United States SECURITIES
AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-Q (Mark One) xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2011 OR  ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the transition period fromto  Commission
file number:001-31819 GOLD RESERVE INC. (Exact name of Registrant as specified in its charter) Yukon Territory, Canada                                                                                                       NA (Jurisdiction of incorporation
or organization)                                                                     (I.R.S.
Employer Identification No.)  926 West Sprague Avenue,
  Suite 200, Spokane, Washington                                                              99201 (Address of
principal executive offices)                                                                                         Zip
Code (509) 623-1500 (Registrant’s Telephone, including area code)  Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.xYes ̈No Indicate by check mark whether the registrant has
submitted electronically and posted on its corporate Website, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post
such files).xYes ̈No Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See definitions of “large accelerated filer, “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large
accelerated filer ̈Accelerated filer ̈Non-accelerated
filer ̈Smaller reporting companyx Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). ̈YesxNo As of August 11, 2011, 59,045,772 Class A common
shares, no par value per share, and 500,236 Class B common shares, no par value
per share, were issued and outstanding.


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Item
1. Financial Statements (Unaudited)


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CONSOLIDATED BALANCE SHEETS June 30, 2011(unaudited)U.S. Dollars
 
 June 30,
  2011
 
 December
  31,
  2010ASSETSCurrent
  Assets:Cash
  and cash equivalents (Note 4)
 $
 60,874,004
 
 $
 58,186,478Assets
  held for sale (Note 7)
 
 6,890,529
 
 
 7,968,813Marketable
  equity securities (Note 5)
 
 1,326,212
 
 
 2,263,923Deposits,
  advances and other
 
 943,708
 
 
 1,507,822Total
  current assets
 
 70,034,453
 
 
 69,927,036Property,
  plant and equipment, net (Note 7)
 
 21,480,712
 
 
 28,503,330Totalassets
 $
 91,515,165
 
 $
 98,430,366LIABILITIESCurrent Liabilities:Accounts
  payable and accrued expenses
 $
 4,870,777
 
 $
 1,633,150Accrued
  interest
 
 234,550
 
 
 234,550Total
  current liabilities
 
 5,105,327
 
 
 1,867,700Convertible
  notes (Note 12)
 
 101,258,624
 
 
 100,754,404Total
  liabilities
 
 106,363,951
 
 
 102,622,104Measurement
  uncertainty (Note 1)SHAREHOLDERS'EQUITYSerial
  preferred stock, without par value, none issuedCommon shares and equity units, without par value
 
 243,921,708
 
 
 243,582,458Contributed Surplus
 
 5,171,603
 
 
 5,171,603Stock options (Note 9)
 
 16,446,777
 
 
 14,518,570Accumulated deficit
 
 (280,608,626)
 
 
 (268,571,593)Accumulated other comprehensive income
 
 330,443
 
 
 1,217,915KSOP debt (Note 8)
 
 (110,691)
 
 
 (110,691)Total shareholders' deficit
 
 (14,848,786)
 
 
 (4,191,738)Total liabilities and shareholders' deficit
 $
 91,515,165
 
 $
 98,430,366
 The accompanying notes are an integral part of the consolidated
financial statements. Approved by the Board of
Directors: s/Chris D. Mikkelsens/Patrick D. McChesney   1


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CONSOLIDATED STATEMENTS OF OPERATIONS For the Three and Six Months
Ended June 30, 2011 and 2010(unaudited) Three
  Months Ended
 
 
 Six
  Months EndedU.S. Dollars
 
 2011
 
 2010
 
 
 2011
 
 2010OTHER INCOMEInterest
 $
 42,753
 $
 64,018
 
 $
 86,801
 $
 128,537Gain on
  disposition of marketable securities
 
 313,477
 
 –
 
 
 511,668
 
 106,551Gain
  on sale of equipment
 
 185,787
 
 314,170
 
 
 546,995
 
 370,044Foreign
  currency gain (loss)
 
 (25,448)
 
 62,042
 
 
 (21,862)
 
 144,286516,569
 
 440,230
 
 
 1,123,602
 
 749,418EXPENSESCorporate
  general and administrative
 
 1,621,381
 
 808,080
 
 
 4,325,742
 
 1,781,517Venezuelan
  operations
 
 401,016
 
 426,534
 
 
 748,757
 
 876,651Equipment
  holding costs
 
 474,256
 
 138,235
 
 
 938,561
 
 478,989Corporate
  communications
 
 196,754
 
 132,177
 
 
 379,974
 
 262,291Legal
  and accounting
 
 215,431
 
 164,511
 
 
 302,939
 
 291,662Arbitration
  (Note 3)
 
 2,810,820
 
 1,344,669
 
 
 3,145,845
 
 2,423,9385,719,658
 
 3,014,206
 
 
 9,841,818
 
 6,115,048Loss
  before interest expense
  and
  income tax
 
 (5,203,089)
 
 (2,573,976)
 
 
 (8,718,216)
 
 (5,365,630)Interest
  expense
 
 (1,668,322)
 
 (1,651,555)
 
 
 (3,318,817)
 
 (3,285,460)Loss
  before income tax
 
 (6,871,411)
 
 (4,225,531)
 
 
 (12,037,033)
 
 (8,651,090)Income
  tax benefit
 
 –
 
 2,482
 
 
 –
 
 4,176Net
  loss for the period
 $
 (6,871,411)
 $
 (4,223,049)
 
 $
 (12,037,033)
 $
 (8,646,914)Net
  loss per share, basic and diluted
 $
 (0.12)
 $
 (0.07)
 
 $
 (0.20)
 $
 (0.15)Weighted
  average common
  shares
  outstanding
 
 59,471,005
 
 57,763,646
 
 
 59,414,941
 
 57,647,029
  CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS For the
Three and Six Months Ended June 30, 2011 and 2010 (unaudited) Three Months Ended
 
 
 Six Months EndedU.S. Dollars
 
 2011
 
 2010
 
 
 2011
 
 2010Net
  loss for the period
 $
 (6,871,411)
 $
 (4,223,049)
 
 $
 (12,037,033)
 $
 (8,646,914)Other
  comprehensive income (loss), net of tax:Unrealized gain (loss) on marketable securities
 
 (265,185)
 
 333,974
 
 
 (375,804)
 
 555,736Adjustment for realized gains included in net loss
 
 (313,477)
 
 –
 
 
 (511,668)
 
 (106,551)Other
  comprehensive income (loss)
 
 (578,662)
 
 333,974
 
 
 (887,472)
 
 449,185Comprehensive
  loss for the period
 $
 (7,450,073)
 $
 (3,889,075)
 
 $
 (12,924,505)
 $
 (8,197,729)
  The
accompanying notes are an integral part of the consolidated financial
statements.   2


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CONSOLIDATED STATEMENTS
OF CASH FLOWS For the Three and Six Months
Ended June 30, 2011 and 2010(unaudited) Three Months Ended
 
 
 Six Months EndedU.S. Dollars
 
 2011
 
 2010
 
 
 2011
 
 2010Cash
  Flows from Operating Activities:Net
  loss for the period
 $
 (6,871,411)
 $
 (4,223,049)
 
 $
 (12,037,033)
 $
 (8,646,914)Adjustments
  to reconcile net loss to net cash
  used
  by operating activities:Stock
  option compensation
 
 485,489
 
 10,573
 
 
 1,940,279
 
 81,172Depreciation
 
 16,465
 
 35,576
 
 
 40,446
 
 75,719Gain
  on sale of equipment
 
 (185,787)
 
 (314,170)
 
 
 (546,995)
 
 (370,044)Amortization
  of premium on
  marketable
  debt securities
 
 –
 
 47,543
 
 
 –
 
 94,563Accretion
  of convertible notes
 
 261,024
 
 244,256
 
 
 504,220
 
 470,863Other
 
 –
 
 (7,700)
 
 
 –
 
 (12,956)Net
  gain on disposition of marketable securities
 
 (313,477)
 
 –
 
 
 (511,668)
 
 (106,551)Shares
  issued for compensation
 
 813,271
 
 181,140
 
 
 1,124,671
 
 238,140Changes
  in non-cash working capital:Net
  decrease (increase) in deposits and advances
 
 (291,834)
 
 140,714
 
 
 (249,157)
 
 (209,496)Net
  increase (decrease) in accounts payable
  and
  accrued expenses
 
 1,977,175
 
 (2,383,306)
 
 
 3,237,627
 
 (1,944,100)Net
  cash used in operating activities
 
 (4,109,085)
 
 (6,268,423)
 
 
 (6,497,610)
 
 (10,329,604)Cash
  Flows from Investing Activities:Proceeds
  from disposition of marketable securities
 
 658,808
 
 –
 
 
 1,217,749
 
 609,592Purchase
  of marketable securities
 
 (200,894)
 
 (410,441)
 
 
 (655,842)
 
 (831,976)Purchase
  of property, plant and equipment
 
 (30,431)
 
 –
 
 
 (32,944)
 
 (498,440)Proceeds
  from sales of equipment
 
 303,255
 
 4,985,443
 
 
 8,640,395
 
 8,851,084Decrease
  in restricted cash
 
 –
 
 –
 
 
 –
 
 494,076Net
  cash provided by investing activities
 
 730,738
 
 4,575,002
 
 
 9,169,358
 
 8,624,336Cash
  Flows from Financing Activities:Net
  proceeds from the issuance of common shares
 
 12,153
 
 8,700
 
 
 15,778
 
 41,084Net
  cash provided by financing activities
 
 12,153
 
 8,700
 
 
 15,778
 
 41,084Change
  in Cash and Cash Equivalents:Net
  increase (decrease) in cash and cash equivalents
 
 (3,366,194)
 
 (1,684,721)
 
 
 2,687,526
 
 (1,664,184)Cash
  and cash equivalents - beginning of period
 
 64,240,198
 
 60,983,350
 
 
 58,186,478
 
 60,962,813Cash
  and cash equivalents - end of period
 $
 60,874,004
 $
 59,298,629
 
 $
 60,874,004
 $
 59,298,629
 The
accompanying notes are an integral part of the consolidated financial
statements.   3


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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY For the Six Months Ended June 30, 2011 and the Year Ended December 31, 2010(unaudited) Common Shares and Equity Units

   ContributedSurplus

   Common Shares

   and Equity UnitsHeld by Affiliates

   Stock Options

   AccumulatedDeficit

   AccumulatedOther

   Comprehensive income

   KSOPDebtCommon Shares

   Equity Units

   AmountBalance, December 31, 2009

   57,694,997

   500,236

   $ 242,207,200

   $ 5,171,603

   $ (636,267)

   $ 14,448,889

   $(246,934,463)

   $ (277,225)

   $ (110,691)Net loss

   

   

   

   

   

   

   (21,637,130)Other comprehensive income

   

   

   

   

   

   

   

   1,495,140Stock option compensation

   

   

   

   

   

   99,532Fair value of options exercised

   

   

   29,851

   

   

   (29,851)Common shares issued for:Cash

   150,554

   

   43,661Services

   924,300

   

   1,503,566Decrease in shares held by affiliates

   

   

   (201,820)

   

   636,267Balance, December 31, 2010

   58,769,851

   500,236

   243,582,458

   5,171,603

   -

   14,518,570

   (268,571,593)

   1,217,915

   (110,691)Net loss

   

   

   

   

   

   

   (12,037,033)Other comprehensive loss

   

   

   

   

   

   

   

   (887,472)Stock option compensation

   

   

   

   

   

   1,940,279Fair value of options exercised

   

   

   12,072

   

   

   (12,072)Common shares issued for:Cash

   33,167

   

   15,778Services

   180,000

   

   311,400Balance, June 30, 2011

   58,983,018

   500,236

   $ 243,921,708

   $ 5,171,603

   $ -

   $ 16,446,777

   $(280,608,626)

   $ 330,443

   $ (110,691)
 The accompanying notes are an integral part of the consolidated financial statements.  4


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Selected Notes to Consolidated Financial Statements For the Six Months Ended June 30, 2011 and

2010(unaudited) Expressed in U.S. Dollars
 Note 1.The Company and
Significant Accounting Policies The Company.Gold Reserve Inc.
(the “Company”) is engaged in the business of acquiring, exploring and
developing mining projects. 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, Gold Reserve Corporation became a subsidiary of Gold Reserve Inc., the successor issuer. Generally, each shareholder exchanged its Gold Reserve
Corporation shares for an equal number of Gold Reserve Inc. Class A Common
shares. For tax reasons, certain U.S. holders elected to receive equity units in
lieu of Gold Reserve Inc. Class A common shares. An equity unit is comprised of
one Gold Reserve Inc. Class B common share and one Gold Reserve Corporation
Class B common share, is substantially equivalent to a Class A common share and
is generally immediately convertible into a Gold Reserve Inc. Class A common
share. Unless otherwise noted, general references to common shares of the
Company include Class A common shares and Equity Units as a group. At June 30,
2011, there were 500,236 Equity Units outstanding. 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”) and are resolving our investment dispute through arbitration against Venezuela under the Additional Facility Rules
of the International Centre for Settlement of Investment Disputes (“ICSID”).  Concurrent with
the arbitration we are pursuing settlement
of our dispute with Venezuela and are 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. Basis of Presentation.For
fiscal years commencing in 2011, the Company changed its basis of accounting
and financial reporting from Canadian GAAP to comply with US GAAP.  The Company has accounted for this change in
presentation on a retroactive basis.  The balance sheet amounts as of December
31, 2010 and the comparative operating results for the three and six months
ended June 30, 2010 were restated accordingly.   A reconciliation of
Canadian GAAP to US GAAP is included in Note 19 of the Company’s financial
statements as of December 31, 2010 and for the year then ended. Certain
information and note disclosures normally included in the annual financial
statements have been condensed or omitted. Accordingly, these unaudited interim
consolidated financial statements should be read in conjunction with the
audited annual consolidated financial statements for the year ended December
31, 2010.  The unaudited interim financial statements reflect all normal
adjustments which in the opinion of management are necessary for a fair
statement of the results for the periods presented. Principles of Consolidation.
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 Company’s
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 Company’s policy is to consolidate those
subsidiaries where control exists. Prior to 2011, 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 December 2010 when
the Company disposed of its equity interest in the subsidiaries. See Note 10 to
the consolidated financial statements. Cash and Cash Equivalents. The
Company considers short-term, highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents for purposes
of reporting cash equivalents and cash flows. Cash and cash equivalents are designated
as held-for-trading and recorded at fair value.  The Company manages the
exposure of its cash and cash equivalents to credit risk by diversifying its
holdings into major Canadian and U.S. financial institutions. Exploration and Development Costs. Exploration costs incurred in locating areas of potential
mineralization are expensed as incurred. Exploration costs of properties or
working interests with specific areas of potential mineralization are
capitalized at cost pending the determination of a property’s economic
viability. Development costs of proven mining properties not yet producing are
capitalized at cost and classified as capitalized exploration costs under
property, plant and equipment. Costs related to staffing and maintenance of
offices and facilities in Venezuela are charged to operations. Property holding
costs are charged to operations during the period if no significant exploration
or development activities are being conducted on the related properties. Upon
commencement of production, capitalized exploration and development costs would
be amortized based on the estimated proven and probable reserves benefited.
Properties determined to be impaired or that are abandoned are written-down to
the estimated fair value. Carrying values do not necessarily reflect present or
future values.  5


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Selected Notes to Consolidated Financial Statements For the Six Months Ended June 30, 2011 and

2010(unaudited) Expressed in U.S. Dollars
 Property, Plant and Equipment. Property, plant and equipment are recorded at the
lower of cost less accumulated depreciation or estimated net realizable value. Included
in property, plant and equipment is $39 million of equipment that has been
adjusted to an estimated net realizable value of $28 million which is not being
depreciated. Replacements and major improvements are capitalized. Maintenance
and repairs are charged to expense as incurred. The cost and accumulated
depreciation of assets retired or sold are removed from the accounts and any
resulting gain or loss is reflected in operations. Depreciation is provided
using straight-line and accelerated methods over the lesser of the useful life
or lease term of the related asset. 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.The Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying amount
of the assets may not be recoverable. If the sum of the expected future net
cash flows to be generated from the use or disposition of a long-lived asset
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized and the asset is written down to
fair value. Fair value is generally determined by discounting estimated cash
flows, using quoted market prices where available or making estimates based on
the best information available. Foreign Currency.The U.S. dollar is the Company’s and
its foreign subsidiaries’ functional currency. Accordingly, foreign currency
amounts are translated into U.S. dollars using the temporal method.
Non-monetary assets and liabilities are translated at historical rates,
monetary assets and liabilities are translated at current rates and revenue and
expense items are translated at average exchange rates during the reporting
period, except for depreciation which is translated at historical rates.
Translation gains and losses are included in the statement of operations. 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 9 and is expensed over the vesting period of the
option. For non-employees, the fair value of stock based compensation is
recorded as an expense over the vesting period or, if earlier, upon completion
of performance. Consideration paid for shares on exercise of share options, in addition
to the fair value attributable to stock options granted, is credited to capital
stock. Fair value of restricted stock issued as compensation is based on the
grant date market value and expensed over the vesting period. The Company also maintains the Gold Reserve Director and
Employee Retention Plan. 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.  Stock
options, restricted stock and Units granted under their respective plans become
fully vested and exercisable and/or payable upon a change of control. Income Taxes. The Company uses the liability method of accounting for
income taxes. Future tax assets and liabilities are determined based on the
differences between the tax basis of assets and liabilities and those amounts
reported in the financial statements. The future tax assets or liabilities are
calculated using the enacted tax rates expected to apply in the periods in
which the differences are expected to be settled. Future tax assets are
recognized to the extent that they are considered more likely than not to be realized. 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. Actual results
could differ from those estimates. Measurement Uncertainty.The
realizable value of the remaining processing and related equipment, originally
purchased for the Brisas Project, may be different than management’s current
estimate. 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 may
operate. The Company operates and files tax returns in a number of jurisdictions.
The preparation of such tax filings requires considerable judgment and the use
of assumptions. Accordingly, the amounts reported could vary in the future. 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. 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. Convertible Notes.Convertible notes
are classified as a liability and are initially recorded at face value, net of
issuance costs. The notes are subsequently accreted to face value using the
effective interest rate method over the expected life of the notes, currently
estimated to be June 15, 2012, with the resulting charge recorded as interest
expense.  6


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Selected Notes to Consolidated Financial Statements For the Six Months Ended June 30, 2011 and

2010(unaudited) Expressed in U.S. Dollars
 Comprehensive Income.Comprehensive income includes net income or loss and
other comprehensive income. Other comprehensive income may include unrealized
gains and losses on available-for-sale securities, gains and losses on certain
derivative instruments and foreign currency gains and losses from self
sustaining foreign operations. The Company presents comprehensive income and its
components in the consolidated statements of comprehensive loss. Financial
Instruments.The Company’s financial instruments consist of cash and
cash equivalents, marketable securities, accounts payable, accrued expenses and
convertible notes. Cash and cash equivalents are classified as held for trading
and any changes in fair value are charged to the statement of operations.
Marketable equity securities are classified as available for sale with any
unrealized gain or loss recorded in other comprehensive income. Marketable debt
securities are classified as held-to-maturity and are measured at amortized
cost using the effective interest rate method. Other financial liabilities are
accounted for at cost or amortized cost. Note 2.                   New
Accounting Policies In June 2011, the FASB
issued Accounting Standards Update 2011-05 that requires changes in the
presentation of comprehensive income. Effective for periods beginning after
December 15, 2011, entities will have the option of presenting the total of
comprehensive income, the components of net income, and the components of other
comprehensive income either in a single continuous statement of comprehensive
income or in two separate but consecutive statements. The adoption of the
updated guidance will not have an effect on the Company’s financial statements. In May 2011, the FASB
issued Accounting Standards Update 2011-04 which contains amendments resulting
in common fair value measurement and disclosure requirements in financial
statements prepared in accordance with U.S. GAAP and IFRS.  The amendments
change the wording used to describe the requirements in U.S. GAAP for measuring
fair value and for disclosing information about fair value measurements. This
update is effective for periods beginning after December 15, 2011 and is not
expected to have a significant impact on the Company’s financial statements. In January 2010, the FASB
issued new guidance (ASU 2010-06) that requires new disclosures for fair value
measurements and provides clarification for existing disclosures requirements.
More specifically, it requires reporting entities to 1) disclose separately the
amount of significant transfers into and out of Level 1 and Level 2 fair-value
measurements and to describe the reasons for the transfers, and 2) provide
information on purchases, sales, issuances and settlements on a gross basis
rather than net in the reconciliation of Level 3 fair-value measurements. This
guidance is effective for interim and annual reporting periods beginning after
December 15, 2009, except for the Level 3 fair-value measurements
disclosures that are effective for fiscal years beginning after
December 15, 2010. The adoption of the updated guidance did not have an
effect on the Company’s financial statements. Note 3.                   Expropriation of Brisas Project by Venezuelan
Government and Related Arbitration 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 Kilometer 88 mining district of the State of Bolivar in
south-eastern 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. On
October 21, 2009 the Company filed a Request for Arbitration under the
Additional Facility Rules of the International Centre for Settlement of
Investment Disputes (“ICSID”), against Venezuela (“Respondent”) and thereafter
on October 26, 2009, Venezuelan government
personnel took physical possession of the property. In November 2009 the Company’s Request for Arbitration
was registered by ICSID (Gold Reserve Inc. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB(AF)/09/1)). 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. In
compliance with the schedule previously set by the Tribunal, we filed our
initial written submission, known as the Memorial, on September 24, 2010 alleging violations of three provisions of the
Canada-Venezuela Bilateral Investment Treaty and seeking compensation
corresponding to the restitution, or fair market, value of the rights to
develop the Brisas Project and Choco 5, as of the date of the award. On April 14, 2011, based on a revised written
submission schedule established by the Tribunal in February 2011, the
Respondent submitted its reply to the Company’s Memorial, known as the
Counter-Memorial. More recently, on July 6, 2011, the Tribunal approved a joint
request by both parties for an additional extension of time to submit the
Company’s Reply from July 15, 2011 to July 29, 2011 and Venezuela’s Rejoinder from October 17, 2011 to November 14, 2011.  7


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Selected Notes to Consolidated Financial Statements For the Six Months Ended June 30, 2011 and

2010(unaudited) Expressed in U.S. Dollars
 Management, its arbitration counsel and expert advisors
fulfilled the Company’s obligation to respond to the Respondent in a timely
manner by submitting its reply to ICSID on July 29, 2011. After accepting a few
proposed corrections noted in Venezuela’s Counter-Memorial and updating the
interest calculations to reflect the measure of Gold Reserve’s losses as of
June 30, 2011, the revised claim now approximates $2.1 billion. The oral hearing on the merits and jurisdictional
issues is scheduled for a 10 day hearing to commence February 6, 2012 in Washington,   D.C. See “Part II- Other Information-
Item 1. Legal Proceedings- Arbitration.” Note 4.                   Cash
and Cash Equivalents June 30,
 
 December 31,2011
 
 2010Bank
  deposits
 
 
 
 
 
 $
 55,437,987
 $
 52,307,918Money
  market funds
 
 
 
 
 
 
 5,436,017
 
 5,878,560Total
 
 
 
 
 
 $
 60,874,004
 $
 58,186,478
  At June 30, 2011 and December 31, 2010, the Company had
approximately $153,000 and $39,000 respectively, in Venezuela and banks outside
 Canada and the U.S. Note 5.                   Marketable
Equity Securities June 30,
 
 December 31,2011
 
 2010Fair
  value at beginning of year
 
 
 
 
 
 $
 2,263,923
 $
 598,825Acquisitions
 
 
 
 
 
 
 655,842
 
 778,144Dispositions,
  at cost
 
 
 
 
 
 
 (706,081)
 
 (667,166)Realized
  gain on sale
 
 
 
 
 
 
 (511,668)
 
 (241,621)Unrealized
  gain (loss)
 
 
 
 
 
 
 (375,804)
 
 1,795,741Fair
  value at balance sheet date
 
 
 
 
 
 $
 1,326,212
 $
 2,263,923
  The
Company’s marketable equity securities are classified as available-for-sale and
are recorded at quoted market value with gains and losses recorded within other
comprehensive income until realized. As of June 30, 2011 and December 31, 2010 marketable
securities had a cost basis of $995,769 and $1,046,009, respectively. Note 6.                   Financial
Instruments  The fair values as at June 30, 2011 and December 31, 2010
along with the carrying amounts shown on the consolidated balance sheets for
each classification of financial instrument are as follows:   June 30, 2011
 
 December 31, 2010Carrying
 Fair
 
 Carrying
 FairClassification
 Amount
 Value
 
 Amount
 ValueCash and cash equivalents
 held for trading
 $60,874,004
 $60,874,004
 
 $58,186,478
 $58,186,478Marketable equity securities
 available for sale
 1,326,212
 1,326,212
 
 2,263,923
 2,263,923A/P and accruals
 other financial
  liabilities
 4,870,777
 4,870,777
 
 1,633,150
 1,633,150Accrued interest
 other financial
  liabilities
 234,550
 234,550
 
 234,550
 234,550Convertible notes
 other financial
  liabilities
 101,258,624
 76,710,415
 
 100,754,404
 69,477,790
  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.  8


---



Selected Notes to Consolidated Financial Statements For the Six Months Ended June 30, 2011 and

2010(unaudited) Expressed in U.S. Dollars
 ASC
820establishes 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 entity’s own assumptions.  Fair value
  June 30, 2011
 Level 1
 Level 2
 Level 3Cash and cash equivalents
 
 $60,874,004
 $60,874,004
 –
 –Marketable equity securities
 
 1,326,212
 1,326,212
 –
 –Fair value
  December 31, 2010
 Level 1
 Level 2
 Level 3Cash and cash equivalents
 
 $58,186,478
 $58,186,478
 –
 –Marketable equity securities
 
 2,263,923
 2,263,923
 –
 –
  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. The Company’s
primary exposure to credit risk is through its cash and cash equivalents. The
Company holds its cash in major Canadian and U.S. financial institutions. b)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 current
and foreseeable obligations. The following table presents the Company’s payments
due on accounts payable and accrued expenses and its undiscounted interest and
principal payments due on its convertible notes if the notes were to reach
their contractual maturity date of June 15, 2022. (See Note 12) Payments due by PeriodLess
  than
 
 
 More
  ThanTotal
 1 Year
 1-3 Years
 4-5 Years
 5 YearsA/P and accruals
 $   4,870,777
 $   4,870,777
 $ –
 $ –
 –Interest
 61,921,145
 5,629,195
 11,258,390
 11,258,390
 33,775,170Principal
 102,349,000
 –
 –
 –
 102,349,000Total
 $ 169,140,922
 $ 10,499,972
 $ 11,258,390
 $ 11,258,390
 $
  136,124,170
  c)The Company is subject to currency
risk mainly due to its operations in Venezuela, which are limited. Transactions
denominated in foreign currency are exposed to exchange rate fluctuations which
have an impact on the statement of operations.  The Company’s 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
Company’s net gain from the translation of foreign currency denominated financial
instruments, for the six months ended June 30, 2011 and 2010, by the amounts
shown below. 2011
 
 2010Venezuelan Bolívar
 $
 58,617
 $
 (492)Canadian dollar
 
 (258)
 
 (412)Total
 $
 58,359
 $
 (904)
  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. Cash and cash equivalents earn floating
market rates of interest. Other current financial assets and liabilities are
generally not exposed to this risk because of their immediate or short-term
maturity. The interest rate on the Company’s convertible notes is fixed and
therefore the interest payments are not subject to changes in market rates of
interest.  9


---



Selected Notes to Consolidated Financial Statements For the Six Months Ended June 30, 2011 and

2010(unaudited) Expressed in U.S. Dollars
 Note 7.                   Property, Plant and
Equipment  AccumulatedCost
 
 Depreciation
 
 NetJune
  30, 2011United StatesMachinery and equipment
 $
 21,209,438
 $
 –
 $
 21,209,438Furniture and office equipment
 
 510,784
 
 (450,585)
 
 60,199Leasehold improvements
 
 41,190
 
 (39,801))
 
 1,389$
 21,761,412
 $
 (490,386)
 $
 21,271,026VenezuelaBuildings
 $
 403,286
 $
 (299,071)
 $
 104,215Furniture and office equipment
 
 480,751
 
 (470,055)
 
 10,696Transportation equipment
 
 164,482
 
 (161,621)
 
 2,861Machinery
  and equipment
 
 380,341
 
 (288,427)
 
 91,9141,428,860
 
 (1,219,174)
 
 209,686Total
 $
 23,190,272
 $
 (1,709,560)
 $
 21,480,712AccumulatedCost
 
 Depreciation
 
 NetDecember
  31, 2010United StatesMachinery and equipment
 $
 28,071,469
 $
 –
 $
 28,071,469Furniture and office equipment
 
 506,339
 
 (435,224)
 
 71,115Leasehold improvements
 
 41,190
 
 (38,874))
 
 2,316$
 28,618,998
 $
 (474,098)
 $
 28,144,900VenezuelaBuildings
 $
 403,286
 $
 (285,696)
 $
 117,590Furniture and office equipment
 
 480,751
 
 (462,208)
 
 18,543Transportation equipment
 
 214,112
 
 (201,196)
 
 12,916Machinery and equipment
 
 497,808
 
 (288,427)
 
 209,3811,595,957
 
 (1,237,527)
 
 358,430Total
 $
 30,214,955
 $
 (1,711,625)
 $
 28,503,330
 Machinery
and equipment includes amounts paid for equipment previously intended for use
on the Brisas project. At June 30, 2011 certain equipment with a carrying value
of approximately $6.9 million was reclassified to assets held for sale. During
the third quarter of 2011, this equipment was sold for $7.8 million and the
Company recorded a gain on sale of $0.9 million. Equipment classified as assets
held for sale at December 31, 2010 was sold during the first quarter of 2011
for $8.3 million and the Company recorded a gain on sale of $0.3 million. Note 8.                   KSOP
Plan 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, subject to
certain limitations, is at the discretion of the Company’s 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 has not
yet made any contribution for the 2011 Plan year. Cash contributions to
eligible participants for the Plan years 2010 and 2009 were $175,174, and
$57,292, respectively. As of June 30, 2011, 22,246 common shares remain
unallocated to plan participants.  10


---



Selected Notes to Consolidated Financial Statements For the Six Months Ended June 30, 2011 and

2010(unaudited) Expressed in U.S. Dollars
 Note
9.                   Stock Based Compensation Equity Incentive Plans The Company has two equity
incentive plans; the 1997 Equity Incentive Plan (last amended in March 2006 and
last re-approved by the shareholders in June 2009, the “1997 Plan”) and the
2008 Venezuelan Equity Incentive Plan (approved by the shareholders in June
2008, the “Venezuelan Plan”).  Pursuant to Toronto Stock Exchange rules the
plans must be re-approved by Shareholders every three years. As of June 10,
2011, grants under the Venezuelan Plan are no longer allowed as the Plan
remains in suspension until re-approved by Shareholders. 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 Company’s outstanding shares,
from time to time.  The grants will be for terms up to ten years with vesting
periods ranging from immediate to up to 3 years. Combined share option
transactions for the six months ended June 30, 2011 and 2010 are as follows:  2011
 
 2010Shares
 Weighted Average
  Exercise Price
 
 Shares
 Weighted Average
  Exercise PriceOptions outstanding at beginning of period
 
 3,178,102
 2.39
 
 4,573,318
 2.67Options exercised
 
 (33,167)
 0.48
 
 (141,666)
 0.29Options expired
 
 (257,913)
 4.83
 
 (339,582)
 4.70Options forfeited
 
 –
 –
 
 (101,917)
 2.83Options granted
 
 3,793,000
 1.85
 
 –
 –Options outstanding at end of period
 
 6,680,022
 2.00
 
 3,990,153
 2.58Options exercisable at end of period
 
 3,597,772
 2.12
 
 3,562,364
 2.85Options available for grant at end of
  period under 1997 plan
 
 1,069,139
 
 
 2,552,189Options available for grant at end of
  period under Venezuelan plan
 
 4,147,489
 
 
 5,165,338
  The following table relates to stock
options at June 30, 2011: Outstanding Options
 
 Exercisable OptionsExercise Price Range
 Number
 Weighted Average Exercise
  Price
 Aggregate Intrinsic Value
 Weighted Average Remaining
  Contractual Term (Years)
 
 Number
 Weighted Average Exercise
  Price
 Aggregate Intrinsic Value
 Weighted Average Remaining
  Contractual Term (Years)$0.29 - $0.29
 1,102,522
 $0.29
 $2,469,649
 2.43
 
 1,102,522
 $0.29
 $2,469,649
 2.43$0.73 - $0.73
 521,000
 $0.73
 937,800
 2.72
 
 521,000
 $0.73
 937,800
 2.72$1.82 - $1.82
 2,843,000
 $1.82
 2,018,530
 4.51
 
 710,750
 $1.82
 504,633
 4.51$1.92 - $1.92
 950,000
 $1.92
 579,500
 9.94
 
 -$3.95 - $4.19
 686,000
 $4.12
 
 0.27
 
 686,000
 $4.12
 
 0.27$4.30 - $4.62
 298,500
 $4.57
 
 0.42
 
 298,500
 $4.57
 
 0.42$5.07 - $5.36
 279,000
 $5.19
 
 0.42
 
 279,000
 $5.19
 
 0.42$0.29 - $5.36
 6,680,022
 $2.00
 $6,005,479
 4.01
 
 3,597,772
 $2.12
 $3,912,082
 4.01
   11


---



Selected Notes to Consolidated Financial Statements For the Six Months Ended June 30, 2011 and

2010(unaudited) Expressed in U.S. Dollars
 The Company recorded compensation expense during the
six months ended June 30, 2011 and 2010 of $1.9 million and $0.1 million, respectively,
for stock options granted. Compensation expense for the six months ended June
30, 2011 includes $1.5 million related to options granted in the first quarter
2011. In the second quarter of 2011, the Company issued 950,000 options with an
estimated fair market value of $0.7 million which vest upon settlement or award
in the arbitration against Venezuela. The Company does not currently record an
expense for these options and will only record an expense in the event it
becomes probable the options will vest. As of June 30, 2011, compensation expense of $2.7 million related to
unvested options remains to be recognized. During the six months ended June 30,
2011 and 2010, new options totaling 3,793,000 and 0, respectively were
granted.  The weighted average grant date fair value of options granted in 2011
was calculated at $1.23 and the total fair value of options vested during 2011
was $1.0 million. The fair value of options granted in 2011 was determined
using the Black-Scholes model based on the following assumptions: Weighted average risk free interest rate
 
 1.63%Expected
  Term
 
 4.0 yearsExpected
  volatility
 
 97%Dividend
  yield
 
 nil
  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 Company’s 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 June 30, 2011 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. Note 10.                 Related
Party Transactions: MGC
Ventures. 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. 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 June 30, 2011 and December 31,
2010.  During the last three years, the Company sublet a portion of its office
space to MGC Ventures for $6,000 per year. Great
 Basin. 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. 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 June 30, 2011 and December 31,
2010. During the last three years, the Company sublet a portion of its office
space to Great Basin for $6,000 per year.  12


---



Selected Notes to Consolidated Financial Statements For the Six Months Ended June 30, 2011 and

2010(unaudited) Expressed in U.S. Dollars
 Note
11.                 Shareholder Rights Plan The Company instituted a shareholder rights plan (the
“Rights Plan”) in 1999. Since the original approval by the shareholders, the
Rights Plan and the Rights Plan agreement have been amended and continued from
time to time. In June 2009, the shareholders approved certain amendments to the
Rights Plan including continuing the Shareholder Rights Plan until June 30,
2012. The Rights Plan is designed to give the Board of Director’s time to
consider alternatives, allow shareholders time to properly assess the merits of
a bid and insure they receive full and fair value for their common shares. One
right is issued in respect of each outstanding share. The rights become
exercisable only when a person, including any party related to it or acting
jointly with it, acquires or announces its intention to acquire 20% or more of
the Company’s outstanding shares without complying with the “permitted bid”
provisions of the Rights Plan. 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. Note 12.                 Convertible
Notes In May 2007, the Company
issued $103,500,000 aggregate principal amount of 5.50% Senior subordinated
convertible notes. The notes are unsecured, bear interest at a rate of 5.50%
annually, pay interest semi-annually in arrears and are due on June 15, 2022. 
The notes are convertible into Class A common shares of the Company at the
initial conversion rate, subject to adjustment, of 132.626 shares per $1,000
principal amount (equivalent to a conversion price of $7.54). Upon conversion,
the Company will have the option, unless there has occurred and is then
continuing an event of default under the Company’s indenture, to deliver common
shares, cash or a combination of common shares and cash for the notes
surrendered. 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. The Company may
elect to satisfy its obligation to pay the repurchase price, in whole or in
part, by delivering Common Shares. Since the Company does not expect to use
current assets or create new current liabilities to satisfy its potential
requirement to pay the repurchase price, the notes are classified as
non-current. 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
Company’s 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 Common Shares has remained above that price for
at least twenty trading days in the period of thirty trading days preceding the
Company’s 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 holder’s exercise of conversion rights and similar
provisions or the Company’s failure to give notice of a fundamental change
which is generally defined as events related to a change of control in the
Company. The
notes are classified as a liability and were initially recorded at face value,
net of issuance costs. The notes are accreted to face value using the effective
interest rate method over the expected life of the notes, currently 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 June 30, 2011, 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.   13


---



ITEM 2.  Management’s
Discussion and Analysis of Financial Condition and Results of Operations Overview This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations, dated August 11, 2011 is intended to assist in understanding and
assessing our results of operations and financial condition and should be read
in conjunction with the consolidated financial statements and related notes. Gold
Reserve, an exploration stage company, is engaged in the business of acquiring,
exploring and developing mining projects. 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 Kilometer 88 mining
district of the State of Bolivar in south-eastern Venezuela (which we refer to
as the “Brisas Project” or “Brisas”). On
October 26, 2009, in apparent response to our filing on October 21, 2009 of a
Request for Arbitration under the Additional Facility Rules of the
International Centre for Settlement of Investment Disputes (“ICSID”) against
the Bolivarian Republic of Venezuela (“Venezuela”), government personnel
arrived at the project 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 us
through the issuance of an Administrative Act, dated October 20, 2009, of its
intent to cancel our underlying hard rock concession which it formally
completed in June 2010. See Part II, Item 1. Legal Proceedings – Arbitration. The
Company’s current financial position and results of operations are a consequence
of the Company’s decision to incur substantial operating deficits and project
development costs in its pursuit, since 1992, to develop, construct and operate
the Brisas Project. And, more recently, subsequent to the issuance of the
Authorization to Affect, to place orders to acquire approximately $125 million
of equipment and raise $183 million through the issuance of convertible notes
and common shares only to have the Venezuelan government seize the Brisas
Project without cause, requiring us to cease development, write-off previously
capitalized costs associated with the project development and in October 2009 file
a Request for Arbitration under the Additional Facility Rules of ICSID. We
expect this arbitration process, which commenced in April 2009 when we advised
Venezuela of our claims pursuant to the Canada – Venezuela Bilateral Investment
Treaty (the “Canada – Venezuela Treaty”) is well advanced and a 10 day oral
hearing is scheduled to commence February 6, 2012 in Washington D.C. Our
primary 2011 objectives are to (1) diligently pursue the arbitration claim against
Venezuela and minimize costs to the extent possible; (2) pursue an amicable
settlement with Venezuela that may include a monetary agreement and/or project
participation; (3) dispose of remaining assets previously purchased for the Brisas
Project, which originally cost approximately $39 million and are recorded on
the balance sheet (as property, plant and equipment and assets held for sale)
at their estimated fair value of $28 million; (4) pursue alternative industry
opportunities for participation; and (5) evaluate the Company’s options to
redeem, restructure or otherwise modify the terms of the 5.50% convertible
notes the outcome of which, among other things, is subject to the sale of the
Brisas Project assets. The
successful execution of these objectives will be facilitated by the Company’s
senior management team, which has extensive technical, financial and
administrative experience in the mining industry- substantially all of whom
have been employed by the Company for over 15 years with a single focus of
developing the Brisas Project which is important for the successful execution
of our arbitration efforts. The timing of any such new investment or
transaction 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. During 2011,
the Company has informally communicated a number of times with the Attorney
General’s Office and we expect to continue more formal efforts with the
appropriate government representatives in the near future. The
information contained in this Quarterly Report on Form 10-Q relating to our
past development efforts, regulatory process and reported mineral reserves for
the Brisas Project and Choco 5 property are presented only 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. The Company no longer considers
historically reported mineralization as “reserves”. We
have no commercial production at this time and, as a result, we have no 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 or invest in an
alternative project. Historically we have financed the Company’s operations
through the issuance of common stock, other equity securities and convertible
debt. The Company has only one operating segment, the exploration and
development of mineral properties. For
fiscal years commencing in 2011, the Company changed its basis of accounting
and financial reporting to comply with accounting principles generally accepted
in United States. See Note 1 to the consolidated financial statements.
Investors are urged to read our filings with U.S. and Canadian securities
regulatory agencies, which can be viewed on-line at www.sec.gov, www.sedar.com
or at the Company’s website, http://www.goldreserveinc.com which also includes
the Company’s corporate governance policies. Additionally, you can request a
copy of any of these documents directly from us.  14


---



The
Company received a written notice dated June 20, 2011, that the NYSE Amex LLC
(the “Exchange”) intends to file a application with the United States
Securities and Exchange Commission (the “SEC”) delisting the Company’s common
shares. The Staff based this decision on its analysis that subsequent to the
seizure of the Brisas Project by the Venezuelan authorities in October 2009,
the Company “no longer complies” with the Exchange’s continued listing rules. 
The Company requested a hearing to appeal the Exchange’s conclusions and
submitted a written submission to the Listing Qualifications Panel outlining
the reasons supporting continued listing on the Exchange. Management presented its case to the NYSE Amex staff at
an oral hearing held on August 10, 2011 and management awaits the staff’s
decision. In the event of a negative response, the Company has 15 days to
request a further appeal. Financial Overview Cautionary
Statement Regarding Forward-Looking Statements The
information presented or incorporated by reference in this Quarterly Report on
Form 10-Q contains both historical information and forward-looking statements
(within the meaning of Section 27A of the Securities Act, Section 21E of the
Exchange Act and the Securities Act (Ontario)) that may state our intentions,
hopes, beliefs, expectations or predictions for the future. In this report,
forward-looking statements are necessarily based upon a number of estimates and
assumptions that, while considered reasonable by us at this time, are
inherently subject to significant business, economic and competitive
uncertainties and contingencies. We caution that such forward-looking
statements involve known and unknown risks, uncertainties and other risks that
may cause our actual financial results, performance, or achievements of the
Company to be materially different from our estimated future results,
performance, or achievements expressed or implied by those forward-looking
statements. These
forward-looking statements involve risks and uncertainties, as well as assumptions
that may never materialize, prove incorrect or materialize other than as
currently contemplated which could cause our results to differ materially from
those expressed or implied by such forward-looking statements. The words
“believe,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “may,” “could”
and other similar expressions that are predictions of or indicate future events
and future trends which do not relate to historical matters, identify
forward-looking statements. Any such forward-looking statements are not
intended to give any assurances as to future results. Numerous factors could
cause actual results to differ materially from those in the forward-looking
statements. Due to risks and uncertainties, including the risks and
uncertainties identified in our Annual Report on Form 10-K- “Part I- Item 1A.
Risk Factors”, actual results may differ materially from current expectations. Numerous
factors could cause actual results to differ materially from those in the
forward-looking statements, including without limitation: ·the outcome of our arbitration
under ICSID against the Bolivarian Republic of Venezuela; ·the actual value realized from the
disposition of the remaining Brisas Project related assets; ·the result or outcome of the
litigation regarding the enjoined hostile takeover bid for us; ·the potential equity dilution in
the event the convertible notes are converted in part or in whole to common
shares; ·corruption and uncertain legal
enforcement; ·political and social instability; ·requests for improper payments; ·competition with companies that are
not subject to or do not follow Canadian and U.S. laws and regulations; ·regulatory, political and economic
risks associated with Venezuela including changes in laws and legal regimes; ·impact of currency, metal prices
and metal production volatility; ·our dependence upon the abilities
and continued participation of certain key employees; ·the prospects for exploration and
development of other mining projects by us; ·and risks normally incident to the
exploration, development and operation of mining properties. Investors
are cautioned not to put undue reliance on forward-looking statements, and
investors should not infer that there has been no change in our affairs since
the date of this report that would warrant any modification of any
forward-looking statement made in this document, other documents filed
periodically with securities regulators or documents presented on our website.
All subsequent written and oral forward-looking statements attributable to us
or persons acting on our behalf are expressly qualified in their entirety by
this notice. We disclaim any intent or obligation to update publicly or
otherwise revise any forward-looking statements or the foregoing list of
assumptions or factors, whether as a result of new information, future events
or otherwise, subject to our disclosure obligations under applicable rules
promulgated by the relevant securities regulators. Liquidity and
Capital Resources At June 30, 2011 the Company had cash and cash equivalents
of approximately $60.9 million which represents an increase from December 31,
2010 of approximately $2.7 million. The increase was primarily due to proceeds
from sales of equipment of $8.6 million and net proceeds from marketable
securities transactions of $0.6 million offset by cash used by operations of $6.5
million. The components of changes in cash are more fully described in the
“Operating,” “Investing” and “Financing” Activities section below. 2011
 2010
 ChangeCash
  and cash equivalents
 $  60,874,004
 $  58,186,478
 $ 2,687,526
  15


---



As of June 30, 2011, our total financial resources,
which include cash and cash equivalents and marketable securities, totaled
approximately $62.2 million. In addition to cash and cash equivalents and
investments, the Company holds Brisas Project related equipment that it intends
to dispose of in 2011. This equipment is carried on the balance sheet (as
property, plant and equipment and assets held for sale) at its estimated fair
value of approximately $28 million (historical cost of approximately $39
million). The
primary future obligation of the Company is the $103.5 million 5.50%
convertible 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 12 to the consolidated financial
statements and Contractual Obligations below. With the ability to settle any request
for redemption of the convertible notes with common shares, 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 2012. As
of August 11, 2011 we had approximately $66 million in cash and investments
which are held primarily in US dollar denominated accounts. The
timing and extent of additional funding, if any, depends on a number of
important factors, including, but not limited to the timing and outcome of our
investment dispute with Venezuela, the timing and the amount of proceeds, if
any, from the sale of Brisas Project related equipment, the extent of future
acquisitions or investments, if any, status of the financial markets and our
share price. Operating Activities Cash flow used by operating
activities for the three and six months ended June 30, 2011 was approximately $4.1
million and $6.5, respectively, compared to approximately $6.3 million and $10.3
million for the comparative periods in 2010. Cash flow used by operating
activities consists of net operating losses (the components of which are more
fully discussed below) adjusted for certain non-cash income and expense items
primarily related to gains on sale of equipment and marketable securities, accretion
of convertible notes, stock options and common shares issued in lieu of cash
compensation and certain non-cash changes in working capital. Cash flow used by operating activities during 2011
decreased from the prior comparable periods primarily due to: a net increase in
accounts payable primarily related to the timing of payments to counsel and
experts connected with the arbitration and non-cash compensation related to the
issuance of stock options and restricted stock totaling approximately $3
million, partially offset by an adjustment for gain on sale of equipment. Investing
Activities During the three and six months ended June 30, 2011,
net cash provided by investing activities (decreased) increased approximately $(3.8)
million, and $0.5 million from the comparable periods in 2010. Investing
activities primarily consist of the sale of Brisas Project related equipment and
to a lesser extent transactions in marketable securities. As of June 30, 2011, the Company held approximately $21.2
million of Brisas project related equipment intended for future sale. 3 months
 
 
 6 months2011
 2010
 Change
 2011
 2010
 ChangeProceeds (net of purchases) of marketable securities
 $   457,914
 $   (410,441)
 $ 868,355
 $ 561,907
 $ (222,384)
 $ 784,291Purchase of property, plant and equipment
 (30,431)
 -
 (30,431)
 (32,944)
 (498,440)
 465,496Proceeds from sale of equipment
 303,255
 4,985,443
 (4,682,188)
 8,640,395
 8,851,084
 (210,689)Decrease in restricted cash
 -
 -
 -
 -
 494,076
 (494,076)$ 730,738
 $ 4,575,002
 $ (3,844,264)
 $ 9,169,358
 $ 8,624,336
 $ 545,022
  Financing Activities The Company had no significant financing activities in
2011 and 2010. Net proceeds from the issuance of commons shares relate to the
exercise of employee stock options and totaled $15,778 and $41,084 during the six
months ended 2011 and 2010, respectively. Contractual Obligations The following table sets forth information on the
Company’s material contractual obligation payments for the periods indicated as
of June 30, 2011: Payments
  due by PeriodTotal
 Less than 1 Year
 1-3 Years
 4-5 Years
 More Than 5 YearsConvertible Notes(1)
 $102,349,000
 –
 –
 –
 $102,349,000Interest
 61,921,145
 $5,629,195
 $11,258,390
 $11,258,390
 33,775,170$164,270,145
 $5,629,195
 $11,258,390
 $11,258,390
 $136,124,170
   16


---



1In May 2007, the Company issued $103,500,000 aggregate principal amount of its 5.50% convertible notes. As of June 30, 2011, $102,349,000 remains outstanding. The notes pay interest semi-annually and are due on June 15, 2022.  The notes are recorded on the balance sheet at amortized cost of approximately $101 million. Subject to certain conditions, the notes may be converted into Class A common shares of the Company, redeemed or repurchased. 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. The Convertible Note Indenture provides that the Company may elect to satisfy its obligation to pay the repurchase price, in whole or in part, by delivering Common Shares. If in the future we elect to repurchase the notes with common shares, we would be required to issue shares based on the then current market value. The amounts shown above include the interest and principal payments due if the notes were to reach their contractual maturity date of June 15, 2022. 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 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. 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 convertible notes are trading in the gray market often at a significant discount to face value. The terms of the indenture provide that the Company may repurchase the convertible notes in open market purchases or negotiated transactions. As of June 30, 2011, $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 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 holder’s exercise of conversion rights and similar provisions or the Company’s failure to give notice of a fundamental change which is generally defined as events related to a change of control in the Company. In the event of a change of control of the Company, the Company will 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 with cash or Common Shares unless there has occurred and is continuing certain events of default under the Company’s indenture. Results of Operations Summary Results of Operations Consolidated net loss for the three and six months ended June 30, 2011 was approximately $6.9 million and $12.0 million, respectively, representing increases of $2.6 million and $3.4 million over the comparable periods in 2010. 3 months

   

   

   6 months2011

   2010

   Change

   2011

   2010

   ChangeOther Income

   $ 516,569

   $ 440,230

   $ 76,339

   $ 1,123,602

   $ 749,418

   $ 374,184Total expenses

   (7,387,980)

   (4,663,279)

   (2,724,701)

   (13,160,635)

   (9,396,332)

   (3,764,303)Net Loss

   $ (6,871,411)

   $ (4,223,049)

   $ (2,648,362)

   $(12,037,033)

   $(8,646,914)

   $ (3,390,119)
  Other Income 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 variable sources of income. As noted below, the increase in other income was primarily due to increases in gain on sale of equipment and gain on disposition of marketable securities. These increases were partially offset by decreases in interest income and a decrease in foreign currency gain. 3 months

   

   

   6 months2011

   2010

   Change

   2011

   2010

   ChangeInterest

   $ 42,753

   $ 64,018

   $ (21,265)

   $ 86,801

   $ 128,537

   $ (41,736)Gain on disposition of marketable securities

   313,477

   -

   313,477

   511,668

   106,551

   405,117Gain on sale of equipment

   185,787

   314,170

   (128,383)

   546,995

   370,044

   176,951Foreign currency gain (loss)

   (25,448)

   62,042

   (87,490)

   (21,862)

   144,286

   (166,148)$ 516,569

   $ 440,230

   $ 76,339

   $ 1,123,602

   $ 749,418

   $ 374,184
  17


---



Expenses Total expenses for the three and six months ended June 30, 2011 increased $2.7 million and $3.8 million, respectively over the comparable periods in 2010. The increases were primarily due to non-cash increases in costs associated with the issuance of stock options and restricted shares as well as increases in arbitration costs and equipment holding costs. Substantially all of the increase in corporate general and administrative and corporate communications expense is due to non-cash costs associated with the issuance of stock options and to a lesser degree restricted shares. A total of approximately 2.6 million share purchase options expired in 2010 or will expire by the end of 2011 and be returned to the plans. During 2011, the Company issued approximately 4.0 million share purchase options and restricted shares (approximately 3 million in the first quarter and 1 million in the second quarter) including approximately 1 million share purchase options issued to certain key personnel from the Venezuelan Plan from which no additional shares can be issued until re-approval by shareholders.  Pursuant to generally accepted accounting principles, the Company records a non-cash expense associated with the issuance of options using the fair value method of accounting which is computed using the Black-Scholes method and expensed over the vesting period of the option (see Note 9, Stock Based Compensation).  Accounting rules do not provide for the recovery of previously expensed amounts associated with expired share purchase options.  3 months

   

   

   6 months2011

   2010

   Change

   2011

   2010

   ChangeCorporate general and administrative

   $ 1,621,381

   $ 808,080

   $ 813,301

   $ 4,325,742

   $ 1,781,517

   $ 2,544,225Venezuelan expenses

   401,016

   426,534

   (25,518)

   748,757

   876,651

   (127,894)Corporate communications

   196,754

   132,177

   64,577

   379,974

   262,291

   117,683Legal and accounting

   215,431

   164,511

   50,920

   302,939

   291,662

   11,2772,434,582

   1,531,302

   903,280

   5,757,412

   3,212,121

   2,545,291Arbitration

   2,810,820

   1,344,669

   1,466,151

   3,145,845

   2,423,938

   721,907Equipment holding costs

   474,256

   138,235

   336,021

   938,561

   478,989

   459,572Interest expense

   1,668,322

   1,651,555

   16,767

   3,318,817

   3,285,460

   33,357Income tax benefit

   -

   (2,482)

   2,482

   -

   (4,176)

   4,176Total Expenses for the Period

   $ 7,387,980

   $ 4,663,279

   $ 2,724,701

   $ 13,160,635

   $ 9,396,332

   $ 3,764,303
  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 For fiscal years commencing in 2011, the Company changed its basis of accounting and financial reporting to comply with US GAAP.  The Company has accounted for this change in presentation on a retroactive basis.  The balance sheet amounts as of December 31, 2010 and the comparative operating results for the three and six months ended June 30, 2010 were restated accordingly.   A reconciliation of Canadian GAAP and US GAAP is included in Note 19 of the Company’s financial statements as of December 31, 2010 and for the year then ended.  18


---



Transactions with Related Parties MGC Ventures.
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. 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 June
30, 2011 and December 31, 2010.  During the last three years, the Company
sublet a portion of its office space to MGC Ventures for $6,000 per year. Great Basin.
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. 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 June 30, 2011 and December 31,
2010. During the last three years, the Company sublet a portion of its office
space to Great Basin for $6,000 per year. ITEM 3.QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK The
Company is exposed to various risks including credit risk, liquidity risk,
currency risk and interest rate risk as described below: Credit
risk is the risk that a counter party will fail to meet its obligations to the
Company. The Company’s primary exposure to credit risk is through its cash and
cash equivalents. The Company diversifies its cash holdings into major Canadian
and U.S. financial institutions and corporations. 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 current and foreseeable obligations. 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
Company’s cash and other monetary assets and liabilities that are held in
Venezuelan and Canadian currency are subject to fluctuations against the US
dollar. 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. 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. Other current financial
assets and liabilities are generally not exposed to this risk because of their
immediate or short-term maturity. The interest rate on the Company’s
convertible notes is fixed and therefore the interest payments are not subject
to changes in market rates of interest.  ITEM 4.CONTROLS AND PROCEDURES During
the fiscal period covered by this report, the Company’s management, with the
participation of the Chief Executive Officer and Chief Financial Officer,
carried out an evaluation of the effectiveness of the design and operation of
the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)). Based on such evaluation, the Company’s Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of the period
covered by this report, the Company’s disclosure controls and procedures are
effective to ensure that information required to be disclosed by the Company in
reports that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the required time periods and are designed to
ensure that information required to be disclosed in its reports is accumulated
and communicated to the Company’s management, including the Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure. There has been no change in the Company’s
internal control over financial reporting during the most recent fiscal quarter
that has materially affected, or that is reasonably likely to materially
affect, the Company’s internal control over financial reporting.  19


---



PART II – OTHER INFORMATION  ITEM 1.LEGAL PROCEEDINGS Arbitration On
October 21, 2009 we filed a Request for Arbitration under the Additional
Facility Rules of ICSID, against the Bolivarian Republic of Venezuela (“Respondent”) seeking compensation corresponding to the restitution, or fair
market value of the rights to develop the Brisas Project and Choco 5, as of the
date of the award. Gold Reserve’s claim alleges violations of three provisions
of the Canada-Venezuela BIT culminating in the effective expropriation of Gold
Reserve’s sizable investments in the world-class Brisas gold/copper project and
the promising Choco 5 property. In November 2009 our Request for Arbitration
was registered by ICSID (Gold Reserve Inc. v. Bolivarian Republic of Venezuela (ICSID Case No. ARB(AF)/09/1)). The
Tribunal held its 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. On April 14, 2011,
based on a revised written submission schedule established by the Tribunal in
February 2011, the Respondent submitted its reply to the Company’s Memorial,
known as the Counter-Memorial. More recently, on July 6, 2011, the Tribunal
approved a joint request by both parties for an additional extension of time to
submit the Company’s Reply from July 15, 2011 to July 29, 2011 and Venezuela’s Rejoinder from October 17, 2011 to November 14, 2011. Management, its
arbitration counsel and expert advisors fulfilled the Company’s obligation to
respond to the Respondent in a timely manner by submitting its reply to ICSID
on July 29, 2011. After accepting a few proposed corrections noted in Venezuela’s Counter-Memorial and updating the interest calculations to reflect the measure
of Gold Reserve’s losses as of June 30, 2011, the revised claim now
approximates $2.1 billion. The oral hearing date remains February 6, 2012. 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 before
Venezuelan courts or tribunals 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. Litigation On
December 15, 2008, Rusoro Mining Ltd. (“Rusoro”) commenced an unsolicited offer
to acquire all of the outstanding shares and equity units of the Company in
consideration for three shares of Rusoro for each Company share or equity unit.
On December 16, 2008, the Company filed an action in the Ontario Superior Court
of Justice against Rusoro and Rusoro’s financial advisor Endeavour Financial
International Corporation (“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. The injunction was
granted by the Court following a motion by the Company on the basis that Rusoro
had access to or benefited from the use of the Company’s confidential
information as a result of Rusoro’s relationship with Endeavour. The Court also
issued an interlocutory injunction restraining Endeavour from having any
involvement with a hostile takeover bid for the Company. The Court further
required that Rusoro, Endeavour and their agents return to the Company both all
the confidential information of the Company and also anything produced from
that confidential information and pay the court costs. Following the issuance
of the interlocutory injunctions, Rusoro withdrew its unsolicited offer to
acquire the outstanding shares and equity units of the Company. 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 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 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. Recently, the Company added two additional defendants, amended
the claim for monetary damages with a further amended claim for monetary
damages forth coming and collected all its relevant internal documents,
including electronically stored information to begin the process of proceeding
to depositions.   20


---



ITEM 1A.RISK FACTORS The
risk factors for the quarter ended June 30, 2011 are substantially the same as
those disclosed and discussed in Item 1A of our Annual Report on Form 10-K
for the year ended December 31, 2010.  ITEM 2.UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS- None ITEM 3.       DEFAULTS UPON SENIOR SECURITIES- None ITEM 4.       [REMOVED AND RESERVED] ITEM 5.      OTHER
INFORMATION 5.02 Departure of Directors or Certain
Officers; Election of Directors; Appointment of Certain Officers; Compensatory
Arrangements of Certain Officers.  Mr. Douglas E. Stewart has advised the
Company that he will resign as Vice President of Project development on August
15, 2011. Mr. Stewart will remain available to assist with the Company’s
arbitration efforts.  ITEM 6.       EXHIBITS  10.1 Notice of Grant of Stock Options
and Option Agreement  31.1 Certification of Principal
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002  31.2 Certification
of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002  32.1 Certificate
of Principal Executive Officer pursuant to 18 U.S.C. 1350 (Section 906 of the
Sarbanes-Oxley Act of 2002)  32.2 Certificate of Principal
Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley
Act of 2002)   21


---



EXHIBIT 10.1                  Notice of Grant of Stock
Options and Option Agreement 1997 Equity
Incentive Plan and 2008 Venezuelan Equity Incentive Plan  ____________Stock
Option Plan Notice of Grant
of Stock OptionsID: ___________ and Option AgreementEquity Incentive
Plan NameOption Number: #### Plan:    ________ ID:_______ Effective {DATE},
you have been granted a(n) {Non-Qualified/ Qualified } Stock Option to buy ###
shares of_________
Equity Incentive Plan (the Company) stock at $## per share. The total option price of the shares granted is $#. Shares in each period will become fully vested on the
date shown. SharesVest TypeFull VestExpiration _______
                                    __________                                            _________{Date} _______                                     __________                                            _________{Date} _______
                                    __________                                            _________{Date} By your
signature and the Company's signature below, you and the Company agree that
these optionsare
granted under and governed by the terms and conditions of the Company's Stock
Option Plan asamended
and the Option Agreement, all of which are attached and made a part of this
document. ___________________________________________
                   ________________________________ ___________
Equity Incentive PlanDate ___________________________________________
                   ________________________________ NameDate  22


---



EXHIBIT
31.1CERTIFICATION
OF THE CEO PURSUANT TO SECTION 302  I, Rockne J Timm, certify that: 1. I have reviewed this report on Form 10-Q of Gold
Reserve Inc.; 2. Based on my knowledge, this report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; 3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have: a) designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this
report is being prepared; b) designed such internal control over
financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; c) evaluated the effectiveness of the
registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such
evaluation; and d) disclosed in this report any change
in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth
fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and 5. The registrant’s other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of
registrant’s board of directors (or persons performing the equivalent
functions): a) all significant deficiencies and
material weaknesses in the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the registrant’s
ability to record, process, summarize and report financial information; and b) any fraud, whether or not material,
that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.   /s/
 Rockne J. Timm Rockne J. Timm Chief Executive Officer August 11, 2011    23


---



EXHIBIT 31.2CERTIFICATION OF THE CFO PURSUANT TO
SECTION 302   I, Robert A. McGuinness, certify that: 1. I have reviewed this report on Form 10-Q of Gold
Reserve Inc.; 2. Based on my knowledge, this report does not contain
any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this report; 3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly present in all
material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report; 4. The registrant’s other certifying officer and I are
responsible for establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have: a) designed such disclosure controls
and procedures, or caused such disclosure controls and procedures to be
designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this
report is being prepared; b) designed such internal control over
financial reporting, or caused such internal control over financial reporting
to be designed under our supervision, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles; c) evaluated the effectiveness of the
registrant’s disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such
evaluation; and d) disclosed in this report any change
in the registrant’s internal control over financial reporting that occurred
during the registrant’s most recent fiscal quarter (the registrant’s fourth
fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and 5. The registrant’s other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of
registrant’s board of directors (or persons performing the equivalent
functions): a) all significant deficiencies and
material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the
registrant’s ability to record, process, summarize and report financial
information; and b) any fraud, whether or not material,
that involves management or other employees who have a significant role in the
registrant’s internal control over financial reporting.   /s/
Robert A. McGuinness Robert
A. McGuinness Vice President Finance and Chief
Financial Officer August 11, 2011     24


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EXHIBIT32.1 CERTIFICATION OF THE CEO PURSUANT TO SECTION 906 Certification of Principal Executive Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the
Sarbanes-Oxley Act of 2002) I, Rockne J. Timm, Chief Executive Officer of Gold
Reserve Inc., certify, to the best of my knowledge, based upon a review of the
Quarterly Report on Form 10-Q for the period ended June 30, 2011 of Gold
Reserve Inc. that: (1) The Quarterly Report on Form 10-Q fully complies
with the requirements of Section 13(a) of the Securities Exchange Act of
1934, as amended; and (2) The information contained and incorporated by
reference in the Quarterly Report on Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of Gold Reserve
Inc.   /s/
 Rockne J. Timm Rockne J. Timm Chief Executive Officer August 11, 2011  25


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EXHIBIT32.2 CERTIFICATION OF THE CFO PURSUANT TO SECTION 906 Certification of Principal Financial Officer Pursuant to 18 U.S.C. 1350 (Section 906 of the
Sarbanes-Oxley Act of 2002)  I, Robert A. McGuinness, Vice President Finance and
Chief Financial Officer of Gold Reserve Inc., certify, to the best of my
knowledge, based upon a review of the Quarterly Report on Form 10-Q for the
period ended June 30, 2011 of Gold Reserve Inc. that: (1) The Quarterly Report on Form 10-Q fully complies
with the requirements of Section 13(a) of the Securities Exchange Act of
1934, as amended; and (2) The information contained and incorporated by
reference in the Quarterly Report on Form 10-Q fairly presents, in all material
respects, the financial condition and results of operations of Gold Reserve
Inc.   /s/
Robert A. McGuinness Robert
A. McGuinness Vice President Finance and Chief
Financial Officer August 11, 2011  26


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