,069,000, including 4,290,000
units issuable upon the exercise of the over-allotment option by the syndicate
of underwriters.
 
 Each
unit consists of one common share of Crystallex and one-half of one common share
purchase warrant. Each whole warrant entitles the holder to purchase a further
common share of Crystallex at an exercise price of CDN$3.00 for a period
expiring on the later of: (i) 18 months from the closing date of the offering;
and (ii) six months following the permit date, where the permit date is the
45th
day following the receipt by Crystallex of the Permit.
 
 The
Company paid underwriting fees of CDN$4,144,140 of which CDN$2,279,277 were paid
to a company which retains the Chairman of the Company as an
employee.
 Page 30 of
35
  Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
  18.
                                    DIFFERENCES
      BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
      PRINCIPLES
 
 The
Company prepares its consolidated financial statements in accordance with
accounting principles generally accepted in Canada (“Canadian GAAP”) which
differ from those principles that the Company would have followed had its
consolidated financial statements been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S.
GAAP”).  The following adjustments would be required in order to
present the financial statements in accordance with U.S. GAAP.
 
 Balance
Sheets
 
 The
impact of differences between Canadian GAAP and U.S. GAAP on the consolidated balance sheets is as
follows:
  2007Canadian
                                      
                                      
                                      
                                      
                                      
                                      
                                      U.S.GAAP
                                      
                                      
                                      Adjustments
                                      
                                      
                                      
                                      GAAPCurrent
      assets
                                      
                                      $
                                      21,355,842
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      
                                      $
                                      21,355,842Property,
      plant and equipment
                                      
                                      
                                      317,179,327
                                      
                                      
                                      
                                      (60,306,124
                                      )
                                      (a)
                                      
                                      
                                      256,873,203Other assets
                                      
                                      
                                      705,327
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      705,327$
                                      339,240,496
                                      
                                      
                                      $
                                      (60,306,124
                                      )
                                      
                                      
                                      $
                                      278,934,372Current
      liabilities
                                      
                                      $
                                      11,435,047
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      
                                      $
                                      11,435,047Asset
      retirement obligations
                                      
                                      
                                      1,864,240
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      
                                      1,864,240Long-term
      debt
                                      
                                      
                                      83,291,377
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      
                                      83,291,377Future
      income taxes
                                      
                                      
                                      14,242,886
                                      
                                      
                                      
                                      (3,564,788
                                      )
                                      
                                      
                                      
                                      10,678,098Shareholders’ equity
                                      
                                      
                                      228,406,946
                                      
                                      
                                      
                                      (56,741,336
                                      )
                                      
                                      
                                      
                                      171,665,610$
                                      339,240,496
                                      
                                      
                                      $
                                      (60,306,124
                                      )
                                      
                                      
                                      $
                                      278,934,3722006 (Restated – Note 11)Canadian
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      U.S.GAAP
                                      
                                      
                                      Adjustments
                                      
                                      
                                      
                                      GAAPCurrent
      assets
                                      
                                      
                                      38,181,779
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      
                                      $
                                      38,181,779Property,
      plant and equipment
                                      
                                      
                                      283,407,219
                                      
                                      
                                      $
                                      73,315,565
                                      )
                                      (a)
                                      
                                      
                                      210,091,654Deferred
      financing fees
                                      
                                      
                                      2,595,627
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      2,595,627Other
                                      
                                      
                                      510,029
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      
                                      510,029$
                                      324,694,654
                                      
                                      
                                      $
                                      (73,315,565
                                      )
                                      
                                      
                                      
                                      251,379,089Current
      liabilities
                                      
                                      
                                      16,203,423
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      
                                      $
                                      16,203,423Asset
      retirement obligations
                                      
                                      
                                      971,167
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      971,167Long-term
      debt
                                      
                                      
                                      84,524,929
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      
                                      84,524,929Future
      income taxes
                                      
                                      
                                      23,514,101
                                      
                                      
                                      
                                      (9,119,224
                                      )
                                      
                                      
                                      
                                      14,394,877Shareholders’ equity
                                      
                                      
                                      199,481,034
                                      
                                      
                                      
                                      (64,196,341
                                      )
                                      
                                      
                                      
                                      135,284,693$
                                      324,694,654
                                      
                                      
                                      $
                                      (73,315,565
                                      )
                                      
                                      
                                      $
                                      251,379,089
 For the
purposes of reporting in accordance with U.S. GAAP, amounts referred to as
contributed surplus under Canadian GAAP are referred to as additional paid in
capital.
 Page 31 of
35
  Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 18.
                                            DIFFERENCES
      BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
      PRINCIPLES
 
 Statements of Operations
 
 The impact of the differences between Canadian GAAP and U.S. GAAP on the net
loss for the year would be as follows:
   2007
                                            
                                            
                                            2006
                                            
                                            
                                            2005Restated(Note 11)Net
      loss for the year per Canadian GAAP
                                            
                                            
                                            $
                                            (30,451,396
                                            )
                                            
                                            $
                                            (35,684,229
                                            )
                                            
                                            $
                                            (43,764,435
                                            )Adjustments
      to mineral properties
                                            (a)
                                            
                                            
                                            13,009,439
                                            
                                            
                                            
                                            9,591,736
                                            
                                            
                                            
                                            4,789,861Changes
      in fair value of exchangeable portion of bank loan
                                            (b)
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (8,638,661
                                            )
                                            
                                            
                                            -Accretion
      of interest on bank loan
                                            (b)
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (54,064
                                            )
                                            
                                            
                                            -Unamortized
      deferred financing costs on exchangeable portion of bank
    loan
                                            (b)
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (121,405
                                            )
                                            
                                            
                                            -Adjustment
      to unrealized gain on translation of future income taxes
                                            (c)
                                            
                                            
                                            (5,554,437
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (1,092,409
                                            )Beneficial
      commission interest
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (598,000
                                            )Adjustment
      to amortization of Series 2Notes discount
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (539,125
                                            )Unamortized
      deferred financing costs
                                              of Series 2 Notes
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (356,820
                                            )Net
      loss for the year per U.S. GAAP
                                            
                                            
                                            $
                                            (22,996,394
                                            )
                                            
                                            $
                                            (34,906,623
                                            )
                                            
                                            $
                                            (41,560,928
                                            )Net
      loss per share – basic and diluted
                                            
                                            
                                            $
                                            (0.09
                                            )
                                            
                                            $
                                            (0.15
                                            )
                                            
                                            $
                                            (0.21
                                            )Weighted average number of shares outstanding–Basic and diluted
                                            
                                            
                                            
                                            256,668,551
                                            
                                            
                                            
                                            230,229,162
                                            
                                            
                                            
                                            194,729,931
   Page 32 of
35
  Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 18.
                                                  DIFFERENCES
      BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
      PRINCIPLES (continued)
 
 Statement
of Cash Flows
 
 The
impact of the above differences between Canadian GAAP and U.S. GAAP on the
combined statements of cash flows would be as follow
  2007
                                                  
                                                  
                                                  2006
                                                  
                                                  
                                                  2005Restated(Note
      11)Cash
      flows used in operatingactivities,
      Canadian GAAP
                                                  
                                                  $
                                                  (34,309,186
                                                  )
                                                  
                                                  $
                                                  (30,675,675
                                                  )
                                                  
                                                  $
                                                  (34,252,976
                                                  )Adjustments
      to interest (a)
                                                  
                                                  
                                                  13,009,439
                                                  
                                                  
                                                  
                                                  9,591,736
                                                  
                                                  
                                                  
                                                  5,025,761Adjustment
      to unrealized gain on translationof
      future income taxes (c)
                                                  
                                                  
                                                  (5,554,437
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (1,092,409
                                                  )Adjustments
      to mineral properties
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  (235,900
                                                  )Cash
      flows used in operating activities,U.S.
      GAAP
                                                  
                                                  
                                                  (26,854,184
                                                  )
                                                  
                                                  
                                                  (21,083,939
                                                  )
                                                  
                                                  
                                                  (30,555,524
                                                  )Cash
      flows provided by (used in) investingactivities,
      Canadian GAAP
                                                  
                                                  
                                                  (26,892,775
                                                  )
                                                  
                                                  
                                                  (28,464,691
                                                  )
                                                  
                                                  
                                                  14,128,449Adjustments
      to interest (a)
                                                  
                                                  
                                                  (13,009,439
                                                  )
                                                  
                                                  
                                                  (9,591,736
                                                  )
                                                  
                                                  
                                                  (5,025,761
                                                  )Adjustment
      to unrealized gain on translationof
      future income taxes (c)
                                                  
                                                  
                                                  5,554,437
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  1,092,409Adjustments
      to mineral properties
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  235,900Cash
      flows provided by (used in) investingactivities,
      U.S. GAAP
                                                  
                                                  
                                                  (34,347,777
                                                  )
                                                  
                                                  
                                                  (38,056,427
                                                  )
                                                  
                                                  
                                                  10,430,997Cash
      flows provided by financing activities,Canadian
      and U.S. GAAP
                                                  
                                                  
                                                  49,215,188
                                                  
                                                  
                                                  
                                                  83,643,489
                                                  
                                                  
                                                  
                                                  18,427,804Net
      increase (decrease) in cash and cashequivalents
      during the year
                                                  
                                                  
                                                  (11,986,773
                                                  )
                                                  
                                                  
                                                  24,503,123
                                                  
                                                  
                                                  
                                                  (1,696,723
                                                  )Effects
      of exchange rate fluctuations on cashand
      cash equivalents
                                                  
                                                  
                                                  (521,166
                                                  )
                                                  
                                                  
                                                  -
                                                  
                                                  
                                                  
                                                  -Cash
      and cash equivalents, beginning of year
                                                  
                                                  
                                                  28,573,142
                                                  
                                                  
                                                  
                                                  4,070,019
                                                  
                                                  
                                                  
                                                  5,766,742Cash
      and cash equivalents, end of year
                                                  
                                                  $
                                                  16,065,203
                                                  
                                                  
                                                  $
                                                  28,573,142
                                                  
                                                  
                                                  $
                                                  4,070,019
   (a)    Mineral
Properties and Exploration and Development Costs
 
 Under
Canadian GAAP, mineral properties, including exploration, development and
acquisition costs, are carried at cost until the properties to which they relate
are placed into production, sold or where management has determined there to be
a permanent impairment in value.
 
 Under
U.S. GAAP, mineral property expenditures other than acquisition costs are
expensed as incurred.  Once a final feasibility study has been
completed however, additional costs incurred to bring the mine into production
are capitalized as development costs.  Costs incurred to access ore
bodies identified in the current mining plan after production has commenced are
considered production costs and are expensed as incurred.
 Page 33 of
35
  Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 18.
                                                        DIFFERENCES
      BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
      PRINCIPLES (continued)
 
 (a)              Mineral
Properties and Exploration and Development Costs (continued)
 
 Under
Canadian GAAP, the Company has elected to expense interest costs incurred on
qualifying mineral properties in the development stage.  Under U.S.
GAAP, interest costs of $13,009,439, $9,591,736 and $5,025,761 associated with
the Las Cristinas mineral properties under development have been capitalized in
the years ended December 31, 2007, 2006 and 2005, respectively.
 
 The
Company previously restated its 2006 and 2005 consolidated financial statements
with respect to the capitalization of interest costs in its audited consolidated
financial statements issued on October 22, 2007.
 
 (b)      Bank
Loan – Exchangeable Portion
 
 In
accordance with Canadian GAAP, upon the issuance on December 23, 2005 of the
exchangeable portion of the bank loan, the exchangeable portion was bifurcated
between its liability and equity components.  The liability portion of
the debt was measured by determining the carrying amount of the notes by
discounting the stream of future payments of principal and interest at the
prevailing market rate for a similar liability that does not have an associated
equity component.
 
 Under
U.S. GAAP, on issuance, the conversion option contained in the exchangeable
portion of the bank loan is considered to be an embedded derivative that is
required to be bifurcated and accounted for as a free standing derivative
financial liability separate from the debt instrument.  The Company is
required to re-measure the fair value of the derivative financial liability at
each reporting date with changes in fair value recorded in
earnings.  The difference between the value of the free standing
derivative and the face value of the debt will be accreted over the term of the
debt.
 
 On May
5, 2006, the holder exercised their conversion option and the full value of the
debt was settled for shares.
 
 Accordingly,
for U.S. GAAP purposes, for the year ended December 31, 2006 an expense of
$8,638,661 has been recorded with respect to the changes in fair value of the
embedded derivative, an expense of $54,064 to reflect the additional accretion
expense, and an expense of $121,405 to reflect the unamortized deferred
financing costs.
 
 (c)     Adjustment
to Unrealized Gain on Translation of Future Income Taxes
 
 Under
Canadian GAAP, the Company recorded unrealized gain on translation of future
income taxes of $14,322,229 and $1,442,481 in 2007 and 2005, respectively. Under
US GAAP, the unrealized gain recorded on translation of future income taxes was
$8,767,792 and $350,072 in 2007 and 2005, respectively.
  Page 34 of
35
  Crystallex International
Corporation
 Notes
to the Consolidated Financial Statements
 December
31, 2007, 2006 and 2005
 (Expressed
in United States dollars)
 18.
                                                              DIFFERENCES
      BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
      PRINCIPLES (continued)
 
 (d)    Recent
accounting pronouncements
 
 Accounting
Policies Adopted during the Year
 
 In July 2006, FASB issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an
interpretation of FASB Statement No. 109 (“FIN 48”).  FIN 48 provides
guidance for recognizing and measuring uncertain tax positions, as defined in
SAS 109, Accounting for Taxes.  FIN 48 prescribes a threshold
condition that a tax position must meet for any of the benefit of the uncertain
tax position to be recognized in the financial statements.  Guidance
is also provided regarding de-recognition, classification and disclosure of
these uncertain tax positions.  FIN 48 was effective January 1, 2007.
The application of this standard did not have any impact on the Company’s U.S.
GAAP balance sheet or U.S. GAAP net loss.
 
 Future
accounting pronouncements
 
 In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (SFAS
No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and expands disclosures
about fair value measurements. SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements, and therefore
does not require any new fair value measurements. SFAS No. 157 is effective for
fiscal years beginning after November 15, 2007 (January 1, 2008 for the
Company). In February 2008, the FASB amended SFAS No. 157 to exclude leasing
transactions and to delay the effective date by one year for nonfinancial assets
and liabilities that are recognized or disclosed at fair value in the financial
statements on a nonrecurring basis. The Company is in the process of determining
the effect, if any, the adoption of SFAS No. 157 will have on its financial
statements.
 
 In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115” (SFAS No. 159). SFAS No. 159 provides all entities with an
option to report selected financial assets and liabilities at fair value. SFAS
No. 159 is effective for financial statements issued for fiscal years beginning
after November 15, 2007 (January 1, 2008 for the Company). The Company is in the
process of determining the effect, if any, the adoption of SFAS No. 159 will
have on its financial statements