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Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2012
Derivative Financial Instruments [Abstract]  
Derivative Financial Instruments

6. Derivative Financial Instruments

 

Derivative financial instruments at December 31, 2012 and 2011 consisted of the following:

 

Derivative Type   2012     2011  
Derivative liabilities                
Gold calls   $ 16,330     $ -  
Gold forwards     297,451       -  
Contingent dividend payment     230,900       1,025,000  
Total derivative liabilities   $ 544,681     $ 1,025,000  

 

During the year ended December 31, 2012, the Company recognized a loss of $172,500 on the gold puts, a gain of $108,361 on the gold calls, and a loss of $297,451 on the gold forwards. Each of these amounts was recorded within change in fair value of derivatives in the consolidated statements of operations.

 

The Series A1, Series A2, and Series B convertible preferred stock include a contingent dividend payment feature. The contingent dividend derivative is derived from the possibility the Company may be required to pay an additional dividend to all convertible preferred stockholders if the Series A2 convertible preferred stock is force converted to common stock before August 31, 2013 or if the Series B convertible preferred stock is force converted into common stock before October 18, 2013.

 

Accordingly, we apply fair value measurement to the contingent dividend derivative at each reporting period using a Monte Carlo valuation model. Upon the issuance of 862.5 shares of Series A1 convertible preferred stock in 2012 and 2011 and 66,008 shares of Series A1, Series A2, and Series B convertible preferred stock in 2010, we recorded a derivative liability as an adjustment to the fair value basis of the convertible preferred stock issued of $6,009, $15,954 and $2,003,688, respectively. During the years ended December 31, 2012, 2011 and 2010, the Company recognized a gain of $800,109, a gain of $3,864,164, and a loss of $2,869,504, respectively, on the change in fair value of the contingent dividend payment derivative liability. Each of these amounts was recorded within the change in fair value of derivatives in the consolidated statements of operations.