GOLD RESERVE LTD 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Overview This Management’s Discussion and Analysis of Financial Condition and Results of Operations, dated March 30, 2010, is intended to assist in understanding and assessing the trends and significant changes in our results of operations and financial condition. Gold Reserve, an exploration stage company, is engaged in the business of acquiring, exploring and developing mining projects. From 1992 to 2009 we focused substantially all of our management and financial resources on the development of the Brisas gold and copper project located in the Kilometre 88 mining district of the State of Bolivar in south-eastern Venezuela (which we refer to as the “Brisas Project” or “Brisas”). Due to what we believe are the improper actions of the Venezuelan government, we have been forced to discontinue development of the Brisas Project, as discussed below. While we pursue arbitration, we are attempting to settle our dispute with the Venezuelan government, mitigate our loss through the sale of Brisas Project assets, and are seeking to invest in or acquire an alternative mining project. The Brisas Project has been expropriated by the Venezuelan government, and we no longer have control or physical access to the project. As a result, we no longer report mineral reserves for Brisas, and we have discontinued the development of our Venezuelan properties, including Brisas and Choco 5 (which was a grass-roots exploration property also located in the State of Bolivar). On October 21, 2009, we filed a Request for Arbitration under the Additional Facility Rules of ICSID against the Bolivarian Republic of Venezuela to seek compensation as a result of the expropriation and other violations of the Canada-Venezuela Treaty. Our request was registered by ICSID in November 2009. For more information, see “Item 3. Legal Proceedings – Arbitration.” The information contained elsewhere in this Annual Report on Form 10-K relating to our past development efforts, regulatory process and reported mineral reserves of Brisas and Choco 5 are presented only for informational and historical purposes and should not be construed as an indication of our expectations regarding the future development and operation of these properties or the outcome of the arbitration proceedings. The Venezuelan Ministry of Mines (“MIBAM”) approved the Brisas operating plan during 2003 and in early 2007 the Venezuelan Ministry of Environment (“MinAmb”) approved the Brisas Environmental and Social Impact Study for the Exploitation and Processing of Gold and Copper Ore (“Estudio de Impacto Ambiental y Sociocultural” or “ESIA”). In March 2007, MinAmb issued the Authorization for the Affectation of Natural Resources for the Construction of Infrastructure and Services Phase of the Brisas Project (the “Authorization to Affect”). In 2007, we commenced significant pre-construction procurement efforts with the assistance of our EPCM contractor, awarding contracts for Brisas site preparation and construction camp facilities and placing orders for processing equipment, early-works construction equipment and various other site equipment totaling approximately $125.3 million, accelerated detailed project engineering, hired a number of senior technical staff, completed the sale of approximately $103.5 million of 5.50% senior subordinated convertible notes (“convertible notes”) and $74 million (net of expenses) in new equity, launched a number of environmental and social initiatives and commenced preparation of the Brisas site for construction activities. In April 2008, the MinAmb revoked the 2007 Authorization to Affect. Venezuelan legal counsel advised management that the revocation of the Authorization to Affect was groundless and legally unsupported. After months of continuous effort to meet with the Venezuelan government and resolve the issues related to the 2008 revocation of the Authorization to Affect and the more recent denial in May 2009 of the normal course extension of the Brisas Alluvial and the El Pauji Concessions (which by Venezuelan law were already renewed), on October 21, 2009 we filed for arbitration against Venezuela at ICSID under the Canada-Venezuela Treaty. In evident retaliation, Venezuelan government personnel arrived at the Brisas Project camp site on October 26, 2009, claimed ownership of the Brisas Alluvial Concession, seized assets, expelled our personnel, and took physical possession of the property. Subsequently on November 4, 2009, the Venezuelan government notified us through the issuance of an Administrative Act, dated October 20, 2009, of its intent to cancel our underlying hard rock concession. As a result of the expropriation of the Brisas Project by the Venezuelan government and our loss of control and physical access to the project we recorded a $150.7 million non-cash write-off of the capital costs associated with the expropriated assets, including an adjustment for the estimated net realizable value of certain processing and related equipment purchased for the Brisas Project of approximately $14.5 million. Since acquiring the Brisas Alluvial Concession in 1992, we have spent close to $300 million on the project (including equipment recorded in the Consolidated Balance Sheet and financial, legal and engineering costs incurred in support of our Venezuelan operations and the write-down of previously capitalized costs associated with our Venezuelan operations recorded in the Consolidated Statement of Operations). For more background information on the Brisas Project, see “Item 2. Properties.” The costs incurred since 1992 include property and mineral rights, easements, acquisition costs, equipment expenditures, litigation settlement costs, general and administrative costs and extensive exploration costs including geology, geophysics and geochemistry, approximately 975 drill holes totaling over 200,000 meters of drilling, independent audits of drilling, sampling, assaying procedures and ore reserves methodology, environmental baseline work/socioeconomic studies, hydrology studies, geotechnical studies, mine planning, advanced stage grinding and metallurgical test work, tailings dam designs, milling process flow sheet designs, Environmental Impact Statement and Bankable Feasibility Study, including a number of subsequent updates, and an independent CSA National Instrument 43-101 report which was most recently updated in March 2008. Detailed engineering for Brisas was approximately 85% complete at the date of its expropriation by the Venezuelan government. We have no commercial production at this time and, as a result, we have not recorded revenue or cash flows from mining operations and continue to experience losses from operations, a trend we expect to continue unless and until the investment dispute regarding Brisas is resolved favorably to the Company and/or we acquire or invest in an alternative project. Historically we have financed the Company’s operations through the issuance of common stock, other equity securities and convertible debt. The Company has only one operating segment, the exploration and development of mineral properties. Segmented financial information by geographic region is shown in Note 14 to the consolidated financial statements. Investors are urged to read our filings with U.S. and Canadian securities regulatory agencies, which can be viewed on-line at www.sec.gov, www.sedar.com or at the Company’s website, www.goldreserveinc.com which also includes the Company’s corporate governance policies. Additionally, you can request a copy of any of these documents directly from us. We prepare our consolidated financial statements in U.S. dollars in accordance with accounting principles generally accepted in Canada (see Note 20, Differences Between Canadian and U.S. GAAP). The Company’s current financial position and historical results of operations are a product of the Company’s efforts, since 1992, to develop the Brisas Project into an operating mine and more specifically, is a function of our decision, subsequent to the issuance of the Permit to Affect, to place orders to acquire approximately $125 million of equipment, raise $183 million through the issuance of convertible notes and common shares and to continue to incur substantial operating deficits. Likewise our October 2009 Request for Arbitration under the Additional Facility Rules of ICSID and the write-off of the costs associated with our Venezuelan operations will shape the future financial position and results of operations of the Company. We expect the arbitration process to last three to five years, consume substantial management time and cost an estimated $5 to $8 million, excluding the time and funds necessary to collect on any award. Our forward-looking statements, which reflect our current views about future events, are based on assumptions and are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those contemplated by these statements. Factors that may cause differences between actual results and those contemplated by forward-looking statements include, but are not limited to, those discussed in “Part I- Item 1A. Risk Factors” of this Annual Report on Form 10-K. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with “Part II- Item 6. Selected Financial Data” of this report and our consolidated financial statements and related notes. Additional information on the Company can be found at www.sec.gov, www.sedar.com or the Company’s web-site at www.goldreserveinc.com. As noted elsewhere in this Annual Report on Form 10-K, in 1992 we initiated the exploration and development of the Brisas Project, located in the historic Km 88 mining district of the State of Bolivar in southeastern Venezuela. The Brisas deposit, which is one of the largest undeveloped gold/copper deposits in the world, contains estimated ore reserves of 10.2 million ounces of gold and 1.4 billion pounds of copper. From 1992 to 2009, we focused substantially all our corporate and operations management and financial resources on Brisas. Since acquiring the Brisas Alluvial Concession in 1992, we have spent close to $300 million on the project (including equipment recorded in the Consolidated Balance Sheet and financial, legal and engineering costs incurred in support of our Venezuelan operations and the write-down of previously capitalized costs associated with our Venezuelan operations recorded in the Consolidated Statement of Operations) developing the Brisas Project into a world class mining project. Current Plan As a result of the expropriation of the Brisas Project by the Venezuelan government, our primary objective is to manage the arbitration effort in cooperation with arbitration counsel and various experts, to minimize costs and accelerate its completion, to the extent possible. Substantially all of the key management personnel have been employed by the Company for over 15 years with a single focus of developing the Brisas Project. These individuals possess valuable historical knowledge related to the Brisas Project which is important to the successful execution of our arbitration efforts. Our other major objectives are to: (1) explore opportunities to settle our dispute with Venezuela; (2) sell Brisas Project assets; (3) redeem, restructure or otherwise modify the terms of the 5.50% subordinated notes; and (4) continue evaluating alternative industry opportunities for an investment transaction. The successful execution of these objectives will be facilitated by the Company’s senior management team which has substantial technical, financial and administrative experience related to the mining industry. The timing of any such new investment or transaction if any, and the amounts that may be required cannot be determined at this time and are subject to available cash, sale of equipment originally slated for the Brisas Project and/or future financings, if any. Critical Accounting Estimates We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Based on certain probability-weighted alternative outcomes, management considers the sum of the expected future net cash flows to be generated from the use or disposition of a long-lived asset (undiscounted and without interest charges) and compares that to its carrying value and if such expected future net cash flows are less than the carrying value an impairment loss is recognized and the asset is written down to fair value. Fair value is generally determined by discounting estimated cash flows, using quoted market prices where available or making estimates based on the best information available Subsequent to the expropriation and the resulting loss of control and physical access to the Brisas Project, we recorded a $150.7 million non-cash write-off of the carrying value of the expropriated assets including an adjustment for the estimated net realizable value of certain processing and related equipment purchased for the Brisas Project of approximately $14.5 million. Management makes no assurances that the estimated net realizable value of the remaining processing and related equipment can be disposed of for its recorded estimated value. See Note 3 and Note 15 to the consolidated financial statements. The fair value of the debt component of the Company’s convertible notes is accreted to the face value of the notes using the effective interest rate method over the expected life of the notes, with the resulting charge recorded as interest expense. The expected life of the notes is an estimate and is subject to change, if warranted by facts and circumstances related to the potential early redemption of the notes by either the Company or the holders. At December 31, 2008, we revised our estimate of the expected life of the notes to June 15, 2012 and adjusted the carrying value accordingly. See “Consolidated Balance Sheets - Convertible Notes” and Note 18 to the consolidated financial statements. The adjusted carrying value was calculated by computing the present value of estimated future interest and principal payments at the original effective interest rate. As a result of this change, the carrying value of the notes increased by approximately $20.5 million with a corresponding increase in capitalized interest and accretion. The Company uses the liability method of accounting for income taxes. Future tax assets and liabilities are determined based on the differences between the tax basis of assets and liabilities and those amounts reported in the financial statements. The future tax assets or liabilities are calculated using the substantively enacted tax rates expected to apply in the periods in which the differences are expected to be settled. Future tax assets are recognized to the extent that they are considered more likely than not to be realized. We operate and file tax returns in a number of jurisdictions. The preparation of such tax filings requires considerable judgment and the use of assumptions. Accordingly, the amounts reported could vary in the future. See “Consolidated Statements of Operations - Income tax expense.” The Company uses the fair value method of accounting for stock options. The fair value is computed using the Black-Scholes method which utilizes estimates that affect the amounts ultimately recorded as stock based compensation. See Note 11 to the consolidated financial statements. Through 2006, the Company re-measured its Bolivar denominated transactions at the official exchange rate of Bs. 2,150/$. In 2007, based on new guidance from the American Institute of Certified Public Accountants (“AICPA”) International Practices Task Force (“IPTF”), the Company concluded that the parallel market rate was the most appropriate rate to use to re-measure Bolivar transactions. Accordingly, in 2007 the Company began to use the average rate received in the parallel market to re-measure Bolivar transactions and at December 31, 2007, used the parallel rate to translate Bolivar denominated monetary items. On January 1, 2008 the Venezuelan government modified the currency, fixing the official exchange rate at Bs. 2.15 to US $1.00. In January 2010, the official rate was adjusted to Bs. 4.3 to US$1.00 for most goods and services and Bs. 2.6 to US1.00 for certain priority items such as basic foods and medicines. In late 2009, the Venezuelan economy was determined to be highly inflationary. After consideration of the recent events with respect to the Venezuelan currency and economy, the Company continues to believe that it is most appropriate to use the parallel rate to re-measure transactions and to translate Bs. denominated monetary items. Significant Accounting Policies Our accounting policies are described in Note 1 of the consolidated financial statements contained in this Annual Report on Form 10-K for the year ended December 31, 2009. The more significant accounting policies are as follows: Financial Instruments. Effective January 1, 2008, the Company adopted CICA Section 3862. This Section requires entities to provide disclosures in their financial statements that enable users to evaluate: (a) the significance of financial instruments for the entity's financial position and performance; and (b) the nature and extent of risks arising from financial instruments to which the entity is exposed during the period and at the balance sheet date, and how the entity manages those risks. Stock Based Compensation. We use the fair value method of accounting for stock options granted to employees and directors. Consideration paid for shares on exercise of share options in addition to the fair value attributable to stock options granted is credited to capital stock. Exploration and Development Costs. Exploration costs incurred in locating areas of potential mineralization are expensed as incurred. Exploration costs of properties or working interests with specific areas of potential mineralization are capitalized at cost pending the determination of a property’s economic viability. Development costs of proven mining properties not yet producing are capitalized at cost and classified as property, plant and equipment. Property holding costs are charged to operations during the period if no significant exploration or development activities are being conducted on the related properties. Upon commencement of production, capitalized exploration and development costs will be amortized based on the estimated proven and probable reserves benefited. Properties which are abandoned are written-off and properties determined to be impaired are written-down to the estimated fair value. Interest expense allocable to the cost of developing mining properties and to constructing new facilities is capitalized until assets are ready for their intended use. Measurement Uncertainty. Any operations we may have are subject to the effects of changes in legal, tax and regulatory regimes, political, labor and economic developments, social and political unrest, currency and exchange controls, import/export restrictions and government bureaucracy in the countries in which we operate. Subsequent to the expropriation and the resulting loss of control and physical access to the Brisas project, we recorded a $150.7 million non-cash write-off of the carrying value of the expropriated assets including an adjustment for the estimated net realizable value of certain processing and related equipment purchased for the Brisas Project of approximately $14.5 million. The realizable value of the remaining processing and related equipment may be different than management’s current estimate. See Note 3 and Note 15 to the consolidated financial statements. The Company operates and files tax returns in a number of jurisdictions. The preparation of such tax filings requires considerable judgment and the use of assumptions. Accordingly, the amounts reported could vary in the future. Internal Control over Financial Reporting Management is responsible for establishing and maintaining adequate internal control over financial reporting. We believe that internal controls over financial reporting no matter how well conceived and operated, can only provide reasonable assurance that their objectives are met. There have been no changes in the Company’s internal control over financial reporting during the twelve months ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Liquidity and Capital Resources At December 31, 2009 our total financial resources, which include cash and cash equivalents, restricted cash and marketable securities, were approximately $81.2 million compared to $110.4 million at December 31, 2008. The Company’s cash and investments are held primarily is US dollar denominated accounts. 2009 2008 Cash and cash equivalents $ 60,962,813 $ 91,550,167 Restricted cash 9,489,777 17,509,672 Marketable securities 10,773,845 1,342,760 Total $ 81,226,435 $ 110,402,599 Overall financial resources decreased approximately $29.2 million from December 31, 2008. This decrease was primarily due to expenditures for property, plant and equipment of approximately $16.5 million relating to our purchase commitments for the Brisas Project, capitalized interest related to the convertible notes of approximately $4.5 and approximately $16.4 million used by operations more fully described below in results of operations, offset by approximately $7.3 million from sales of equipment. As of March 30, 2010 we held approximately $77 million in cash, restricted cash and investments, including restricted cash of approximately $9.0 million held pursuant to a letter of credit for certain equipment purchase commitments. With the write-off of the capitalized costs associated with our Venezuelan operations, the Company’s net book value at December 31, 2009 has decreased to approximately $20 million. The primary future obligation of the Company is the 5.50% senior subordinated notes which may be settled in cash or common shares in the event the holder chooses the one-time option to put the notes back to the Company for repurchase on June 15, 2012 (see Note 18 to the consolidated financial statements). As a result, in the near-term we believe that cash and investment balances and funds available from potential future equipment sales will be sufficient to enable us to fund our activities through 2011. The timing and extent of additional funding, if any, depends on a number of important factors, including, but not limited to the timing and outcome of our investment dispute with the Venezuelan government, the timing and the amount of proceeds, if any, from the sale of Brisas Project assets, the extent of future acquisitions or investments, if any, status of the financial markets and our share price. Operating Activities Cash flow used by operating activities for 2009 was approximately $15.1 million, which was an increase over 2008 of approximately $1.3 million. Although management was successful at reducing certain operating expenses as noted below in Results of Operations, we utilized approximately $3.5 million in 2009 to reduce accounts payable and accrued expenses, the bulk of which related to the cost of defending the Company against the 2008 hostile take-over offer by Rusoro Mining Ltd. Investing Activities 2009 2008 2007 Purchase of property, plant and equipment $ (17,771,441) $ (38,699,588) $ (44,689,332) Net (purchase of) proceeds from marketable securities (8,042,632) 1,204,582 2,353,286 Proceeds from sale of equipment 7,297,598 19,184,740 - Decrease (increase) in restricted cash 8,019,895 34,570,931 (52,080,603) Capitalized interest paid on convertible debt (4,507,319) (5,688,430) (3,273,187) Other (44,944) (117,760) (108,134) $ (15,048,843) $ 10,454,475 $ (97,797,970) Investing activities during the 12 months ended December 31, 2009 included net investment in property, plant and equipment of approximately $17.8 million compared to $38.7 million and $44.7 million in 2008 and 2007, respectively. These payments primarily relate to obligations related to the 2007 equipment orders for Brisas originally totaling approximately $125 million. In 2009, net purchases of marketable securities totaled approximately $8 million compared to net proceeds of $1.2 million and $2.4 million in 2008 and 2007, respectively. The increase in marketable securities primarily relates to investments in debt securities in an effort to improve the overall rate of return on invested cash. As a result of the April 2008 revocation of the Authorization to Affect, the Venezuelan government’s inability to clearly articulate, at that time, its intentions related to Brisas and the uncertainty of the future time schedule, the Board of Directors, in early 2008, authorized management to evaluate the sale or a redeployment to an alternative project of all or a portion of the equipment previously ordered for Brisas. In 2008 and 2009, we sold certain equipment (one SAG mill, two ball mills (35,000 tonne per day through-put) and related motors as well as mobile equipment) originally costing approximately $53.1 million. The Company recovered approximately $26.5 million of progress payments and the purchaser assumed the remaining payment obligations of approximately $21.9 million resulting in a combined loss on sale of equipment of approximately $4.7 million. As of December 31, 2009, the Company had remaining equipment purchase commitments of approximately $­­­­­11.0 million (due in 2010) relating to previous equipment orders. In connection with a portion of these commitments, we opened an irrevocable standby letter of credit with a Canadian chartered bank providing security on the performance of obligations and secured by cash. As of December 31, 2009 and 2008, the Company had restricted cash of $9.5 million and $17.5 million, respectively as required by this letter of credit. The $8.0 million reduction of restricted cash during 2009 was the result of $5.2 million of payments and a $2.8 million release of collateral related to the cancellation of a portion of the equipment. Similarly, changes in 2008 and 2007 were a result of progress payments for equipment commitments and the origination of the commitment, respectively. The Company capitalized interest related to the convertible notes until October 2009 when we lost control and physical access to the Brisas Project. The reduction in 2009 over that recorded in 2008 relates to the amounts that were incurred subsequent to October 2009 which were expensed in the period incurred. Financing Activities 2009 2008 2007 Net proceeds from issuance of convertible notes - - $ 98,430,066 Net proceeds from issuance of common shares $ 7,088 $ 309,205 74,349,097 Extinguishment of convertible notes (415,254) (35,867) - $ (408,166) $ 273,338 $ 172,779,163 In May 2007 we completed the sale of $103.5 million aggregate principal amount of 5.50% convertible notes due June 15, 2022 and 13,762,300 Class A common shares at $5.80 per share (Cdn$6.42 per share) for approximately $79.8 million for a combined total of approximately $183.3 million before expenses and fees. Although the convertible notes have a face value of $103.5 million, they are recorded on the balance sheet at approximately $93.7 million as Canadian accounting standards require the Company to allocate the proceeds from the notes between their equity and debt components based on their respective fair values at the time of issuance. The convertible notes are due in June 2022. The holders, as more fully described in Note 18 to the consolidated financial statements, have a one time option to require the Company to repurchase the notes on June 15, 2012, at a price equal to 100% of the principal amount of the notes plus accrued but unpaid interest. The repurchase of the notes for cash would require substantial funds and this option may not occur if we lack sufficient liquidity at that time. As a result, we may elect to satisfy our obligation to pay the repurchase price, in whole or in part, by delivering common shares. If in the future we elect to repurchase the notes with common shares, we would be required to issue shares based on the share price on June 15, 2012, which will likely result in significant dilution to existing shareholders and a potential change of control of the Company. The convertible notes are trading in the gray market often at a significant discount to face value. As the terms of the indenture provide that the Company may repurchase the convertible notes in open market purchases or negotiated transactions, the Board of Directors authorized management to repurchase a portion of the outstanding convertible debt. As of December 31, 2009, we had re-purchased approximately $1.1 million (face value) of convertible notes. Management continues to explore broader efforts to redeem a portion of the outstanding convertible notes. These efforts could include a public offer to reacquire all or a portion of the notes or a more limited “Dutch auction” or individual private transactions. The time and extent of such plans will be influenced by, among other things, terms of the indenture, regulatory issues, market conditions and available cash. The covenants contained in the 5.50% subordinated note indenture are limited to administrative issues such as payments of interest, maintenance of office or agency location, delivery of reports and other related issues. Likewise, events of default are defined as failure to pay interest and principal amounts when due, default in the performance of covenants, failure to convert notes upon holder’s exercise of conversion rights and similar provisions or the Company’s failure to give notice of a fundamental change which is generally defined as events related to a change of control in the Company. Contractual Obligations The following table sets forth information on the Company’s material contractual obligation payments for the periods indicated as of December 31, 2009: Payments due by Period Less than More Than Contractual Obligations Total 1 Year 1-3 Years 4-5 Years 5 Years Convertible Notes 1 $116,421,988 $5,629,195 $110,792,793 – – Equipment Contracts 2 11,032,319 11,032,319 – – – Total $127,454,307 $16,661,514 $110,792,793 – – 1 In May 2007, the Company issued $103,500,000 aggregate principal amount of its 5.50% convertible notes. The notes pay interest semi-annually and are due on June 15, 2022. Subject to certain conditions, the notes may be converted into Class A common shares of the Company, redeemed or repurchased. The note holders have the option to require the Company to repurchase the notes on June 15, 2012, at a price equal to 100% of the principal amount of the notes plus accrued but unpaid interest. The Company may elect to satisfy its obligation to pay the repurchase price, in whole or in part, by delivering Common Shares. In the event of a change of control of the Company, the Company will be required to offer to repurchase the notes at a purchase price equal to 100% of the principal amount of the notes plus accrued but unpaid interest unless there has occurred and is continuing certain events of default under the Company’s indenture. At any time on or after June 16, 2010, and until June 15, 2012, the Company may redeem the notes, in whole or in part, for cash at a redemption price equal to 100% of the principal amount being redeemed plus accrued and unpaid interest if the closing sale price of the Common Shares is equal to or greater than 150% of the conversion price then in effect and the closing price for the Company’s Common Shares has remained above that price for at least 20 trading days in the period of 30 trading days preceding the Company’s notice of redemption. Beginning on June 16, 2012, the Company may, at its option, redeem all or part of the notes for cash at a redemption price equal to 100% of the principal amount being redeemed plus accrued and unpaid interest. As of December 31, 2009, $1,151,000 face value of convertible notes have been settled in cash or repurchased by the Company at a total cost of $451,000. The amounts shown above include the interest and principal payments due based on the estimate that the term of the notes will end on June 15, 2012. If the notes were to reach their contractual maturity date of June 15, 2022, additional interest payments would amount to $56.3 million over the additional ten year term of the notes. 2 The Company originally placed orders totaling $125.3 million for the fabrication of processing equipment, mobile equipment and other mining equipment and related engineering. In July 2009 and November 2008, the Company sold a portion of this equipment recovering $26.5 million in deposits and reducing our future commitment by $21.9 million. As of December 31, 2009, the Company has equipment orders totaling $62.9 million and has made payments on these orders of $51.9 million. Off-Balance Sheet Arrangements The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources. RESULTS OF OPERATIONS Prior to 2007, we re-measured our Bolivar denominated transactions at the official exchange rate. In 2007, based on guidance from the AICPA’s IPTF, we concluded that the parallel market rate was the most appropriate rate to use to re-measure Bolivar denominated transactions. The IPTF continues to review the advisability of using the parallel rate and in the absence of more or new definitive guidance, we continue to use the parallel rate. If we were to change the method of re-measuring Bolivar denominated transactions it may have an effect on the Company’s future results of operations. As a result of the expropriation of the Brisas Project by the Venezuelan government and our loss of control and physical access to the project, we recorded a $150.7 million non-cash write-off of the carrying value of the expropriated assets, including affected equipment on order of approximately $14.5 million. In the third quarter of 2008, we implemented a cost reduction program in response to the delays being experienced in Venezuela and the subsequent actions by the Venezuelan government. Our results of operation for the twelve months ended December 31, 2009, 2008 and 2007 are a product of an extraordinary loss on expropriation of assets, operating expenses related to the management of Brisas (including legal and arbitration costs associated with the Brisas investment dispute with Venezuelan government), takeover defense costs and loss on disposal of equipment, net of interest income and gains on the disposition of marketable securities, extinguishment of debt and foreign currency. 2009 Change 2008 Change 2007 Summary Results of Operations Other Income $ 3,165,736 $ 644,434 $ 2,521,302 $ (3,977,782) $ 6,499,084 Total expenses (168,615,564) (146,368,141) (22,247,423) 3,768,571 (18,478,852) Net Loss $ 165,449,828 $ (145,723,707) $ 19,726,121 $ (7,746,353) $ 11,979,768 Other Income Interest $ 288,952 $ (2,398,873) $ 2,687,825 $ (2,476,655) $ 5,164,480 Gain on extinguishment of debt 601,936 525,406 76,530 76,530 - Gain (loss) on disposition of marketable securities 2,274,848 2,517,901 (243,053) (1,577,657) 1,334,604 $ 3,165,736 $ 644,434 $ 2,521,302 $ (3,977,782) $ 6,499,084 Expenses General and administrative $ 4,380,165 $ (3,073,677) $ 7,453,842 $ (4,689,727) $ 12,143,569 Technical services 4,264,103 ( 1,146,078) 5,410,181 316,218 5,093,963 Corporate communications 698,295 (242,707) 941,002 36,845 904,157 Legal and accounting 1,303,087 403,892 899,195 125,055 774,140 10,645,650 (4,058,570) 14,704,220 (4,211,609) 18,915,829 Takeover defense and litigation 2,021,729 (3,385,501) 5,407,230 5,407,230 - Loss on sale of equipment 3,423,544 2,077,121 1,346,423 1,346,423 - Foreign currency (gain) loss (5,429) (66,641) 61,212 987,511 (926,299) 16,085,494 (5,433,591) 21,519,085 3,529,555 17,989,530 Income tax expense 142,319 (594,731) 737,050 710,202 26,848 Minority interest (27,124) (18,412) (8,712) (471,186) 462,474 Interest expense 1,688,403 1,688,403 - - 17,889,092 (4,358,331) 22,247,423 3,768,571 18,478,852 Extraordinary loss on expropriation of assets 150,726,472 150,726,472 - - - Total Expenses $ 168,615,564 $ 146,368,141 $ 22,247,423 $ 3,768,571 $ 18,478,852 28 of 75 2009 Compared to 2008. Consolidated net loss for the year ended December 31, 2009 was approximately $165.5 million or $2.89 per share, an increase of approximately $145.7 million from 2008. As a result of the expropriation of the Brisas Project by the Venezuelan government and our loss of control and physical access to the project, we recorded a $150.7 million non-cash write-off of the carrying value of the expropriated assets including an adjustment for the estimated net realizable value of certain processing and related equipment purchased for the Brisas Project of approximately $14.5 million. In addition, the change in net loss was also due to an increase in other income of approximately $0.6 million, reductions in operating expenses of approximately $4.1 million and costs associated with the takeover defense and litigation of approximately $3.4 million, and increases in loss on sale of equipment of approximately $2.1 million and interest expense of approximately $1.7 million. Interest income for the 12-month period ended December 31, 2009 decreased from the comparable period primarily due to substantially reduced rates of return on invested cash and to a lesser extent, lower levels of invested cash. The gain on the extinguishment of debt was due to the re-purchase of approximately $1.1 million (face value) of the Company’s convertible notes at a substantial discount. The increase in gain on sale of securities is a result of non-recurring investment transactions during the period reported. Excluding the extraordinary loss on the expropriation of assets, expenses in 2009 amounted to $17.9 million compared with $22.2 million in 2008, a $4.3 million reduction. As a result of an effort to reduce controllable costs, we cut general and administrative, technical services and corporate communications expense by approximately $4.5 million which was comprised primarily of reductions related to both the number of personnel and compensation related items, fees associated with consultants, costs associated with efforts related to the Brisas Project debt financing and, to a lesser extent, the cumulative sum of reductions of other operating expenses. These decreases have been supplemented by a decline in takeover defense costs of approximately $3.4 million, but offset by an increase in loss on the sale of equipment of approximately $2.1 million, an increase in legal and accounting expense of approximately $0.4 million, primarily related to arbitration costs, and an increase in interest expense of approximately $1.7 million as a result of no longer capitalizing interest expense subsequent to the date we filed for arbitration with ICSID. We expect the trend of further reducing general and administrative, technical services and corporate communications expense to continue along with future increases in expenses associated with the execution of our arbitration efforts. 2008 Compared to 2007. Consolidated net loss for the year ended December 31, 2008 was approximately $19.7 million or $0.35 per share, an increase of approximately $7.7 million from 2007. The change in net loss was primarily a result of a decrease in other income of approximately $4.0 million and operating expenses of approximately $4.2 million and an increase in costs associated with the takeover defense and litigation of approximately $5.4 million and loss on sale of equipment of approximately $1.3 million. Interest income for the 12 month period ended December 31, 2008 decreased by $2.5 million from the comparable period primarily due to substantially reduced rates of return on invested cash and to a lesser extent, lower levels of invested cash. The loss on sale of marketable securities of $0.2 million in 2008 compared to a $1.3 million gain on sale of marketable securities reported in 2007 accounted for the remaining reduction in other income for the comparable periods. Overall, expenses in 2008 amounted to $22.2 million compared with $18.5 million in 2007, a $3.7 million increase. We cut general and administrative expense by approximately $4.7 million which was comprised primarily of reductions related to compensation expense, fees associated with bank financing efforts and other general and administrative expenses. The decrease in general and administrative expense was offset by increases in other operating expenses including legal costs associated with the initial stages of filing for arbitration, changes in foreign currency gain/losses, approximately $5.4 million of expenses attributable to defending against the unsolicited takeover offer from Rusoro Mining Ltd. and loss on the sale of equipment of approximately $1.3 million as well as the impact of changes in minority interest and income taxes.