INTEREST RATE SWAP CONTRACT

12 Months Ended

Dec. 31, 2012

INTEREST RATE SWAP CONTRACT [Text Block]

12. INTEREST RATE SWAP CONTRACT

In November 2008, the Company entered into an interest rate swap agreement to hedge the interest rate risk exposure on its $25 million Nedbank Credit Facility expiring between 2009 and 2012. Under the terms of the interest rate swap contract, the Company receives USD three-month LIBOR and pays a fixed rate of interest of 2.48% . The program requires no cash margins, collateral or other security from the Company. Under the terms of the interest rate swap, settlements began on March 31, 2009 and occur every three months thereafter until the contract expired on September 28, 2012.

Under ASC guidance for derivative instruments and hedging activities, the interest rate swap agreement is carried on the consolidated balance sheets at estimated fair value which was $0 and ($54,896) as of December 31, 2012 and 2011, respectively. Until July 1, 2010, this contract was designated as a cash flow hedge with changes in estimated fair value reflected in AOCI. As noted above, the Company continues to be in default on the Nedbank Credit Facility as it failed to make the requisite debt service payments for the period from March 31, 2010 to December 31, 2012.

During the years ended December 31, 2012 and 2011, the Company recognized $42,480 and $209,185, respectively, in interest expense in the consolidated statements of operations related to the quarterly settlements under the terms of the interest rate swap. In addition, during the years ended December 31, 2012 and 2011, the Company recognized a realized gain of $54,896 and an unrealized gain of $169,568, respectively, related to the changes in estimated fair value of the interest rate swap that occurred during the years ended December 31, 2012 and 2011.

As of December 31, 2011 estimated fair value balance includes a credit valuation adjustment of $1,694 which was based upon the Company’s estimated credit risk adjustment of 9.06% above the risk free rate, and is reported in unrealized gain on derivatives classified as trading securities within the consolidated statement of operations for the years ended December 31, 2011.

Fair Value of Interest Rate Swap Derivative Instruments

	Balance Sheet
	Location		Fair Value
As of December 31, 2011
Interest rate swap contracts	Current liabilities	$	54,896