What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2011-03-23 compared with 2010-03-31 · 294 added, 650 removed, 490 unchanged (66% of the section changed)

16 unchanged sentences

/s/ Rockne J.

Timm /s/ Robert A.

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.

Chief Executive Officer

March 22, 2011

/s/ Robert A.

Vice PresidentFinance and CFO

March 22, 2011

Independent Auditors Report

To the Shareholders of

Gold Reserve Inc.

We have audited the accompanying consolidated financial statements of Gold Reserve Inc.

(the Company) which comprise the consolidated balance sheets as at December 31, 2010 and 2009, consolidated statements of operations, comprehensive loss, changes in shareholders equity and cash flows for each of the three years ended December 31, 2010, 2009 and 2008 and the related notes including a summary of significant accounting policies.

Managements responsibility for the consolidated financial statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian generally accepted accounting principles and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors responsibility

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.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

Canadian generally accepted auditing standards require that we comply with ethical requirements.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements.

The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error.

We were not engaged to perform an audit of the Companys internal control over financial reporting.

Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting.

Accordingly, we express no such opinion.

An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide a basis for our audit opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2010 and 2009 and the results of its operations and its cash flows for each of the years in the period ended December 31, 2010, 2009 and 2008 in accordance with Canadian generally accepted accounting principles.

Signed PricewaterhouseCoopers LLP

Chartered Accountants

Vancouver, British Columbia

March 22, 2010

Vancouver, BC

GOLD RESERVE INC.

3 unchanged sentences

Cash and cash equivalents (Note 4)

Assets held for sale (Note 9)

Marketable debt securities (Note 5)

4 unchanged sentences

Restricted cash (Note 15)

Prepaid and other 956,435

Total assets $ 119,915,020 $ 287,614,514

$ 119,915,020

Accounts payable and accrued expenses

2 unchanged sentences

Convertible notes (Note 17)

Minority interest in consolidated subsidiaries 2,279,699 2,306,823

Total liabilities

Noncontrolling interest

Measurement Uncertainty (Note 1)

Commitments and Contingencies (Notes 11, 15)

Commitments and Contingencies (Note 15)

SHAREHOLDERS' EQUITY

1 unchanged sentence

Common shares and equity units:

(Note 17) $ 247,905,231 $ 247,501,272

$ 249,280,489

$ 247,905,231

Class A common shares, without par value

3 unchanged sentences

2009 57,444,997

2010 500,236

2009 500,236

2010 500,236

Equity component of convertible notes (Note 17)

2 unchanged sentences

Accumulated deficit

(289,177,303)

(265,630,369)

Accumulated other comprehensive income (loss)

KSOP debt (Note 10)

Total shareholders' equity 19,917,600 185,106,436

Total shareholders' (deficit) equity

Total liabilities and shareholders' equity

$ 119,915,020

The accompanying notes are an integral part of the consolidated financial statements.

Approved by the Board of Directors:

Mikkelsen s/ Patrick D.

s/ Patrick D.McChesney

GOLD RESERVE INC.

2 unchanged sentences

(Expressed in U.S.

2009 2008 (restated, Note 2)

Other Income:

Interest income

Gain on extinguishment of debt 601,936 76,530

Gain (loss) on disposition of marketable securities

3,165,736 2,521,302 6,499,084

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

Gain on sale of subsidiaries (Note 12)

Gain on extinguishment of debt

Corporate general and administrative

Venezuela expenses

Equipment holding costs

Write-down of machinery and equipment (Note 9)

Loss (gain) on sale of equipment

Corporate communications

Legal and accounting

Arbitration (Note 3)

Takeover defense (Note 18)

Foreign currency (gain) loss

16,085,494 21,519,085 17,989,530

Loss before income tax, minority interest, interest expense

Loss before interest expense, income tax

and extraordinary item

Income tax expense (Note 13) (142,319) (737,050) (26,848)

Minority interest 27,124 8,712 (462,474)

Interest expense

Loss before income tax and

extraordinary item

Income tax benefit (expense) (Note 13)

Loss before extraordinary item

Extraordinary loss on expropriation of assets (Note 3)

(150,726,472)

Net loss for the year

$ (23,546,934)

$ (165,449,828)

$(19,726,121)

Basic and diluted net loss per share:

9 unchanged sentences

Net loss for the year

$(23,546,934)

$(165,449,828)

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

Unrealized gain on marketable securities

Adjustment for realized gains included in net loss

Other comprehensive income (loss)

Comprehensive loss for the year

$(22,411,561)

$(166,056,693)

The accompanying notes are an integral part of the consolidated financial statements.

1 unchanged sentence

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

For the Years Ended December 31, 2009, 2008 and 2007(restated, Note 2)

For the Years Ended December 31, 2010, 2009, and 2008

(Expressed in U.S.

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

Common Shares

Common Shares and Equity Units Issued

ponent of Con-

and Equity Units

Other Compre-

Common Shares

Equity Units Amount

vertible Notes

Held by Affiliates

hensive income

Balance, December 31, 2007

1 unchanged sentence

common shares

Net loss (19,726,121)

Other comprehensive loss

4 unchanged sentences

Common shares issued for:

Cash 162,133 309,205

Services 1,311,125 2,704,659

Balance, December 31, 2008

Net loss (165,449,828)

(100,180,541)

(165,449,828)

Other comprehensive loss

4 unchanged sentences

Common shares issued for:

Cash 24,442 7,088

Services 551,500 392,025

Balance, December 31, 2009

(265,630,369)

Other comprehensive income

Stock option compensation

Fair value of options exercised

Common shares issued for:

Decrease in shares held

by affiliates

Balance, December 31, 2010

$ (289,177,303)

The accompanying notes are an integral part of the consolidated financial statements.

3 unchanged sentences

(Expressed in U.S.

2009 2008 (Restated, Note 2)

Cash Flow from Operating Activities:

Net loss for the year

$ (23,546,934)

$ (165,449,828)

$(19,726,121)

Adjustments to reconcile net loss to net

1 unchanged sentence

Stock option compensation

Depreciation 213,902 224,071 179,111

Gain on extinguishment of debt

Loss on sale of equipment 3,423,544 1,346,423

Loss (gain) on sale of equipment

Gain on sale of subsidiaries

Loss on expropriation of assets

Write-down of machinery and equipment

Amortization of premium on

2 unchanged sentences

Foreign currency loss

Minority interest in net income (loss) of

consolidated subsidiaries (27,124) (8,712) 462,474

Net (gain) loss on disposition of marketable securities

Future income tax expense (benefit) (Note 13)

Shares issued for compensation and KSOP 392,025 2,704,659 2,205,792

Shares issued for compensation

Changes in non-cash working capital:

9 unchanged sentences

Capitalized interest paid on convertible notes

Other (44,944) (117,760) (108,134)

Deconsolidation of subsidiaries

Net cash provided by (used in) investing activities

Cash Flow from Financing Activities:

Net proceeds from issuance of convertible notes 98,430,066

Net proceeds from issuance of common shares

5 unchanged sentences

Cash and cash equivalents - end of year

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.

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.

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.

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).

1 unchanged sentence

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.

holders of Gold Reserve Corporation elected, for tax reasons, to receive equity units in lieu of Gold Reserve Inc.

6 unchanged sentences

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.

From 1992 to 2008 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 seized by the Bolivarian Republic of Venezuela (Venezuela).

While we are resolving our investment dispute, either through arbitration or settlement, with Venezuela we are also seeking to invest in or acquire alternative mining projects.

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

All amounts shown herein are expressed in U.S.

dollars unless otherwise noted.

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.

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

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 19, 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.

These consolidated financial statements include the accounts of the Company, Gold Reserve Corporation, four Venezuelan subsidiaries, two Barbadian subsidiaries and one Aruban subsidiary which were formed to hold the Companys interest in its foreign subsidiaries or for future transactions.

All subsidiaries are wholly owned.

All intercompany accounts and transactions have been eliminated on consolidation.

The Companys policy is to consolidate those subsidiaries where control exists.

In years ended 2009 and 2008, the consolidated financial statements also included the accounts of two domestic subsidiaries, Great Basin Energies, Inc.

(Great Basin) and MGC Ventures Inc.

(MGC Ventures).

Great Basin and MGC Ventures were 45% and 44% owned, respectively until the Company in December 2010, disposed of its equity interest in the subsidiaries.

to the consolidated financial statements.

Cash and Cash Equivalents .

13 unchanged sentences

Property, Plant and Equipment .

Property, plant and equipment are recorded at the lower of cost less accumulated depreciation.

Property, plant and equipment are recorded at cost less accumulated depreciation.

Replacements and major improvements are capitalized.

6 unchanged sentences

The Companys qualifying assets include its costs of developing mining properties and constructing new facilities.

Assets Held for Sale .

Long-Lived assets are classified as held for sale in the period in which certain criteria are met.

Assets held for sale are measured at the lower of carrying amount or fair value less cost to sell and are not depreciated as long as they remain classified as held for sale.

Impairment of Long Lived Assets .

8 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 March 2005, the rate was fixed at 2,150 Bs.

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.

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.

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.

11 unchanged sentences

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.

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 managements current estimate.

See Note 3 and Note 15.

In 2009, as a result of the loss of control and physical access to the Brisas project, we recorded a $150.7 million non-cash expense adjustment related to the carrying value of the Brisas Project related assets including an adjustment of approximately $14.5 million for the estimated net realizable value of certain processing and related equipment.

See Notes 3, 9 and 15.

The Company operates and files tax returns in a number of jurisdictions.

2 unchanged sentences

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.

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.

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 .

2 unchanged sentences

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.

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 estimated to be June 15, 2012, 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.

9 unchanged sentences

Other financial liabilities are accounted for at cost or amortized cost.

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.

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”).

The Company currently prepares its financial statements in accordance with Canadian GAAP and includes a footnote 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.

Expropriation of Brisas Project by Venezuela and Related Arbitration:

From 1992 to 2008 we focused substantially all of our 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 southeastern Venezuela.

After approval of the Brisas operating plan by the Ministry of Mines and the Environmental and Social Impact Study by the Ministry of Environment in 2003 and early 2007, respectively, the Ministry of Environment issued in March 2007, the Authorization to Affect which authorized the commencement of construction activities on the Brisas Project.

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

After months of continuous efforts to meet with representatives of Venezuela to resolve the issues related to the revocation of the Authorization to Affect, on April 21, 2009 the Company notified Venezuela of the existence of a dispute under the Canada Venezuela Treaty.

After several additional months of efforts to meet with representatives of Venezuela 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 the International Centre for Settlement of Investment Disputes (ICSID), against 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, Venezuela notified the Company through the issuance of an Administrative Act, dated October 20, 2009, of its intent to cancel the Companys 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)).

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 Venezuelas 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.

As a result of the seizure of the Brisas Project by Venezuela 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.

In 2009 we recorded a $150.7 million non-cash expense adjustment related to the carrying value of the Brisas Project related assets including an adjustment of approximately $14.5 million for the estimated net realizable value of certain processing and related equipment.

The Company is seeking compensation of $1.98 billion in the arbitration for all of the loss and damage resulting from Venezuelas wrongful conduct which includes the full market value of the legal rights to develop the Brisas Project.

The Tribunal held the first session with the parties on April 23, 2010 during which time several procedural matters were agreed to, including the time schedule for the Arbitration.

In compliance with that schedule, we filed our initial written submission, known as the Memorial, on September 24, 2010.

The Respondent is required to file its reply to the Companys Memorial by April 14, 2011.

Thereafter, further written submissions are scheduled to be made prior to the oral hearings, which are scheduled to commence on February 6, 2012.

Cash and Cash Equivalents:

1 unchanged sentence

Money market funds

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.

The above amounts exclude restricted cash of approximately $9.5 million in 2009.

At December 31, 2010 and 2009, the Company had approximately $39,000 and $59,000, respectively, in Venezuela and banks outside Canada and the U.S.

1 unchanged sentence

Amortized cost

The Companys marketable debt securities are classified as held-to-maturity and are measured at amortized cost using the effective interest rate method.

All of the Companys marketable debt securities matured in December, 2010.

These securities were classified as held-to-maturity and measured at amortized cost using the effective interest rate method.

Marketable Equity Securities:

Fair value at beginning of year

Acquisitions 2,135,293 3,262,239

Dispositions, at cost

Realized (gain) loss on sale (2,274,848) 243,053

Unrealized gain (loss) 1,498,168 (2,440,169)

Realized gain on sale

Unrealized gain

Fair value at end of year

3 unchanged sentences

The fair values as at December 31, 2010 and 2009 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.

December 31, 2010

December 31, 2009

Classification

Cash and cash equivalents

held for trading

Restricted cash

held for trading

Marketable debt securities

held to maturity

Marketable equity securities

available for sale

A/P and accruals

other financial liabilities

Accrued interest

other financial liabilities

Convertible notes

other financial liabilities

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 but are traded on a limited basis in a grey market.

Fair value estimates for convertible notes are based on an assessment of available 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 entitys own assumptions.

December 31, 2009 Level 1 Level 2 Level 3

Level 1 inputs are quoted prices in active markets for identical assets or liabilities, Level 2 inputs are 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.

December 31, 2010

Cash and cash equivalents

Marketable equity securities

Restricted cash 9,489,777 9,489,777

December 31, 2008 Level 1 Level 2 Level 3

December 31, 2009

Cash and cash equivalents

1 unchanged sentence

Restricted cash

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.

Credit risk is the risk that a counter party will fail to meet its obligations to the Company.

The Companys primary exposure to credit risk is through its cash and cash equivalents, restricted cash and marketable debt securities balances.

1 unchanged sentence

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.

Liquidity risk is the risk that an entity will encounter difficulty in meeting its obligations associated with its financial liabilities.

The Company has historically managed this risk by maintaining adequate cash balances through equity and debt offerings to meet its obligations.

With respect to the convertible notes, the holders have the option to require the Company to repurchase the notes on June 15, 2012, for the principal amount of the notes plus unpaid interest and the Company may satisfy this obligation, in whole or in part, by delivering Common Shares.

The following table presents the Companys 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.

1 unchanged sentence

Payments due by Period

Less than More Than

Total 1 Year 1-3 Years 4-5 Years 5 Years

A/P and accruals

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.

$ 112,425,943

$ 105,163,598

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 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.

The Companys cash 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 Companys net loss from the translation of foreign currency denominated financial instruments, as at December 31, 2010 and 2009, by the amounts shown below.

Venezuelan Bolívar $ 60,766 $ 69,684

Venezuelan Bolívar

Canadian Dollar

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.

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.

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The Companys 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 Companys 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.

maintain sufficient liquidity in order to meet financial obligations including the costs of acquiring and developing mining projects and servicing debt;

safeguard the Companys assets and its ability to continue as a going concern and

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.

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Property, Plant and Equipment:

Cost Depreciation Net

United States

Machinery and equipment deposits $ 37,491,372 $ $ 37,491,372

Machinery and equipment

Furniture and office equipment

Leasehold improvements

$ 38,038,569 $ (436,759) $ 37,601,810

Buildings 403,286 (254,200) 149,086

Furniture and office equipment

2 unchanged sentences

$ (1,711,625)

Total $ 39,902,423 $ (1,780,321) $ 38,122,102

United States

Machinery and equipment deposits

Furniture and office equipment

Leasehold improvements

$ 520,669 $ (391,557) $ 129,112

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

2 unchanged sentences

$ (1,780,321)

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.

Machinery and equipment includes amounts paid for infrastructure and milling equipment previously intended for use on the Brisas project.

In 2010 we recorded a $2.5 million write-down of some of this equipment to estimated net realizable value.

At December 31, 2010 certain equipment with a carrying value of approximately $8.0 was reclassified to assets held for sale.

During the first quarter of 2011, this equipment was sold for $8.3 million and the Company recorded a gain on sale of $0.3 million.

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 Companys 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.

Allocation of common shares or cash contributions to participants accounts, subject to certain limitations, is at the discretion of the Companys board of directors.

The fair market value of the shares when allocated is recorded in the statement of operations with a reduction of the KSOP debt account.

The Company made cash contributions to eligible participants for the Plan years 2010, 2009, and 2008 of $175,174, $57,292, and $269,679, respectively.

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

Stock Based Compensation:

Stock Based Compensation Plans:

Equity Incentive Plans

The Company has two equity incentive plans;

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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 Companys 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.

The grants will be for terms up to ten years with vesting periods ranging from immediate to up to 3 years 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 insiders, employees and consultants of the Company.

Combined share option transactions for the years ended December 31, 2010, 2009 and 2008 are as follows:

2009 2008 2007

Weighted Weighted Weighted

Average Average Average

Exercise Exercise Exercise

Shares Price Shares Price Shares Price

Options outstanding at

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Options outstanding at

end of year 4,573,318 $ 2.67 5,007,931 $ 3.18 4,445,139 $ 4.14

Options exercisable

6 unchanged sentences

under Venezuelan plan

Price Price Price

Range Range Range

Exercise price at end of year

$ 0.29 - $ 5.36

Exercise price of exercisable options

$ 0.29 - $ 5.36

The following table relates to stock options at December 31, 2010

Weighted Average

Weighted Weighted Exercise Price

Price Number Average Remaining Average Number of Exercisable

Range Outstanding Contractual Life Exercise Price Exercisable Options

Exercise Price

Average Remaining

of Exercisable

Contractual Life

Exercise Price

$0.29 - $0.29

5 unchanged sentences

$0.29 - $5.36

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 Company recorded compensation expense during 2010, 2009, and 2008 of $99,532, $590,180, and $1,958,470, respectively, for stock options granted.

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

Expected life 4.6 years 4.5 years 2.29 years

Expected life

Expected volatility

Dividend yield nil nil nil

Dividend yield

Retention Units Plan

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.

The Companys Board of Directors is currently evaluating modifying the vesting provisions of the units to more adequately reflect the current business objectives of the Company including successful arbitration, settlement of our dispute with Venezuela, reacquiring an interest in the Brisas Project and successful acquisition of a new business opportunity meeting specific parameters.

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, 2010 an aggregate of 1,607,500 unvested Units have been granted to directors and executive officers of the Company and 315,000 Units have been granted to other employees.

The Company currently does not accrue a liability for these units as events required for vesting of the units have not yet occurred.

The value of these units, based on the grant date value of the Class A shares, was approximately $8.4 million.

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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.

On December 15, 2010, the non-affiliated shareholders of MGC Ventures approved the redemption of all of the shares of MGC Ventures common stock held by Gold Reserve.

Gold Reserve received $0.9 million and recorded a gain on sale of subsidiary of $0.2 million.

Prior to the redemption, Gold Reserve owned 12,062,953 common shares of MGC Ventures which represented 44% of its outstanding shares.

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

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.

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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.

On December 15, 2010, the non-affiliated shareholders of Great Basin approved the redemption of all of the shares of Great Basin common stock held by Gold Reserve.

Gold Reserve received $1.2 million and recorded a gain on sale of subsidiary of $0.3 million.

Prior to the redemption, Gold Reserve owned 15,661,595 common shares of Great Basin which represented 45% of its outstanding shares.

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

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.

2009 2008 2007

Current income tax expense (benefit)

Future income tax expense (benefit)

$ 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

$ (6,693,876)

$ (48,765,715)

$ (5,601,776)

Increase (decrease) due to:

2 unchanged sentences

Change in valuation allowance and other

$ 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 Companys 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 Companys U.S.

subsidiaries which earned taxable income in 2007.

No current income tax has been recorded by the parent company for the three years ended December 31, 2010.

Current income tax in 2009 and 2008 relates to two of the Companys former U.S.

subsidiaries.

Future income tax relates to unrealized gains and losses on available-for-sale securities.

8 unchanged sentences

Net operating loss carry forward

Capital loss carry forward 82,638

Alternative minimum tax credit

5 unchanged sentences

and Canadian tax loss carry forwards and tax credits:

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

Segmented Financial Information:

1 unchanged sentence

Segmented financial information by geographic region is as follows:

U.S./Canada Venezuela Consolidated

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

3 unchanged sentences

Total identifiable assets

Other income $ 2,444,772 $ $ 2,444,772

Depreciation 50,053 174,018 224,071

Extraordinary loss

Net loss after tax

$ 157,421,095

$ 165,449,828

Identifiable assets

2 unchanged sentences

Total identifiable assets

2007 (restated, Note 2)

Other income $ 6,499,084 $ $ 6,499,084

Depreciation 39,447 139,664 179,111

$ 119,029,899

$ 119,915,020

Net loss after tax

1 unchanged sentence

Property, plant and equipment, net

$ 175,003,366

$ 175,132,478

General corporate assets

Total identifiable assets

$ 111,080,328

$ 176,534,186

$ 287,614,514

Net loss and identifiable assets of each segment are those that are directly identified with those geographic locations.

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.

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 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 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.

As of December 31, 2010, the Company had remaining equipment commitments of less than $0.1 million.

The Company opened an irrevocable standby letter of credit with a Canadian chartered bank providing security on the performance of a portion of these obligations.

As of December 31, 2010 and December 31, 2009, the Company had restricted cash of $0 and $9.5 million, respectively, as required by this letter of credit.

Shareholder Rights Plan:

2 unchanged sentences

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.

3 unchanged sentences

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.

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.

Convertible Notes:

3 unchanged sentences

Upon conversion, the Company will have the option, unless there has occurred and is then continuing an event of default under the Companys 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.

1 unchanged sentence

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 Companys 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.

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 Companys Common Shares has remained above that price for at least twenty trading days in the period of thirty trading days preceding the Companys 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.

The covenants contained in the 5.50% convertible 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.

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.

1 unchanged sentence

The equity portion of the notes was estimated using the residual value method at approximately $29 million, net of issuance costs.

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.

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 which is estimated to be June 15, 2012, with the resulting charge recorded as interest expense.

The Company capitalized interest and accretion on the notes until October, 2009, when the Company filed for arbitration and when Venezuela seized the Brisas Project.

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

As of December 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.

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.

Takeover defense and Litigation:

9 unchanged sentences

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.

The Company opposed these motions which were heard in Toronto on April 2, 2009 and 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 Companys 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.

During 2010, the Company developed its strategy for the execution of this action, added two additional defendants and amended the claim for monetary damages and collected all its relevant documents, including electronically stored information and is in the process of proceeding to depositions.

Differences Between Canadian and U.S.

3 unchanged sentences

Consolidated Summarized Balance Sheets

Canadian GAAP Change U.S.

Canadian GAAP

December 31, 2010

Current assets

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

Convertible notes D $ 93,693,168 $ 6,048,554 $ 99,741,722

Property, plant and equipment, net

Convertible notes C

Other liabilities

$ 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

Common shares & equity units B,E

Equity component of convertible notes C

Contributed surplus E

Stock options B

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)

Accumulated deficit A,B,D

(289,177,303)

(268,571,593)

Canadian GAAP Change U.S.

Accumulated other comprehensive income A

Total shareholders equity (deficit)

Canadian GAAP

December 31, 2009

Current assets

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

Convertible notes D $ 91,829,699 $ 7,931,563 $ 99,761,262

Property, plant and equipment, net

Convertible notes C

Other liabilities

$ 102,508,078 $ 7,931,563 $ 110,439,641

Noncontrolling interest F

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)

Common shares & equity units B,E

Equity component of convertible notes C

Less, common shares & equity units

held by affiliates

Contributed surplus F 5,171,603 5,171,603

Contributed surplus E

Stock options B

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)

Accumulated deficit B,D

(265,630,369)

(246,934,463)

Accumulated other comprehensive income

Total Gold Reserve Inc.

Noncontrolling interest F

Total Shareholders Equity

Consolidated Summarized Statements of Operations

2009 2008 2007

Net Loss under Canadian GAAP

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)

$ (23,546,934)

$ (165,449,828)

$ (19,726,121)

Interest expense D

Gain on settlement of debt C

Expropriation of assets

Net loss under U.S.

GAAP (100,029,813) (19,174,403) (13,827,840)

(100,029,813)

Other comprehensive income (loss)

5 unchanged sentences

Total comprehensive loss under

GAAP $ (100,806,493) $ (21,371,519) $ (13,156,976)

$ (20,141,990)

$ (100,806,493)

$ (21,371,519)

Basic and diluted net loss per share

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

Cash paid for interest E 35,483 (214,729) (1,267,851)

$ (20,428,684)

$ (15,130,345)

$ (13,858,222)

Cash paid for interest D

Cash flow used in operating activities

GAAP $ (15,094,862) $ (14,072,951) $ (6,943,156)

$ (20,428,684)

$ (15,094,862)

$ (14,072,951)

Cash flow (used) provided by investing

activities under Canadian GAAP

Cash paid for interest E (35,483) 214,729 1,267,851

$ (15,048,843)

Cash paid for interest D

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).

$ (15,084,326)

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.

10 unchanged sentences

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.

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.

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.

In 2007, the company issued $103,500,000 aggregate principal amount of convertible notes.

As described in Note 17, under Canadian GAAP these notes are allocated between their equity and debt component parts.

1 unchanged sentence

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.

E Prior to the expropriation of the Brisas Project, the Company capitalized interest on its convertible notes on an interest avoidance basis.

As of December 31, 2010 and 2009, an additional $24.9 million and $22.6 million, respectively of accretion expense had been incurred for Canadian GAAP purposes over the amount incurred under U.S.

Prior to the seizure of the Brisas Project and related arbitration filing, 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.

1 unchanged sentence

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.

GAAP differed from the amount capitalized under Canadian GAAP due to the difference in the amount of qualifying mineral property costs which had been accumulated under the two sets of accounting principles.

Subsequent to the loss of control of the Brisas Project, all capitalized interest was written off.

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.

1 unchanged sentence

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”.

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.

141(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination.

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.

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.

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.

Under Canadian GAAP, the noncontrolling interest is shown on the balance sheet between liabilities and equity.

Under US GAAP, the nononcontrolling interest is reclassified to equity and shown as a separate component from the equity of the parent.

Additional Balance Sheet disclosure - U.S.

2 unchanged sentences

Accounts payable and accrued expenses

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.

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.

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.

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)

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

1 unchanged sentence

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-K

Item 8. Financial Statements and Supplementary Data