What changed in this filing

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Item 1. Financial Statements

2010-08-11 compared with 2010-05-13 · 70 added, 85 removed, 552 unchanged (22% of the section changed)

1 unchanged sentence

CONSOLIDATED BALANCE SHEETS

March 31, 2010 (unaudited)

March 31, December 31,

June 30, 2010 (unaudited)

June 30, December 31,

Dollars 2010 2009

3 unchanged sentences

Marketable equity securities (Note 6) 1,376,945 598,825

Assets held for sale (Notes 9, 20) 4,615,312

Deposits, advances and other 775,979 566,483

8 unchanged sentences

Convertible notes (Note 16) 95,286,586 93,693,168

Minority interest in consolidated subsidiaries 2,274,443 2,279,699

Other 2,266,743 2,279,699

Total liabilities 99,633,782 99,997,420

16 unchanged sentences

CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2010 and 2009 (unaudited)

For the Three and Six Months Ended June 30, 2010 and 2009 (unaudited)

Three Months Ended Six Months Ended

Dollars 2010 2009 2010 2009

13 unchanged sentences

3,014,206 2,443,071 6,115,048 6,884,335

Loss before minority interest,

interest expense and income tax (2,796,910) (3,778,655)

Minority interest 5,256 (2,681)

Loss before interest expense

and income tax (2,573,976) (550,749) (5,365,630) (4,332,085)

Interest expense (2,208,138) (4,408,015)

Loss before income tax (4,782,114) (550,749) (9,773,645) (4,332,085)

Income tax benefit 1,694 70,130

Income tax benefit (expense) 60,948 (236,807) 62,642 (166,677)

Net loss for the period $ (4,721,166) $ (787,556) $ (9,711,003) $(4,498,762)

4 unchanged sentences

CONSOLIDATED STATEMENTS OF DEFICIT

For the Three Months Ended March 31, 2010 and 2009 (unaudited)

For the Six Months Ended June 30, 2010 and 2009 (unaudited)

Deficit, December 31, 2009 $ (265,630,369)

Net loss for the period (9,711,003)

Deficit, March 31, 2010 $ (270,620,206)

Deficit, June 30, 2010 $ (275,341,372)

Deficit, December 31, 2008 $ (100,180,541)

Net loss for the period (4,498,762)

Deficit, March 31, 2009 $ (103,891,747)

Deficit, June 30, 2009 $ (104,679,303)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

For the Three Months Ended March 31, 2010 and 2009 (unaudited)

For the Three and Six Months Ended June 30, 2010 and 2009 (unaudited)

Three Months Ended Six Months Ended

Dollars 2010 2009 2010 2009

4 unchanged sentences

included in net loss (1,853,983) (106,551) (1,853,983)

Other comprehensive income 115,211 134,825

Other comprehensive income (loss) 275,508 (1,037,386) 390,719 (902,561)

Comprehensive loss for the period $ (4,445,658) $ (1,824,942) $ (9,320,284) $ (5,401,323)

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Three Months Ended March 31, 2010 and 2009 (unaudited)

For the Three and Six Months Ended June 30, 2010 and 2009 (unaudited)

Three Months Ended Six Months Ended

Dollars 2010 2009 2010 2009

11 unchanged sentences

Foreign currency loss 35,586 108,078

Minority interest in net (income) loss of

consolidated subsidiaries (5,256) 2,681

Other (7,700) (7,645) (12,956) (4,964)

Net gain on disposition of marketable securities (1,853,983) (106,551) (1,853,983)

Future income tax benefit (69,455)

Future income tax (benefit) expense (58,466) 239,270 (58,466) 169,815

Shares issued for compensation 181,140 238,140 392,025

Changes in non-cash working capital:

Net increase in deposits and advances (350,210) (620,911)

Net increase (decrease) in accounts payable

Net decrease (increase) in deposits and advances 140,714 413,623 (209,496) (207,288)

Net decrease in accounts payable

and accrued expenses (2,383,306) (1,702,128) (1,944,100) (3,706,225)

6 unchanged sentences

Decrease in restricted cash 748,808 494,076 748,808

Interest paid on convertible notes (2,828,841) (2,828,841)

Other 2,896 (28,469)

Net cash (used in) provided by investing activities 4,049,334 (2,936,015)

Net cash provided by (used in) investing activities 4,575,002 (15,274,134) 8,624,336 (18,210,149)

Cash Flows from Financing Activities:

1 unchanged sentence

Extinguishment of convertible notes (415,254)

Net cash (used in) provided by financing activities 32,384 (415,254)

Net cash provided by (used in) financing activities 8,700 41,084 (415,254)

Change in Cash and Cash Equivalents:

Net increase (decrease) in cash and cash equivalents 20,537 (9,652,747)

Net decrease in cash and cash equivalents (1,684,721) (18,669,523) (1,664,184) (28,322,270)

Cash and cash equivalents - beginning of period 60,983,350 81,897,420 60,962,813 91,550,167

6 unchanged sentences

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”).

As further detailed in Note 3, 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.

As further detailed in Note 3, we discontinued development of the Brisas Project after it was expropriated by the Venezuelan government and while we are pursuing our arbitration claim we are also seeking to invest in or acquire alternative mining projects.

The Company has no revenue producing mining operations at this time.

18 unchanged sentences

(“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.

(“MGC Ventures”), four Venezuelan subsidiaries, two Barbadian subsidiaries and one Aruban subsidiary 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.

35 unchanged sentences

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 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.

Since 2007, the Company has used the parallel rate to re-measure transactions and to translate Bs.

denominated monetary items.

Since the Company has discontinued development of the Brisas project, the financial statement impact of transactions in the Venezuelan currency is expected to be reduced in the future.

17 unchanged sentences

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.

In 2009, 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.

33 unchanged sentences

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.

8 unchanged sentences

In April 2008, the Ministry of Environment revoked the Authorization to Affect without prior notification.

On April 21, 2009 the Company notified the Venezuelan government of the existence of a dispute under the Agreement between the Government of Canada and the Government of the Republic of Venezuela for the Promotion and Protection of Investments (“Canada – Venezuela Treaty”) after months of continuous efforts to meet with representatives of the Venezuelan government to resolve the issues related to the revocation of the Authorization to Affect.

On October 21, 2009 we filed a Request for Arbitration under the Additional Facility Rules of ICSID, against the Bolivarian Republic of Venezuela (“Respondent”).

After months of continuous efforts to meet with representatives of the Venezuelan government to resolve the issues related to the revocation of the Authorization to Affect, on April 21, 2009 the Company notified the Venezuelan government of the existence of a dispute under the Agreement between the Government of Canada and the Government of the Republic of Venezuela for the Promotion and Protection of Investments (“Canada – Venezuela Treaty”).

After additional months of efforts to meet with representatives of the Venezuelan government to resolve the issues related to the revocation of the Authorization to Affect, on October 21, 2009 we filed a Request for Arbitration under the Additional Facility Rules of ICSID, against the Bolivarian Republic of Venezuela (“Respondent”).

On October 26, 2009, Venezuelan government personnel arrived at the Brisas Project camp site, 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 which was formally cancelled in June 2010.

In November 2009 our Request for Arbitration was registered by ICSID (Gold Reserve Inc.

1 unchanged sentence

ARB(AF)/09/1)).

As a result of the expropriation of the Brisas Project by the Venezuelan government we no longer have control or physical access to the project which has caused the Company to discontinue the development of its Venezuelan properties, including Brisas and Choco 5 (which was a grass-roots exploration property also located in the State of Bolivar) and discontinue reporting mineral reserves for Brisas.

3 unchanged sentences

The first session was held with the Tribunal on April 23, 2010 with several procedural matters agreed to, including the tentative time schedule for the Arbitration.

The filing of our claim is planned for September 2010.

The filing of our initial written submission, known as the Memorial, is planned for September 2010.

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."

1 unchanged sentence

Cash and Cash Equivalents

March 31, December 31,

June 30, December 31,

Bank deposits $ 52,118,577 $ 53,900,646

1 unchanged sentence

Total $ 59,298,629 $ 60,962,813

The above amounts exclude restricted cash of approximately $9 million and $9.5 million as at March 31, 2010 and December 31, 2009, respectively.

The above amounts exclude restricted cash of approximately $9 million and $9.5 million as at June 30, 2010 and December 31, 2009, respectively.

See Note 13, Commitments.

At March 31, 2010 and December 31, 2009, the Company had approximately $76,000 and $59,000 respectively, in Venezuela and banks outside Canada and the U.S.

At June 30, 2010 and December 31, 2009, the Company had approximately $217,000 and $59,000 respectively, in Venezuela and banks outside Canada and the U.S.

Marketable Debt Securities

March 31, December 31,

June 30, December 31,

Amortized cost $ 10,080,457 $ 10,175,020

1 unchanged sentence

Marketable Equity Securities

March 31, December 31,

June 30, December 31,

Fair value at beginning of year $ 598,825 $ 1,342,760

5 unchanged sentences

The Companys 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 March 31, 2010 and December 31, 2009 marketable securities had a cost basis of $794,543 and $876,049, respectively.

As of June 30, 2010 and December 31, 2009 marketable securities had a cost basis of $1,204,985 and $876,049, respectively.

Financial Instruments

The fair values as at March 31, 2010 and December 31, 2009 along with the carrying amounts shown on the consolidated balance sheets for each classification of financial instrument are as follows:

March 31, 2010 December 31, 2009

The fair values as at June 30, 2010 and December 31, 2009 along with the carrying amounts shown on the consolidated balance sheets for each classification of financial instrument are as follows:

June 30, 2010 December 31, 2009

Carrying Fair Carrying Fair

8 unchanged sentences

Convertible notes other financial liabilities 95,286,586 63,544,849 93,693,168 52,540,530

Fair value estimates for marketable securities are made at the balance sheet date by reference to published price quotations in active markets.

Fair value estimates for marketable securities are made at the balance sheet date by reference to recent market transactions.

The convertible notes are not listed on an exchange and the market for them is not active.

2 unchanged sentences

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 entitys own assumptions.

March 31, 2010 Level 1 Level 2 Level 3

June 30, 2010 Level 1 Level 2 Level 3

Cash and cash equivalents $ 59,298,629 $ 59,298,629

24 unchanged sentences

The Companys 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 the Companys net gain (loss) from the translation of foreign currency denominated financial instruments, for the three months ended March 31, 2010 and 2009, by the amounts shown below.

A 10% weakening of those currencies against the US dollar would have increased (decreased) the Companys net gain or loss from the translation of foreign currency denominated financial instruments, for the six months ended June 30, 2010 and 2009, by the amounts shown below.

Venezuelan Bolívar $ (492) $ 69,580

15 unchanged sentences

There were no changes to the Companys capital management during 2010.

Assets held for sale

March 31, December 31,

Equipment $ 4,615 312 $ 0

Assets held for sale consist of certain equipment originally purchased for use at the Brisas project.

Property, Plant and Equipment

Cost Depreciation Net

March 31, 2010

June 30, 2010

United States

28 unchanged sentences

The Company allocated shares or made cash contributions to eligible participants for the Plan years 2010, 2009 and 2008 valued at $0, $57,292 and $269,679, respectively.

As of March 31, 2010, 22,246 common shares remain unallocated to plan participants.

As of June 30, 2010, 22,246 common shares remain unallocated to plan participants.

Stock Based Compensation

5 unchanged sentences

The 1997 Plan remains available for insiders, employees and consultants of the Company.

Combined share option transactions for the three months ended March 31, 2010 and 2009 are as follows:

Combined share option transactions for the six months ended June 30, 2010 and 2009 are as follows:

Weighted Weighted

17 unchanged sentences

Exercise price for exercisable shares $0.29 - $ 5.36 $ 0.29 - $ 5.36

The following table relates to stock options at March 31, 2010:

The following table relates to stock options at June 30, 2010:

Weighted Average

9 unchanged sentences

$0.29 - $5.36 3,990,153 2.03 $2.58 3,562,364 $2.85

The Company recorded compensation expense, during the three months ended March 31, 2010 and 2009, of $70,599 and $184,836, respectively, for stock options granted.

During the three months ended March 31, 2010 and 2009, 0 and 547,500 new options were granted, respectively.

The Company recorded compensation expense during the six months ended June 30, 2010 and 2009 of $81,172 and $384,742, respectively, for stock options granted.

During the six months ended June 30, 2010 and 2009, 0 and 547,500 new options were granted, respectively.

The fair value of options granted in 2009 was calculated at $323,449 using the Black-Scholes model based on the following assumptions:

7 unchanged sentences

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 March 31, 2010 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.

As of June 30, 2010 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

2 unchanged sentences

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 March 31, 2010 and December 31, 2009, which represented 44% of its outstanding shares.

The Company owned 12,062,953 common shares of MGC Ventures at June 30, 2010 and December 31, 2009, 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 March 31, 2010 and December 31, 2009.

In addition, MGC Ventures owned 280,000 common shares of Great Basin at March 31, 2010 and December 31, 2009.

MGC Ventures owned 258,083 common shares of the Company at June 30, 2010 and December 31, 2009.

In addition, MGC Ventures owned 280,000 common shares of Great Basin at June 30, 2010 and December 31, 2009.

During the last three years, the Company sublet a portion of its office space to MGC Ventures for $6,000 per year.

1 unchanged sentence

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 March 31, 2010 and December 31, 2009, which represented 45% of its outstanding shares.

The Company owned 15,661,595 common shares of Great Basin at June 30, 2010 and December 31, 2009, 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 March 31, 2010 and December 31, 2009.

Great Basin also owned 170,800 common shares of MGC Ventures at March 31, 2010 and December 31, 2009.

Great Basin owned 491,192 common shares of the Company at June 30, 2010 and December 31, 2009.

Great Basin also owned 170,800 common shares of MGC Ventures at June 30, 2010 and December 31, 2009.

During the last three years, the Company sublet a portion of its office space to Great Basin for $6,000 per year.

In mid 2007, we commenced procurement efforts and placed orders totaling approximately $125 million for a gyratory crusher, pebble crushers, SAG and ball mills, mill motors, and other equipment for the Brisas Project.

Since the revocation of the MinAmb 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.

In mid 2007, we commenced procurement efforts for the Brisas Project and placed orders totaling approximately $125 million for a 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 has sold certain equipment (one SAG mill, primary crusher, regrind mill, two ball mills (35,000 tonne per day through-put) and related motors as well as mobile equipment) originally costing approximately $61.4 million.

The Company recovered approximately $35.1 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 $4.4 million.

As of March 31, 2010, the Company has equipment commitments totaling $61.7 million and has made payments on these orders of $52.7 million.

As of June 30, 2010, the Company has equipment commitments totaling $61.7 million and has made payments on these orders of $52.7 million.

Payments on the remaining commitments of $9 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 March 31, 2010 and December 31, 2009, the Company had restricted cash of $9 million and $9.5 million, respectively, as required by this letter of credit.

As of June 30, 2010 and December 31, 2009, the Company had restricted cash of $9 million and $9.5 million, respectively, as required by this letter of credit.

Shareholder Rights Plan

9 unchanged sentences

Common Shares and Equity Units

During the three months ended March 31, 2010, the Company issued 111,666 shares at an average price of $0.29 per share upon exercise of stock options and 51,000 shares at an average price of $1.12 per share as compensation.

As of March 31, 2010, there were a total of 57,857,663 Class A and 500,236 Class B shares issued.

During the three months ended March 31, 2009, the Company issued 551,500 shares at an average price of $0.71 per share as compensation.

As of March 31, 2009, there were a total of 57,670,555 Class A and 500,236 Class B shares issued.

During the six months ended June 30, 2010, the Company issued 141,666 shares at an average price of $0.29 per share upon exercise of stock options and 201,500 shares at an average price of $1.18 per share as compensation.

As of June 30, 2010, there were a total of 58,038,163 Class A and 500,236 Class B shares issued.

During the six months ended June 30, 2009, the Company issued 551,500 shares at an average price of $0.71 per share as compensation.

Convertible Notes

8 unchanged sentences

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.

The covenants contained in the 5.50% subordinated note indenture are limited to administrative issues such as payments of interest, maintenance of office or agency location, delivery of reports and other related issues.

Likewise, events of default are defined as failure to pay interest and principal amounts when due, default in the performance of covenants, failure to convert notes upon holder’s exercise of conversion rights and similar provisions or the Company’s failure to give notice of a fundamental change which is generally defined as events related to a change of control in the Company.

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.

6 unchanged sentences

Thereafter all interest and accretion on the notes has been expensed.

As of March 31, 2010, 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.

As of June 30, 2010, 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.

Takeover Defense and Related Litigation

14 unchanged sentences

The Company recently added two additional defendants and amended the claim for monetary damages.

This amendment required a motion which has now been consented to by the new defendants counsel.

The defendants have 60 days to file their defense.

Differences Between Canadian and U.S.

4 unchanged sentences

Canadian GAAP Change U.S.

March 31, 2010

June 30, 2010

Current assets $ 71,532,010 $ $ 71,532,010

12 unchanged sentences

Stock options B 10,067,220 4,434,753 14,501,973

Accumulated deficit ,B,D (270,620,206) 19,261,878 (251,358,328)

Accumulated other comprehensive income (162,014) (162,014)

Accumulated deficit A,B,D (275,341,372) 19,759,995 (255,581,377)

Accumulated other comprehensive income A 113,494 58,466 171,960

KSOP debt (110,691) (110,691)

66 unchanged sentences

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 March 31, 2010 and December 31, 2009, an additional $23.2 million and $22.6 million, respectively of accretion expense had been incurred for Canadian GAAP purposes over the amount incurred under U.S.

As of June 30, 2010 and December 31, 2009, an additional $23.7 million and $22.6 million, respectively of accretion expense had been incurred for Canadian GAAP purposes over the amount incurred under U.S.

D Prior to the Brisas expropriation and related arbitration filing, the Company capitalized interest on its convertible notes on an interest avoidance basis.

12 unchanged sentences

Accounts payable and accrued expenses $ 1,845,903 $ 3,790,003

Subsequent Event

In April 2010, the Company sold certain mining equipment that had been manufactured for use on the Brisas project.

The equipment had a carrying value of approximately $4.6 million and the company recorded a gain on sale of approximately $0.3 million.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements