Notes to the Unaudited Interim Condensed Consolidated Financial Statements

1.

ORGANIZATION AND GOING CONCERN

Gentor Resources, Inc. (“the Company”) was incorporated on March 24, 2005 under the Florida Business Corporation Act.  The Company is an exploration stage corporation formed for the purpose of prospecting and developing mineral properties.  

The accompanying interim condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates, the realization of assets and satisfaction of liabilities in the normal course of business.  For the nine months ended September 30, 2011, the Company has a loss from operations of $3,348,087 (nine months ended September 30, 2010 - $2,432,346) and accumulated deficit of $12,926,419 (December 31, 2010 – $9,578,332), which raises substantial doubt on the Company’s ability to continue on a going concern basis.  

The Company intends to fund operations through equity financing arrangements, which may be insufficient to fund its capital expenditure, working capital and other cash requirements. The Company’s continued existence is dependent upon it emerging from the exploration stage, obtaining additional financing to continue operations, exploring and developing the mining properties and the discovery, development and sale of ore reserves.

These interim condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a)

BASIS OF PRESENTATION

The accompanying interim condensed consolidated financial statements of the Company for the three and nine-month periods ended September 30, 2011 and 2010 are unaudited. However, in the opinion of the Company, all adjustments considered necessary for a fair presentation have been reflected therein. Certain financial information, which is normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), but is not required for interim reporting purposes, has not been presented. The accompanying interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 31, 2010. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year.

 b)

BASIS OF CONSOLIDATION

The Company’s interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Gentor Idaho and Gentor Resources Limited (formerly known as APM Mining Limited).  Gentor Idaho was incorporated on June 28, 2007 under the laws of the State of Idaho.  APM Mining Limited was incorporated on November 19, 2009 under the laws of the British Virgin Islands and changed its name from APM Mining Limited on April 30, 2010 following its acquisition by the Company on March 8, 2010 (see note 3). Intercompany balances and transaction have been eliminated in preparing the accompanying interim condensed consolidated financial statements.

c)

MINERAL PROPERTIES AND EXPLORATION COSTS

Exploration costs pertaining to mineral properties with no proven reserves are charged to operations as incurred. When it is determined that mineral properties can be economically developed as a result of establishing proven and probable reserves, costs incurred to develop such properties are capitalized. Such costs will be depreciated using the units-of-production method over the estimated life of the probable reserves. The Company is in the exploration stage and has not yet realized any revenue from its planned operations.

d)

CAPITAL ASSETS

Capital assets are recorded at cost less accumulated depreciation. Depreciation is recorded as follows:

Vehicle

-

Straight line over a range of two to four years

Mining equipment

-

Straight line over four years

Office equipment

-

Straight line over four years

Furniture and fixtures

-

20% declining balance basis

Building

-

Straight line over five years

e)

ASSET IMPAIRMENT

The Company monitors events and changes in circumstances, which may require an assessment of the recoverability of its long-lived assets.  If required, the Company would assess recoverability using estimated undiscounted future operating cash flows of the related asset or asset grouping. Assets are grouped at the lowest levels for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups.  If the carrying amount of an asset is not recoverable, an impairment loss is recognized in operations, measured by comparing the carrying amount of the asset to its fair value.  No impairment losses were warranted or recorded for the three and nine-month periods ended September 30, 2011, and 2010.  Long-lived assets to be disposed of are reported at the lower of carrying amount or estimated fair value less cost to sell.

f)

ASSET RETIREMENT OBLIGATIONS

The fair value of the liability of an asset retirement obligation is recorded when it is incurred and the corresponding increase to the asset is depreciated over the estimated life of the asset. The liability is periodically adjusted to reflect changes in the estimates present value resulting from the passage of time and revisions to the estimates of either the timing or amount of the asset retirement obligation.  The Company has no asset retirement obligations recorded on its balance sheets as at September 30, 2011 and December 31, 2010.        

g)

STOCK BASED COMPENSATION

The Company has a stock option plan, which is described in note 12(c).  The Company uses the fair value method of accounting for stock options granted to directors, officers and employees whereby the fair value of options granted measured at the grant date is recorded as a compensation expense in the financial statements over the requisite employee service period (usually the vesting period).  Compensation expense on stock options granted to non-employees is measured at the earlier of the completion of performance and the date the options are vested using the fair value method and is recorded as an expense in the same period as if the Company had paid cash for the goods or services received.  Any consideration paid by directors, officers, employees and consultants on exercise of stock options or purchase of shares is credited to capital stock.  Shares are issued from treasury upon the exercise of stock options.  The Company estimates that all options will vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

h)

CASH

Cash consists of bank balances. The Company maintains cash in bank deposit accounts that at times, may exceed US and Canadian federally insured limits.  The Company has not experienced any losses in such accounts.

i)

FOREIGN EXCHANGE

The Company’s functional and reporting currency is United States dollars. The functional currency of the foreign operations is in United States dollars and amounts are translated as follows: monetary assets and liabilities are translated at the spot rates of exchange in effect at the end of the period; non-monetary items are translated at historical exchange rates in effect on the dates of the transactions. Revenues and expense items are translated at average rates of exchange in effect during the period, except for depreciation which is translated at its corresponding historical rate. Realized and unrealized exchange gains and losses are included in the condensed consolidated statements of operations.

j)

USE OF ESTIMATES

The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from management's best estimates as additional information becomes available in the future. The Company bases its estimates and assumptions on historical experience, current facts, and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. Significant estimates and assumptions include those related to the recoverability of mineral properties and capital assets, estimation of future income taxes, useful lives of depreciable assets, and fair value estimates for stock options and warrants.

k)

FAIR VALUE OF FINANCIAL INSTRUMENTS

Effective January 1, 2008, the Company implemented SFAS 157 (ASC 820-10) for its financial assets and financial liabilities that are re-measured and reported at fair value at each reporting period.

In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.

The Company has Canadian dollar ("Cdn$") denominated warrants, the liability portion of which are considered derivative financial instruments requiring re-measurement at each reporting period. See Note 12e for the Black-Scholes option-pricing model that was used to estimate values of all warrants granted.

l)

INCOME TAXES

Deferred income taxes are reported for timing differences between items of income or expense reported in the financial statements and those reported for income tax purposes, which require the use of the asset/liability method of accounting for income taxes. Deferred income taxes and tax benefits are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases, and for the tax loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company recognizes deferred taxes for the estimated future tax effects attributable to deductible temporary differences and loss carryforwards when realization is more likely than not.  The deferred taxes for the Company amount to nil at the balance sheet date.

Accounting Standards Codification 740, “Income Taxes” requires that the Company recognize the impact of a tax position in our financial statement if the position is more likely than not of being sustained upon examination and on the technical merits of the position. At September 30, 2011, the Company has no material unrecognized tax benefits. The Company does not anticipate any material change in the total amount of unrecognized tax benefits to occur within the next twelve months.

m)

LOSS PER SHARE

Basic loss per share calculations are based on the weighted average number of common shares issued and outstanding during the period.  Diluted earnings per share is calculated using the treasury method.  The treasury method assumes that outstanding stock options and share purchase warrants with an average exercise price below market price of the underlying shares are exercised and the assumed proceeds are used to repurchase common shares of the Company at the average market price of the common shares for the period.  As the Company is incurring losses, basic and diluted loss per share are the same since including the exercise of outstanding stock options and share purchase warrants in the diluted loss per share calculation would be anti-dilutive.   

3.

ACQUISITION

On March 8, 2010, pursuant to a stock exchange agreement, the Company acquired all of the issued and outstanding shares of Gentor Resources Limited (formerly APM Mining Limited) in exchange for 10,362,000 of its own common shares.  

Gentor Resources Limited is a mineral exploration company which has secured the earn-in rights to specific exploration ground holdings in the Sultanate of Oman (“Oman”), comprising sites identified as having significant potential for copper mineralization.

The purchase price for this acquisition was $13,395,583, which included 10,362,000 of the Company’s common shares at a price of $1.02 per share and direct costs of $2,826,343.   As part of the transaction costs, the Company issued 2,701,000 shares at a price of $1.02 per share to a related party in exchange for capital raising services.  Included in direct costs are $71,323 of costs that are part of accounts payable and accrued liabilities. The price of $1.02 per share was based on the market price of the shares on March 8, 2010, being the date the Company and Gentor Resources Limited closed the agreement.

The acquisition was accounted for as a purchase of assets. The total consideration and transaction costs have been allocated to the net assets acquired and liabilities assumed as follows:

In connection with the foregoing transaction, the Company issued 2,500,000 shares to a non-US Person in connection with the amendment of a certain Earn-In Agreement between Al Fairuz Mining Company, LLC (“Al Fairuz Mining”) and Gentor Resources Limited with respect to the Company’s Block 5 project located in the Sultanate of Oman. The 2,500,000 shares were issued on April 28, 2010 at a price of $1.80 per share. Consequently, there was an increase to mineral properties of $4,500,000.

4.

PREPAIDS AND ADVANCES

The prepaids and advances primarily consists of $105,688 for prepaid rent and $10,960 for insurance as at September 30, 2011 (December 31, 2010, $30,970 and $15,395).

5.

LONG TERM DEPOSIT

The long term deposit is a $10,000 certificate of deposit issued on March 11, 2011 and assigned to the United States Department of the Interiors, Bureau of Land Management, as a reclamation bond for the installation of a bridge crossing the Patterson creek at the Company’s Idaho project.  

This certificate of deposit bears an interest rate of 1.75% per annum and matures on March 11, 2012.  It will automatically roll over to maintain the bond in good standing.

6.

MINERAL PROPERTIES

Oman Project

On March 8, 2010, the Company acquired, through its wholly-owned subsidiary Gentor Resources Limited, the earn-in rights to the Block 5 and Block 6 copper exploration projects located in Oman.  Pursuant to the Earn-in Agreement between Al Fairuz Mining and Gentor Resources Limited, which relates to the Block 5 project, the Company has the right to earn up to a 65% equity position in Al Fairuz Mining.  Pursuant to the earn-in Agreement between Al Zuhra Company, LLC (“Al Zuhra Mining”) and Gentor Resources Limited, which relates to the Block 6 project, the Company has the right to earn up to a 70% equity position in Al Zuhra Mining.

The entire balance of $18,248,198 recorded in mineral properties in the balance sheet as of September 30, 2011 (December 31, 2010 - $18,248,198) is attributable to the Oman Project.

Idaho Project

Effective as of July 23, 2007, Bardswich LLC, an entity that is owned and controlled by Lloyd J. Bardswich, who was the president and CEO of the Company, and Gentor Idaho, a wholly owned subsidiary of the Company, entered into an assignment agreement whereby Bardswich LLC assigned all of its rights, title and interest in and to the Idaho Option Agreement (“Idaho Option Agreement”) to Gentor Idaho in exchange for $40,000 in cash and 500,000 shares of the Company’s common stock. The Idaho Option Agreement dated effective as of March 1, 2007 relates to a certain mineral lease agreement and an option to purchase twenty one (21) patented mining claims located over approximately 376 acres of real property and four other parcels of approximately 216 acres (collectively, the  “Optioned Properties”) in Lemhi County, Idaho.  An initial payment of $40,000 in cash was made by the Idaho claim owner upon execution of the Idaho Option Agreement and an additional payment of $60,000 was made on the six-month anniversary date of signing the original Idaho Option Agreement.  A payment of $100,000 was made during the month of March 2008 with respect to the first anniversary date of the Idaho Option Agreement. Additional payments of (i) $100,000 in cash was due on or before the second and third anniversary date of the Idaho Option Agreement, and (ii) $200,000 in cash is due on or before the fourth anniversary date thereafter until the purchase price is paid or the Idaho Option Agreement is terminated or cancelled. However, on March 1, 2009, the second anniversary date of the Idaho Option Agreement, the Idaho Claim Owner agreed to accept four equal payments of $25,000 on each March 1, May 1, July 1, and September 1, 2009 in lieu of the $100,000 payment that was due in full on March 1, 2009.  All payments with respect to the second anniversary date were made accordingly. Similarly, on February 14, 2010, the Idaho Claim Owner agreed to accept four equal payments of $25,000 each on each of March 1, May 1, July 1, and September 1, 2010 in lieu of the $100,000 payment that was due in full on March 1, 2010, the third anniversary date of the Idaho Option Agreement. The $25,000 payments that were due on March 1, May 1, July 1 and September 1, 2010 were paid to the Idaho Claim Owner.  On March 8, 2011, the Idaho Claim Owner agreed to accept a payment of $100,000 in lieu of the $200,000 payment that was due in full on March 1, 2011 (the fourth anniversary date of the Idaho Option Agreement). The foregoing agreed upon $100,000 payment has been paid to the Idaho Claim Owner.  All payments that become due subsequent to March, 2011 remain as stipulated in the original agreement.  To the extent that the Company makes any advanced minimum royalty payments, the Company is entitled to receive a corresponding credit against any required net smelter return royalties that are otherwise required to be paid to the Idaho claim owner under the Idaho Option Agreement. The Idaho Option Agreement also grants the Company an option to purchase the Idaho claim  owner’s rights to the Optioned Properties, including but not limited to the IMA  Mine, for a total purchase price of $5,000,000, excluding there from the right of the Idaho claim owner to receive a three percent (3%) royalty on net revenue generated from the sale of any molybdenum, copper, lead and zinc recovered from the IMA Mine and five percent (5%) royalty on the net revenue generated from the sale of all other ores, minerals, or other products recovered from the Optioned Properties.

The Company expenses payments made to the Idaho project as they come due as mineral property expenses.  There is no accrual or asset set up for this project.

7.

During the nine months ended September 30, 2011, the Company sold two capital assets (including a bulldozer) with a net book value of $54,188 for $159,500. The resulting gain on sale is included in the Condensed Consolidated Statement of Operations. See Note 10 for additional information on the sale of the bulldozer.

8.

RELATED PARTY TRANSACTIONS

As of September 30, 2011, a balance of $114,740 advanced to the Company from a former director and officer of the Company was outstanding (December 31, 2010 - $194,969).  This advance is unsecured, non-interest bearing and re-payable upon demand.

In June 2009, an amount of $79,675 was advanced by two directors of the Company and used to repay accounts payable owed by the Company.  During the nine months ended September 30, 2011 the remaining balance of $4,686 was paid. The balance of this advance as at September 30, 2011 was $Nil (December 31, 2010 - $4,686).  

As of September 30, 2011, an amount of $5,329 (December 31, 2010 - $9,923) was due to a corporation of which, a director and officer of the Company is a partner.  During the nine months ended September 30, 2011, the Company reimbursed to this corporation travel and other office expenses incurred on behalf of this director and officer of the Company in the amount of $20,381 (nine months ended September 30, 2010 - $125,510).

As at September 30, 2011, $21,027 was due to two companies with common directors in relation to shared office expenses (December 31, 2010 - $nil).

As of September 30, 2011, no interest was owed to two directors of the Company (December 31, 2010 - $1,772) relating to the $193,771 previously advanced to the Company for working capital purposes during the first quarter of 2010.  The principal amount of this advance was repaid during the fourth quarter of 2010.

All transactions are in the normal course of operations and are measured at the exchange value amount as determined by management.

9.

NOTE PAYABLE

As of September 30, 2011, the Company has an outstanding promissory note of $810,205 (December 31, 2010 - $769,733), which includes $40,472 of interest accrued during the nine month period ended September 30, 2011 (nine months ended September 30, 2010 - $40,472). This note bears interest at a rate of 8% per annum, is unsecured and is due on demand.

10.

LOAN PAYABLE

On December 12, 2008, the Company entered into a financing agreement for the purchase of a bulldozer in the amount of $145,500. As discussed in Note 7, during the nine months ended September 30, 2011, the Company entered into an agreement to sell the bulldozer in the amount of $155,000. Upon receipt of the funds, the Company paid off the balance of this loan in the amount of $52,949. The sale resulted in a gain in the amount of $100,812 reported in the Statements of Operations.

11.

12.

SHARE CAPITAL

a)

Authorized Share Capital

The authorized share capital of the Company consists of 50,000,000 preferred shares and 100,000,000 common shares with a par value of $0.0001 per share. Each common share entitles the holder to one vote and no holder of the common shares shall be entitled to any right of cumulative voting. Preferred shares may be issued in series with distinctive serial designations.

b)

Issued Share Capital

From January 18, 2011 to March 15, 2011, as part of a private placement the Company sold 6,516,666 units at a price of $0.75 per unit for gross proceeds of $4,887,500.  Each unit consists of one share of common stock of the Company and one warrant (“Warrant”) which entitles the holder thereof to purchase one additional common share (see note 12(d)).  Each Warrant is exercisable for a period of 12 months from the date of issuance at an exercise price of $0.90 per share.

From August 10, 2011 to September 27, 2011, as part of a private placement the Company sold 1,122,500 units at a price of Usd$0.97 to Usd$1.02 (Cdn$1.00) per unit for gross proceeds of approximately Usd$1,135,900 (Cdn$1,122,500).  Each unit consists of one share of common stock of the Company and one warrant which entitles the holder thereof to purchase one half of an additional common share for a period of 12 months from the date of issuance at an exercise price of Usd$1.22 to Usd$1.29 (Cdn$1.25) per share (see note 12(e)).

As of September 30, 2011, the Company had outstanding 60,490,840 (December 31, 2010 – 52,851,672) common shares and no preferred shares.

c)

Stock Based Compensation

On July 28, 2010, the Company announced that it had authorized and approved the adoption and implementation of the Gentor Resources 2010 Performance and Equity Incentive Plan (the “Plan”). Persons eligible to receive awards under the Plan include officers or employees of the Company, directors and advisors to the Company.  The aggregate number of shares of common stock of the Company, par value $0.0001 per share subject to awards under the Plan is 4,000,000 shares. The Plan authorizes stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonuses, and other forms of awards granted or denominated in Common Stock, as well as performance based awards, which may be denominated in cash or stock.

On August 30, 2010 (the “Grant Date”), the Company announced that 725,000 non-qualified stock options were issued to various employees and consultants under the Company’s Stock Option Plan.  The holder is entitled to purchase one share of the $0.0001 par value common stock of the Company at a purchase price of $0.75 per share within 5 years.  The options vest at a rate of 25% on each six-month anniversary of the Grant Date.

On April 1, 2011 (the “Grant Date”), the Company announced that 400,000 non-qualified stock options were issued to various employees.  The holder is entitled to purchase one share of the $0.0001 par value common stock of the Company at a purchase price of $0.90 per share within 5 years.  The options vest at a rate of 25% on each six-month anniversary of the Grant Date.

As at September 30, 2011, the Company had 1,125,000 stock options outstanding to acquire common shares at a weighted average price of $0.80. The remaining weighted average contractual life of outstanding options is 4.12 years.  The weighted average fair value of the options granted on April 1, 2011 is $0.23 per share. All of the stock options granted are expected to vest.   As of September 30, 2011, the forfeiture estimate of the outstanding options is 0%.  The number of stock options forfeited, cancelled, expired and exercised was nil.  There were 362,500 stock options exercisable and 762,500 stock options expected to vest as at September 30, 2011. The weighted average exercise price of the options exercisable is $0.75 with a remaining weighted average contractual life of 3.92 years.  

During the nine months ended September 30, 2011, the Company recognized in the statement of operations as an expense $381,476 (nine months ended September 30, 2010 - $37,161). This amount was credited accordingly to additional paid-in capital in the balance sheet (see note 13).

The Black-Scholes option-pricing model was used to estimate values of all stock options granted in 2011 based on the following assumptions:

(i)

Risk-free interest rate: 2.24% which is based on the 5 Year US Treasury Bond Rate (December 31, 2010 – 1.39%)

(ii)

Expected volatility: 68.71% which is based on the Company’s historical stock price (December 31, 2010 – 69.20%)

(iii)

Expected life: 5 years (December 31, 2010 – 5 years)

(iv)

Expected dividends: $Nil (December 31, 2010 - $Nil)

d)

Common Share Purchase Warrants

As at September 30, 2011, the Company had outstanding and exercisable common share purchase warrants of 21,205,338 (December 31, 2010 – 14,688,672) entitling the holder to purchase one common share of the Company:

(1) Warrant life extended by six months by the Company on October 5, 2011.  See subsequent event Note 16.

As of September 30, 2011, the weighted average price of the warrants was $0.47 (December 31, 2010 - $0.55).  The number of warrants that were cancelled, expired and exercised during the nine months ended September 30, 2011 was nil (see note 16) (year ended December 31, 2010 – nil).

The Black-Scholes option-pricing model was used to estimate values of the warrants granted based on the following assumptions:

(i)

Risk-free interest rate: 0.23% - 0.28% which is based on the US Treasury bond rate in effect at the time of grant for bonds with maturity dates at the estimated term of the warrants (December 31, 2010; 0.22% -1.01%)

(ii)

Expected volatility: 73.66% - 73.67%, which is based on the Company’s historical stock price (December 31, 2010; 60.14% - 73.66%)

(iii)

Expected life: 1 year (December 31, 2010; 1 - 2 years)

(iv)

Expected dividends: $Nil

e)

Canadian Dollar Common Share Purchase Warrants

As at September 30, 2011, the Company had outstanding and exercisable Canadian dollar common share purchase warrants of 561,250 (December 31, 2010 – nil) entitling the holder to purchase one common share of the Company:

 (1) The exercise price for the Canadian dollar common share purchase warrant is Cdn$1.25 for one share and converted at day of issue.

As of September 30, 2011, the weighted average price of the warrants was $0.35 (December 31, 2010 $nil).  The number of Canadian dollar common share purchase warrants that were cancelled, expired and exercised during the nine months ended September 30, 2011 was nil (year ended December 31, 2010 – nil). The Canadian dollar common share purchase warrants include both an equity and liability component.

The Black-Scholes option-pricing model was used to estimate values of the Canadian dollar common share purchase warrants granted based on the following assumptions:

(i)

Risk-free interest rate: 0.87% - 1.06% which is based on the Canadian marketable bonds, average yield 1-3 year rates in effect at the time of grant for bonds with maturity dates at the estimated term of the warrants (December 31, 2010; nil)

(ii)

Expected volatility: 75.68% - 80.45%, which is based on the Company’s historical stock price (December 31, 2010; nil)

(iii)

Expected life: 1 year (December 31, 2010; nil)

(iv)

Expected dividends: $Nil

During the nine-month period ended September 30, 2011, $70,333 was recorded as a loss on derivative financial instruments (nine months ended September 30, 2010 $nil).

f)

Loss Per Share

Loss per share was calculated on the basis of the weighted average number of common shares outstanding for the three and nine months ended September 30, 2011, amounting to 58,276,316 and 58,776,050 common shares, respectively (three and nine months ended September 30, 2010 – 42,163,000 and 36,137,513 respectively).

Diluted loss per share was calculated using the treasury stock method. For the three and nine months ended September 30, 2011, 21,967,838 common shares related to stock options and warrants were anti-dilutive. As at September 30, 2010, 4,725,000 common shares related to stock options and warrants were anti-dilutive.

13.

14.

INCOME TAXES

For income tax purposes the Company had $3,348,087 of net operating losses for the nine-month period ended September 30, 2011, which can be used to offset future taxable income. During the year ended December 31, 2010, the Company incurred net losses and, therefore, had no tax liability. The net deferred tax asset generated by the cumulative loss carryforward has been fully reserved. The net operating loss carryforward is $10,310,000 at September 30, 2011. No income tax benefit has been recorded in the accompanying interim condensed consolidated financial statements since the recoverability of such assets will more likely than not be realized through known future revenue sources.

15.

FINANCIAL INSTRUMENTS

a)

 INTEREST RATE RISK

The note payable held by the Company is due on demand; however, the interest rates are fixed and are not expected to change.

b)

 FOREIGN CURRENCY RISK

Foreign currency risk is the risk that a variation in exchange rates between the United States dollar and other foreign currencies will affect the Company’s operations and financial results. A portion of the Company’s transactions are denominated in Omani Rials and Canadian dollars.  The Company is also exposed to the impact of currency fluctuations on its monetary assets and liabilities. Significant foreign currency gains or losses are reflected as a separate component of the condensed consolidated statement of operations. The Company does not use derivatives instruments to reduce its exposure to foreign currency risk.

The following table indicates the impact of foreign currency risk on net working capital as at September 30, 2011. The table below also provides a sensitivity analysis of a 10 percent strengthening of the US dollar against the Omani rial and Canadian dollar as identified which would have increased (decreased) the Company’s net loss by the amounts shown in the table below. A 10 percent weakening of the US dollar against the Omani rial and Canadian dollar would have had the equal but opposite effect as at September 30, 2011.

c)

FAIR VALUE HIERARCHY

The fair value of warrants (Note 2k) would be included in the hierarchy as follows:  

16.

SUBSEQUENT EVENTS

On October 5, 2011 the Company extended the warrant life by a period of six months for the 17,205,338 warrants issued from October 28, 2010 to March 15, 2011 at an exercise price of $0.90 per share. The exercise price of these warrants is $0.90 at a rate of one warrant for one common share. See Note 12(d) for additional information.

The Company's common shares commenced trading on the TSX Venture Exchange on November 7, 2011 under the trading symbol “GNT”.

The Company also completed in November 2011 its previously announced brokered private placement equity financing (the "Brokered Financing"). Under the Brokered Financing, which was conducted by a Canadian securities dealer (the "Agent") as agent, the Company issued 2,163,000 units of the Company at a price of Usd$0.98 (Cdn$1.00) per unit for total gross proceeds of Usd$2,124,715 (Cdn$2,163,000). Each such unit consists of one common share of the Company and one-half of one warrant of the Company, with each full warrant entitling the holder to purchase one common share of the Company at a price of Usd$1.23 (Cdn$1.25) for a period of one year from the date of issuance of the warrant.

In consideration for its services, the Company paid to the Agent a cash fee equal to 8% of the gross proceeds of the Brokered Financing, and granted to the Agent compensation options (the "Compensation Options") equal to 8% of the number of units sold under the Brokered Financing. Each Compensation Option entitles the holder to purchase one common share of the Company at a price of Usd$0.98 (Cdn$1.00) for a period of two years from the date of issuance of the Compensation Option.