What changed in this filing

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Item 2. Management’s Discussion and Analysis

2010-08-11 compared with 2010-05-13 · 80 added, 85 removed, 115 unchanged (59% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, dated May 13, 2010, is intended to assist in understanding and assessing our results of operations and financial condition.

While we pursue our arbitration claim against the Venezuelan government as more fully discussed below, we are attempting to settle our dispute with the Venezuelan government, mitigate our loss through the sale of Brisas Project assets, and are seeking to invest in or acquire other projects.

The expense categories shown in the consolidated statements of operations have been revised on a comparative basis to better present the current operations of the Company.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, dated August 11, 2010 is intended to assist in understanding and assessing our results of operations and financial condition.

The expense categories shown in the consolidated statements of operations were revised as of the end of 2009 to better present the current operations of the Company.

As a result the expense categories for the three and six month periods ended June 30, 2009 have been revised to be comparative with the presentation of the three and six month periods ended June 30, 2010.

The revisions had no effect on previously reported results of operations.

2 unchanged sentences

The Brisas Project is one of the largest undeveloped gold/copper deposits in the world, containing estimated ore reserves of 10.2 million ounces of gold and 1.4 billion pounds of copper.

The Venezuelan Ministry of Mines (“MIBAM”) approved the Brisas operating plan during 2003 and in early 2007 the Venezuelan Ministry of Environment (“MinAmb”) approved the Brisas Environmental and Social Impact Study for the Exploitation and Processing of Gold and Copper Ore (“Estudio de Impacto Ambiental y Sociocultural” or “ESIA”).

In March 2007, MinAmb issued the Authorization for the Affectation of Natural Resources for the Construction of Infrastructure and Services Phase of the Brisas Project (the “Authorization to Affect”).

In May 2007 we raised (net of expenses) $177.5 million comprised of $103.5 million of 5.50% senior subordinated convertible notes (“convertible notes”) and $74 million of common shares.

In March 2007, the Venezuelan Ministry of Environment (“MinAmb”) issued the Authorization for the Affectation of Natural Resources for the Construction of Infrastructure and Services Phase of the Brisas Project (the “Authorization to Affect”).

The Authorization to Affect was issued to the Company based on the extensive work the Company had completed on the development of the Brisas Project including the 2003 and updated 2005 Brisas operating plan approved by the Venezuelan Ministry of Mines (“MIBAM”), and the July 2005 Brisas Environmental and Social Impact Study for the Exploitation and Processing of Gold and Copper Ore (“Estudio de Impacto Ambiental y Sociocultural” or “ESIA”), as supplemented in January 2007, approved by the MinAmb.

With the Authorization to Affect, the Company in May 2007 raised (net of expenses) $177.5 million for the Brisas Project comprised of $103.5 million of 5.50% senior subordinated convertible notes (“convertible notes”) and $74 million of common shares.

Thereafter we commenced significant pre-construction efforts including awarding contracts for site preparation and construction camp facilities and placing equipment orders totaling approximately $125.3 million.

In April 2008, the MinAmb revoked the March 2007 Authorization to Affect without prior notification.

In August 2008, the Company received an unsolicited nonbinding expression of interest from Rusoro Mining Ltd.

(“Rusoro”) to complete a 100% business combination by issuing two shares of Rusoro for each share of Gold Reserve.

The Board of Directors of the Company reviewed the expression of interest and unanimously determined that it was inadequate and not in the best interests of the Company’s shareholders.

On December 15, 2008, Rusoro Mining Ltd.

(‘Rusoro”), with the assistance of Endeavour Financial International Corporation (“Endeavour”) launched a hostile takeover attempt of the company.

On December 16, 2008, the Company filed an action in the Ontario Superior Court of Justice against Rusoro and Rusoro’s financial advisor 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.

Following the issuance of the interlocutory injunctions, Rusoro withdrew its unsolicited takeover offer.

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.

On April 6, 2009 the permission to appeal was denied.

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.

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 May 2008 revocation of the Authorization to Affect.

In May 2009 the Venezuelan government denied the extension of the Brisas Alluvial Concession which contains 3% of the gold and no copper mineralization and the El Pauji Concession (used for Brisas project infrastructure purposes).

Pursuant to Article 25 of the Venezuelan mining law the Company applied for extensions of the Brisas Alluvial Concession in October 2007 and the El Pauji Concession in January 2008.

MIBAM did not respond to our request for the extensions during the requisite 6 month time period.

After the Company’s Board of Directors unanimously rejected an August 2008 unsolicited offer by Rusoro Mining Ltd.

(“Rusoro”) to complete a business combination by issuing two shares of Rusoro for each share of Gold Reserve, Rusoro with the assistance of Endeavour Financial International Corporation (“Endeavour”) in mid December 2008 launched a hostile takeover of the Company.

Rusoro was primarily focused on its mining activities in Venezuela and Endeavour had been the Company’s financial advisor from 2004 until shortly after the commencement of the hostile offer.

The Company filed an action in the Ontario Superior Court of Justice (“Ontario Court”) seeking an injunction restraining Rusoro and Endeavour from proceeding with the unsolicited offer, significant monetary damages, and various other items.

The Ontario Court granted an interlocutory injunction in February 2009 restraining Rusoro from proceeding with any hostile takeover until the conclusion and disposition at trial of the action commenced by the Company.

As a result Rusoro withdrew its takeover offer and both Rusoro and Endeavour requested permission to appeal the injunction which was subsequently denied in April 2009.

Rusoro 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 and Endeavour 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.

(See Part II- Other Information- Item 1.

Legal Proceedings- Litigation).

In April 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”).

In May 2009 the Venezuelan government denied the extension of the Brisas Alluvial Concession and the El Pauji Concession which had been properly requested by the Company pursuant to Article 25 of the Venezuelan mining law, in October 2007 and January 2008, respectively.

MIBAM did not respond to our request for the extensions during the requisite 6 month time period as outlined in Article 25.

Accordingly, the extensions were automatically granted pursuant to the mining law.

After six months of unsuccessful attempts to meet with government officials to resolve the investment dispute, on October 21, 2009 the Company filed a Request for Arbitration under the Additional Facility Rules of ICSID, against the Bolivarian Republic of Venezuela.

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 Brisas hard rock concession which contains 97% of the gold and 100% of the copper mineralization.

As a result of the expropriation of the Brisas Project by the Venezuelan government, in 2009 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.

Also, we no longer report mineral reserves for Brisas, and we have discontinued our activities relating to the Brisas and Choco 5 properties.

After being unsuccessful in our efforts to meet with government officials to resolve the investment dispute, on October 21, 2009 the Company filed a Request for Arbitration under the Additional Facility Rules of ICSID, against the Bolivarian Republic of Venezuela.

Venezuelan government personnel subsequently 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 Brisas hard rock concession and the government formally notified the Company of its cancelation in June, 2010.

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

2 unchanged sentences

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, and developing and filing our initial pleadings, the filing of which is expected to occur in September 2010.

Since acquiring the Brisas Alluvial Concession in 1992, we have spent close to $300 million on the project (including equipment recorded in the Consolidated Balance Sheet and financial, legal and engineering costs incurred in support of our Venezuelan operations and the write-down of previously capitalized costs associated with our Venezuelan operations recorded in the Consolidated Statement of Operations).

Our current arbitration efforts consist of assisting technical, legal, and financial experts, and developing and filing our initial pleadings, the filing of which is expected to occur in September 2010.

The information contained in this Quarterly Report on Form 10-Q relating to Brisas and Choco 5 is presented for informational and historical purposes and should not be construed as an indication of our expectations regarding the future development and operation of these properties or the outcome of the arbitration proceedings.

As a result of the expropriation of the Brisas Project by the Venezuelan government, in 2009 we recorded a $150.7 million non-cash write-off of the carrying value of the expropriated assets.

Also, we no longer report mineral reserves for Brisas, and we have discontinued our activities relating to the Brisas and Choco 5 properties.

Since acquiring the Brisas Alluvial Concession in 1992, we have spent close to $300 million on the project including equipment, financial, legal and engineering costs incurred in support of our Venezuelan operations and the write-down of previously capitalized costs associated with our Venezuelan operations.

We have no commercial production at this time and, as a result, we have not recorded revenue or cash flows from mining operations and continue to experience losses from operations, a trend we expect to continue unless and until the investment dispute regarding Brisas is resolved favorably to the Company and/or we acquire directly or indirectly other mining projects.

3 unchanged sentences

dollars in accordance with accounting principles generally accepted in Canada (see Note 18 to the Consolidated Financial Statements- Differences between Canadian and U.S.

The Company’s historical results of operations and current financial position are a result of the Company’s efforts, since 1992, to develop the Brisas Project into an operating mine and more specifically, our decision, subsequent to the issuance of the Authorization to Affect (the authorization to begin construction of the Brisas Project), to raise $ 177.5 million through the issuance of convertible notes and common shares, place orders to acquire approximately $125 million of equipment, and to continue the development of Brisas.

Likewise our October 2009 Request for Arbitration under the Additional Facility Rules of ICSID and the write-off of the costs associated with our Venezuelan operations will shape the future financial position and results of operations of the Company.

The Company’s historical results of operations and current financial position are a result of the Company’s efforts, since 1992, to develop the Brisas Project into an operating mine and more specifically, our decision, subsequent to the issuance of the Authorization to Affect (the authorization to begin construction of the Brisas Project), to issue convertible notes and common shares, place orders to acquire equipment, and to continue the development of Brisas.

Likewise our October 2009 Request for Arbitration under the Additional Facility Rules of ICSID will shape the future financial position and results of operations of the Company.

We expect the arbitration process to last approximately three years, consume substantial management time and cost an estimated $5 million to $8 million, excluding the time and funds necessary to collect on any award.

2 unchanged sentences

These individuals possess valuable historical knowledge related to the Brisas Project which is important to the successful execution of our arbitration efforts.

In addition to the management of our arbitration claim we will continue to explore opportunities to:

(1) settle our dispute with Venezuela;

(2) sell Brisas Project assets;

(3) redeem, restructure or otherwise modify the terms of the 5.50% subordinated notes;

and (4) continue evaluating other mining opportunities for a direct or indirect participation.

The successful execution of these objectives will be facilitated by the Company’s senior management team which has considerable technical, financial and administrative experience related to the mining industry.

In addition to the management of our arbitration claim, we continue to explore efforts to facilitate a settlement of our dispute with the Venezuelan government, liquidate Brisas Project assets and evaluate other mining opportunities for a direct or indirect participation.

The timing of our involvement in any new mining opportunity if any, and the amounts that may be required cannot be determined at this time and are subject to available cash, sale of equipment originally slated for the Brisas Project and/or future financings, if any.

Upon the sale of Brisas Project assets or successful settlement of our dispute with the Venezuelan Government, it is the intent of Management to explore efforts to redeem all or a portion of the outstanding convertible notes.

These efforts could include a public offer to reacquire all or a portion of the notes or a more limited “Dutch auction” or individual private transactions.

The time and extent of any plan will be influenced by, among other things, terms of the indenture, regulatory issues, market conditions and available cash.

Investors are urged to read our filings with U.S.

32 unchanged sentences

Liquidity and Capital Resources

At March 31, 2010 our total financial resources, which included cash and cash equivalents, restricted cash and marketable securities, were approximately $80.7 million compared to $81.2 million at December 31, 2009.

At June 30, 2010 our total financial resources, which included cash and cash equivalents, restricted cash and marketable securities, were approximately $79.8 million compared to $81.2 million at December 31, 2009.

The Companys cash and investments are held primarily in US dollar denominated accounts.

March 31, 2010

June 30, 2010

December 31, 2009

Cash and cash equivalents

$ (1,664,184)

Restricted cash

Marketable securities

Overall financial resources decreased approximately $0.5 million from December 31, 2009.

This decrease was primarily due to approximately $4.1 million used by operations more fully described below in results of operations, purchases of property, plant and equipment of approximately $0.5 million relating to our purchase commitments for the Brisas Project, partially offset by net proceeds from the disposition of marketable securities of approximately $0.2 million and approximately $3.9 million from the disposition of equipment.

As of May 13, 2010 we held approximately $82 million in cash (including restricted cash of approximately $9.0 million held pursuant to a letter of credit for certain equipment purchase commitments) and marketable securities.

The primary future obligation of the Company is the 5.50% senior subordinated notes which may be settled in cash or common shares in the event the holder chooses the one-time option to put the notes back to the Company for repurchase on June 15, 2012 (see Note 17 to the consolidated financial statements).

$ (1,474,703)

Cash and cash equivalents decreased approximately $1.7 million from December 31, 2009.

This decrease was primarily due to cash used in operating activities of approximately $10.3 million more fully described below and net purchase of marketable securities of $0.2 million, partially offset by proceeds from the sale of equipment of approximately $8.9 million.

Restricted cash decreased by approximately $0.5 million as a result of purchases of equipment relating to our previous purchase commitments for the Brisas Project.

As of August 11, 2010 we held approximately $78 million in cash, restricted cash and marketable securities.

The primary future obligation of the Company is the 5.50% senior subordinated notes which may be settled in cash or common shares in the event the holder chooses a one-time option to put the notes back to the Company for repurchase on June 15, 2012 (see Note 16 to the consolidated financial statements).

As a result, in the near-term we believe that cash and investment balances and funds available from potential future equipment sales will be sufficient to enable us to fund our activities through 2011.

1 unchanged sentence

Operating Activities

Cash flow used by operating activities for the three month period ended March 31, 2010 was approximately $4.1 million, which was a decrease over the same period in 2009 of approximately $2.2 million.

Cash flow used by operating activities for the three and six month periods ended June 30, 2010 was approximately $6.3 and $10.3 million, which was an increase over the same periods in 2009 of approximately $2.9 and $0.6 million, respectively.

Investing Activities

Purchase of property, plant and equipment

Overall investing activities during the three and six months ended June 30, 2010 and 2009 decreased by $19.8 million and $26.8 million, respectively.

These changes are primarily comprised of a reduction in cash used for the purchase of equity and debt marketable securities of $9.9 million and $10.1 million, respectively (See Notes 5 and 6 to the consolidated financial statements);

reduction in purchase of property, plant and equipment of approximately $2.8 million and $5.3 million, respectively;

proceeds from the sale of equipment of $5.0 million and $8.9 million, respectively;

changes in restricted cash of $0.7 million and $0.3 million, respectively (see Note 13 to the consolidated financial statements);

and changes due to the change in classification of interest paid on convertible debt from investing activities to operating activities of approximately $2.8 million and $2.8 million, respectively.

Net purchases of marketable securities

$ (10,345,749)

Net proceeds from marketable securities

$( 10,345,749)

Purchase of property, plant and equipment

Proceeds from sale of equipment

Decrease (increase) in restricted cash

Decrease in restricted cash

Interest paid on convertible debt

$ (15,274,134)

Investing activities during the three months ended March 31, 2010 and 2009 included net investment in property, plant and equipment of approximately $0.5 million compared to $2.9 million, respectively.

These payments primarily relate to obligations related to the 2007 equipment orders for Brisas.

Management continues with its efforts to dispose of certain assets originally acquired for the Brisas Project.

In the third quarter ended March 31, 2010, the Company recovered approximately $3.9 million through the disposal of these assets.

During the three months ended March 31, 2010 and 2009, net proceeds from disposition of marketable securities totaled approximately $0.2 million compared to nil, respectively.

In connection with a portion of the 2007 equipment orders for Brisas, we opened an irrevocable standby letter of credit with a Canadian chartered bank providing security on the performance of our obligations, secured by cash.

As of March 31, 2010 and 2009, the Company had restricted cash of approximately $9.0 million and $9.5 million, respectively as required by this letter of credit.

The $0.5 million reduction of restricted cash during the three months ended March 31, 2010 was due to payments related to the 2007 equipment orders.

$ (18,210,149)

Financing Activities

The convertible notes (see Note 16 to the consolidated financial statements) are trading in the gray market often at a significant discount to face value.

As the terms of the indenture provide that the Company may repurchase the convertible notes in open market purchases or negotiated transactions, in 2009 we re-purchased approximately $1.1 million (face value) of convertible notes for approximately $0.4 million.

Net proceeds from issuance of common shares

Extinguishment of convertible notes

The convertible notes are trading in the gray market often at a significant discount to face value.

Management continues to explore broader efforts to redeem all or a portion of the outstanding convertible notes.

These efforts could include a public offer to reacquire all or a portion of the notes or a more limited “Dutch auction” or individual private transactions.

The time and extent of any plan will be influenced by, among other things, terms of the indenture, regulatory issues, market conditions and available cash.

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

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

Contractual Obligations

The following table sets forth information on the Companys material contractual obligation payments for the periods indicated as of March 31, 2010:

The following table sets forth information on the Companys material contractual obligation payments for the periods indicated as of June 30, 2010:

Payments due by Period

Contractual Obligations

Less than 1 Year

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Beginning on June 16, 2012, the Company may, at its option, redeem all or part of the notes for cash at a redemption price equal to 100% of the principal amount being redeemed plus accrued and unpaid interest.

As of March 31, 2010, $1,151,000 face value of convertible notes have been settled in cash or repurchased by the Company at a total cost of $451,000.

As of June 30, 2010, $1,151,000 face value of convertible notes have been settled in cash or repurchased by the Company at a total cost of $451,000.

The amounts shown above include the interest and principal payments due based on the estimate that the term of the notes will end on June 15, 2012.

1 unchanged sentence

2 The Company originally placed orders totaling $125.3 million for the fabrication of processing equipment, mobile equipment and other mining equipment and related engineering.

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

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

Results of Operations

Summary Results of Operations

Consolidated net loss for the three and six months ended June 30, 2010 was approximately $4.7 million and $9.7 million, an increase of approximately $3.9 million and $5.2 million, respectively.

As more fully discussed below, the change in net loss for the three and six months ended June 30, 2010 was the product of a decrease in other income of approximately $1.5 and $1.8 million, respectively and an increase in expenses of approximately $2.5 and $3.4 million, respectively.

$ (1,452,092)

$ (1,802,832)

Total expenses

2 unchanged sentences

$ (5,212,241)

Consolidated net loss for the three months ended March 31, 2010 was approximately $5.0 million, an increase of approximately $1.3 million from 2009.

The change in net loss was due to a decrease in other income of approximately $0.3 million and an increase in expenses of approximately $1 million.

As noted above we have no commercial production at this time and as a result, other income is often variable from period to period due to one-time or otherwise atypical sources of income such as gains on disposition of marketable securities, extinguishment of debt and sale of equipment.

During the three months ended June 30, 2010, the decrease in other income was primarily attributed to a reduction in gain on disposition of marketable securities of approximately $1.9 million, partially offset by gain on sale of equipment of $0.3 million.

During the six months ended June 30, 2010, the decrease in other income is primarily attributed to a reduction in gain on extinguishment of debt of approximately $0.6 million, due to the absence of any re-purchases of the Companys convertible notes, reduction in gain on disposition of marketable securities of approximately $1.7 million, partially offset by gain on sale of equipment of $0.4 million.

Gain on extinguishment of debt

Gain (loss) on disposition of marketable securities

Gain on disposition of marketable securities

Gain on sale of equipment

Foreign currency gain (loss)

The reduction in other income is primarily attributed to a reduction in gain on extinguishment of debt of approximately $0.6 million, due to the absence of any re-purchases of the Companys convertible notes, partially offset by gains on the disposition of marketable securities of approximately $0.1 million and on sale of equipment of approximately $0.1 million.

Corporate general and administrative

$ (1,802,832)

Overall the Companys expenditures during the three and six months ended June 30, 2010 are a function of the Companys efforts to reduce core operating expenses which are obscured by ongoing costs associated with our arbitration claim against the government of Venezuela, takeover defense costs associated with the 2008 Rusoro hostile takeover bid and interest expense on the convertible debt which as a result of the expropriation of the Brisas Project is no longer capitalized as a cost of the project.

During the three and six month periods ended June 30, 2010, core operating costs decreased by approximately $0.9 million and $1.8 million, respectively, primarily as a result of reductions related to both the number of personnel and compensation related items, fees associated with consultants, other discretionary costs and litigation costs.

These reductions were partially offset by costs associated with the storage, maintenance and insuring the remaining equipment originally purchased for the Brisas Project.

Corporate general and administrative

Venezuelan expenses

3 unchanged sentences

Takeover defense

Minority interest

Interest expense

Income tax benefit

$ (5,299,025)

$ (4,371,134)

Operating costs decreased by approximately $1.0 million primarily as a result of reductions related to both the number of personnel and compensation related items, fees associated with consultants and litigation costs.

Cost reductions were partially offset by costs associated with the storage, maintenance and insuring the remaining equipment originally purchased for the Brisas Project.

The change in legal and accounting is primarily attributable to the 2009 litigation related to the unsolicited takeover offer launched in December 2008.

These decreases have been supplemented by a decline in takeover defense costs of approximately $1.5 million, but offset by an increase of approximately $1.1 million in costs associated with the arbitration process and an increase in interest expense of approximately $2.2 million as a result of no longer capitalizing interest expense subsequent to the date Brisas was expropriated and we filed for arbitration with ICSID.

Total Expenses for the Period

Off-Balance Sheet Arrangements

The Company is not a party to any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on the Company’s financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

Adoption of US GAAP in 2011

The Company currently prepares its financial statements in accordance with Canadian GAAP and includes a foot note reconciliation to US GAAP.

Effective January 1, 2011, the Company will adopt US GAAP and will prepare its financial statements in accordance with US GAAP for all subsequent US and Canadian filings.

Transactions with Related Parties

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 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.

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.

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.

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.

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.

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.

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.

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 2. Management’s Discussion and Analysis