EXHIBIT 99.3
Quarterly Report FORM 51-901F (previously Form 61) and
Schedule A, B & C
ISSUER DETAILS
For Quarter Ended: September 30, 2003
Date of Report: November 21, 2003
Name of Issuer: Archangel Diamond Corporation
Issuer's Address: 65 Overlea Boulevard, Suite400
Toronto, Ontario M4H 1P1
Issuer Fax Number: 416-429-2462
Issuer Phone Number: 416-423-1600
Contact Person: David W. Massola
Contact Position: Chief Financial Officer & Corporate Secretary
Contact Phone Number: 416-423-1600
Contact Email Address: general@archangeldiamond.com
Contact Website: www.archangeldiamond.com
CERTIFICATE
The three schedules, Schedule "A", "B" and "C" required to
complete this Quarterly Report are attached and the disclosure
contained therein has been approved by the Board of Directors.
A copy of this Quarterly Report will be provided to any
shareholder who requests it.
Director's Name: /s/ Clive R. Hartz Date Signed: November 21, 2003
Director's Name: /s/ Robert L. Shirriff Date Signed: November 21, 2003
ARCHANGEL DIAMOND CORPORATION
CONSOLIDATED BALANCE SHEETS
(Prepared by Management in United States dollars without audit)
September 30 December 31,
2003 2002
-----------------------------
ASSETS
Current Assets
Cash $ 1,130,367 $ 1,925,688
Accounts Receivable 1,409 4,386
Prepaid expenses -- 2,692
- -----------------------------------------------------------------------------------
1,131,776 1,932,766
Mineral property and deferred exploration costs:
Mineral properties 1 1
Deferred exploration costs -- --
- -----------------------------------------------------------------------------------
1 1
Capital assets
Accumulated amortization 49,474 49,474
(49,474) (49,474)
- -----------------------------------------------------------------------------------
-- --
$ 1,131,777 $ 1,932,767
===================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 123,848 $ 1,134,277
Accrued interest payable to related party (note 6) 2,391 --
Loan payable to related party (note 6) 1,200,000 --
Deferred compensation payable 190,193 190,193
- -----------------------------------------------------------------------------------
1,516,432 1,324,470
Shareholders' equity:
Share capital 32,943,283 32,936,474
Contributed surplus 1,347,776 1,347,776
Deficit (34,675,714) (33,675,953)
- -----------------------------------------------------------------------------------
(384,655) 608,297
$ 1,131,777 $ 1,932,767
===================================================================================
Approved by the Board:
"Clive R. Hartz" "Robert L. Shirriff"
- ------------------------- ------------------------
Director Director
ARCHANGEL DIAMOND CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(Prepared by Management in United States dollars without audit)
For the three For the nine
months ended September 30 months ended September 30
2003 2002 2003 2002
------------------------------------------------------------
Interest income $ 82 $ 1,828 $ 6,097 $ 9,807
Administration costs:
Amortization -- 452 -- 1,356
Bank charges and interest 3,104 701 4,698 2,784
Capital Tax -- 0 130 0
Consulting 115,330 10,833 317,889 27,561
Foreign exchange (gain)/loss 13,219 68 (114,450) 79
Investor relations 7,239 695 23,718 2,267
Legal and accounting (1,574) 7,430 51,930 30,208
Listing fees -- 25 4,733 1,468
Office and administration 11,322 21,364 49,478 69,072
Printing and shareholder information 17 2,107 2,810 11,890
Rent -- 4,368 78 15,325
Salaries and benefits -- 28,322 493 96,211
Telephone 139 735 3,688 3,115
Transfer agent 750 2,216 9,774 6,583
Travel (42) 9,045 18,018 9,577
- -----------------------------------------------------------------------------------------------------
149,504 88,361 372,987 277,496
Mineral property costs:
Materials and supplies- -- 1,717 --
Contract services and salaries 7,500 36,813 22,500 109,103
Legal and permits 138,741 15,412 512,302 569,362
Russian office administration 30,574 23,128 96,352 71,819
- -----------------------------------------------------------------------------------------------------
176,815 75,353 632,871 750,284
Loss for the period (326,237) (161,886) (999,761) (1,017,973)
Deficit, beginning of period 34,349,477 30,675,970 33,675,953 29,819,883
- -----------------------------------------------------------------------------------------------------
Deficit, end of period $ 34,675,714 $ 30,837,856 $ 34,675,714 $ 30,837,856
=====================================================================================================
Loss per share $ (0.00) $ (0.00) $ (0.01) $ (0.02)
=====================================================================================================
Weighted average number of shares 72,284,558 42,234,558 72,261,298 42,234,558
=====================================================================================================
ARCHANGEL DIAMOND CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Prepared by Management in United States dollars without audit)
For the three For the nine
months ended September 30 months ended September 30
2003 2002 2003 2002
------------------------------------------------------------
Cash proved by (used in):
Operating activities:
Loss for the period $ (326,237) $ (161,886) $ (999,761) $(1,017,973)
Amortization, an item not involving cash -- 452 -- 1,356
Changes in non-cash working capital:
Accounts receivable 2,743 2,168 2,977 (262)
Prepaid expenses -- 17,764 2,692 (5,505)
Accounts payable and accrued liabilities (88,748) (60,248) (1,010,429) 71,887
Accrued interes payable to related party 2,391 -- 2,391 --
- ---------------------------------------------------------------------------------------------------------
(409,851) (201,750) (2,002,130) (950,497)
Financing activities:
Loan from related party (note 6) 1,200,000 -- 1,200,000 --
Issuance of shares -- -- 6,809 --
- ---------------------------------------------------------------------------------------------------------
1,200,000 -- 1,206,809 --
Investing activities:
Purchase of fixed assets -- -- -- --
- ---------------------------------------------------------------------------------------------------------
-- -- -- --
Increase (Decrease) in cash 790,149 (201,750) (795,321) (950,497)
Cash, beginning of period 340,218 630,733 1,925,688 1,379,480
- ---------------------------------------------------------------------------------------------------------
Cash, end of period $ 1,130,367 $ 428,983 $ 1,130,367 $ 428,983
- ---------------------------------------------------------------------------------------------------------
Supplementary information:
Income taxes paid $ -- $ -- $ -- $ --
Interest paid - -- -- -- --
Interest recieved -- 1,828 6,015 9,807
- ---------------------------------------------------------------------------------------------------------
ARCHANGEL DIAMOND CORPORATION
Notes to Interim Financial Statements
Nine Months Ended September 30, 2003
(Prepared by Management Without Audit)
1. Interim Financial Statements
The interim consolidated financial statements of the Company have been
prepared by management in accordance with Canadian generally accepted
accounting principles. The interim consolidated financial statements should
be read in conjunction with the consolidated financial statements and the
accompanying notes for the fiscal year ended December 31, 2002.
2. Significant Accounting Policies and Change in Accounting Policy.
These interim financial statements follow the same accounting policies and
methods of application as the annual financial statements for the year
ended December 31, 2002.
3. Stock Based Compensation
On January 20, 2003, the Corporation granted 1,500,000 stock options to a
consultant with an exercise price of Cdn$0.35, expiring on January 20,
2007. No compensation cost has been recognized for stock-based compensation
awards granted to employees.
4. Comparative Figures
Certain 2002 comparative figures have been reclassified to conform with the
presentation adopted in 2003.
5. Share Capital
During the period 50,000 shares were issued for cash consideration of
$6,809.
6. Related Party Transactions
The Company's major shareholder Cencan S.A. extended a loan to the Company
in the amount of US$1.2 million on September 17th, 2003. The loan is
unsecured, payable on demand and bears an interest rate of LIBOR plus 300
basis points per annum. Repayment date of the loan is September 17th, 2004.
7. Subsequent Events
In the case concerning the Memorandum (entered into between the Company and
AGD on February 25, 1994), the Company was notified on November 13, 2003
that it failed to obtain leave to appeal to the Russian Supreme Arbitration
Court.
Following the decision of the St. Petersburg Court of Cassation dated June
21, 2003 refusing the cassation appeal brought by the Company against the
two earlier decisions (respectively of the Arkhangel'sk Arbitration Court
at first instance and the Arkhangel'sk Court of Appeal) declaring the
Memorandum unconcluded, the Company's lawyers submitted a petition for
leave to appeal dated September 15, 2003 to the Russian Supreme Arbitration
Court, based in Moscow, which was the last available avenue of appeal in
this case in the Russian Arbitration Court system. A panel of three Supreme
Arbitration Court judges issued a ruling dated October 31, 2003 refusing to
transfer the case to the Presidium of the Supreme Arbitration Court for
further consideration, thereby refusing leave to appeal.
Within Russia, the original ruling that the Memorandum is regarded as
unconcluded (and therefore of no legal force or effect), which entered into
force on February 4, 2003, has effectively been upheld and remains in
place. The Company has now exhausted all avenues of appeal within the
Russian Arbitration Court system in this particular case. The Company's
lawyers are considering the implications of this decision.
ARCHANGEL DIAMOND CORPORATION
SCHEDULE "B": SUPPLEMENTARY INFORMATION
Period Ended September 30, 2003
1. Analysis of expenses for the nine-month period ended September 30, 2003:
a) Effective January 1, 2002, mineral property development costs
associated with the Verkhotina Area are expensed as incurred. Mineral
property costs for the nine-month period ended September 30, 2003 were
$632,871 as shown in the attached Schedule "A" as part of "Statement
of Operations and Deficit."
b) General and administrative expenses for the six-month period ended
September 30, 2003 were $372,987. A summary is attached in Schedule
"A" as part of "Statement of Operations and Deficit."
2. Related party transactions:
During the nine-month period ended September 30, 2003 a non-arms length
party, De Beers Canada Mining Inc., provided management services in the
amount of $34,465.
The Company's major shareholder Cencan S.A. extended a loan to the Company
in the amount of US$1.2 million on September 17th, 2003. The loan is
unsecured, payable on demand and bears an interest rate of LIBOR plus 3%
per annum. Repayment date of the loan is September 17th, 2004.
3. Summary of securities issued and options granted during the nine-month period
ended September 30, 2003:
a) Securities issued including date of issue, type of security (common
shares, convertible debentures, etc.), type of issue (private
placement, public offering, exercise of warrants, etc.), number,
price, total proceeds, type of consideration (cash, property, etc.)
and commission paid:
------------- ---------- ------------ -------------
Price per Total Share
Date of Number Share Issuance
Issue of Shares (Cdn$) (US$)
------------- ---------- ------------ -------------
May 8/03 50,000 $0.19 $6,809
------------- ---------- ------------ -------------
b) Summary of options granted, including date, number, name of optionee
for those options granted to insiders, generic description of other
optionees (e.g. "employees,") exercise price and expiry date:
------------- ----------- ------------ ---------- ----------- --------------
Position Subject to a
Date of Number of with the Exercise Expiry Hold Period
Grant Shares Company Price Date Ending
(Cdn$)
------------- ----------- ------------ ---------- ----------- --------------
Jan 20/03 1,500,000 Consultant 0.35 Jan 20/07 May 21/03
------------- ----------- ------------ ---------- ----------- --------------
4. Summary of securities as at the end of the nine-month period ended September
30, 2003:
a) Description of authorized share capital including number of shares for
each class, dividend rates on preferred shares and whether or nor
cumulative, redemption and conversion provisions:
Authorized capital: unlimited common shares, npv
b) Number and recorded value for shares issued and outstanding:
Issued capital: 72,284,558 common shares, npv Recorded value: $32,943,283
c) Description of options, warrants and convertible securities
outstanding, including number or amount, exercise or conversion price
and expiry date, and any recorded value:
(i) Share options:
------------------- -------------- -------------
Number of Options Exercise Expiry Date
Price (Cdn$)
------------------- -------------- -------------
50,000 1.00 Feb 18/04
------------------- -------------- -------------
100,000 0.50 Feb 18/04
(1)
------------------- -------------- -------------
200,000 0.50 Feb 18/04
(2)
------------------- -------------- -------------
50,000 1.00 Apr 14/05
------------------- -------------- -------------
35,000 0.50 Jun 14/05
(1)
------------------- -------------- -------------
50,000 0.50 Nov 28/05
------------------- -------------- -------------
1,500,000 0.11 Nov 25/06
------------------- -------------- -------------
900,000 0.11 Nov 25/06
------------------- -------------- -------------
500,000 0.19 May 1/07
------------------- -------------- -------------
150,000 0.17 May 8/07
------------------- -------------- -------------
230,000 0.23 Oct 9/07
------------------- -------------- -------------
1,000,000 0.10 Nov 29/07
------------------- -------------- -------------
1,500,000 0.35 Jan 20/07
---------
------------------- -------------- -------------
6,265,000
------------------- -------------- -------------
(1)The per share exercise price of $1.03 was re-priced to
$0.50 December 13, 2000. (2)The per share exercise price of
$1.03 was re-priced to $0.50 June 21, 2001.
(ii) Common share purchase warrants: None
d) Number of shares in each class of shares subject to escrow or pooling
agreements: None
5. Names of directors and officers as at the date this report is signed and
filed:
Directors
Gary M. Ralfe
Raymond A. Clark
Michael J.M. Farmiloe
L. Lamont Gordon
Clive R. Hartz
Robert L. Shirriff
Officers Position Held
Gary M. Ralfe Chairman
Raymond A. Clark President and Chief Executive Officer
David W. Massola Chief Financial Officer and Corporate Secretary
SCHEDULE "C": MANAGEMENT DISCUSSION AND ANALYSIS
1. DESCRIPTION OF BUSINESS
The Corporation was incorporated on July 3, 1987 under the name "Gold Parl
Resources Ltd." by registration of its Memorandum and Articles under the
Company Act (British Columbia). On September 3, 1993, the Corporation
changed its name to "Canmet Resources Limited" and consolidated its share
capital on the basis of two pre-consolidation common shares for one
post-consolidation common share. On August 5, 1994, the Corporation changed
its name to "Archangel Diamond Corporation," and on September 16, 1996, the
Corporation was continued from British Columbia to the Yukon Territory. The
Corporation and its predecessors are collectively referred to herein as the
"Corporation."
The Corporation is an international diamond exploration company. The
Corporation is currently engaged in the exploration for, and development
of, diamondiferous kimberlite pipes for the purpose of mining diamonds in
the Russian Federation.
2. DISCUSSION OF BUSINESS
In December 1993, a Licence (the "Licence") for the exploration and mining
of diamonds from a 400-square kilometre area located northwest of
Arkhangel'sk, Russia (the "Verkhotina Area") was granted to a Russian
enterprise, Arkhangelskgeoldobycha ("AGD") (formerly Arkhangel'sk Geologia
Enterprises). Through agreements in 1993 and 1994 with AGD, the Corporation
acquired the right to earn a 40% interest in any profits from the
Verkhotina Area. As part of such agreements, including the Memorandum dated
25 February 1994 (the "1994 Memorandum"), AGD agreed to transfer the
Licence to a Russian joint stock company, of which the Corporation would
hold 40% of the ordinary shares, when Russian legislation permitted such
transfer.
In May 1994, the partners established a Russian joint stock company,
Almazny Bereg ("AB"), the ordinary shares of which are owned 50% by AGD,
40% by the Corporation, and 10% by IBME Ltd. AB was formed to hold the
Licence and to coordinate the operations on the Verkhotina Area. During May
1995, new Russian legislation was introduced which, in the view of the
Corporation, enabled AGD to transfer the Licence.
In 1996, the Grib Pipe diamondiferous deposit was discovered by the
Corporation and its Russian partners within the Verkhotina Area. As the
Grib Pipe represents the key asset of the Corporation, it was the primary
focus of the Corporation's work efforts in 1999 and 2000. From the
inception of the project in 1993, approximately $18.4 million has been
invested by the Corporation in the acquisition and exploration of the
Verkhotina Area, for legal and certain administrative costs with respect to
the Licence transfer dispute, and on the delineation of the Grib Pipe
discovery itself.
In April 1997 the AGD Board of Directors resolved that the transfer of the
Licence to AB would take place upon completion by the Corporation of an
agreed upon work program (the "Work Program") on the Verkhotina Area for
1997 and the first quarter of 1998 and that a supplemental agreement would
be prepared to record this. In December 1997 the Work Program was agreed
upon by the parties, and in March 1998 the General Director of AGD
confirmed to the Corporation that the Corporation had satisfied all of its
requirements regarding the Work Program. However, no supplemental agreement
was provided by AGD to the Corporation and transfer of the Licence to AB as
agreed by the AGD Board did not take place.
After having repeatedly failed in its attempts to get AGD to transfer the
Licence to AB, in June 1998 the Corporation advised AGD that it was
temporarily suspending its further funding of the Verkhotina Area effective
July 1, 1998 until AGD complied with its obligations. As a result of this,
the Corporation began accruing the costs for continuing exploration work as
invoiced by AGD on the Verkhotina Area until such time as the Licence
transfer dispute is resolved.
As the parties were unable to reach an agreement concerning Licence
transfer, in August 1998 the Corporation commenced international
arbitration of the matter in Stockholm as provided for in the Verkhotina
Diamond Venture Agreement (the "VDV Agreement"). The Arbitration Tribunal
was constituted and preliminarily unanimously accepted jurisdiction of the
dispute.
Continued negotiations between the Corporation and AGD resulted in a new
agreement being executed between the parties on July 15, 1999 (the "1999
Agreement"). Among other matters, the 1999 Agreement stipulated that AGD
would, within a period not to exceed 180 days, transfer or re-register the
Licence to a new Russian joint stock company to be established, of which
the Corporation would also own a 40% interest. As part of the 1999
Agreement, the Corporation agreed to suspend international arbitration for
180 days, after which time the arbitration would be discontinued if the
Licence had been transferred under the terms of the 1999 Agreement.
Within weeks of executing the 1999 Agreement, AGD brought forth new demands
requesting the right, but not the obligation, to jointly fund the project
through completion of the feasibility study, the right to reimburse the
Corporation for 50% of its past costs, and the right to appoint the General
Director of AB on an alternating basis if they did so fund and reimburse.
As all previous agreements, including the 1999 Agreement, specifically
contemplated that these rights and obligations were to be borne solely by
the Corporation, these new AGD requests erected new roadblocks in effecting
transfer of the Licence.
In January 2000, with the transfer of the Licence having not been completed
within the allotted 180-day period, the Company formally filed a request
with the Stockholm Tribunal to reinstate the arbitration proceedings. The
Company subsequently filed its detailed statement of case on April 14,
2000. After several legal submissions by both parties, the Tribunal
established February 26, 2001 as the final date for submission of
pleadings.
During the week of March 5, 2001 the Tribunal heard the Company's claim in
regard to AGD's alleged non-performance of the amended VDV Agreement and
its obligation to transfer the Licence to the Russian joint stock company
referred to in the Memorandum. However, on the basis of new arguments put
forward by AGD, the Tribunal agreed to reconsider its jurisdiction over the
dispute.
On June 27, 2001, the Tribunal issued a split ruling that the dispute was
not arbitrable as a matter of Russian law, a finding that overturned their
initial acceptance of jurisdiction over the dispute in 1999. The Company
then filed a Summons Application with the Swedish District Court on July
23, 2001, seeking to overturn the arbitrators' majority decision "to
decline jurisdiction," and in May 2002, the Swedish District Court accepted
the Corporation's petition. Detailed pleadings have been submitted by both
parties. Submission of pleadings was postponed a number of times upon the
request of both parties and, consequently, the main hearing scheduled for
mid-December 2002 was postponed. A pre-trial hearing took place on June 2,
2003 and the date for the hearing of the appeal was fixed for 14-16 January
2004.
On August 23, 2001, LUKoil, then the 74.1% owner of AGD (increased to 100%
in 2003), filed claims with the Arbitration Court of the Arkhangel'sk
Region in the Russian Federation ("Arbitration Court") seeking a ruling, in
the case of the first claim, that the arbitration provisions in the VDV
Agreement were invalid and, in the case of the second claim, that the 1999
Agreement was invalid. In addition, on August 31, 2001, AGD filed a claim
with the Arbitration court of the Arkhangel'sk region seeking a ruling that
the Memorandum be declared not concluded and invalid and, further, on
January 14, 2002, AGD filed a claim with the same court to terminate the
VDV Agreement on the grounds that the VDV Agreement funding provisions had
been breached by the Company.
During 2002, a number of hearings were held with respect to these claims.
Firstly, on March 21, 2002, the Arbitration Court at first instance
rejected the claim brought by LUKoil that the arbitration clause in the VDV
Agreement be declared invalid and this decision was not appealed. Secondly,
on May 21, 2002, the Arbitration Court at first instance dismissed LUKoil's
claim to have the 1999 Agreement declared invalid, and this decision was
also not appealed. Thirdly, AGD's petition that the Memorandum be declared
unconcluded and invalid was initially remanded until July 26, 2002, at
which hearing original specimens of AGD's signatory to the Memorandum, Dr.
Grib, were presented to the Arbitration Court for examination by
handwriting experts. The case was subsequently again remanded until such
examination could be completed. On October 1, 2002, the hearings with
respect to AGD's claims concerning the VDV Agreement were suspended until a
final decision regarding the Memorandum came into force at which time the
hearing would recommence. On October 28, 2002, the Arbitration Court ruled
that the Memorandum between the Company and AGD was unconcluded. The
decision was appealed by the Company in November 2002.
The Company's appeal against the decision declaring the Memorandum
unconcluded was heard on January 23 and 27, 2003. The Arkhangel'sk Court of
Appeal rejected the appeal, whereupon the original decision declaring the
Memorandum unconcluded (and hence of no force and effect as a matter of
Russian law) entered into force on February 4, 2003. A second level appeal
(cassation) against the decision was filed with the St. Petersburg Court of
Cassation on March 23, 2003, and this case was heard on 16 June 2003. The
cassation appeal was rejected by the St. Petersburg Court in a judgement
dated 21 June 2003 and therefore, the decision of the lower court that the
Memorandum was unconcluded remains in force. The Company has sought leave
to appeal to the Russian Supreme Arbitration Court.
Following the entering into force of the decision declaring the Memorandum
unconcluded, on February 4, 2003, the Arkhangel'sk Arbitration Court
resumed consideration of AGD's claim to terminate the VDV Agreement on the
grounds that the Company had breached its funding obligations. On April 28,
2003, the Arbitration Court issued a judgement, which found that the
relevant funding obligations were not set out in the VDV Agreement itself,
but in the subsequent Joint Activity Agreement ("JAA") concluded between
the Company, AGD and Almazny Bereg on May 10, 1994. It further found that
the funding actually provided by the Company in relation to the Verkhotina
project up to 1998 was provided within the framework of the JAA and as a
contribution to the joint activity contemplated by the JAA. On those
grounds, the Court dismissed AGD's application to terminate the VDV
Agreement. AGD did not appeal against the Court's decision and the
deadlines ordinarily applicable for AGD to file any appeal have expired.
Therefore, the VDV Agreement remains in force.
As a direct result of the actions by LUKoil and AGD, in November 2001 the
Company filed a lawsuit in the Denver District Court, State of Colorado,
against LUKoil and AGD (the "Defendants") seeking to recover in excess of
$1 billion in damages for harm caused by a scheme of fraud, breach of
contract, civil conspiracy and related claims. On October 15, 2002 the
Denver District Court issued an order dismissing the Company's action
against LUKoil and AGD based solely on a determination that it lacked
personal jurisdiction over the Defendants, but rejecting all of the
Defendants' other arguments on jurisdiction. The Company's legal advisors
were of the view that the Court's decision was erroneous for a number of
reasons, including the Court's failure to consider the Company's fraud and
other tort claims against LUKoil and AGD as a basis for personal
jurisdiction. Accordingly, on November 27, 2002, the Company filed a motion
with the Colorado Court of Appeals appealing the October 15, 2002 decision.
The appeal is likely to be heard during the first quarter of 2004.
On December 19, 2002, the Corporation completed a private placement of
28,000,000 Common Shares to Cencan S.A., a wholly-owned subsidiary of De
Beers S.A., at a price of $0.10 per share. A further 2,000,000 Common
Shares were placed with various other placees. Cencan S.A. also bought from
Task Holdings Limited 17,305,226 Common Shares, for a total holding of
62.7% of the Common Shares of the Corporation. The private placement
effected a change of controlling shareholder of the Corporation and a
change of management and, effective December 19, 2002, Timothy J. Haddon
resigned as director, President and CEO; Gary E. Davis resigned as
director, Chief Financial Officer and Corporate Secretary; and Richard
Wake-Walker resigned as a director. Messrs. Haddon and Davis were retained
as consultants to the Corporation. Gary M. Ralfe was then appointed
Chairman and a director; Raymond A. Clark was appointed President, CEO and
a director; Michael J.M. Farmiloe and former director, Robert L. Shirriff,
joined the Board as Directors. Clive R. Hartz and L. Lamont Gordon remained
on the Board subsequent to the change in control.
On September 17th, 2003 the Company was extended a loan of US$1.2 million
from Cencan S.A. in order to insure that the Company has sufficient funds
to meet its ongoing operating costs and its commitments to pursue its
rights in relation to the Verkhotina diamond deposit. The loan is repayable
September 17th, 2004 or if the Company makes any acquisition of funds in
excess of the amount owing by way of refinancing, the amount owing shall
immediately become due and payable. The lender has the right to demand
repayment of the loan on 30 days notice and the Company has the right to
repay the loan on 30 days notice. Interest on the loan is at the rate of
LIBOR plus 3% per annum. The Loan is not secured against any assets of the
Company and is not convertible to shares.
3. DISCUSSION OF OPERATIONS AND FINANCIAL CONDITION
The Corporation had a net loss of $999,761 for the nine-month period ended
September 30, 2003, versus a net loss of $1,017,973 for the nine-month
period ended September 30, 2002.
Administration costs during the nine-month period ended September 30, 2003,
versus the same period ended September 30, 2002, increased $95,491 from
$277,496 in 2002 to $372,987 in 2003. Administration costs increased
primarily due to increased consulting fees in accordance with consulting
contracts entered into with former employees. The increased costs were
partially offset by foreign exchange gains and decreased salaries and
benefits. Mineral property development costs were $632,871 during the
nine-month period 2003, versus $750,284 during the same period 2002. These
costs relate primarily to the legal costs incurred for the arbitration and
legal proceedings relating to the Verkhotina Licence dispute.
On June 12, 2003, the Corporation held its Annual Meeting of Shareholders
("AM"). The following persons were elected as directors for the ensuing
year:
Gary M. Ralfe
Raymond A. Clark
Michael J.M. Farmiloe
Clive R. Hartz
L. Lamont Gordon
Robert L. Shirriff
A change of auditors from KPMG LLP to Deloitte & Touche LLP, was approved.
At a meeting of the new board of directors following the AM, the following
persons were appointed officers of the Corporation for the ensuing year:
Gary M. Ralfe Chairman
Raymond A. Clark President and Chief Executive Officer
David W. Massola Chief Financial Officer and Corporate Secretary
4. SUBSEQUENT EVENTS
In the case concerning the Memorandum (entered into between the Company and
AGD on February 25, 1994), the Company was notified on November 13, 2003
that it failed to obtain leave to appeal to the Russian Supreme Arbitration
Court.
Following the decision of the St. Petersburg Court of Cassation dated June
21, 2003 refusing the cassation appeal brought by the Company against the
two earlier decisions (respectively of the Arkhangel'sk Arbitration Court
at first instance and the Arkhangel'sk Court of Appeal) declaring the
Memorandum unconcluded, the Company's lawyers submitted a petition for
leave to appeal dated September 15, 2003 to the Russian Supreme Arbitration
Court, based in Moscow, which was the last available avenue of appeal in
this case in the Russian Arbitration Court system. A panel of three Supreme
Arbitration Court judges issued a ruling dated October 31, 2003 refusing to
transfer the case to the Presidium of the Supreme Arbitration Court for
further consideration, thereby refusing leave to appeal.
Within Russia, the original ruling that the Memorandum is regarded as
unconcluded (and therefore of no legal force or effect), which entered into
force on February 4, 2003, has effectively been upheld and remains in
place. The Company has now exhausted all avenues of appeal within the
Russian Arbitration Court system in this particular case. The Company's
lawyers are considering the implications of this decision.
5. FINANCINGS, PRINCIPAL PURPOSES AND MILESTONES
Not applicable.
6. LIQUIDITY AND SOLVENCY
The Corporation had a working capital deficit of $384,656 at September 30,
2003 compared to a working capital surplus of $608,296 at September 30,
2002. As of September 30, 2003, the Corporation had $1,130,367 in cash
compared with $1,925,688 as of September 30, 2002. The Corporation
currently has working capital sufficient for its requirements through June
2004.
It is the Company's intention to conserve cash wherever it can while
pursuing the appeal it has filed in the United States against LUKoil and
AGD and pursuing negotiations in Russia. Subject to progress being made in
resolving the dispute with AGD and LUKoil and the need to protect the
Company's rights, management will keep further financing options under
review as we go forward.