GOLD RESERVE LTD 10-K

Item 8. Financial Statements and Supplementary Data Management’s Report To the Shareholders of Gold Reserve Inc. The accompanying consolidated financial statements of the Company were prepared by management in accordance with accounting principles generally accepted in Canada, consistently applied and within the framework of the summary of significant accounting policies in these consolidated financial statements. Management is responsible for all information in the Annual Report on Form 10-K. All financial and operating data in the Annual Report on Form 10-K is consistent, where appropriate, with that contained in the consolidated financial statements. Management is responsible for establishing and maintaining an adequate internal control structure and procedures for financial reporting. Management has established and maintains a system of internal accounting control designed to provide reasonable assurance that assets are safeguarded from loss or unauthorized use, financial information is reliable and accurate and transactions are properly recorded and executed in accordance with management’s authorization. This system includes established policies and procedures, the selection and training of qualified personnel and an organization providing for appropriate delegation of authority and segregation of responsibilities. The Board of Directors fulfills its responsibilities for the consolidated financial statements primarily through the activities of its Audit Committee, which is composed of three directors, none of whom are members of management. This Committee monitors the independence and performance of our independent auditors and meets with the auditors to discuss the results of their audit and their audit report prior to submitting the consolidated financial statements to the Board of Directors for approval. This Committee reviews and discusses with management the consolidated financial statements, related accounting principles and practices and (when required of management under securities commissions or the applicable listing standards) management’s assessment of internal control over financial reporting. This Committee also monitors the integrity of our financial reporting process and systems of internal controls regarding finance, accounting and legal compliance. The consolidated financial statements have been audited on behalf of the shareholders by the Company’s independent auditors, PricewaterhouseCoopers LLP. The auditors’ report outlines the scope of their examination and their opinion on the consolidated financial statements. The auditors have full and free access to the Audit Committee. /s/ Rockne J. Timm /s/ Robert A. McGuinness Chief Executive Officer Vice President–Finance and CFO March 30, 2010 March 30, 2010 Independent Auditors’ Report To the Shareholders of Gold Reserve Inc. We have audited the consolidated balance sheets of Gold Reserve Inc. (the “Company”) as at December 31, 2009 and December 31, 2008, and the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity and cash flows for each of the years in the three year period ended December 31, 2009. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2009 and December 31, 2008 and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2009, in accordance with Canadian generally accepted accounting principles. Signed “PricewaterhouseCoopers LLP” Chartered Accountants Vancouver, British Columbia March 30, 2010 Comments by Auditor for U.S. Readers on Canada-U.S. Reporting Difference In the United States, reporting standards for auditors require the addition of an explanatory paragraph (following the opinion paragraph) when there is a change in accounting principles that has a material effect on the comparability of the Company’s financial statements, such as the change in accounting for income tax loss carryforwards described in note 2 to the financial statements. Our report to the shareholders dated March 30, 2010 is expressed in accordance with Canadian reporting standards which do not require a reference to such a change in accounting principles in the auditors’ report when the change is properly accounted for and adequately disclosed in the financial statements. Signed “PricewaterhouseCoopers LLP” Chartered Accountants Vancouver, British Columbia March 30, 2010 GOLD RESERVE INC. CONSOLIDATED BALANCE SHEETS December 31, 2009 and 2008 (Expressed in U.S. dollars) 2009 2008 ASSETS Cash and cash equivalents (Note 4) $ 60,962,813 $ 91,550,167 Marketable debt securities (Note 5) 10,175,020 – Marketable equity securities (Note 6) 598,825 1,342,760 Deposits, advances and other 566,483 1,123,002 Total current assets 72,303,141 94,015,929 Property, plant and equipment, net (Note 9) 38,122,102 175,132,478 Restricted cash (Note 15) 9,489,777 17,509,672 Prepaid and other – 956,435 Total assets $ 119,915,020 $ 287,614,514 LIABILITIES Accounts payable and accrued expenses $ 3,790,003 $ 8,134,708 Accrued interest 234,550 236,848 Total current liabilities 4,024,553 8,371,556 Convertible notes (Note 18) 93,693,168 91,829,699 Minority interest in consolidated subsidiaries 2,279,699 2,306,823 Total liabilities $ 99,997,420 $ 102,508,078 Measurement Uncertainty (Note 1) Commitments and Contingencies (Notes 11, 15) SHAREHOLDERS' EQUITY Serial preferred stock, without par value Authorized: Unlimited Issued: None Common shares and equity units: (Note 17) $ 247,905,231 $ 247,501,272 Class A common shares, without par value Authorized: Unlimited Issued: 2009… 57,694,997 2008… 57,119,055 Outstanding: 2009… 57,444,997 2008… 56,869,055 Equity Units Issued: 2009… 500,236 2008… 500,236 Outstanding: 2009… 961 2008… 961 Equity component of convertible notes (Note 18) 28,652,785 28,774,221 Less, common shares and equity units held by affiliates (636,267) (636,267) Stock options (Note 11) 10,014,136 9,428,802 Accumulated deficit (265,630,369) (100,180,541) Accumulated other comprehensive income (loss) (277,225) 329,640 KSOP debt (Note 10) (110,691) (110,691) Total shareholders' equity 19,917,600 185,106,436 Total liabilities and shareholders' equity $ 119,915,020 $ 287,614,514 The accompanying notes are an integral part of the consolidated financial statements. Approved by the Board of Directors: s/ Chris D. Mikkelsen s/ Patrick D. McChesney GOLD RESERVE INC. CONSOLIDATED STATEMENTS OF OPERATIONS For the Years Ended December 31, 2009, 2008 and 2007 (Expressed in U.S. dollars) 2007 2009 2008 (restated, Note 2) Other Income: Interest income $ 288,952 $ 2,687,825 $ 5,164,480 Gain on extinguishment of debt 601,936 76,530 – Gain (loss) on disposition of marketable securities 2,274,848 (243,053) 1,334,604 3,165,736 2,521,302 6,499,084 Expenses: General and administrative 4,380,165 7,453,842 12,143,569 Technical services 4,264,103 5,410,181 5,093,963 Takeover defense and litigation (Note 19) 2,021,729 5,407,230 – Loss on sale of equipment 3,423,544 1,346,423 – Corporate communications 698,295 941,002 904,157 Legal and accounting 1,303,087 899,195 774,140 Foreign currency (gain) loss (5,429) 61,212 (926,299) 16,085,494 21,519,085 17,989,530 Loss before income tax, minority interest, interest expense and extraordinary item (12,919,758) (18,997,783) (11,490,446) Income tax expense (Note 13) (142,319) (737,050) (26,848) Minority interest 27,124 8,712 (462,474) Interest expense (1,688,403) – – Loss before extraordinary item (14,723,356) (19,726,121) (11,979,768) Extraordinary loss on expropriation of assets (Note 3) (150,726,472) – – Net loss for the year $ (165,449,828) $ (19,726,121) $ (11,979,768) Basic and diluted net loss per share: Loss before extraordinary item (0.26) (0.35) (0.24) Extraordinary loss on expropriation of assets (2.63) – – Basic and diluted net loss per share $ (2.89) $ (0.35) $ (0.24) Weighted average common shares outstanding 57,309,238 55,988,372 49,703,688 The accompanying notes are an integral part of the consolidated financial statements. GOLD RESERVE INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS For the Years Ended December 31, 2009 and 2008 (Expressed in U.S. dollars) 2009 2008 Net loss for the year $(165,449,828) $(19,726,121) Other comprehensive income (loss), net of tax: Unrealized gain (loss) on marketable securities 1,667,983 (1,693,150) Adjustment for realized losses (gains) included in net loss (2,274,848) 243,053 Other comprehensive income (loss) (606,865) (1,450,097) Comprehensive loss for the year $(166,056,693) $(21,176,218) The accompanying notes are an integral part of the consolidated financial statements. GOLD RESERVE INC. CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY For the Years Ended December 31, 2009, 2008 and 2007(restated, Note 2) (Expressed in U.S. dollars) Equity Com- Common Shares Accumulated Common Shares and Equity Units Issued ponent of Con- and Equity Units Stock Accumulated Other Compre- KSOP Common Shares Equity Units Amount vertible Notes Held by Affiliates Options Deficit hensive income Debt Balance, December 31, 2006 40,581,192 1,085,099 $ 167,463,742 – $ (636,267) $ 3,105,169 $ (68,959,761) – $ (871) Opening balance on adoption of new accounting standard $ 2,025,707 Retrospective application of new accounting standard 485,109 (485,109) Net loss (11,979,768) Other comprehensive income 239,139 Stock option compensation 4,724,120 Equity component of convertible notes 28,784,710 Fair value of options exercised 167,052 (167,052) Common shares issued for: Cash 13,985,742 74,349,097 Services 394,000 1,818,012 KSOP 100,000 497,600 (497,600) Allocation to KSOP participants 387,780 Balance, December 31, 2007 55,060,934 1,085,099 244,295,503 28,784,710 (636,267) 7,662,237 (80,454,420) 1,779,737 (110,691) Equity units exchanged for common shares 584,863 (584,863) Net loss (19,726,121) Other comprehensive loss (1,450,097) Stock option compensation 1,958,470 Conversions and repurchase of convertible notes (10,489) Fair value of options exercised 191,905 (191,905) Common shares issued for: Cash 162,133 309,205 Services 1,311,125 2,704,659 Balance, December 31, 2008 57,119,055 500,236 247,501,272 28,774,221 (636,267) 9,428,802 (100,180,541) 329,640 (110,691) Net loss (165,449,828) Other comprehensive loss (606,865) Stock option compensation 590,180 Conversions and repurchase of convertible notes (121,436) Fair value of options exercised 4,846 (4,846) Common shares issued for: Cash 24,442 7,088 Services 551,500 392,025 Balance, December 31, 2009 57,694,997 500,236 $ 247,905,231 $ 28,652,785 $ (636,267) $ 10,014,136 $ (265,630,369) $ (277,225 ) $ (110,691) The accompanying notes are an integral part of the consolidated financial statements. GOLD RESERVE INC. CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2009, 2008 and 2007 (Expressed in U.S. dollars) 2007 2009 2008 (Restated, Note 2) Cash Flow from Operating Activities: Net loss for the year $ (165,449,828) $ (19,726,121) $ (11,979,768) Adjustments to reconcile net loss to net cash used by operating activities: Stock option compensation 590,180 1,958,470 4,724,120 Depreciation 213,902 224,071 179,111 Gain on extinguishment of debt (601,936) (76,530) – Loss on sale of equipment 3,423,544 1,346,423 – Loss on expropriation of assets 150,726,472 – – Amortization of premium on marketable debt securities 109,715 – – Accretion of convertible notes 554,581 – – Foreign currency loss 50,522 6,796 1,131,269 Minority interest in net income (loss) of consolidated subsidiaries (27,124) (8,712) 462,474 Net (gain) loss on disposition of marketable securities (2,274,848) 243,053 (1,334,604) Future income tax expense (benefit) (Note 13) 169,815 747,019 (431,725) Shares issued for compensation and KSOP 392,025 2,704,659 2,205,792 Changes in non-cash working capital: Decrease (increase) in deposits, advances and accrued interest 507,737 (442,931) (137,176) Decrease in accounts payable and accrued expenses (3,515,102) (834,419) (494,798) Net cash used in operating activities (15,130,345) (13,858,222) (5,675,305) Cash Flow from Investing Activities: Purchase of marketable securities (12,095,811) (3,262,239) (4,163,941) Purchase of property, plant and equipment (1 7,771,441) (38,699,588) (44,689,332) Proceeds from the sale of marketable securities 4,053,179 4,466,821 6,517,227 Proceeds from the 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 notes (4,507,319) (5,688,430) (3,273,187) Other (44,944) (117,760) (108,134) Net cash provided by (used in) investing activities (15,048,843) 10,454,475 (97,797,970) Cash Flow from Financing Activities: 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) – Net cash provided by (used in) financing activities (408,166) 273,338 172,779,163 Change in Cash and Cash Equivalents: Net increase (decrease) in cash and cash equivalents (30,587,354) (3,130,409) 69,305,888 Cash and cash equivalents - beginning of year 91,550,167 94,680,576 25,374,688 Cash and cash equivalents - end of year $ 60,962,813 $ 91,550,167 $ 94,680,576 Supplemental Cash Flow Information Non-cash investing activities: Issuance of common shares as compensation $ 392,025 $ 2,704,659 $ 1,818,012 Issuance of common shares to KSOP Plan $ – $ – $ 497,600 The accompanying notes are an integral part of the consolidated financial statements. 1. The Company and Significant Accounting Policies: The Company . Gold Reserve Inc. (the “Company”) is an exploration stage company incorporated in 1998 under the laws of the Yukon Territory, Canada, and is the successor issuer to Gold Reserve Corporation which was incorporated in 1956. The Company is engaged in the business of acquiring, exploring and developing mining projects. From 1992 to 2009 the Company focused substantially all of its 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”). We discontinued development of the Brisas Project after it was expropriated by the Venezuelan government and we are now seeking to invest in or acquire an alternative mining project. The Company has no revenue producing mining operations at this time. All amounts shown herein are expressed in U.S. dollars unless otherwise noted. In February 1999, the shareholders of Gold Reserve Corporation approved a plan of reorganization whereby Gold Reserve Corporation became a subsidiary of Gold Reserve Inc., the successor issuer (the “Reorganization”). Generally, each shareholder of Gold Reserve Corporation received one Gold Reserve Inc. Class A common share for each common share owned of Gold Reserve Corporation. After the Reorganization, a shareholder of Gold Reserve Inc. continued to own an interest in the business, through subsidiary companies, that in aggregate was essentially the same as before the Reorganization. Certain U.S. holders of Gold Reserve Corporation elected, for tax reasons, to receive equity units in lieu of Gold Reserve Inc. Class A common shares. An equity unit is comprised of one Gold Reserve Inc. Class B common share and one Gold Reserve Corporation Class B common share. Each equity unit is substantially equivalent to a Class A common share and is immediately convertible into a Gold Reserve Inc. Class A common share, upon compliance with certain procedures. Equity units are not listed for trading on any stock exchange, but, subject to compliance with applicable federal, provincial and state securities laws, may be transferred. Unless otherwise noted, general references to common shares of the Company include Class A common shares and Class B common shares as a combined group. Principles of Consolidation . The consolidated financial statements contained herein have been prepared in accordance with accounting principles generally accepted in Canada, which as described in Note 20, differ in certain material respects from accounting principles generally accepted in the U.S. These consolidated financial statements include the accounts of the Company, Gold Reserve Corporation, two domestic subsidiaries, Great Basin Energies, Inc. (“Great Basin”) and MGC Ventures Inc. (“MGC Ventures”), four Venezuelan subsidiaries, two Barbadian subsidiaries and five Aruban subsidiaries which were formed to hold the Company’s interest in its foreign subsidiaries or for future transactions. All subsidiaries are wholly owned with the exception of Great Basin and MGC Ventures which are 45% and 44% owned, respectively. All intercompany accounts and transactions have been eliminated on consolidation. The Company’s policy is to consolidate those subsidiaries where control exists. See Note 12. Cash and Cash Equivalents . The Company considers short-term, highly liquid investments purchased with an original maturity of three months or less to be cash equivalents for purposes of reporting cash equivalents and cash flows. Cash and cash equivalents are designated as held-for-trading and recorded at fair value. The Company manages the exposure of its cash and cash equivalents to credit risk by diversifying its holdings into major Canadian and U.S. financial institutions and corporations 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 capitalized exploration costs under property, plant and equipment. Costs related to staffing and maintenance of offices and facilities in Venezuela are charged to operations. 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 would be amortized based on the estimated proven and probable reserves benefited. Properties determined to be impaired or that are abandoned are written-down to the estimated fair value. Carrying values do not necessarily reflect present or future values. Property, Plant and Equipment . Property, plant and equipment are recorded at the lower of cost less accumulated depreciation. Replacements and major improvements are capitalized. Maintenance and repairs are charged to expense as incurred. The cost and accumulated depreciation of assets retired or sold are removed from the accounts and any resulting gain or loss is reflected in operations. Depreciation is provided using straight-line and accelerated methods over the lesser of the useful life or lease term of the related asset. Interest and financing costs incurred during the construction and development of qualifying assets are capitalized on an interest avoidance basis. The amount capitalized during an accounting period is determined by applying an interest rate to the average amount of accumulated qualifying assets during the period. Adjustments increasing the carrying value of convertible notes upon remeasurement due to a change in estimated life are considered interest costs and are therefore eligible for capitalization. The Company’s qualifying assets include its costs of developing mining properties and constructing new facilities. Impairment of Long Lived Assets . The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If 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) is less than the carrying amount of the asset, 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. Foreign Currency . The U.S. dollar is the Company’s functional currency. The Company’s foreign subsidiaries are integrated foreign operations and accordingly foreign currency amounts are translated into U.S. dollars using the temporal method. Non-monetary assets and liabilities are translated at historical rates, monetary assets and liabilities are translated at current rates and revenue and expense items are translated at average exchange rates during the reporting period, except for depreciation which is translated at historical rates. Translation gains and losses are included in operating expenses. In 2003, the Venezuelan government implemented foreign exchange controls which fixed the rate of exchange between Venezuelan Bolivars (Bs.) and the US dollar. In March 2005, the rate was fixed at 2,150 Bs. to US $1.00. In October 2005, the government enacted the Criminal Exchange Law which imposes sanctions on the exchange of Bs. with foreign currency unless the exchange is made by officially designated methods. The exchange regulations do not apply to transactions with certain securities denominated in Bs. which can be swapped for securities denominated in another currency effectively resulting in a parallel market for the Bolivar. Through 2006, the Company re-measured its Bolivar denominated transactions at the official exchange rate of Bs. 2,150/$. 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 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. Stock Based Compensation . The Company uses the fair value method of accounting for stock options. The fair value of options granted to employees is computed using the Black-Scholes method as described in Note 11 and is expensed over the vesting period of the option. For non-employees, the fair value of stock based compensation is recorded as an expense over the vesting period or, if earlier, upon completion of performance. 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. Fair value of restricted stock issued as compensation is based on the grant date market value and expensed over the vesting period. The Company also maintains the Gold Reserve Director and Employee Retention Plan. Units granted under the plan become fully vested and payable upon a change of control. Each Unit granted to a participant entitles such person to receive a cash payment equal to the fair market value of one Gold Reserve Class A Common Share (1) on the date the Unit was granted or (2) on the date any such participant becomes entitled to payment, whichever is greater. Income Taxes . 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. Use of Estimates . The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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. 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. Net Loss Per Share . Net loss per share is computed by dividing net loss by the combined weighted average number of Class A and B common shares outstanding during each year, which is reduced by the common shares owned by Great Basin and MGC Ventures. In periods in which a loss is incurred, the effect of potential issuances of shares under options and convertible notes would be anti-dilutive, and therefore basic and diluted losses per share are the same. Asset Retirement Obligations . The fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and amortized over the same period as the underlying asset. Convertible Notes . Convertible notes are initially recorded at fair value and subsequently measured at amortized cost. The fair value is allocated between the equity and debt component parts based on their respective fair values at the time of issuance and recorded net of transaction costs. The equity portion of the notes is estimated using the residual value method. The fair value of the debt component 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. Interest expense allocable to the qualifying cost of developing mining properties and to constructing new facilities is capitalized until assets are ready for their intended use. Comprehensive Income . Comprehensive income includes net income or loss and other comprehensive income. Other comprehensive income may include unrealized gains and losses on available-for-sale securities, gains and losses on certain derivative instruments and foreign currency gains and losses from self sustaining foreign operations. The Company presents comprehensive income and its components in the consolidated statements of comprehensive loss. Financial Instruments . The Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts payable, accrued expenses and convertible notes. Cash and cash equivalents are classified as held for trading and any changes in fair value are charged to the statement of operations. Marketable equity securities are classified as available for sale with any unrealized gain or loss recorded in other comprehensive income. Marketable debt securities are classified as held-to-maturity and are measured at amortized cost using the effective interest rate method. Other financial liabilities are accounted for at cost or amortized cost. 2. Restatement and New Accounting Policies: The Company restated its 2007 financial statements upon the adoption of EIC 172, Income Statement Presentation of a Tax Loss Carryforward Recognized Following an Unrealized Gain in Other Comprehensive Income. This abstract provides guidance on whether the tax benefit of tax loss carryforwards consequent to the recording of unrealized gains in other comprehensive income, such as unrealized gains on available-for-sale securities, should be recognized in net income or in other comprehensive income. Upon adoption effective September 30, 2008, EIC 172 was applied retrospectively with restatement of prior periods from January 1, 2007 resulting in a reclassification of $485,109 from the January 1, 2007 opening balance of accumulated other comprehensive income to accumulated deficit. Additionally, $431,725, or $0.01 per share, of income tax benefit was reclassified from other comprehensive loss to net loss for the year ended December 31, 2007. New Accounting Policies : CICA Section 3064, Goodwill and Intangible Assets. This Section establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets. The adoption of this standard effective January 1, 2009 did not have a material impact on the Company’s financial statements. EIC 173, Credit Risk and the Fair Value of Financial Assets and Financial Liabilities. This abstract provides guidance on taking into account the credit risk of an entity and counterparty in determining the fair value of financial assets and financial liabilities, including derivative instruments, for presentation and disclosure purposes. The adoption of this standard effective January 1, 2009 did not have a material impact on the Company’s financial statements. EIC 174, Mining Exploration Costs. This abstract provides guidance on when exploration costs related to mining properties may be capitalized and when an impairment assessment of previously capitalized exploration costs should be made. This abstract was effective for financial statements issued after March 27, 2009 and did not have a material impact on the Company’s financial statements. Future Accounting Policies : CICA Section 1582, Business Combinations. This Section replaces Section 1581 and applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2011. The Company is currently evaluating the impact of this Section on its financial statements. CICA Section 1601, Consolidated Financial Statements. This section establishes standards for the preparation of consolidated financial statements and applies to financial reporting periods beginning on or after January 1, 2011. The Company is currently evaluating the impact of this Section on its financial statements. CICA Section 1602, Non-Controlling Interests. This section establishes standards for accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination and applies to financial reporting periods beginning on or after January 1, 2011. The Company is currently evaluating the impact of this Section on its financial statements. 3. Expropriation of Brisas Project by Venezuelan Government and Arbitration: 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 (“Respondent”). In November 2009 our Request for Arbitration was registered by ICSID (Gold Reserve Inc. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB(AF)/09/1)). 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 the Company through the issuance of an Administrative Act, dated October 20, 2009, of its intent to cancel the Company’s underlying hard rock concession. The Company is seeking compensation in the arbitration for all of the loss and damage resulting from Venezuela’s wrongful conduct which includes the full market value of the legal rights to develop the Brisas Project. Our current arbitration efforts consist of engaging and assisting technical, legal, and financial experts, preparing for the initial meeting with the Respondent and the three member arbitration tribunal and developing and filing our initial pleadings, the filing of which is expected to occur in 2010. 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. The Canada-Venezuela Treaty requires as a precondition to bringing an arbitration claim under the Treaty that an investor and any enterprise the investor owns directly or indirectly that has suffered losses that form the basis of a claim by the investor to "waive[ ] its right to initiate or continue any other proceedings in relation to the measure that is alleged to be in breach of [the Treaty] before the courts or tribunals of the Contracting Party concerned or in a dispute settlement procedure of any kind." As a result, the Company and its relevant subsidiaries waived their right to commence or continue with other legal or administrative challenges to the conduct that forms the basis of the ICSID claim, including the revocation of the Authorization to Affect and the denial of the extension of the Brisas Alluvial and El Pauji Concessions. 4. Cash and Cash Equivalents: 2009 2008 Bank deposits $ 53,900,646 $ 85,925,019 Money market funds 7,062,167 5,625,148 Total $ 60,962,813 $ 91,550,167 The above amounts exclude restricted cash of approximately $9.5 million and $17.5 million in 2009 and 2008 respectively. See Note 15, Commitments. At December 31, 2009 and 2008, the Company had approximately $59,000 and $205,000 respectively, in Venezuela and banks outside Canada and the U.S. 5. Marketable Debt Securities: 2009 2008 Amortized cost $ 10,175,020 $ – The Company’s marketable debt securities are classified as held-to-maturity and are measured at amortized cost using the effective interest rate method. 6. Marketable Equity Securities: 2009 2008 Fair value at beginning of year $ 1,342,760 $ 4,987,511 Acquisitions 2,135,293 3,262,239 Dispositions, at cost (2,102,548) (4,709,874) Realized (gain) loss on sale (2,274,848) 243,053 Unrealized gain (loss) 1,498,168 (2,440,169) Fair value at end of year $ 598,825 $ 1,342,760 The Company’s marketable equity securities are classified as available-for-sale and are recorded at quoted market value with gains and losses recorded within other comprehensive income until realized. As of December 31, 2009 and 2008 marketable equity securities had a cost basis of $876,049 and $843,305, respectively. 7. Financial Instruments: The fair values as at December 31, 2009 and 2008 along with the carrying amounts shown on the consolidated balance sheets for each classification of financial instrument are as follows: December 31, 2009 December 31, 2008 Carrying Fair Carrying Fair Classification Amount Value Amount Value Cash and cash equivalents held for trading $ 60,962,813 $ 60,962,813 $ 91,550,167 $ 91,550,167 Restricted cash held for trading 9,489,777 9,489,777 17,509,672 17,509,672 Marketable debt securities held to maturity 10,175,020 10,208,950 – – Marketable equity securities available for sale 598,825 598,825 1,342,760 1,342,760 Deposits advances and other held to maturity 566,483 566,483 1,123,002 1,123,002 Derivative liability held for trading – – 1,442,635 1,442,635 A/P and accruals other financial liabilities 3,790,003 3,790,003 6,692,073 6,692,073 Accrued interest other financial liabilities 234,550 234,550 236,848 236,848 Convertible notes other financial liabilities 93,693,168 69,085,575 91,829,699 37,723,480 Fair value estimates for marketable securities are made at the balance sheet date by reference to published price quotations in active markets. At December 31, 2009 and 2008, the fair value of the convertible notes was estimated using an indicative valuation based on recent market information. CICA 3862 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels: Level 1 inputs are quoted prices in active markets for identical assets or liabilities, Level 2 inputs are inputs other than quoted prices included within Level 1 that are directly or indirectly observable for the asset or liability and Level 3 inputs are unobservable inputs for the asset or liability that reflect the entity’s own assumptions. Fair value December 31, 2009 Level 1 Level 2 Level 3 Cash and cash equivalents $ 60,962,813 $ 60,962,813 Marketable equity securities 598,825 598,825 – – Restricted cash 9,489,777 9,489,777 Fair value December 31, 2008 Level 1 Level 2 Level 3 Cash and cash equivalents $ 91,550,167 $ 91,550,167 Marketable equity securities 1,342,760 1,342,760 – – Restricted cash 9,489,777 9,489,777 Derivative liabilities 1,442,635 – 1,442,635 – The Company is exposed to various risks including credit risk, liquidity risk, currency risk and interest rate risk as described below: a) Credit risk is the risk that a counter party will fail to meet its obligations to the Company. The Company’s primary exposure to credit risk is through its cash and cash equivalents, restricted cash and marketable debt securities balances. The Company diversifies its cash holdings into major Canadian and U.S. financial institutions and corporations. b) Liquidity risk is the risk that an entity will encounter difficulty in meeting its obligations associated with its financial liabilities. The Company manages this risk by maintaining adequate cash balances through equity and debt offerings to meet its current and foreseeable obligations. The following table presents the Company’s payments due on accounts payable and accrued expenses and its undiscounted interest and principal payments due on its convertible notes, 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. Payments due by Period Less than More Than Total 1 Year 1-3 Years 4-5 Years 5 Years A/P and accruals $ 3,790,003 $ 3,790,003 – – – Interest 14,072,988 5,629,195 $ 8,443,793 – – Principal 102,349,000 – 102,349,000 – – Total $ 120,211,991 $ 9,419,198 $ 110,792,793 – – c) The Company is subject to currency risk mainly due to its operations in Venezuela. Transactions denominated in foreign currency are exposed to exchange rate fluctuations which have an impact on the statement of operations. The Company’s cash, value added tax and other monetary assets and liabilities that are held in Venezuelan and Canadian currency are subject to fluctuations against the US dollar. A 10% weakening of those currencies against the US dollar would have increased (decreased) the Company’s net loss from the translation of foreign currency denominated financial instruments, as at December 31, 2009 and 2008, by the amounts shown below. 2009 2008 Venezuelan Bolívar $ 60,766 $ 69,684 Canadian Dollar (10,894) (67,540) Total $ 49,872 $ 2,144 The Company limits the amount of currency held in non-U.S dollar accounts, but does not actively use derivative instruments to limit its exposure to fluctuations in foreign currency rates. d) The Company is subject to the risk that changes in market interest rates will cause fluctuations in the fair values of its financial instruments. Cash and cash equivalents earn floating market rates of interest. Other current financial assets and liabilities are generally not exposed to this risk because of their immediate or short-term maturity. The interest rate on the Company’s convertible notes is fixed and therefore the interest payments are not subject to changes in market rates of interest. 8. Capital Management: The capital structure of the Company consists of common shares and equity units, convertible notes, stock options, accumulated deficit, accumulated other comprehensive income and KSOP debt. The Company’s objectives when managing its capital are to: a) maintain sufficient liquidity in order to meet financial obligations including the costs of developing mining projects and servicing debt; b) safeguard the Company’s assets and its ability to continue as a going concern and c) maintain a capital structure that provides the flexibility to access additional sources of capital with minimal dilution to existing shareholders. The Company manages its capital consistent with the objectives stated above and makes adjustments to its capital structure based on economic conditions and the risk characteristics of the underlying assets. The Company is in compliance with the covenants of its convertible notes. There were no changes to the Company’s capital management during 2009. 9. Property, Plant and Equipment: Accumulated Cost Depreciation Net 2009 United States Machinery and equipment deposits $ 37,491,372 $ $ 37,491,372 Furniture and office equipment 506,007 (399,737) 106,270 Leasehold improvements 41,190 (37,022) 4,168 $ 38,038,569 $ (436,759) $ 37,601,810 Venezuela Buildings 403,286 (254,200) 149,086 Furniture and office equipment 482,562 (439,028) 43,534 Transportation equipment 480,198 (361,907) 118,291 Machinery and equipment 497,808 (288,427) 209,381 1,863,854 (1,343,562) 520,292 Total $ 39,902,423 $ (1,780,321) $ 38,122,102 2008 United States Furniture and office equipment $ 485,036 $ (355,924) $ 129,112 Leasehold improvements 35,633 (35,633) – $ 520,669 $ (391,557) $ 129,112 Venezuela Property and mineral rights $ 11,252,335 $ 11,252,335 Capitalized exploration and development costs 84,267,573 84,267,573 Capitalized interest 31,487,930 31,487,930 Machinery and equipment deposits 47,081,189 47,081,189 Buildings 756,282 (368,600) 387,682 Furniture and office equipment 602,476 (519,883) 82,593 Transportation equipment 636,187 (425,685) 210,502 Machinery and equipment 557,561 (323,999) 233,562 176,641,533 (1,638,167) 175,003,366 Total $ 177,162,202 $ (2,029,724) $ 175,132,478 Machinery and equipment deposits include amounts paid for infrastructure and milling equipment either in the manufacturing stage or being stored by the manufacturer. 10. KSOP Plan: The KSOP Plan, adopted in 1990 for the benefit of employees, is comprised of two parts, (1) a salary reduction component, or 401(k), and (2) an employee share ownership component, or ESOP. Unallocated shares are recorded as a reduction to shareholders’ equity. Allocation of common shares or cash contributions to participants’ accounts is at the discretion of the Company’s board of directors, subject to certain limitations. The value of the shares allocated is recorded in the statement of operations with a reduction of the KSOP debt account. The Company allocated shares or made cash contributions to eligible participants for the Plan years 2009, 2008 and 2007 valued at $57,292, $269,679, and $387,780, respectively. As of December 31, 2009, 22,246 common shares remain unallocated to plan participants. 11. Stock Based Compensation: The Company has two equity incentive plans; the 1997 Equity Incentive Plan (last amended in March 2006 and last re-approved by the shareholders in June 2009, the “1997 Plan”) and the 2008 Venezuelan Equity Incentive Plan (approved by the shareholders in June 2008, the “Venezuelan Plan”). Both plans permit the grants of stock options, stock appreciation rights and restricted stock, or any combination thereof, and each shall be 10% of the Company’s outstanding shares, from time to time. The grants will be for terms up to 10 years with vesting periods ranging from immediate to up to 3 years. As of December 31, 2009, there were a total of 42 participants in the plans. Insiders (officers and directors) of the Company and its subsidiaries are not eligible to participate in the Venezuelan Plan. Subsequent to shareholder approval in June 2008, 1,056,947 options previously granted to Venezuelan employees and consultants under the 1997 Plan were transferred to the Venezuelan Plan. The 1997 Plan remains available for all insiders, employees and consultants of the Company. Combined share option transactions for the years ended December 31, 2009, 2008 and 2007 are as follows: 2009 2008 2007 Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Options outstanding at beginning of year 5,007,931 $ 3.18 4,445,139 $ 4.14 2,662,716 $ 3.36 Options exercised (24,442) 0.29 (162,133) 1.91 (228,577) 1.56 Options expired (875,004) 4.28 (494,427) 4.37 (25,000) 0.82 Options forfeited (82,667) 4.44 (84,000) 4.72 (45,000) 2.97 Options granted 547,500 0.73 1,303,352 0.29 2,081,000 4.79 Options outstanding at end of year 4,573,318 $ 2.67 5,007,931 $ 3.18 4,445,139 $ 4.14 Options exercisable at end of year 3,591,362 $ 3.25 3,792,324 $ 3.70 3,054,857 $ 3.91 Options available for grant at end of year under 1997 plan 2,045,790 1,793,750 1,169,464 Options available for grant at end of year under Venezuelan plan 5,019,938 4,722,177 – Price Price Price Range Range Range Exercise price at end of year $ 0.29 - $ 5.36 $ 0.29 - $ 5.36 $ 0.72 - $ 5.45 Exercise price of exercisable options $ 0.29 - $ 5.36 $ 0.29 - $ 5.36 $ 0.72 - $ 5.45 The following table relates to stock options at December 31, 2009 Weighted Average Weighted Weighted Exercise Price Price Number Average Remaining Average Number of Exercisable Range Outstanding Contractual Life Exercise Price Exercisable Options $0.29 - $0.29 1,278,910 3.93 $0.29 844,454 $0.29 $0.73 - $1.89 974,000 2.75 $1.24 426,500 $1.89 $3.69 - $4.19 726,000 1.68 $4.09 726,000 $4.09 $4.22 - $4.62 416,500 1.62 $4.49 416,500 $4.49 $4.83 - $4.83 898,908 0.88 $4.83 898,908 $4.83 $5.07 - $5.36 279,000 1.91 $5.19 279,000 $5.19 $0.29 - $5.36 4,573,318 2.39 $2.67 3,591,362 $3.25 The Company recorded compensation expense of $590,180, $1,958,470, and $4,724,120, for stock options granted during 2009, 2008 and 2007, respectively. The fair value of the options granted was calculated using the Black-Scholes model based on the following assumptions: 2009 2008 2007 Weighted average risk free interest rate 1.46% 1.55% 3.09% Expected life 4.6 years 4.5 years 2.29 years Expected volatility 120% 92% 81% Dividend yield nil nil nil In addition to the equity incentive plans, the Company also maintains the Gold Reserve Director and Employee Retention Plan. Units granted under the plan become fully vested and payable upon achievement of certain milestones related to the Brisas Project or in the event of a change of control. Each Unit granted to a participant entitles such person to receive a cash payment equal to the fair market value of one Gold Reserve Class A Common Share (1) on the date the Unit was granted or (2) on the date any such participant becomes entitled to payment, whichever is greater. As of December 31, 2009, an aggregate of 1,732,500 unvested Units have been granted to directors and executive officers of the Company and 315,000 Units have been granted to other employees. The value of these units, based on the grant date value of the Class A shares, was approximately $8.9 million. 12. Related Party Transactions: MGC Ventures . The Chief Executive Officer, President, Vice President-Finance and Vice President-Administration of the Company are also officers and/or directors and shareholders of MGC Ventures. The Company owned 12,062,953 common shares of MGC Ventures at December 31, 2009 and 2008, which represented 44% of its outstanding shares. The Company believes it has control over MGC Ventures due to the combined shareholdings of the Company and its officers and directors. MGC Ventures owned 258,083 common shares of the Company at December 31, 2009 and 2008. In addition, MGC Ventures owned 280,000 common shares of Great Basin at December 31, 2009 and 2008. During the last three years, the Company sublet a portion of its office space to MGC Ventures for $6,000 per year. Great Basin . The Chief Executive Officer, President, Vice President-Finance and Vice President-Administration of the Company are also officers and/or directors and shareholders of Great Basin. The Company owned 15,661,595 common shares of Great Basin at December 31, 2009 and 2008, which represented 45% of its outstanding shares. The Company believes it has control over Great Basin due to the combined shareholdings of the Company and its officers and directors. Great Basin owned 491,192 common shares of the Company at December 31, 2009 and 2008. Great Basin also owned 170,800 common shares of MGC Ventures at December 31, 2009 and 2008. During the last three years, the Company sublet a portion of its office space to Great Basin for $6,000 per year. 13. Income Tax: 2009 2008 2007 Current income tax expense (benefit) $ (27,496) $ (9,969) $ 458,573 Future income tax expense (benefit) 169,815 747,019 (431,725) $ 142,319 $ 737,050 $ 26,848 Income tax expense differs from the amount that would result from applying Canadian tax rates to net loss before taxes. These differences result from the items noted below: 2009 2008 2007 Income tax benefit based on Canadian tax rates $ (48,765,715) $ (5,601,776) $ (4,063,993) Increase (decrease) due to: Different tax rates on foreign subsidiaries (5,333,076) (544,744) – Non-deductible expenses 509,749 1,461,477 2,302,523 Change in valuation allowance and other 53,731,361 5,422,093 1,788,318 $ 142,319 $ 737,050 $ 26,848 No current income tax benefit has been recorded by the parent company for the three years ended December 31, 2009. The Company’s Venezuelan subsidiaries are not subject to Venezuelan income tax during the development stage and accordingly have not paid or accrued any income tax during the three years ended December 31, 2009. Current income tax is related to two of the Company’s U.S. subsidiaries which earned taxable income in 2007. Future income tax relates to unrealized gains and losses on available-for-sale securities. The Company has recorded a valuation allowance to reflect the estimated amount of the future tax assets which may not be realized, principally due to the uncertainty of utilization of net operating losses and other carry forwards prior to expiration. The valuation allowance for future tax assets may be reduced in the near term if the Company’s estimate of future taxable income changes. The components of the Canadian and U.S. future income tax assets and liabilities as of December 31, 2009 and 2008 were as follows: Future Tax Asset 2009 2008 Accounts payable and accrued expenses $ 153,649 $ 214,995 Property, plant and equipment (11,914) (13,635) Total temporary differences 141,735 201,360 Net operating loss carry forward 26,049,292 18,953,227 Capital loss carry forward – 82,638 Alternative minimum tax credit 19,871 19,871 Total temporary differences, operating losses and tax credit carry forwards 26,210,898 19,257,096 Valuation allowance (26,210,898) (19,257,096) Net deferred tax asset $ – $ – At December 31, 2009, the Company had the following U.S. and Canadian tax loss carry forwards and tax credits: U.S. Canadian Expires Regular tax net operating loss: $ 341,750 1,085,358 2010 645,622 – 2011 1,424,144 – 2012 – 1,650,702 2014 – 2,057,405 2015 1,386,674 – 2018 1,621,230 – 2019 665,664 – 2020 896,833 – 2021 1,435,774 – 2022 1,806,275 – 2023 2,386,407 – 2024 3,680,288 – 2025 4,622,825 2,498,166 2026 6,033,603 4,636,270 2027 4,360,823 17,469,154 2028 1,770,593 18,169,143 2029 $ 33,078,505 $ 47,566,198 Alternative minimum tax net operating loss: $ 304,472 – 2010 618,845 – 2011 1,399,529 – 2012 $ 2,322,846 – 14. Segmented Financial Information: The Company has one operating segment, which is the exploration and development of mineral properties. Segmented financial information by geographic region is as follows: U.S./Canada Venezuela Consolidated 2009 Other income $ 3,165,736 $ – $ 3,165,736 Depreciation 46,774 167,128 213,902 Extraordinary loss – 150,726,472 150,726,472 Net loss after tax $ 8,028,733 $ 157,421,095 $ 165,449,828 Identifiable assets Property, plant and equipment, net $ 37,601,810 $ 520,292 $ 38,122,102 General corporate assets 81,428,089 364,829 81,792,918 Total identifiable assets $ 119,029,899 $ 885,121 $ 119,915,020 2008 Other income $ 2,444,772 $ – $ 2,444,772 Depreciation 50,053 174,018 224,071 Net loss after tax $ 15,075,179 $ 4,650,942 $ 19,726,121 Identifiable assets Property, plant and equipment, net $ 129,112 $ 175,003,366 $ 175,132,478 General corporate assets 110,951,216 1,530,820 112,482,036 Total identifiable assets $ 111,080,328 $ 176,534,186 $ 287,614,514 2007 (restated, Note 2) Other income $ 6,499,084 $ – $ 6,499,084 Depreciation 39,447 139,664 179,111 Net loss after tax $ 7,222,819 $ 4,756,949 $ 11,979,768 Identifiable assets Property, plant and equipment, net $ 150,693 $ 128,473,977 $ 128,624,670 General corporate assets 151,750,970 1,523,263 153,274,233 Total identifiable assets $ 151,901,663 $ 129,997,240 $ 281,898,903 Net loss and identifiable assets of each segment are those that are directly identified with those geographic locations. 15. Commitments: In mid 2007, the Company commenced procurement efforts and placed orders totaling approximately $125 million for the gyratory crusher, pebble crushers, SAG and ball mills, mill motors, and other equipment for the Brisas Project. Since the revocation of the Authorization to Affect the Company, in the fourth quarter of 2008 and the third quarter of 2009, 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 Company's 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 has equipment commitments totaling $62.9 million and has made payments on these orders of $51.9 million. Payments on the remaining commitments of $11.0 million are due within one year. In connection with a portion of these commitments, the Company opened an irrevocable standby letter of credit with a Canadian chartered bank providing security on the performance of obligations. 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 on the Company’s obligations and a $2.8 million refund of collateral related to the cancellation of a portion of the equipment. 16. Shareholder Rights Plan: The Company instituted a shareholder rights plan (the “Rights Plan”) in 1999. Since the original approval by the shareholders, the Rights Plan and the Rights Plan agreement have been amended and continued from time to time. In June 2009, the shareholders approved certain amendments to the Rights Plan including continuing the Shareholder Rights Plan until June 30, 2012. In December 2008, the Company’s Board of Directors amended the Rights Plan by extending the definition of “Permitted Bid” to include a bid by an entity which has confidential information about the Company that has executed a confidentiality and standstill agreement within three months prior to the commencement of the bid. The Rights Plan is intended to give adequate time for shareholders of the Company to properly assess the merits of a take-over bid without pressure and to allow competing bids to emerge. The Rights Plan is designed to give the Board of Director’s time to consider alternatives to allow shareholders to receive full and fair value for their common shares. One right is issued in respect of each outstanding share. The rights become exercisable only when a person, including any party related to it or acting jointly with it, acquires or announces its intention to acquire 20% or more of the Company’s outstanding shares without complying with the “permitted bid” provisions of the Rights Plan. Each right would, on exercise, entitle the holder, other than the acquiring person and related persons, to purchase Class A common shares of the Company at a 50% discount to the market price at the time. 17. Common Shares and Equity Units: During 2009, the Company issued 24,442 shares at an average price of $0.29 per share upon exercise of stock options and 551,500 shares at an average price of $0.71 per share as compensation. During 2008, the Company issued 162,133 shares at an average price of $1.91 per share upon exercise of stock options and 1,311,125 shares at an average price of $2.06 per share as compensation. In addition, 584,863 equity units were converted to Class A common shares. In May 2007, the Company closed a public offering of 13,762,300 Class A common shares of the Company, representing aggregate net proceeds to the Company of approximately $74 million. In addition to the shares issued in the public offering, the Company issued 223,442 shares for $333,966 upon exercise of stock options, 100,000 shares valued at $497,600 were issued to the KSOP and 394,000 shares valued at $1,818,012 were issued as compensation to employees or remuneration for services from consultants. 18. Convertible Notes: In May 2007, the Company issued $103,500,000 aggregate principal amount of its 5.50% senior subordinated convertible notes. The notes are unsecured, bear interest at a rate of 5.50% annually, pay interest semi-annually in arrears and are due on June 15, 2022. The notes are convertible into Class A common shares of the Company at the initial conversion rate, subject to adjustment, of 132.626 shares per $1,000 principal amount (equivalent to a conversion price of $7.54). Upon conversion, the Company will have the option, unless there has occurred and is then continuing an event of default under the Company’s indenture, to deliver common shares, cash or a combination of common shares and cash for the notes surrendered. At December 31, 2008, the Company revised its estimate of the expected life of the notes to June 15, 2012, the date of the one-time option of the note holders to require the Company to repurchase the notes either in cash or through the issuance of stock at the Company’s choice, and adjusted the carrying value accordingly. Management considered a number of factors in its evaluation including general market conditions resulting from the credit crisis which occurred during the fourth quarter, the current stock price compared to the stock price at the date of the issuance of the debt, the current trading value of the debt and the relative small number of note holders controlling an estimated 80% of the total outstanding. After consideration of these factors, management concluded that the expected life of the notes should be changed because it appeared more than likely that the note holders would exercise their option to require the Company to repurchase the notes on June 15, 2012. All other terms and conditions set forth in the notes remain unchanged. The adjusted carrying value was calculated by computing the present value of the 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 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 may 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 Class A 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. Canadian accounting standards require the Company to allocate the notes between their equity and debt component parts based on their respective fair values at the time of issuance. The liability component was computed by discounting the stream of future payments of interest and principal at the prevailing market rate for a similar liability that does not have an associated equity component. The equity portion of the notes was estimated using the residual value method at approximately $29 million, net of issuance costs. The fair value of the debt component 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. Interest and accretion expense allocable to the qualifying cost of developing mining properties and to constructing new facilities is capitalized until assets are ready for their intended use. The Company capitalized interest and accretion on the notes until October 21, 2009, the date of the arbitration filing related to Brisas. Subsequent to the arbitration filing, all interest and accretion on the notes has been expensed. The Company recorded interest and accretion totaling $8.4 million and $27.3 million, during 2009 and 2008, respectively. As of December 31, 2009, convertible notes with a face value of $1,151,000 had been settled in cash or repurchased by the Company at a total cost of approximately $451,000. At December 31, 2009 and 2008, the fair value of the convertible notes was estimated to be $69.1 million and $37.7 million, respectively, based on recent market information. 19. Takeover defense and Litigation: On December 15, 2008, Rusoro Mining Ltd. (“Rusoro”) commenced an unsolicited offer to acquire all of the outstanding shares and equity units of the Company in consideration for three shares of Rusoro for each Company share or equity unit. On December 16, 2008, the Company filed an action in the Ontario Superior Court of Justice against Rusoro and Rusoro’s financial advisor Endeavour Financial International Corporation (“Endeavour”) seeking an injunction restraining Rusoro and Endeavour from proceeding with Rusoro’s unsolicited offer, significant monetary damages, and various other items. Endeavour was the Company’s financial advisor from 2004 until shortly after the commencement of Rusoro’s offer. On February 10, 2009, the Ontario Superior Court of Justice granted an interlocutory injunction restraining Rusoro from proceeding with any hostile takeover bid to acquire the shares of the Company until the conclusion and disposition at trial of the action commenced by the Company. The injunction was granted by the Court following a motion by the Company on the basis that Rusoro had access to or benefited from the use of the Company’s confidential information as a result of Rusoro’s relationship with Endeavour. The Court also issued an interlocutory injunction restraining Endeavour from having any involvement with a hostile takeover bid for the Company. The Court further required that Rusoro, Endeavour and their agents return to the Company both all the confidential information of the Company and also anything produced from that confidential information and pay the court costs. Following the issuance of the interlocutory injunctions, Rusoro withdrew its unsolicited offer to acquire the outstanding shares and equity units of the Company. On February 15, 2009, Rusoro and Endeavour both served a motion with the Ontario Superior Court of Justice seeking permission to appeal to the Divisional Court the February 10, 2009 order that was granted against them. The Company opposed these motions which were heard in Toronto on April 2, 2009. On April 6, 2009 the permission to appeal was denied. The legal action commenced December 16, 2008 by the Company, claiming monetary damages, is ongoing. Rusoro has filed a counterclaim against the Company for, among other things, damages of Cdn $102.5 million allegedly arising from the Company’s successful motion for an interlocutory injunction. Endeavour has filed a $0.5 million counter claim against the Company relating to the lost opportunity to earn a success fee from the successful completion of the Rusoro offer. Costs associated with the takeover defense and litigation amounted to $2.0 million and $5.4 million in 2009 and 2008, respectively. A portion of these costs relate to contracts considered to be derivative instruments or to contain embedded derivatives because the amounts payable are linked to the Company’s share price and accordingly they are accounted for at fair value with unrealized gains and losses recorded in income until completion of the terms of the contracts. At December 31, 2009, the value of the contracts has been determined and the contracts are no longer accounted for as derivatives. 20. Differences Between Canadian and U.S. GAAP: The Company prepares its consolidated financial statements in accordance with generally accepted accounting principles (“GAAP”) in Canada, which differ in certain respects from GAAP in the United States. The effect of the principal measurement differences between U.S. and Canadian GAAP are summarized below. Consolidated Summarized Balance Sheets Canadian GAAP Change U.S. GAAP 2009 Assets Current assets $ 72,303,141 $ – $ 72,303,141 Property, plant and equipment, net C,D,E 38,122,102 – 38,122,102 Other assets 9,489,777 – 9,489,777 $ 119,915,020 $ – $ 119,915,020 Liabilities Convertible notes D $ 93,693,168 $ 6,048,554 $ 99,741,722 Other liabilities 6,304,252 – 6,304,252 $ 99,997,420 $ 6,048,554 $ 106,045,974 Shareholders’ equity Common shares & equity units B 247,905,231 (5,698,031) 242,207,200 Equity component of convertible notes D 28,652,785 (28,652,785) – Less, common shares & equity units held by affiliates (636,267) – (636,267) Contributed surplus F – 5,171,603 5,171,603 Stock options B 10,014,136 4,434,753 14,448,889 Accumulated deficit A,B,C,E (265,630,369) 18,695,906 (246,934,463) Accumulated other comprehensive income A (277,225) – (277,225) KSOP debt (110,691) – (110,691) 19,917,600 (6,048,554) 13,869,046 $ 119,915,020 $ – $ 119,915,020 Canadian GAAP Change U.S. GAAP 2008 Assets Current assets $ 94,015,929 $ – $ 94,015,929 Property, plant and equipment, net C,D,E 175,132,478 (63,488,627) 111,643,851 Other assets 18,466,107 – 18,466,107 $ 287,614,514 $ (63,488,627) $ 224,125,887 Liabilities Convertible notes D $ 91,829,699 $ 7,931,563 $ 99,761,262 Other liabilities 10,678,379 – 10,678,379 $ 102,508,078 $ 7,931,563 $ 110,439,641 Shareholders’ equity Common shares & equity units B 247,501,272 (5,698,031) 241,803,241 Equity component of convertible notes D 28,774,221 (28,774,221) – Less, common shares & equity units held by affiliates (636,267) – (636,267) Contributed surplus F – 5,171,603 5,171,603 Stock options B 9,428,802 4,434,753 13,863,555 Accumulated deficit A,B,C,E (100,180,541) (46,724,109) (146,904,650) Accumulated other comprehensive income A 329,640 169,815 499,455 KSOP debt (110,691) – (110,691) 185,106,436 (71,420,190) 113,686,246 $ 287,614,514 $ (63,488,627) $ 224,125,887 Consolidated Summarized Statements of Operations 2009 2008 2007 Net Loss under Canadian GAAP $ (165,449,828) $ (19,726,121) $ (11,979,768) Interest expense E 405,054 (224,139) (1,416,347) Gain on settlement of debt D (47,429) 28,838 Income tax A 169,815 747,019 (431,725) Expropriation of assets 64,892,575 – – Net loss under U.S. GAAP (100,029,813) (19,174,403) (13,827,840) Other comprehensive income (loss) Unrealized gain (loss) on available- for-sale securities: A Holding gain (loss) arising during period 1,498,168 (2,440,169) 2,005,468 Reclassification adjustment for (gain) loss included in net loss (2,274,848) 243,053 (1,334,604) Total comprehensive loss under U.S. GAAP $ (100,806,493) $ (21,371,519) $ (13,156,976) Basic and diluted net loss per share under U.S. GAAP $ (1.75) $ (0.34) $ (0.28) Consolidated Summarized Statements of Cash Flows 2009 2008 2007 Cash flow used by operating activities under Canadian GAAP $ (15,130,345) $ (13,858,222) $ (5,675,305) Cash paid for interest E 35,483 (214,729) (1,267,851) Cash flow used in operating activities under U.S. GAAP $ (15,094,862) $ (14,072,951) $ (6,943,156) Cash flow (used) provided by investing activities under Canadian GAAP $ (15,048,843) $ 10,454,475 $ (97,797,970) Cash paid for interest E (35,483) 214,729 1,267,851 Cash flow provided by (used in) investing activities under U.S. GAAP $ (15,084,326) $ 10,669,204 $ (96,530,119) A Effective September 30, 2008, the Company adopted EIC 172, which requires that the tax benefit of tax loss carryforwards recognized to offset unrealized gains in other comprehensive income, such as unrealized gains on available-for-sale securities, be recognized in net income (loss). EIC 172 was applied retrospectively with restatement of prior periods from January 1, 2007. Under US GAAP, the tax benefit is recorded in other comprehensive income. B For U.S. GAAP purposes, the Company adopted SFAS 123R (codified within ASC 718), “Accounting for Stock Based Compensation” effective January 1, 2006. SFAS 123R requires the use of the fair value method of accounting for stock based compensation. This standard is substantially consistent with the revised provisions of CICA 3870, which was adopted by the Company for Canadian GAAP effective January 1, 2004. For U.S.GAAP, the Company applied the modified prospective method of adoption included in SFAS 123R which requires that the company expense the fair value of all unvested and new grants on a prospective basis beginning January 1, 2006. In 2005, for U.S. GAAP purposes, the Company accounted for stock-based employee compensation arrangements using the intrinsic value method prescribed in Accounting Principles Board (APB) Opinion No.25, “Accounting for Stock Issued to Employees.” Under Opinion No. 25, when the exercise price of certain stock options is amended, these options are accounted for as variable compensation from the date of the effective Repricing. Under this method, following the repricing date, compensation expense is recognized when the quoted market value of the Company’s common shares exceeds the amended exercise price. Should the quoted market value subsequently decrease, a recovery of a portion, or all of the previously recognized compensation expense will be recognized. The Company has not amended the exercise price of any stock options since 2001. C Under Canadian GAAP, the Company capitalizes mineral property exploration and development costs after proven and probable reserves have been established. The Company also capitalizes costs on properties where it has found non-reserve material that does not meet all the criteria required for classification as proven or probable reserves. Under U.S. GAAP, exploration and development costs incurred on properties where mineralization has not been classified as a proven and probable reserve under SEC rules are expensed as incurred. Costs incurred after mineral reserves have been established are commonly developmental in nature when they relate to constructing the infrastructure necessary to extract the reserves, preparing the mine for production, and are on this basis capitalized. Exploration costs are those typically associated with efforts to search for and establish mineral reserves, beyond those already found, and are expensed as incurred. Accordingly, certain costs are capitalized for Canadian GAAP purposes but expensed under U.S. GAAP. Due to the expropriation of the Brisas Project and the related write down of mineral property exploration and development costs, as of December 31, 2009, there were no differences in property, plant and equipment between Canadian and US GAAP. D In 2007, the company issued $103,500,000 aggregate principal amount of convertible notes. As described in Note 18, under Canadian GAAP these notes are allocated between their equity and debt component parts. The debt component is accreted to the face value of the notes with the resulting interest expense charged to operations. Under U.S. GAAP, the notes are classified as a liability net of issuance costs and accreted to face value over the term ending on the first put date of the notes. As of December 31, 2009, an additional $22.6 million of accretion expense had been incurred for Canadian GAAP purposes over the amount incurred under U.S. GAAP. E Prior to the expropriation of the Brisas Project, the Company capitalized interest on its convertible notes on an interest avoidance basis. The amount capitalized during an accounting period is determined by applying an interest rate to the average amount of accumulated qualifying assets during the period. The Company’s qualifying assets include its costs of developing mining properties and constructing new facilities. The amount capitalized under U.S. GAAP differed from the amount capitalized under Canadian GAAP due to the difference in the amount of qualifying mineral property costs which have been accumulated under the two sets of accounting principles (See “C” above). Subsequent to the expropriation of the Brisas Project, all capitalized interest was written off. F In 2003 and 2004, the Company completed equity offerings consisting of common shares and common share purchase warrants. For Canadian GAAP purposes the proceeds from the offerings were recorded as common shares. For U.S. GAAP purposes a value was assigned to the warrants and recorded as a separate element of stockholders’ equity. Warrants that expired unexercised were subsequently recorded as contributed surplus. New Accounting Standards SFAS 141R (codified within ASC 805), Business Combinations. In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combination”. SFAS No. 141 (R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and non-controlling interest in the acquiree and the goodwill acquired. SFAS No. 141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS No. 141(R) is effective for fiscal years beginning after December 15, 2008. Adoption of this standard effective January 1, 2009 did not materially impact our financial statements. SFAS 160 (codified within ASC 810), Noncontrolling interests in Consolidated Financial Statements. In December 2007, the FASB issued SFAS No. 160, “Noncontrolling interests in Consolidated Financial Statements”. The objective of this standard is to improve the relevance, comparability, and transparency of the financial information that a reporting entity provides in its consolidated financial statements by establishing accounting and reporting standards related to noncontrolling or minority interest. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. Adoption of this standard effective January 1, 2009 did not materially impact our financial statements. SFAS 161 (codified within ASC 815-10), Disclosures about Derivative Instruments and Hedging Activities. In March 2008, the FASB issued SFAS No. 1610, “Disclosures about Derivative Instruments and Hedging Activities”. This statement requires enhanced disclosures about an entity’s derivative and hedging activities, including the objectives for using derivative instruments in terms of underlying risk and accounting designation, thereby improving the transparency of financial reporting. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. Adoption of this standard effective January 1, 2009 did not materially impact our financial statements. SFAS 165 (codified within ASC 855) , Subsequent Events . This standard establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before the financial statements are issued or are available to be issued. This standard was adopted effective July 1, 2009 and did not have a material impact on the Company’s financial statements. Additional Balance Sheet disclosure - U.S. GAAP 2009 2008 Accounts payable $ 2,531,523 $ 7,276,859 Accrued expenses 1,258,480 857,849 Accounts payable and accrued expenses $ 3,790,003 $ 8,134,708 Development Stage Enterprise In August of 1992, the Company acquired the Brisas Project. Beginning in 1993, the Company decided to focus its efforts on the development of Brisas thereby meeting the definition of a development stage enterprise under Statement of Financial Accounting Standards No. 7 (FAS 7, codified within ASC 915), Accounting and Reporting by Development Stage Enterprises. The following additional information is required under FAS 7: Consolidated Summarized Statements of Operations - U.S. GAAP For the period from January 1, 1993 to December 31, 2009 Other income $ (35,297,231) Mineral property exploration and development 39,505,080 Expropriation of assets 85,833,897 General & administrative expense 63,300,900 Other expense 87,666,989 Deficit accumulated during the development stage from January 1, 1993 to December 31, 2009 241,009,635 Accumulated deficit, December 31, 1992 5,924,828 Accumulated deficit, December 31, 2009 $ 246,934,463 Consolidated Summarized Statements of Cash Flows - U.S. GAAP For the period from January 1, 1993 to December 31, 2009 Cash used by operating activities $ (120,363,821) Cash used by investing activities (121,896,434) Cash provided by financing activities 301,594,216 Net increase in cash and cash equivalents for the period from January 1, 1993 to December 31, 2009 59,333,961 Cash and cash equivalents at December 31, 1992 1,628,852 Cash and cash equivalents at December 31, 2009 $ 60,962,813 Additional Shareholders’ Equity disclosure - U.S. GAAP For the period from January 1, 1993 to December 31, 2009 Shares Compre- Common Shares and Equity Units Issued and units Contrib- Value Value Accum- hensive Issue Common Equity held by uted assigned assigned ulated income KSOP Price Shares Units Amount affiliates surplus to options to warrants Deficit (loss) debt Balance, December 31, 1992 8,875,862 $ 8,290,819 $ (70,944) $ (5,924,828) $ (50,000) Stock issued for cash Private placement 4.12 2,530,000 10,413,976 Exercise of options 1.34 300,000 401,000 Exercise of warrants 3.52 5,037 17,749 Stock issued for services 3.89 12,552 48,851 Net loss (5,495,061) Change in KSOP debt 5,000 Reduction of shareholders’ equity due to change in subsidiaries’ minority interest (25,050) Balance, December 31, 1993 11,723,451 19,147,345 (70,944) (11,419,889) (45,000) Stock issued for cash Private placement 9.82 2,000,000 19,630,530 Exercise of options 2.32 295,967 687,494 Exercise of warrants 6.07 2,134,250 12,962,750 Stock issued for services 5.50 6,000 33,000 Stock issued to KSOP 6.19 20,000 123,760 Stock issued for litigation settlement 6.15 2,750,000 16,912,500 Value attributed to warrants issued in litigation settlement 800,000 Net loss (26,297,415) Increase in common stock held by affiliates (433,332) Effect of change in accounting For investments 108,425 Decrease in unrealized gain on available-for-sale securities (29,408) Change in KSOP debt (103,760) Reduction of shareholders’ equity due to change in subsidiaries’ minority interest (843,986) Balance, December 31, 1994 18,929,668 69,453,393 (504,276) (37,717,304) 79,017 (148,760) Stock issued for cash Exercise of options 2.74 167,835 460,162 Stock issued to KSOP 5.60 50,000 280,195 Stock issued for minority interest in subsidiaries 7.43 1,329,185 9,882,028 Net loss (3,847,605) Increase in common stock held by affiliates (924,289) Increase in unrealized gain on available-for-sale securities 6,943 Change in KSOP debt (187,949) Reduction of shareholders’ equity due to change in subsidiaries’ minority interest (6,924) Balance, December 31, 1995 20,476,688 80,068,854 (1,428,565) (41,564,909) 85,960 (336,709) Stock issued for cash Exercise of options 5.37 497,623 2,673,988 Exercise of warrants 10.52 1,729,500 18,202,500 Net loss (7,908,701) Decrease in unrealized gain on available-for-sale securities (83,210) Change in KSOP debt 150,001 Addition to shareholders’ equity due to change in subsidiaries’ minority interest 7,436 Balance, December 31, 1996 22,703,811 100,952,778 (1,428,565) (49,473,610) 2,750 (186,708) Stock issued for cash Exercise of options 5.75 124,649 716,716 Stock issued to KSOP 5.02 89,683 450,000 Net loss (10,918,111) Increase in unrealized gain on available-for-sale securities 8,250 Change in KSOP debt (436,152) Balance, December 31, 1997 22,918,143 102,119,494 (1,428,565) (60,391,721) 11,000 (622,860) Stock issued for cash Exercise of options 1.90 223,624 425,883 Stock issued to KSOP 3.00 50,000 150,000 Net loss (5,147,658) Change in shares held by affiliates (1,034,323) 1,025,234 Decrease in unrealized gain (loss) on available-for-sale securities (22,625) Change in KSOP debt 208,089 Balance, December 31, 1998 23,191,767 101,661,054 (403,331) (65,539,379) (11,625) (414,771) Stock issued for cash Exercise of options 1.19 12,500 14,899 Stock issued for services 0.84 70,000 58,760 Stock issued to KSOP 1.13 300,000 337,500 Stock retired 3.02 (1,629) (4,915) Net loss (4,499,321) Net common shares exchanged for equity units (1,584,966) 1,584,966 Decrease in unrealized loss on available-for-sale securities (328,618) Change in KSOP debt 230,352 Balance, December 31, 1999 21,987,672 1,584,966 102,067,298 (403,331) (70,038,700) (340,243) (184,419) Stock issued for services 0.55 70,000 38,688 Net loss (2,807,648) Equity units exchanged for common shares 138,570 (138,570) Increase in unrealized gain on available-for-sale securities 437,875 Change in KSOP debt 99,310 Balance, December 31, 2000 22,196,242 1,446,396 102,105,986 (403,331) (72,846,348) 97,632 (85,109) Stock issued for cash Exercise of options 0.78 5,500 4,285 Stock issued for services 0.75 20,000 15,000 Stock issued to KSOP 0.47 300,000 140,640 Net loss (2,258,191) Change in common stock held by affiliates (271,267) Equity units exchanged for common shares 133,380 (133,380) Increase in unrealized gain on available-for-sale securities 62,368 Change in KSOP debt 1,322 Balance, December 31, 2001 22,655,122 1,313,016 102,265,911 (674,598) (75,104,539) 160,000 (83,787) Stock issued for cash Exercise of options 0.72 18,000 12,960 Stock issued for services 0.85 100,000 85,200 Stock issued to KSOP 0.67 200,000 134,000 Variable plan accounting for options 1,162,804 Net loss (4,170,926) Equity units exchanged for common shares 23,036 (23,036) Decrease in unrealized gain on available-for-sale securities (118,816) Change in KSOP debt 19,003 Balance, December 31, 2002 22,996,158 1,289,980 102,498,071 (674,598) 1,162,804 (79,275,465) 41,184 (64,784) Stock issued for cash Private placement 1.96 4,042,000 7,888,508 Exercise of options 0.74 400,000 294,605 Stock issued for services 5.06 60,000 303,600 Stock issued to KSOP 1.28 200,000 256,000 Value assigned to warrants issued 1,730,641 Variable plan accounting for options 7,704,726 Net loss (11,412,062) Equity units exchanged for common shares 52,100 (52,100) Increase in unrealized gain on available-for-sale securities 3,072,941 Change in KSOP debt (39,568) Balance, December 31, 2003 27,750,258 1,237,880 111,240,784 (674,598) 8,867,530 1,730,641 (90,687,527) 3,114,125 (104,352) Stock issued for cash Private placement 3.61 5,361,000 19,337,034 Exercise of warrants 4.28 21,100 90,211 Exercise of options 0.89 373,954 333,310 Stock issued for services 4.13 54,000 223,012 Stock issued to KSOP 3.41 75,000 255,750 Value assigned to warrants issued 3,682,447 Variable plan accounting for options (791,643) Assigned value of exercised warrants 18,069 (18,069) Net loss (10,359,891) Equity units exchanged for common shares 80,483 (80,483) Decrease in unrealized gain on available-for-sale securities (70,147) Change in KSOP debt (971) Balance, December 31, 2004 33,715,795 1,157,397 131,498,170 (674,598) 8,075,887 5,395,019 (101,047,418) 3,043,978 (105,323) Stock issued for cash Exercise of warrants 4.33 260,900 1,129,905 Exercise of underwriter compensation options 3.00 202,100 605,468 Exercise of underwriter compensation warrants 4.32 70,735 305,645 Exercise of options 1.00 573,030 571,326 Stock issued for services 2.92 251,350 733,232 Stock issued to KSOP 3.45 75,000 258,971 Net loss (5,878,244) Variable plan accounting for options (2,285,698) Assigned value of exercised warrants 223,416 (223,416) Assigned value of expired warrants 1,489,156 (1,489,156) Equity units exchanged for common shares 47,377 (47,377) Increase in unrealized gain on available-for-sale securities 1,068,926 Change in KSOP debt 21,103 Balance, December 31, 2005 35,196,287 1,110,020 135,326,133 (674,598) 1,489,156 5,790,189 3,682,447 (106,925,662) 4,112,904 (84,220) Stock issued for cash Public offering 7.37 3,335,000 24,574,077 Exercise of options 0.64 1,761,109 1,128,596 Stock issued for services 4.56 163,875 747,075 Stock issued to KSOP 1.89 100,000 189,063 Net loss (6,976,745) Decrease in shares held by affiliates 159,724 38,331 Fair value of options 1,390,776 Assigned value of expired warrants 3,682,447 (3,682,447) Equity units exchanged for common shares 24,921 (24,921) Decrease in unrealized gain on available-for-sale securities (2,087,197) Change in KSOP debt 83,349 Balance, December 31, 2006 40,581,192 1,085,099 162,124,668 (636,267) 5,171,603 7,180,965 - (113,902,407) 2,025,707 (871) Stock issued for cash Public offering 5.38 13,762,300 74,015,131 Exercise of options 1.49 223,442 333,966 Stock issued for services 4.61 394,000 1,818,012 Stock issued to KSOP 4.98 100,000 497,600 Net loss (13,827,840) Fair value of options 4,724,120 Increase in unrealized gain on available-for-sale securities 670,864 Change in KSOP debt (109,820) Balance, December 31, 2007 55,060,934 1,085,099 238,789,377 (636,267) 5,171,603 11,905,085 - (127,730,247) 2,696,571 (110,691) Stock issued for cash Exercise of options 1.91 162,133 309,205 Stock issued for services 2.06 1,311,125 2,704,659 Net loss (19,174,403) Fair value of options 1,958,470 Equity units exchanged for common shares 584,863 (584,863) Decrease in unrealized gain on available-for-sale securities (2,197,116) Balance, December 31, 2008 57,119,055 500,236 241,803,241 (636,267) 5,171,603 13,863,555 - (146,904,650) 499,455 (110,691) Stock issued for cash Exercise of options 0.29 24,442 7,088 Stock issued for services 0.71 551,500 392,025 Net loss (100,029,813) Fair value of options exercised 4,846 (4,846) Fair value of options 590,180 Decrease in unrealized gain on available-for-sale securities (776,680) Balance, December 31, 2009 57,694,997 500,236 $242,207,200 $(636,267) $5,171,603 $14,448,889 - $(246,934,463) $(277,225) $(110,691) Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure Not Applicable