Unassociated Document
WASHINGTON,
D.C. 20549
FORM
10-QSB
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
quarterly period ended June 30, 2006
OR
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
transition period
from to
Commission
File No. 000-32429
GOLDSPRING,
INC.
(Exact
name of small business issuer as specified in its charter)
FLORIDA
(State
or other jurisdiction of
incorporation
or organization)
|
7389
(Primary
Standard Industrial
Classification
Code Number)
|
65-0955118
(I.R.S.
Employer
Identification
No.)
|
P.O.
Box
1118
Virginia
City, NV 89440
(775)
847-5272
(Address,
including zip code, and telephone number,
including
area code, of registrant's principal executive offices)
Check
whether the issuer (1) has filed all reports required to be filed by Section
13
or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter
period that the issuer was required to file such reports), and (2)has been
subject to such filing requirements for the past 90 days.
Yes
x
No
o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of the issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-QSB or any
amendment to this Form 10-QSB x
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12-b2 of the Exchange Act). o Yes x No
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the last practicable date: 800,000,000 shares of Common Stock, $0.000666
Par Value per share, as of August11, 2006.
TABLE
OF
CONTENTS
|
PART
I - FINANCIAL INFORMATION
|
|
|
|
|
ITEM
1.
|
UNAUDITED
FINANCIAL STATEMENTS
|
F-1
|
|
|
|
|
Consolidated
Balance Sheet as of June 30, 2006 (Unaudited)
|
F-1
|
|
|
|
|
Consolidated
Statement of Operations (Unaudited)
|
F-3
|
|
|
|
|
Consolidated
Statement of Cash Flows (Unaudited)
|
F-5
|
|
|
|
|
Notes
to Financial Statements
|
F-6
|
|
|
|
|
|
|
ITEM
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
|
1
|
ITEM
3.
|
CONTROLS
AND PROCEDURES
|
7
|
|
|
|
|
PART
II - OTHER INFORMATION
|
|
|
|
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
8
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
14
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
14
|
ITEM
4
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
14
|
ITEM
5.
|
OTHER
INFORMATION
|
14
|
ITEM
6
|
EXHIBITS
AND REPORTS ON FORM 8-K
|
15
|
|
|
|
SIGNATURES
|
16
|
Statement
Regarding Forward-Looking Statements
The
statements contained in this report on Form 10-QSB that are not purely
historical are forward-looking statements within the meaning of applicable
securities laws. Forward-looking statements include statements regarding our
“expectations,” “anticipation,” “intentions,” “beliefs,” or “strategies”
regarding the future. Forward looking statements also include statements
regarding fluctuations in the price of gold or certain other commodities, (such
as silver, copper, diesel fuel, and electricity); changes in national and local
government legislation, taxation, controls, regulations and political or
economic changes in the United States or other countries in which we may carry
on business in the future; business opportunities that may be presented to
or
pursued by us; our ability to integrate acquisitions successfully; operating
or
technical difficulties in connection with exploration or mining activities;
the
speculative nature of gold exploration, including risks of diminishing
quantities or grades of reserves; and contests over our title to properties.
All
forward-looking statements included in this report are based on information
available to us as of the filing date of this report, and we assume no
obligation to update any such forward-looking statements. Our actual results
could differ materially from the forward-looking statements. Among the factors
that could cause actual results to differ materially are the factors discussed
in Item 1, “Business - Risk Factors” in our Form 10-KSB for the year ended
December 31, 2005.
PART
I - FINANCIAL INFORMATION
GOLDSPRING,
INC.
CONDENSED
CONSOLIDATED BALANCE SHEET
|
|
|
June
30, 2006
(Unaudited)
|
|
ASSETS
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
110,089
|
|
Accounts
receivable, net
|
|
|
65,564
|
|
Prepaid
expenses and other current assets
|
|
|
404,690
|
|
Inventories
|
|
|
-
|
|
Deferred
financing fees, net
|
|
|
328,515
|
|
TOTAL
CURRENT ASSETS
|
|
|
908,858
|
|
|
|
|
|
|
PLANT,
EQUIPMENT, MINE DEVELOPMENT, AND MINERAL PROPERTIES, NET:
|
|
|
|
|
Mineral
properties
|
|
|
1,669,837
|
|
Plant,
Equipment, Mine Development
|
|
|
880,755
|
|
TOTAL
PROPERTY AND EQUIPMENT
|
|
|
2,550,592
|
|
OTHER
ASSETS:
|
|
|
|
|
Reclamation
deposit
|
|
|
377,169
|
|
Other
|
|
|
-
|
|
TOTAL
OTHER ASSETS
|
|
|
377,169
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
3,836,619
|
|
The
accompanying notes are an integral part of these financial
statements
LIABILITIES
AND SHAREHOLDERS' DEFICIENCY
CURRENT
LIABILITIES
|
|
|
|
|
Accounts
Payable
|
|
$
|
405,067
|
|
Accrued
Expenses
|
|
|
1,345,597
|
|
Accrued
liquidated damages
|
|
|
1,913,418
|
|
Accrued
interest
|
|
|
940,625
|
|
Short-Term
Lease Obligations
|
|
|
29,401
|
|
Current
portion of long-term debt
|
|
|
12,490,052
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
17,124,160
|
|
|
|
|
|
|
LONG-TERM
DEBT AND OTHER LONG-TERM LIABILITIES
|
|
|
|
|
Long-term
debt, net of current portion
|
|
|
111,935
|
|
Long-term
Lease obligation, net of current portion
|
|
|
61,688
|
|
Long-term
Asset retirement obligations
|
|
|
553,190
|
|
TOTAL
LONG-TERM DEBT AND OTHER LONG-TERM LIABILITIES
|
|
|
726,813
|
|
TOTAL
LIABILITIES
|
|
$
|
17,850,973
|
|
|
|
|
|
|
SHAREHOLDERS'
DEFICIT
|
|
|
|
|
Common
stock, $.000666 par value, 800,000,000 shares authorized , 800,000,000
shares issued and outstanding
|
|
$
|
532,800
|
|
Treasury
Stock
|
|
|
-
|
|
Additional
paid-in capital
|
|
|
11,106,017
|
|
Accumulated
deficit - Prior years
|
|
|
(23,524,302
|
)
|
Accumulated
deficit - Current year
|
|
|
(2,128,869
|
)
|
TOTAL
SHAREHOLDERS’ DEFICIENCY
|
|
|
(14,014,354
|
)
|
|
|
|
|
|
TOTAL
LIABILITIES AND SHAREHOLDERS’ DEFICIENCY
|
|
$
|
3,836,619
|
|
The
accompanying notes are an integral part of these financial
statements
GOLDSPRING,
INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For
the three month periods ended June 30,
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
REVENUE
FROM GOLD SALES
|
|
$
|
125,454
|
|
$
|
691,861
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
Costs
Applicable to sales (exclusive of depreciation, depletion and amortization
shown separately below)
|
|
|
-
|
|
|
-
|
|
Depletion,
depreciation and amortization
|
|
|
140,010
|
|
|
80,899
|
|
Reclamation,
Exploration and Test Mining Expenses
|
|
|
343,932
|
|
|
1,541,290
|
|
General
and administrative
|
|
|
142,064
|
|
|
234,281
|
|
Other
|
|
|
113,372
|
|
|
174,196
|
|
TOTAL
COSTS AND EXPENSES
|
|
|
739,378
|
|
|
2,030,666
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
Other
(See Note 6)
|
|
|
|
|
|
(985,835
|
)
|
Interest
expense
|
|
|
(497,812
|
)
|
|
(468,623
|
)
|
Interest
income
|
|
|
-
|
|
|
- |
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$
|
(1,111,736
|
)
|
$
|
(2,793,263
|
)
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic
|
|
$
|
(0.0016
|
)
|
$
|
(0.011
|
)
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
712,649,897
|
|
|
243,982,021
|
|
The
accompanying notes are an integral part of these financial
statements
GOLDSPRING,
INC.
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
For
the six month periods ended June 30,
|
|
|
2006
|
|
|
2005
|
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
REVENUE
FROM GOLD SALES
|
|
$
|
663,260
|
|
$
|
1,203,951
|
|
|
|
|
|
|
|
|
|
COSTS
AND EXPENSES
|
|
|
|
|
|
|
|
Costs
Applicable to sales (exclusive of depreciation, depletion and amortization
shown separately below)
|
|
|
-
|
|
|
-
|
|
Depletion,
depreciation and amortization
|
|
|
290,034
|
|
|
156,686
|
|
Reclamation,
Exploration and Test Mining Expenses
|
|
|
769,708
|
|
|
2,811,380
|
|
General
and administrative
|
|
|
322,137
|
|
|
518,535
|
|
Consulting
and professional services
|
|
|
268,189
|
|
|
678,464
|
|
TOTAL
COSTS AND EXPENSES
|
|
|
1,650,068
|
|
|
4,165,065
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
|
|
Disposal
of Assets
|
|
|
105,397
|
|
|
-
|
|
Liquidated
Damages (See Note 6)
|
|
|
-
|
|
|
(2,860,468
|
)
|
Interest
expense
|
|
|
(1,247,458
|
)
|
|
(723,366
|
)
|
Interest
income
|
|
|
-
|
|
|
13,526
|
|
|
|
|
(1,142,061
|
)
|
|
(3,570,308
|
)
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
|
(2,128,869
|
)
|
|
(6,531,422
|
)
|
|
|
|
|
|
|
|
|
Net
loss per common share - basic
|
|
$
|
(0.0038
|
)
|
$
|
(0.0313
|
)
|
|
|
|
|
|
|
|
|
Basic
weighted average common shares outstanding
|
|
|
563,928,820
|
|
|
208,705,670
|
|
The
accompanying notes are an integral part of these financial
statements
GOLDSPRING,
INC.
CONDENSED STATEMENTS
OF CASH FLOWS
For
the six month period ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
(Unaudited)
|
|
|
2005
(Restated)
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,128,869
|
)
|
$
|
(6,531,422
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation,
depletion, and amortization
|
|
|
290,036
|
|
|
156,686
|
|
Liquidated
damages from November 2004 restructuring converted into common
stock
|
|
|
-
|
|
|
2,860,468
|
|
Interest
expense related to the November 2004 restructuring paid with common
stock
|
|
|
1,574,582
|
|
|
|
|
(Increase)
Decrease in operating assets:
|
|
|
|
|
|
|
|
Finished
goods inventory
|
|
|
52,000
|
|
|
60,401
|
|
Inventory
|
|
|
(10,824
|
) |
|
(32,964
|
)
|
Prepaid
and other current assets
|
|
|
(366,366
|
)
|
|
5,295
|
|
Accounts
receivable
|
|
|
4,436
|
|
|
-
|
|
Increase
(decrease) in operating liabilities:
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(862,007
|
)
|
|
1,071,571
|
|
Accrued
expenses
|
|
|
984,711
|
|
|
74,171
|
|
Accrued
liquidated damages
|
|
|
-
|
|
|
681,189
|
|
Accrued
interest
|
|
|
(381,294
|
)
|
|
363,600
|
|
Other
|
|
|
60,788
|
|
|
(355,847
|
)
|
Total
Adjustments to Reconcile Net Loss Used in Operating
Activities
|
|
|
1,346,062
|
|
|
4,884,570
|
|
Net
cash used in operating activities
|
|
|
(782,807
|
)
|
|
(1,646,852
|
)
|
Investing
activities:
|
|
|
|
|
|
|
|
Equipment
deposit
|
|
|
-
|
|
|
(10,000
|
)
|
Acquisition
of plant, equipment and mineral properties
|
|
|
(19,739
|
)
|
|
(71,754
|
)
|
Net
cash used in investing activities
|
|
|
(19,739
|
)
|
|
(81,754
|
)
|
Financing
activities:
|
|
|
|
|
|
|
|
Proceeds
from financing, net
|
|
|
950,000
|
|
|
-
|
|
Principal
payment Note Payable
|
|
|
(64,230
|
)
|
|
(176,901
|
)
|
Net
Cash flows provided by financing activities
|
|
|
885,770
|
|
|
(176,901
|
)
|
Net
Increase (Decrease) in cash
|
|
|
83,224
|
|
|
(1,905,507
|
)
|
Cash
- beginning of period
|
|
|
26,865
|
|
|
1,951,802
|
|
Cash
- end of period
|
|
$
|
110,089
|
|
$
|
46,295
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of notes for liquidated damages for failure to deliver
shares
|
|
$
|
-
|
|
|
403,175
|
|
Issuance
of notes for mandatory redemption payment (See Note 6)
|
|
$
|
-
|
|
$
|
6,885,184
|
|
Purchase
and cancellation of Company’s Common Stock in connection with the
mandatory redemption payment (See Note 6)
|
|
|
- |
|
|
6,801,975
|
|
Issuance
of Common Stock for Acquisition of Mining Claims
|
|
|
- |
|
|
170,000
|
|
Issuance
of Note for Acquisition of Mining Claims
|
|
|
- |
|
|
160,000
|
|
Conversion
of debt into common shares
|
|
|
4,449,490
|
|
|
1,118,994
|
|
Issuance
of common stock for interest expense
|
|
|
1,574,582
|
|
|
787,675
|
|
Issuance
of common stock for liquidated damages
|
|
|
- |
|
|
2,829,210
|
|
The
accompanying notes are an integral part of these financial
statements
GOLDSPRING,
INC.
NOTES
TO
FINANCIAL STATEMENTS
June
30,
2006 and 2005
NOTE
1 - DESCRIPTION OF BUSINESS, GOING CONCERN, MANAGEMENT PLANS AND BASIS OF
PRESENTATION
Description
of Business
We
are a
North American precious metals mining company with an operating gold and silver
test mine in northern Nevada. The primary nature of our business is the
exploration and development of mineral producing properties. Our Company was
formed in mid-2003, and we acquired the Plum property in November 2003. In
our
relatively short history, we secured permits, built an infrastructure and
brought the Plum exploration project into test mining production. During 2005,
we acquired additional properties around the Plum project in Northern Nevada,
expanding our footprint and creating opportunities for exploration. We are
an
emerging company, looking to build on our success through the acquisition of
other mineral properties in North America with reserves and exploration
potential that can be efficiently put into near-term production. Our objectives
are to increase production; increase reserves through exploration and
acquisitions; expand our footprint at the Plum mine; and maximize cash flow
and
the return for our shareholders. We were incorporated in the State of Florida
effective October 19, 1999 under the name of Click and Call, Inc.. On June
7,
2000, we filed an amendment to our Articles of Incorporation changing our name
to STARTCALL.COM, INC. On March 10, 2003, we changed our name to GoldSpring,
Inc.
Going
Concern
The
financial statements are presented on the basis that our company is a going
concern, which contemplates the realization of assets and the satisfaction
of
liabilities in the normal course of business over a reasonable length of time.
We have incurred operating losses since its inception. This condition raises
substantial doubt as to our ability to continue as a going concern.
Management
Plans
Our
plans
for the continuation of our company as a going concern include developing our
Plum Mine into a profitable operation and potentially supplementing financing
of
our operations through sales of our unregistered common stock and borrowings
from affiliates, third parties and other shareholders. There are no assurances,
however, with respect to the future success of these plans. The financial
statements do not contain any adjustments, which might be necessary, if we
are
unable to continue as a going concern.
Basis
of Presentation
The
accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In our opinion, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six-month period ended June 30, 2006 are
not
necessarily indicative of the results that may be expected for the year ending
December 31, 2006. For further information, refer to the financial statements
and footnotes thereto included in our Form 10-KSB Report for the fiscal year
ended December 31, 2005.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Forward-Looking
Statements
The
following discussion contains, in addition to historical information,
forward-looking statements regarding GoldSpring, Inc. (“we,” the "Company," or
"GSPG"), that involve risks and uncertainties. Our actual results could differ
materially. For this purpose, any statements contained in this Report that
are
not statements of historical fact may be deemed to be forward-looking
statements. Without limiting the generality of the foregoing, words such as
"may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate,"
or "continue" or the negative or other variations thereof or comparable
terminology are intended to identify forward-looking statements. Factors that
could cause or contribute to such differences include possible need for
additional financing; dependence on management; government regulation; and
other
factors discussed in this report and the Company's other filings with the
Securities and Exchange Commission.
Summarized
below are the significant accounting policies of GoldSpring, Inc. (“we,”
“GoldSpring,” or the “Company”). Unless otherwise indicated, amounts provided in
these notes to the financial statements pertain to continuing
operations.
Principles
of Consolidation
The
consolidated financial statements include the accounts of our company and its
wholly owned subsidiaries. All material inter-company transactions and balances
have been eliminated in consolidation.
Cash
and Cash Equivalents
We
consider all highly liquid debt securities purchased with original or remaining
maturities of three months or less to be cash equivalents. The carrying value
of
cash equivalents approximates fair value.
Fair
Value of Financial Instruments
The
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable, and accrued expenses approximate fair market value because of the
short
maturity of those instruments. Furthermore, convertible debenture and other
notes payable amounts approximate fair value at June 30, 2006 and 2005. Pursuant
to EITF No. 0027 “Application of Issue No. 98-5 to Certain Convertible
Instruments” we were required allocate value to the warrant issued with the
debenture, and to record a discount on the debenture for its conversion feature.
We are in default on these convertible debentures and thus have recorded these
notes at face value.
Credit
Risk
It
is our
practice to place our cash equivalents in high-quality money market securities
with a major banking institution. Certain amounts of such funds are not insured
by the Federal Deposit Insurance Corporation. However, we consider our credit
risk associated with cash and cash equivalents to be minimal.
Impairment
of Long Lived Assets and Long Lived Assets to be Disposed Of
In
August
2001, the Financial Accounting Standards Board (“FASB”) issued Statement of
Financial Accounting Standards (“SFAS”) No. 144 “Accounting for the Impairment
or Disposal of Long-Lived Assets,” which supersedes both SFAS No. 121,
“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to
Be Disposed Of” and the accounting and reporting provisions of Accounting
Practice Bulletin (“APB”) Opinion No. 30, “Reporting the Results of Operations —
Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions,” for the disposal of
a segment of a business (as previously defined in that opinion).This statement
establishes the accounting model for long-lived assets to be disposed of by
sale
and applies to all long-lived assets, including discontinued operations. This
statement requires those long-lived assets be measured at the lower of carrying
amount or fair value less cost to sell, whether reported in continuing
operations or discontinued operations. Therefore, discontinued operations will
no longer be measured at net realizable value or include amounts for operating
losses that have not yet occurred.
SFAS
No.
144 retains the fundamental provisions of SFAS No. 121 for recognizing and
measuring impairment losses on long-lived assets held for use and long-lived
assets to be disposed of by sale, while also resolving significant
implementation issues associated with SFAS No. 121. We adopted SFAS No. 144
in
our evaluation of the fair value of certain assets described in these financial
statement footnotes.
Inventories
We
state
inventories at the lower of average cost or net realizable value. At June 30,
2006 and 2005, our inventories consisted of $0 and $228,286, respectively,
of
doré and bullion in our accounts at refineries. At June 30, 2005 we had $32,965
of supplies and reagents compared to $10,825 at June 30, 2006. We were unable
to
estimate our in-process inventories at June 30, 2006, as our gold production
processes are still in their inception stage, and we do not yet have sufficient
data available to accurately calculate in-process inventory. We value
inventories at the lower of full cost of production or net realizable value
based on current metals prices. We determine net realizable value by estimating
value based on current metals prices, less cost to convert stockpiled and
in-process inventories to finished products.
Revenue
Recognition
Sales
of
gold and silver ore are recorded when title and risk of loss transfer to the
refiner at current spot metals prices. Sales are calculated based upon assay
of
the ore’s precious metal content and its weight. Recorded values are adjusted
upon final settlement from the refiner that usually occurs within 24 days of
delivery. If we have reason to believe that the final settlement will materially
affect our recognition of revenue because of a difference between the refiner’s
assay of precious metals contained in the dore and ours, we establish a reserve
against the sale.
Stock
Issued For Services
We
base
the value of stock issued for services on the market value of our common stock
at the date of issue or our estimate of the fair value of the services received,
whichever is more reliably measurable. We have not issued stock for services
in
the first two quarters of 2006 and do not intend to do so during the remainder
of 2006.
Deferred
Financing Charges
During
the first quarter of 2006 we recorded deferred financing charges associated
with
the issue of promissory notes payable totaling $0. We amortize the charges
over
the respective lives of the promissory notes payable as interest expense. During
the quarter ended June 30, 2006 we recognized $66,712 of interest expense
related to the amortization of deferred financing fees.
Plant
and Equipment
We
state
plant and equipment at cost. We provide depreciation and amortization in amounts
sufficient to relate the cost of depreciable assets to operations over their
estimated service lives or productive value.
We
capitalize expenditures for renewals and improvements that significantly extend
the useful life of an asset. We charge expenditures for maintenance and repairs
to operations when incurred. When assets are sold or retired, the cost of the
asset and the related accumulated depreciation are removed from the accounts
and
any gain or loss is recognized at such time. We use the straight-line method
of
depreciation for financial reporting purposes, depreciating assets over useful
lives ranging from 3 to 7 years.
We
review
the carrying value of our plant and equipment assets on a quarterly basis.
Where
information and conditions suggest impairment, we write down these assets to
net
recoverable amount, based on estimated future cash flows that may be attained
from them.
Mineral
Properties
We
defer
acquisition costs until we determine the viability of the property. Since we
do
not have proven and probable reserves as defined by Industry Guide 7,
exploration expenditures are expensed as incurred.
We
expense holding costs to maintain a property on a care and maintenance basis
as
incurred.
We
review
the carrying value of our interest in each property on a quarterly basis to
determine whether an impairment has incurred in accordance with the Financial
Accounting Standards Board (FASB) No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.”
Where
information and conditions suggest impairment, we write down these properties
to
net recoverable amount, based on estimated future cash flows. Our estimate
of
gold price, mineralized materials, operating capital, and reclamation costs
are
subject to risks and uncertainties affecting the recoverability of our
investment in property, plant, and equipment. Although we have made our best
estimate of these factors based on current conditions, it is possible that
changes could occur in the near term that could adversely affect our estimate
of
net cash flows expected to be generated from our operating properties and the
need for possible asset impairment write-downs.
Where
estimates of future net operating cash flows are not available and where other
conditions suggest impairment, we assess if carrying value can be recovered
from
net cash flows generated by the sale of the asset or other means.
We
carry
our property acquisition and capitalized plant and equipment costs at cost
less
accumulated amortization and write-downs.
Minimum
standards for site reclamation and closure have been established by various
government agencies that affect certain of our operations. We calculate our
estimates of reclamation liability based on current laws and regulations and
the
expected undiscounted future cash flows to be incurred in reclaiming, restoring,
and closing our operating mine sites. When we incur reclamation liabilities
that
are not be related to asset retirements we recognize the obligations in
accordance with Statement of Position No. 96-1.
In
August
2001, the Financial Accounting Standards Board issued SFAS No. 143, “Accounting
for Asset Retirement Obligations.”
SFAS
143
established a uniform methodology for accounting for estimating reclamation
and
abandonment costs. The Standard requires that the fair value of a liability
for
an asset retirement obligation be recognized in the period in which it is
incurred. SFAS No. 143 requires us to record a liability for the present value
of our estimated environmental remediation costs and the related asset created
with it when a recoverable asset (long-lived asset) can be realized. In our
case, the long-lived asset is directly related to the mining infrastructure
costs being expensed by our Company. Since we do not yet have proven or probable
reserves as defined by Industry Guide 7, and in accordance with FASB No. 143
our
asset retirement obligation was expensed directly to reclamation expense.
Earnings
Per Common Share
In
calculating earnings per common share, we compute basic earnings per share
by
dividing net loss by the weighted average number of common shares outstanding,
excluding the dilutive effects of common stock equivalents. For the periods
ended June 30, 2006 and 2005, we had net losses for which the affect of common
stock equivalents would be anti-dilutive, accordingly only basic loss per share
is presented.
Recent
Authoritative Pronouncements
On
December 16, 2004, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards, or Statement, No. 123 (revised
2004), Share-Based Payment ("Statement 123(R)"), which is a revision of FASB
Statement No. 123, Accounting for Stock-Based Compensation ("Statement 123").
Statement 123(R) supersedes Accounting Principles Board Opinion No. 25 ("APB
25"), Accounting for Stock Issued to Employees, and amends FASB Statement No.
95, Statement of Cash Flows. Generally, the approach in Statement 123(R) is
similar to the approach described in Statement 123. Statement 123(R) requires
that all share-based payments to employees, including grants of employee stock
options, be recognized in the income statement based on their fair values.
Pro
forma disclosure is no longer permitted. Statement 123(R) is effective for
small
business issuers at the beginning of the first interim or annual period
beginning after December 15, 2005. As permitted by Statement 123, we currently
account for share-based payments to employees using APB 25's intrinsic value
method. We adopted Statement 123(R) on January 1, 2006 using the modified
prospective method.
In
November 2004, the FASB issued Statement of Financial Accounting Standards
(SFAS) 151, "Inventory Costs - an amendment of ARB No. 43, Chapter 4." SFAS
151
seeks to clarify the accounting for abnormal amounts of idle facility expense,
freight, handling costs and wasted material (spoilage) in the determination
of
inventory carrying costs. The statement requires such costs to be treated as
a
current period expense. This statement is effective November 1, 2005 for the
Company. The Company does not believe that the adoption of SFAS 151 will have
a
significant impact on its consolidated financial statements.
In
May
2005, the FASB issued SFAS 154, "Accounting Changes and Error Corrections -
a
Replacement of APB Opinion No. 20 and FASB Statement No. 3." SFAS 154 requires
retrospective application to prior period financial statements of changes in
accounting principle, unless it is impracticable to determine either the
period-specific effects or the cumulative effect of the change. SFAS 154 also
redefines "restatement" as the revising of previously issued financial
statements to reflect the correction of an error. This statement is effective
for accounting changes and corrections of errors made in fiscal years beginning
after December 15, 2005 (or fiscal 2007 for the Company). The Company does
not
believe that the adoption of SFAS 154 will have a significant impact on its
consolidated financial statements.
Use
of Estimates
In
preparing financial statements in conformity with generally accepted accounting
principles, we are required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues
and
expenditures during the reported periods. Actual results could differ materially
from those estimates. Estimates may include those pertaining to the estimated
useful lives of property and equipment and software, determining the estimated
net realizable value of receivables, and the realization of deferred tax assets.
Risks
and Uncertainties
We
regularly evaluate risks and uncertainties and, when probable that a loss or
expense will be incurred, record a charge to current period operations.
Income
Taxes
We
recognize deferred tax assets and liabilities based on differences between
the
financial reporting and tax bases of assets and liabilities using the enacted
tax rates and laws that are expected to be recovered. We provide a valuation
allowance for deferred tax assets for which we do not consider realization
of
such assets to be more likely than not.
NOTE
3 - NOTES PAYABLE STOCKHOLDERS
As
of
June 30, 2006, the Company is in default of the terms on outstanding notes
payable with several of its note holders with principal balances due of
$9,041,626 and accrued interest of $558,215.
NOTE
4 - COMMON STOCK
During
the three months ended March 31, 2006, the Company issued 212,150,563 shares
of
common stock valued at $3,276,100 in connection with the partial conversion
of
principal and interest of certain convertible debentures (see Note
7).
During
the three months ended June 30, 2006, the Company issued 247,802,225 shares
of
common stock valued at $2,747,972 in connection with the partial conversion
of
principal and interest of certain convertible debentures (see Note
7).
NOTE
5 - WARRANTS
Transactions
involving warrants are summarized as follows:
|
|
|
Number
of Warrants
|
|
|
Weighted
Average Exercise Price
|
|
Balance
- January 1, 2006
|
|
|
58,190,101
|
|
$
|
0.155
|
|
Warrants
issued during the period
|
|
|
-
|
|
|
-
|
|
Warrants
expired during the period
|
|
|
-
|
|
|
-
|
|
Warrants
exercised during the period
|
|
|
-
|
|
|
-
|
|
Balance
- June 30, 2006 (all exercisable) |
|
|
58,190,101
|
|
$
|
0.155
|
|
NOTE
6 - OTHER ITEMS
LIQUIDATED
DAMAGES
For
the
first two quarters of 2005 (ended June 30, 2005), we recorded liquidated damages
expenses due to investors
of our March 2004 offering and subsequent November 30, 2004 restructuring as
follows:
Liquidated
damages relating to:
|
|
|
|
|
November
30, 2004 Non-Registration Provisions
|
|
$
|
2,761,939
|
|
Failure
to timely deliver shares upon notice of converting note
holders
|
|
|
98,529
|
|
|
|
$
|
2,860,468
|
|
These
liquidated damages ceased in October 2005 when our Registration Statement was
declared effective.
Non-Registration
Provisions
Our
November 2004 subscription agreement required us to file a registration
statement with the Securities and Exchange Commission no later than December
30,
2004 and to cause the registration statement to be declared effective no later
than February 14, 2005. Our former Chief Executive Officer withdrew our pending
registration statement and did not submit a new registration statement during
the period of his purported control of our company. His failure to submit the
registration statement to the SEC by December 30, 2004 triggered liquidated
damages to accrue under the November 2004 subscription agreement. Accordingly,
at December 31, 2004, we had accrued $222,013 of liquidated damages relating
to
Non-Registration Provisions. The liquidated damages continued to accrue in
the
amount of $222,013 for each 30-day period after December 30, 2004 until our
registration statement was declared effective in October 2005.
Failure
to Timely Deliver Conversion Shares
On
December 20, 2004, we received notice from holders of approximately $500,000
of
convertible notes payable of their intention to convert into shares of our
common stock. As a result, we recorded the issuance of 4,243,791 shares on
December 20, 2004. We were required to deliver certificates representing
unrestricted, free-trading stock within three business days of our receipt
of
the notices of conversion (the “Delivery Date”). The failure to deliver the
shares by the Delivery Date resulted in liquidated damages of 1% of the Note
principal amount being converted per business day after the Delivery Date.
Our
former Chief Executive Officer did not deliver the stock certificates within
the
required period. On March 18, 2005 we delivered the certificates representing
the shares of common stock to these converting note holders. The 84 -day delay
in delivering the shares resulted in liquidated damages of $403,175. We
recognized these damages during the fourth quarter of 2004 and the first quarter
of 2005. We issued convertible notes for the amount of liquidated damages due.
MANDATORY
REDEMPTION PAYMENT
Under
the
terms of the November 2004 subscription agreement, convertible note holders
have
the right to a mandatory redemption payment in the event we are prohibited
or
otherwise fail to deliver shares of our common stock to converting note holders.
The mandatory redemption payment is calculated as an amount equal to multiplying
the number of shares of common stock otherwise deliverable upon conversion
of
the note’s principal and interest multiplied by the highest price of our common
stock for the period beginning with the Deemed Conversion Date (the date the
holder elects to convert the note) and ending with the payment date. On March
7,
2005, we received a mandatory redemption payment demand relating to our failure
to deliver stock certificates representing 29,573,803 shares of our common
stock. Under the mandatory redemption payment provisions of the November 2004
subscription agreement, we repurchased the 29,573,803 shares of common stock
at
$0.23 per share, or $6,801,975. We issued a secured convertible note in the
aggregate amount of $6,885,184 with a 12% interest rate for the 29,573,803
shares and accrued interest.
LITIGATION
The
State Court Case
On
November 9, 2004, we filed a lawsuit in Maricopa County (Arizona) Superior
Court
against defendants Stephen B. Parent, Ron Haswell, Walter Doyle, Seth Shaw,
Antonio Treminio, together with their spouses, and Ecovery, Inc., a Nevada
corporation, or Ecovery.
The
12-count complaint alleges claims for violations of Arizona’s racketeering act,
state-law securities fraud (primary and secondary liability), common-law fraud,
negligent misrepresentation, breach of fiduciary duty, negligence/gross
negligence, breach of contract, unjust enrichment/restitution, theft/conversion,
conspiracy liability, and injunctive relief. In essence, the complaint alleges
that Stephen Parent misrepresented the value of certain placer mining claims
that his company, Ecovery, sold to us in 2003 in exchange for approximately
99,000,000 shares of our stock; that Ecovery no longer had good title to the
mining claims when they were sold to us; that Mr. Parent and the other
named defendants conspired to defraud us out of approximately 24,000,000 shares
of our stock; and that Mr. Parent misappropriated more than $300,000 in company
funds.
On
November 29, 2004, we moved for a temporary restraining order, or TRO,
prohibiting Mr. Parent and his spouse from selling, transferring, assigning,
or
otherwise disposing of up to approximately 46,000,000 shares of our stock
in their possession. After a hearing, at which the Parents appeared through
counsel, the Honorable Anna M. Baca granted the motion, conditioned on the
posting of an $8 million bond. We did not post the bond, and the TRO was
subsequently dissolved.
On
or
about December 9, 2004, Mr. Parent and fellow GoldSpring directors Jerrie W.
Gasch and Purnendu K. Rana Medhi purportedly seized control of our company.
Afterward, the Parent-led GoldSpring purported to fire Greenberg Traurig, LLP,
or GT, as counsel for our company in this litigation and to hire Ronan &
Firestone, PLC, or Ronan, as substitute counsel. Thereafter, on December 22,
2004, Ronan filed a stipulation to dismiss the lawsuit, purportedly on behalf
of
our company. Also on December 22, 2004, the Parents filed their answer, in
which
they generally denied the allegations of the complaint.
On
December 29, 2004, GT filed a motion on behalf of our company to strike the
stipulation to dismiss that Ronan had filed. Judge Baca heard oral argument
on
the motion on February 2, 2005 and took the matter under advisement. Further
oral argument was heard on March 22, 2005. In light of the preliminary
injunction that was issued in a related shareholder action in federal district
court (discussed below), and the resolutions passed by our Board of Directors
on
February 22, 2005, Judge Baca granted the motion in an Order dated March 22,
2005 and struck Ronan’s purported stipulation to dismiss.
In
the
same ruling, Judge Baca said that “there are serious conflicts in the continued
representation of the Parents in this lawsuit by Gust Rosenfeld.” The Court was
referring to the fact that Parent had hired Gust Rosenfeld as our counsel after
purportedly taking over our company on December 9, 2004. The Court therefore
ordered further briefing on whether Gust Rosenfeld should be disqualified as
the
Parents’ counsel. Shortly thereafter, on March 28, 2005, Gust Rosenfeld
voluntarily withdrew as the Parents’ counsel. The Parents have since retained
new counsel. The discovery process is currently ongoing.
Mr.
Treminio has since been dismissed from the suit in accordance with the terms
of
a prior settlement agreement between Mr. Treminio and GoldSpring, Inc..
Mr. Shaw filed an answer, in
pro per,
on
April 6, 2005, and generally denied the allegations of the complaint. Mr.
Haswell, Mr. Doyle and Ecovery, Inc. have filed answers and generally denied
the
allegations of the complaint.
At
the
end of June 2006, the Company settled its claims against Mr. Shaw for a $75,000
settlement and was in negotiations with another defendant for
settlement.
The
Federal Court Case
Background
Stephen
B. Parent and several others purporting to represent a majority of the
shareholders of our company adopted Consent Resolutions in Lieu of a Special
Meeting of Shareholder’s dated December 9, 2004, and Mr. Parent, Jerrie W.
Gasch, and Purnendu K. Rana Medhi, each of whom served as a director of our
company until Mr. Medhi’s resignation in April 2005, adopted Directors’ Consent
Resolutions (together the “December Consent Resolutions”) dated December 10,
2004. Taken together, the December Consent Resolutions, by their purported
terms, removed John F. Cook, Robert T. Faber, Leslie L. Cahan, Todd S. Brown,
Christopher L. Aguilar, Stanley A. Hirschman, and Phil E. Pearce as directors,
rescinded the restructuring of a $10 million financing transaction entered
into
in March 2004, removed Mr. Faber as President of our company, named Mr. Parent
as President of our company and his wife as Secretary of our company, designated
Mr. Parent as the sole signing officer of our company’s bank accounts, and
terminated our company’s legal counsel.
On
December 22, 2004, Robert T. Faber and Leslie L. Cahan (collectively, the
“plaintiffs”), who are shareholders and directors of our company, filed a
lawsuit in the United States District Court for the District of Arizona,
entitled Robert T. Faber, et al. v. Stephen B. Parent, et al., No.
CV04-2960-PHX-EHC (“the Litigation”). The plaintiffs asserted claims in both
their individual capacities and derivatively, on behalf of our company, against
directors Stephen B. Parent, Jerrie W. Gasch, and Purnendu K. Rana Medhi
(collectively, the “defendants”), alleging that, by adopting the Consent
Resolutions, the defendants had unlawfully orchestrated an illegal coup to
wrest
control of our company from its current officers and directors. As discussed
below, Messrs. Gasch and Medhi no longer support the Parent-led
board.
The
Temporary Restraining Order
Following
a hearing on December 22, 2004, at which the Court heard evidence and argument
of counsel, the Honorable Earl H. Carroll issued a December 23, 2004 Order
Granting Plaintiffs’ Motion for Temporary Restraining Order, or TRO. The TRO
precluded defendants and their agents from (1) making any withdrawals from
any
bank accounts of our company, other than reasonable withdrawals necessary to
the
daily operations of the business; (2) rescinding or interfering in any way
with
any transactions approved by our company’s Board of Directors prior to December
9, 2004; (3) entering into any contracts or agreements with third parties on
behalf of our company or disposing of or transferring any property or assets
of
our company; and (4) issuing or otherwise transferring any stock or debentures.
The
Court
subsequently continued the TRO through February 15, 2005 and confirmed that
none
of the defendants were to receive any payments from our company during the
pendency of the TRO. Despite the Court’s Order, the defendants have since
produced business records of our company demonstrating that, after adopting
the
December Consent Resolutions, the defendants arranged for our company to pay
them a collective total of $38,721, including $20,869 in payments to Stephen
Parent.
The
Preliminary Injunction and Notice of Appeal
Following
additional hearings in which the Court heard witness testimony and evidence,
the
Court issued an Order on February 15, 2005 granting plaintiffs’ Motion for a
Preliminary Injunction. The Preliminary Injunction ordered the reinstatement
of
our company’s Board of Directors as it existed prior to December 10, 2004. As a
result of the Court’s Order, John F. Cook, Robert T. Faber, Christopher L.
Aguilar, Todd S. Brown, Leslie L. Cahan, Stanley A. Hirschman, and Phil E.
Pearce have been reinstated as directors. Stephen B. Parent, Jerrie W. Gasch,
and Purnendu K. Rana Medhi remained directors until Mr. Medhi’s resignation in
April 2005. The Court’s February 15 Order also stayed the implementation of the
Consent Resolutions, and directed us to hold a special shareholders meeting
within 30 days.
In
concluding that the Preliminary Injunction should issue, the Court stated,
“The
Court is specifically concerned about the irreparable injury that would occur
to
GoldSpring and its shareholders and investors if Defendants [Mr. Parent, his
wife, Jerrie W. Gasch, and Purnendu K. Rana Medhi] are permitted to manage
the
corporation. There is substantial evidence of Parent’s wrongdoing in his former
position as CEO of GoldSpring, such as his misappropriation of corporate assets
for his personal use. The Defendants’ attempt to rescind the [financing]
transaction that was approved at the Board of Directors meeting on November
30,
2004 could adversely impact GoldSpring’s ability to meet its obligations under
the agreement. Rescission of the refinancing transaction would prove detrimental
for GoldSpring because the corporation would be forced to pay the $200,000.00
monthly penalty for failing to file the S-1 Registration with the SEC within
ninety (90) days of the March 22, 2004 agreement between GoldSpring and [various
investors]. This penalty had accrued to over $1,000,000.00 as of November 30,
2004.”
Thereafter,
the defendants filed a motion for reconsideration in which they asked that
the
Preliminary Injunction be dissolved or, alternatively, that the Court clarify
the injunction order and require the plaintiffs to post a bond. On February
25,
2005, the Court held a hearing on the defendants’ motion for reconsideration.
The Court denied the defendants’ requests to dissolve the Preliminary Injunction
and to require the posting of a bond. In response to defendants’ request for
clarification of the injunction order, the Court ordered that our company is
not
to issue additional shares prior to the special shareholders meeting, and that
the record date for the special shareholders meeting shall be December 9,
2004.
Our
company believed that this ruling would disenfranchise the investors that
participated in the November 30, 2004 restructuring transaction by preventing
them from receiving and voting the shares they are entitled to receive through
the conversion of their notes. A December 9, 2004 record date would also have
disenfranchised all shareholders that acquired their stock on the open market
after December 9, 2004.
Therefore,
on February 28, 2005, our company filed a legal memorandum with the Court
addressing these issues. In it, we pointed out that applicable federal
securities laws require us to provide shareholders with current financial
statements, which will not be available until June 30, 2005, and that Florida
law and our company’s bylaws require that a record date be fixed in advance
rather than in the past. On March 14, 2005, the Court held a hearing on these
issues. After hearing argument of counsel, the Court indicated that it agreed
with our position.
Accordingly,
on March 17, 2005, the Court vacated its earlier Order directing us to hold
a
special shareholders meeting and setting December 9, 2004 as the record date
for
purposes of that meeting. The Court also vacated the provision of its February
25 Order prohibiting us from issuing additional shares. Finally, the Court
reaffirmed its earlier Order reinstating our Board of Directors as it existed
prior to December 10, 2004. In doing so, the Court ordered that the reinstated
board shall remain in place until the Court orders otherwise.
On
April
13, 2005, a notice of appeal was filed on behalf of defendants (the Parents,
the
Gaschs, and the Medhis) seeking to reverse the Court’s March 17 Order. On April
21, 2005, the Gaschs moved to dismiss their appeal. On June 10, 2005, the
defendants (the Parents) filed their opening appellate brief. The plaintiffs
filed their response brief on August 16, 2005. The defendants’ response brief
was filed on October 3, 2005. The 9th Circuit Court of Appeals held oral
arguments on the appeal on January 12, 2006.
On
January 23, 2006, the United States Court of Appeals for the Ninth Circuit
issued a Memorandum disposition in the matter of Faber
v. Parent,
stating, “We reverse the district court’s decision to grant the preliminary
injunction for failure to comply with the requirements of Rule 52(a). However,
the injunction shall remain intact for a reasonable time not to exceed 90 days
from the date on which this disposition is filed or until an earlier date on
which the district court enters a succeeding preliminary injunction. During
this
time, the district court may issue a new preliminary injunction if, after
undertaking the required analysis and making the necessary findings, it deems
such an injunction appropriate.” The preliminary injunction, issued by the
district court on February 15, 2005, had reinstated GoldSpring’s Board of
Directors as it existed prior to Mr. Parent’s takeover of GoldSpring on December
10, 2004. The Memorandum disposition also stated that, “If, after further
proceedings, the district court does not order a new preliminary injunction,
we
leave it to the district court to restore, as near as possible, the situation
that would have existed if the preliminary injunction had never been granted.”
The
Investors’ Motion to Intervene
On
March
2, 2005, Longview Fund LP, Longview Equity Fund, Longview International Equity
Fund, and Alpha Capital AG (collectively, the “Investors”) moved to intervene in
the litigation. In doing so, the Investors sought to dissolve the portion of
the
Court’s February 25, 2005 Order that prohibited our company from issuing stock
to them under the refinancing transaction.
In
their
motion to intervene, the Investors alleged that they are holders of more than
$3
million of Convertible Notes issued by us, which they received pursuant to
the
transaction in March 2004. The Investors further alleged that, under the terms
of the Convertible Notes, they are entitled to convert the notes, in whole
or in
part, into our stock at any time. The Investors contended that, by preventing
us
from issuing stock, the Court’s February 25 Order is a de facto preliminary
injunction in favor of the defendants, and effectively deprived the Investors
of
much of the benefits to which they are contractually entitled. Because the
defendants had not met the requirements for injunctive relief, the Investors
argued, that portion of the Court’s Order should be dissolved. Alternatively,
the Investors asked the Court to order the defendants to post a $3.5 million
bond to protect the Investors against any damages stemming from the de facto
injunction.
On
March
7, 2005, the defendants filed their response to the Investors’ motion. They
contended that Judge Carroll’s February 25 Order was not an injunction and, in
any event, that the Investors had failed to meet the requirements for
intervention. Accordingly, they argued that the motion should be denied.
On
March
18, 2005, the Court issued an Order denying the Investors’ motion as moot. The
Court reasoned that, since its March 17 Order lifted the prohibition on the
issuance of additional shares of our stock, the Investors had, in essence,
already received the relief they requested in their motion to intervene.
Therefore, the issues raised in that motion had become moot.
The
Company’s Motion Re: the Gust Rosenfeld Retainer
After
purportedly seizing control of our company on December 9, 2004, Stephen Parent,
acting as the putative president of GoldSpring, authorized the payment of a
$250,000 retainer to the law firm of Gust Rosenfeld using funds of our company.
On March 1, 2005, we filed a motion for an order requiring Gust Rosenfeld to
provide a detailed accounting of its use of these funds and to refund the unused
portion.
On
March
14, 2005, Gust Rosenfeld sent us a refund check for $83,903.38 and a “ledger”
showing how the firm spent the other $166,096.62. Among other things, the ledger
revealed that Gust Rosenfeld withdrew approximately $109,000 as payment for
its
attorneys’ fees and costs. The ledger also showed payments to other lawyers and
outside vendors totaling approximately $57,000. Included in this amount were
two
“refund” payments to Stephen Parent totaling $21,000.
We
have
filed a reply brief asking the Court to order Gust Rosenfeld to provide a more
detailed accounting of its expenditures, including billing invoices for legal
services it purportedly rendered to our company. We have also asked the Court
to
require Gust Rosenfeld to provide a written explanation for the payments to
other lawyers and outside vendors, as well as the so-called refund payments
to
Parent.
The
“New” Consent Resolutions
On
March
21, 2005, defendants Stephen and Judith Parent filed a “Motion for Order” asking
the Court to remove certain directors of our company’s Board of Directors.
Attached to the motion was a “Consent in Lieu of a Special Meeting of the
Shareholders of GoldSpring, Inc.,” dated March 18, 2005 (the “March Consent”).
The March Consent was nearly identical to the one adopted by the Parents and
others on December 9, 2004. It purported to remove directors Robert T. Faber,
John F. Cook, Leslie L. Cahan, Todd S. Brown, Christopher L. Aguilar, Stanley
A.
Hirschman, and Phillip E. Pierce as directors of our company. The March Consent
was signed by shareholders Stephen Parent; Judith Parent; Aztech Environmental
Industries, Inc.; Jasmine House, LLC; Frontline 2001, LLC; Jubilee
Investment
Trust PLC; Ronald M. Haswell; Mark and Jennifer Ward; Walter T. Plummer; Lynn
Zollinger; Maia Ray; and Rita Hardy.
On
March
25, 2005, our company and the plaintiffs filed a joint response to the Parents’
Motion for Order. In it, we argued that (1) the shareholders who signed the
March Consent did not hold a majority of our company’s stock, which rendered the
Consent ineffective; (2) the Parents solicited more than ten shareholders,
and
therefore violated Securities and Exchange Commission Rule 14a; and (3) the
Parents cannot obtain the relief they seek because they have not asserted an
affirmative claim in court.
The
Parents filed a reply and supplemental reply on March 20, 2005, and April 11,
2005, respectively. In the reply, the Parents argued that the shareholders
who
signed the Consent do, in fact, hold a majority of the outstanding shares as
of
the date it was executed, and that any shares issued after that date are not
to
be counted. They also denied having solicited more than ten persons and denied
any obligation to state an affirmative claim before seeking the relief asked
for
in their motion. In their supplemental reply, the Parents referred to our
company’s recent Form 8-K filing (the “8-K”) with the Securities and Exchange
Commission. In the 8-K, we disclosed that our company had issued (1) 59,203,918
shares of restricted common stock in connection with the Settlement Agreement
Regarding Failure to File a Registration Statement; (2) six secured convertible
notes in an aggregate amount of $6,584,005 in connection with the Settlement
Agreement Regarding Mandatory Redemption Payment; and (3) convertible notes
in
the amount of $403,175 in connection with the Settlement Agreement Regarding
Failure to deliver shares due upon conversion. The Parents contended that the
transactions referred to in the 8-K constituted an unfair dilution of the
“non-Merriman shareholders’” stock holdings.
On
April
20, 2005, we filed a Supplemental Notice to inform the Court that Messrs. Gasch
and Medhi do not support the March Consent. In addition, we informed the Court
that Mr. Gasch had signed a Declaration that (1) Mr. Gasch never agreed to
serve
on the proposed board of directors contemplated by the March Consent, (2) that
Mr. Gasch does not support the March Consent and, if the March Consent
constituted a valid shareholder resolution (which we do not believe) Mr. Gasch
would immediately vote to reinstate the entire Board of Directors as it
currently exists, (3) Mr. Gasch denounces and rescinds the purported Director’s
Consent Resolutions dated December 10, 2004 and no longer supports any of the
resolutions or purported corporate actions contemplated in that purported
consent, and (4) Mr. Gasch has terminated Gust Rosenfeld as his counsel because
he no longer wishes to be associated with or jointed represented by Mr. Parent.
Mr. Medhi also informed us that he resigned as a director of our Board of
Directors as currently constituted and as a member of the board of directors
designated by earlier consent resolution. We informed the Court that these
developments constitute additional reasons to deny the Parents’
motion.
On
January 23, 2006, the United States Court of Appeals for the Ninth Circuit
issued a Memorandum disposition in the matter of Faber
v. Parent,
reversing the Preliminary Injunction, which had been granted by the United
States District Court for the District of Arizona on February 15, 2005 for
Mr.
Parent’s failure to comply with the requirements of Rule 52(a). The Court of
Appeals ordered that the injunction shall remain intact for a reasonable period
of time not to exceed 90 days or until an earlier date on which the district
court enters a succeeding preliminary injunction. The Court of Appeals remanded
the case to the district court to allow the district court to conduct further
proceedings, which may include issuing a new preliminary
injunction.
April
18, 2006 Order
On
April
18, 2006, the United States District Court for the District of Arizona issued
an
Order Granting a Preliminary Injunction in favor of the Plaintiff which finally
provided firm direction on several of the matters which were the subject of
motions described above. The Order accomplished the following:
(i)
it
stayed the implementation of the Consent Resolutions purportedly passed on
December 9, 2004 to effect the attempted takeover of the Company by Stephen
Parent’s group;
(ii)
it
denied Defendants’ motion for an Order removing seven current directors from
Goldspring’s Board (which would have had the effect of allowing Parent to
rescind the refinancing transaction dated November 30, 2004 with the Merriman
investors); and
(iii)
it
granted GoldSpring’s Motion for an Order requiring the law firm of Gust
Rosenfeld PLC to provide a detailed accounting of the unreturned portion of
the
$250,000 retainer (namely $166,096.62), given to Gust Rosenfeld PLC by Mr.
Parent in December 2004.
Degerstrom
Suit
On
April
11, 2006, in the First Judicial District Court, Storey County, Nevada, wherein
N.A. Degerstrom, Inc. (“Degerstrom”) sued the Company on various counts,
including breach of contract, quantum
merit,
foreclosure of mechanic's lien, and assertion that the Degerstrom lien has
priority over all other liens on the Plum Mine property. The plaintiff claims
damages in excess of $806,000 plus interest. The Company subsequently answered
the Complaint and counterclaimed for breach of contract, breach of implied
covenant of good faith and fair dealing, and for negligence, alleging damages
in
excess of $10,000.
The
lawsuit arises out of a dispute as to how much the Company owes the Degerstrom
for services provided. Pursuant to a December 27, 2005 agreement, the parties
agreed that the amount to be paid by the Company to Degerstrom would be subject
to volume reconciliation by aerial survey. According to Company management,
pursuant to prepared aerial and ground surveys, the Company has been over-billed
for amounts of ore and waste which have been hauled by Degerstrom. The results
of the surveys are to be presented to the Court as evidence as to the Company’s
affirmative defenses that it does not owe the amounts claimed by
Degerstrom.
Additionally,
the Company has what it believes to be valid counterclaims, arising out of
activities of Degerstrom, including, but not limited to, negligent crushing
of
ore, failure to accurately measure and charge for waste and ore hauled and
crushed, and failure to adequately man the job and provide sufficient equipment.
These activities, as alleged in the Counterclaim, resulted in damages to the
Company in excess of $10,000.
Degerstrom
filed a mechanic's lien against the property of Plum, and at the time of filing
of the Complaint, filed and recorded a lis pendens against the property of
Plum
based upon Degerstrom's claim. Counsel has advised management that the Company
may challenge the lis pendens by asserting that the lis pendens is based upon
a
mechanic's lien which is overstated. However, the time is not ripe for the
bringing of such a motion until the survey results have been presented and
analyzed. Alternatively, Plum may request the court to establish a bond in
an
amount that would secure, pending litigation, Degerstrom's mechanic's lien
claim. Typically, the court would charge one and one-half times the amount
it
found to be the mechanic's lien claim.
Management
believes the ground and aerial surveys support a much lower amount of ore and
waste which was processed by Degerstrom than is alleged in the Complaint, and
if
the Court accepts that volume reconciliation would be as established by such
surveys (as is established in the written documentation between the parties),
there is a reasonable probability of success in reduction, if not elimination,
of the amount claimed by Degerstrom. However, until the Court rules on the
method of volume reconciliation, it is premature to predict the probability
of
likelihood of success on the merits.
SALE
OF
ASSETS
On
March
21, 2006, the Company completed the sale of its Canadian subsidiaries, Clear
Hills Iron Ltd. and Peace River Energy Ltd. to CaNev Resources, a Canadian
Corporation. The assets divested in the transaction include 32 industrial
(non-energy) mineral permits covering approximately 800 square miles in northern
Alberta, Canada. In consideration for the assets, GoldSpring will receive
CDN$1.1 million. CDN$100,000 of the sales price will be paid in cash, and the
balance will be paid through a three percent production royalty.
EMPLOYMENT
AGREEMENTS
We
have
an employment agreement with Robert T. Faber extending through August 2009.
The
employment agreement provides for Mr. Faber to serve as our Chief Financial
Officer and was not modified after Mr. Faber was appointed President and Chief
Executive Officer. The employment agreement provides for base compensation
of
$120,000 per year, subject to increases to up to $200,000 per year if our
company achieves designated revenue levels. The employment agreement also
provides for incentive compensation as determined by our board of directors.
In
addition, the employment agreement provides for Mr. Faber to be granted options
to purchase shares of our common stock at prices ranging from $.50 to $2.00
per
share. Mr. Faber is entitled to a use of a company car, contributions to a
401(k) plan, and life insurance coverage.
The
employment agreement with Mr. Faber contains a covenant not to compete with
our
company for a period of two years immediately following termination of
employment. We may terminate Mr. Faber for “cause” as defined in the employment
agreement. We will be required to pay Mr. Faber’s compensation during the term
of the agreement if we terminate him without cause.
NOTE
7 - NOTE FINANCINGS
Convertible
Debentures-Investors
We
completed a private placement of securities transaction during March 2004
(the “March Offering”). In connection with the offering, we received gross
proceeds of $10 million from a group of accredited institutional and individual
investors. Subsequent to the closing of the March Offering, we failed to meet
certain provisions of the offering that required for us to provide for an
effective registration statement with the Securities and Exchange
Commission.
As
a
result, and effective November 30, 2004, we restructured the private
placement transaction and entered into a new subscription agreement. In
connection with the restructuring, we exchanged 8% convertible notes in the
aggregate principal amount of approximately $11.1 million and four-year
warrants to purchase approximately 27.8 million shares of common stock at
an exercise price of $0.20 per share, subject to anti-dilution adjustments,
for
21,739,129 shares of common stock and 21,739,129 warrants to purchase shares
of
common stock issued in the March Offering. The principal amount of the
convertible notes consist of the original $10.0 million investment plus
approximately $1.1 million of accrued penalties associated with the delay
in effectiveness of our registration statement covering the resale of the shares
of common stock held by the investors. (See Notes 9 and 12).
The
8%
convertible notes mature in November 2006. We must make monthly payments of
102% of 1/20th
of the
initial principal amount, together with accrued interest. We have the option
to
repay such amounts in shares of our common stock at a conversion rate equal
to
85% of the average of the five lowest closing bid prices of our common stock
during the 20 trading days preceding each payment date. We may prepay the
outstanding principal amount by paying the holders of the notes 115% of the
then-outstanding principal amount. Each holder of notes may convert the notes
into shares of common stock at an initial conversion price of $0.20 per share,
which is subject to anti-dilution adjustments. During the first 20 days
following the closing date, the conversion price may be reduced to a price
equal
to 70% of the average of the five lowest closing prices of our common stock
during the 20 trading days preceding the closing date.
On
April
1, 2005, we failed to make our first payment on the notes and were in default
of
the terms of the convertible notes. On December 20, 2004, we received notice
from holders of approximately $3.8 million of convertible notes of their
intention to convert into shares of our common stock. The applicable conversion
rate was approximately $0.11 per share, and we were obligated to issue
33,817,594 shares of our common stock. Under the terms of the subscription
agreement, we had three business days following receipt of the notice of
conversion of notes to deliver to the note holders’ free-trading common stock
certificates (the “Delivery Date”). Although the shares were due to be delivered
in December 2004, they were not delivered until 2005. As a result of our failure
to deliver shares, we were subject to liquidated damages that were settled
by
the issuance of notes payable to the investors.
Convertible
Debentures-Mandatory Redemption Payment
The
failure to deliver the shares by the Delivery Date resulted in liquidated
damages of 1% of the note principal amount being converted per business day
after the Delivery Date. We did not deliver the share certificates within the
period required in the subscription agreement and as a result, in March of
2005,
John V. Winfield, a major shareholder and note holder elected to demand payment
of approximately $6.9 million pursuant to the mandatory redemption payment
provisions of the subscription agreement and forfeit his right to receive the
shares in favor of the payment.
On
June
30, 2005, we entered into a Settlement Agreement (“Settlement”) with the Mr.
Winfield and agreed to convert the mandatory redemption payment into six
Convertible Debentures (“the Debentures”). Accordingly, we accrued a liability
for approximately $6.9 million and reduced our paid-in-capital account for
approximately $3.5 million (See Note 12). The Debentures are subject to various
covenants and conditions, including, but not limited to anti-dilution rights
and
protective rights.
The
Debentures accrue interest at 12% per annum and are payable in monthly
installments of principal and interest over a 24 month period with the remaining
entire balance of unpaid principal and interest due on June 30, 2007. The
debentures are subject to the following terms:
Conversion
Rights
The
Debentures are convertible, in all or in part, into shares of our common stock
(“Conversion Shares”) at any time. The conversion price shall be equal to the
lesser of: (i) eighty-five percent (85%) of the average of the five (5) lowest
closing bid prices of the common stock as reported by Bloomberg L.P. for the
twenty (20) trading days preceding the date the Company was obligated to pay
the
mandatory redemption Payment; and (ii) eighty-five percent (85%) of the average
of the five (5) lowest closing bid prices of the common stock as reported by
Bloomberg L.P. for the twenty (20) trading days preceding the date of any such
conversion; provided,
however,
until
the effective date of the registration statement (see below), the conversion
price shall be fifty-percent (50%) of the average of the five (5) lowest closing
bid prices of the Common Stock as reported by Bloomberg L.P. for the twenty
(20)
trading days preceding the date of any such conversion. In no event shall the
conversion price be higher than (i) $0.1131 and (ii) the conversion price of
the
convertible notes (See Note 6), as adjusted from time to time, whichever is
lower.
Security
Agreement
Pursuant
to the terms of the Settlement Agreement, the Debentures are granted a priority
collateralized position, second only to our note payable to the Brockbank Trust
in substantially all of our assets.
Mandatory
Registration Rights
The
terms
of the Debenture agreement require that we must file with the Securities and
Exchange Commission on a Form SB-2 registration statement, or such other form
that we are eligible to use, to register the Conversion Shares, together with
any other shares of Common stock issuable hereunder for resale and distribution
under the 1933 and cause to be filed not later than April 30, 2005 and declared
effective not later than June 30, 2005. If we fail to make effective a
registration statement we are subject to liquidated damages, an amount equal
to
two percent (2%) for each thirty (30) days or part thereof, thereafter of the
principal amount of the Debenture remaining unconverted and purchase price
of
Conversion Shares issued upon conversion of the Debenture owned of record by
the
holder. The Company must pay the liquidated damages in cash or an
amount equal
to
two hundred percent of such cash liquidated damages if paid in additional shares
of registered un-legended free trading
shares of common stock. As of December 31, 2005 we had failed to make any
monthly payments on the debentures and are in default.
On
December 20, 2004, we received notice from holders of approximately $500,000
of
convertible notes payable of their intention to convert into shares of our
common stock. As a result, we recorded the issuance of 4,243,791 shares on
December 20, 2004. We were required to deliver certificates representing
unrestricted, free-trading stock within three business days of our receipt
of
the notices of conversion (the “Delivery Date”). The failure to deliver the
shares by the Delivery Date resulted in liquidated damages of 1% of the Note
principal amount being converted per business day after the Delivery Date.
Our
former Chief Executive Officer did not deliver the stock certificates within
the
required period. On March 18, 2005 we delivered the certificates representing
the shares of common stock to these converting note holders. The 84 -day delay
in delivering the shares resulted in liquidated damages of $403,175. We
recognized these damages during the fourth quarter of 2004 and the first quarter
of 2005. We issued convertible notes for the amount of liquidated damages
due
Accordingly,
at June 30, 2006 and June 30, 2005, we classified the following convertible
debentures as current liabilities as follows:
|
|
|
June
30, 2006
|
|
|
June
30, 2005
|
|
Convertible
Debentures Payable-Investors
|
|
$
|
2,799,219
|
|
|
6,817,676
|
|
Convertible
Debentures Payable- Mandatory Redemption payment
|
|
|
5,886,059
|
|
|
6,885,184
|
|
Convertible
Debentures Payable- Failure to Deliver Shares
|
|
$
|
356,348
|
|
|
403,175
|
|
Total
|
|
$
|
9,041,626
|
|
|
14,106,035
|
|
Promissory
Notes Payable—July Financing
In
July
of 2005, we borrowed $1.2 Million from companies controlled by John V. Winfield,
a major shareholder. Proceeds from the notes were reduced by a 33.3% original
issue discount and other origination fees. Net proceeds received by the Company
from the borrowing were $740,000. The notes accrue interest at 15% per annum
and
are payable in monthly installments of principal and interest over a 24 month
period with the remaining entire balance of unpaid principal and interest due
on
July 15, 2007.
The
notes
are collateralized by substantially all of the Company’s assets subject to the
security interest of the Brockbank Trust. As of June 30, 2006 we had failed
to
make any monthly payments on the notes and are in default.
Promissory
Notes Payable—September Financing
In
September of 2005, we borrowed $300,000 from Longview Fund L.P., a major
shareholder. Proceeds from the notes were reduced by a 33.3% original issue
discount and other origination fees. Net proceeds received by the Company from
the borrowing were $165,500.The notes accrue interest at 15% per annum and
are
payable in monthly installments of principal and interest over a 24 month period
with the remaining entire balance of unpaid principal and interest due on July
15, 2007. The notes are collateralized by substantially all of the Company’s
assets subject to the security interest of the Brockbank Trust and the Winfield
convertible debentures of March 2005.
The
notes
share a security interest with the Winfield notes issued in July 2004. As of
June 30, 2006 we had failed to make any monthly payments on the notes and are
in
default.
Promissory
Notes Payable—December Financing
In
December of 2005, we borrowed $375,000 from Longview Fund L.P., a major
shareholder, and $200,000 from Merriman Curhan Ford & Company. The notes
accrue interest at 16% per annum, are uncollateralized and was payable including
accrued interest on or before March 15, 2006 and has not been
repaid
Accordingly,
at June 30, 2006 we classified the following notes payable as current
liabilities as follows:
|
|
|
June
30, 2006
|
|
Promissory
Notes Payable-July Financing
|
|
$
|
1,200,000
|
|
Promissory
Notes Payable-September Financing
|
|
|
300,000
|
|
Promissory
Notes Payable-December Financing
|
|
|
575,000
|
|
Promissory
Notes Payable-first quarter 2006 Financing
|
|
|
400,000
|
|
Promissory
Notes Payable-second quarter 2006 Financing
|
|
|
600,000
|
|
Total
|
|
$
|
3,075,000
|
|
Notes
Payable- Plum Mine
We
have a
non-interest bearing note payable to a shareholder related to our purchase
of
the Plum Mining property. The note is payable in ten quarterly payments through
June 2006.
Notes
Payable- Seller Note
In
connection with our acquisition of the Justice, Woodville and Keystone patented
claims we issued a promissory note to the seller for $160,000. The note is
payable in ten quarterly payments through June 2008.
Notes
Payable- Equipment Financing
During
2004, we purchased certain equipment and financed our purchases through GMAC
and
Ford Motor Company credit agencies. Aggregated principal and interest due
pursuant to the financings is due monthly in equal installments of $1,054,
at an
averaged interest rate of 7.2%. The equipment purchased is pledged as collateral
for the debt. At June 30, 2006 and June 30, 2005, we had the following amounts
due under the financings as follows:
|
|
|
June
30, 2006
|
|
|
June
30, 2005
|
|
Short-term
Debt-Current Plum Mine
|
|
$
|
9,426
|
|
|
8,649
|
|
Short-term
Debt-Current Seller Note
|
|
|
364,000
|
|
|
450,000
|
|
Other
short-term Debt-Current
|
|
$
|
-
|
|
|
-
|
|
Total
|
|
$
|
373,426
|
|
|
458,649
|
|
|
|
|
June
30, 2006
|
|
|
June
30, 2005
|
|
Long-term
Debt-non current Plum Mine
|
|
$
|
28,735
|
|
|
38,859
|
|
Long-term
Debt-non current Seller Note
|
|
|
83,200
|
|
|
-
|
|
Other
Long-term Debt -Non-current
|
|
|
-
|
|
|
-
|
|
Total
|
|
$
|
111,935
|
|
|
38,859
|
|
Principal
payments on long-term debt related to equipment financing for the next five
years are as follows:
2006
(last six months)
|
|
$
|
5,068
|
|
2007
|
|
|
10,677
|
|
2008
|
|
|
11,441
|
|
2009
|
|
|
10,976
|
|
2010
and thereafter
|
|
|
0
|
|
Convertible
Notes Payable-Failure to Deliver Shares
In
March
of 2005, and pursuant to our settlement with investors for our failure to
deliver shares of our common stock upon their conversion of debentures during
2004 (See above), we issued convertible notes payable that accrue interest
at 8%
and are payable in equal monthly installments including interest beginning
April
1, 2006. In the event of our default on the notes the interest rate increased
to
15%.
Conversion
Rights
The
notes
are convertible, in all or in part, into shares of our common stock at any
time
at an initial conversion price of $0.20, subject to certain anti-dilution
provisions that include the sale of assets, reclassifications of our equity,
issuance of additional shares and stock splits and dividends.
Borrower’s
Repayment Election.
The
Monthly Amount due on a repayment date shall be paid by the Company at its
election (i) in cash at the rate of 102% of such monthly amount otherwise due
on
such repayment date within three (3) business days of the applicable repayment
date, or (ii) with registered, freely transferable common stock at an applied
conversion rate equal to eighty-five percent (85%) of the average of the five
(5) lowest closing bid prices of the common stock as reported by Bloomberg
L.P.
for the twenty (20) trading days preceding such repayment date.
On
April
1, 2005, we failed to make our first payment on the convertible debentures
and
were in default of the terms of the convertible notes. At June 30, 2006 and
June
30, 2005 we classified the following notes payable as current liabilities as
follows:
|
|
|
June
30, 2006
|
|
|
June
30, 2005
|
|
Convertible
Notes Payable
|
|
$
|
9,041,626
|
|
|
14,106,035
|
|
Promissory
notes
|
|
|
3,075,000
|
|
|
-
|
|
Total
|
|
$
|
12,116,626
|
|
|
14,106,035
|
|
Summary
of Notes Payable
At
June
30, 2006 and June 30, 2005 our notes payable balances were:
|
|
|
June
30, 2006
|
|
|
June
30, 2005
|
|
Convertible
Debentures
|
|
$
|
9,041,626
|
|
|
14,106,035
|
|
Promissory
Notes Payable
|
|
|
3,075,000
|
|
|
-
|
|
Other
Notes Payable
|
|
$
|
373,426
|
|
|
458,649
|
|
Total
Current portion of long-term debt
|
|
$
|
12,490,052
|
|
|
14,564,684
|
|
|
|
June
30, 2006
|
|
June
30, 2005
|
|
Long-term
Debt-non current Plum Mine
|
|
$
|
28,735
|
|
|
38,859
|
|
Long-term
Debt-non current Seller Note
|
|
|
83,200
|
|
|
-
|
|
Other
Long-term Debt -Non-current
|
|
|
-
|
|
|
-
|
|
Total
Long-term debt, net of current portion
|
|
$
|
111,935
|
|
|
38,859
|
|
NOTE
8 - SUBSEQUENT EVENTS
Unfulfilled
Note Conversion Requests
During
July and early August 2006, the Company received conversion notices from
investors to convert principal and interest of certain convertible debentures
valued at $1,296,116 into 140,648,283 shares of Common Stock (see Note 7).
As
the Company had issued all of its authorized Common Stock by the end of June
2006, it was unable to honor the conversion notices and is therefore in default
of its obligations under such debentures.
Litigation
The
Company has reached a settlement with another defendant in its Arizona lawsuit.
The first settlement was with Seth Shaw, as announced on June 26, 2006. This
second settlement is with one of the other main defendants in the Company's
Arizona Superior Court lawsuit, against several defendants, including its
founder, Steve Parent. The Company has agreed to settle its claims against
this
second defendant pursuant to, among others, the following binding terms: 1)
total payment by the defendant to GoldSpring of $100,000 with $20,000 to be
paid
on or before July 31, 2006, and the remaining balance of $80,000 to be paid
on
or before September 10, 2006; 2) dismissal by GoldSpring of the pending
litigation against the defendant with prejudice (upon payment in full of the
$100,000); 3) agreement that the settlement shall in no way be construed as
an
admission of liability or fault on the part of the defendant; and 4) mutual
releases by each of Goldspring and the defendant to the other from liability
related to the pending lawsuit. This second settlement helps to narrow the
focus
of the case with the remaining major defendants consisting primarily of Steve
Parent and Ron Haswell.
On
July
31, 2006, the United States District Court for the District of Arizona in
Faber
v. Parent, et al. issued
an
order denying the Defendants’ Motion for New Trial (Reconsideration) which had
requested that the Court vacate the April 18th
order
(see Note 6). The Motion was denied as the Defendants failed to demonstrate
clear error or offer new evidence.
Amendment
to Bylaws
Effective
as of August 10, 2006 , the Company has amended Article II, Section 12 of its
Bylaws so that the record date for the taking of any action by shareholders
may
be a date within 120 days of the date of action, as opposed to the 70 day
limitation previously set forth in the Bylaws.
Item
2. Management’s
Discussion and Analysis or Plan of Operations
The
following discussion provides information that we believe is relevant to an
assessment and understanding of the consolidated results of operations and
financial condition of our company. It should be read in conjunction with the
Consolidated Financial Statements and accompanying Notes.
The
following discussion addresses matters we consider important for an
understanding of our financial condition and results of operations as of and
for
the quarter ended June 30, 2006, as well as our future results.
Overview
We
are a
North American precious metals mining company with an operating gold and silver
test mine in northern Nevada. Our Company was formed in mid-2003, and we
acquired the Plum property in November 2003. In our relatively short history,
we
secured permits, built an infrastructure and brought the Plum exploration
project into test mining production. During 2005, we acquired additional
properties around the Plum project in Northern Nevada, expanding our footprint
and creating opportunities for exploration. We are an emerging company, looking
to build on our success through the acquisition of other mineral properties
in
North America with reserves and exploration potential that can be efficiently
put into near-term production. Our objectives are to increase production;
increase reserves through exploration and acquisitions; expand our footprint
at
the Plum mine; and maximize cash flow and return for our
shareholders.
We
started to reap the benefits of the operational improvement program that we
initiated in 2005, including our first reported net profit for the first quarter
of 2006. This program began with a complete review of every facet of the
operation to insure maximum efficiency. We have nearly completed our review
of
the various processes and have implemented several changes, which have increased
efficiencies. Most recently, we have made the decision to take over our mining
operations, which were previously performed by an outside contractor. Although
we had planned to have our mining operation completely in place by the end
of
May 2006, delays in financing have dictated that we rely on contract mining
assistance through the middle to end of the fourth quarter. However, when we
do
take over operations, based on our mine plan and internal calculations, we
anticipate that taking over the mining operations will reduce our gold
production costs by $40 per ounce, resulting in a production cost of less than
$350 per ounce.
Our
first
quarter production has been hampered by inclement weather in northern Nevada
in
late 2005 and early 2006. Our Plum Mine received fourteen inches of rain between
mid-December and the end of February, filling our leach ponds, including our
one
hundred year storm pond, nearly to capacity. The high levels of effluents in
the
ponds prevented us from adding additional reagents to our leach pads. Because
we
were unable to add new material to the pad and put it under leach, we ceased
mining operations in early-January. Our team at the mine did an excellent job,
in a challenging situation, to insure the environmental integrity of our
operation. The team worked closely with the regulatory authorities throughout
this process. In order to resume mining and processing with the necessary
reagents, the level of effluents in the ponds must be reduced through
evaporation. The necessary level was reached in late June, which is when mining
resumed.
Due
to
the five month cessation of mining activities, there was little ore to produce
in the second quarter, and therefore revenues in the second quarter were
markedly lower in the first quarter, when there was still a supply of ore,
mined
in the fourth quarter of 2005, to process and sell. A lapse in mining typically
leads to reduced saleable materials in the next fiscal quarter as the
mining-processing-sales cycle is approximately 60 - 90 days. However, as mining
activities recommenced in late June, the fourth quarter should yield
comparatively favorable revenue results.
Our
Company has been involved in litigation with its founder since late 2004 when
he
attempted a takeover of the Company through a purported consent solicitation
in
violation of federal securities laws. On April 18, 2006, the United States
District Court for the District of Arizona issued an Order Granting a
Preliminary Injunction, which stayed the implementation of the Consent
Resolutions purportedly passed on December 9, 2004 (a subsequent Motion by
the
Defendants for reconsideration of the Order was denied on July 31, 2006). This
preliminary injunction removes a serious distraction that has plagued our
Company since December 2004. We believe this matter is now behind us, allowing
us to redirect our human and capital resources to our current mining operations
and further potential opportunities to continue to expand our business. The
Court’s decision also provides clarity to our investors and shareholders
regarding control and direction of the Company. With the Federal Court nearly
litigation behind us, we are actively seeking financing to meet our working
capital needs and fuel our growth.
Our
Company has also been sued by a former mining contractor to the Company for
unpaid services in an alleged amount exceeding $800,000. The Company’s
management believes that the results of aerial and ground survey (the method
stated in writings between the parties for measuring amounts owed to Degerstrom
for services rendered) demonstrate that Degerstrom’s claims are substantially
overstated and will present the survey results to the Court to substantiate
its
position. Further detail is set forth in Item 1 of Part II below.
There
are
also several specific risk factors attendant to operation of a gold mining
concern which bear repetition here due to events in 2006, although this is
not
intended to be a full blown list of risk factors (and we encourage you to review
our October 11, 2005 424(b)(3) for a further discussion of risk factors
attendant to our business):
· |
Weather
- As disclosed in this Quarterly Report, excessive rains has caused
material delays in our ability to operate as high levels of water
in our
leaching ponds and flooding have prevented us from being able to
leach
materials, a necessary part of the gold production process. Excessive
snows, which can occur in the area in which the Plum Mine is located,
would also hamper mining as the Plum Mine is an open pit
mine.
|
· |
Current
Political Instability in the Middle East - Commodities such as gold
tend
to have widely fluctuating markets, and the current problems in areas
such
as Lebanon and Iraq, which are causing much political and economic
instability internationally, may very well be a contributing factor
to the
volatile gold market.
|
Results
of Operations and Operational Plan
Operational
Improvements
Our
Plum
Mine, which is located in Storey County, Nevada, went into test mining
production in late third quarter 2004. We did not and have not since established
reserves on this exploration project; therefore, all of our activities on this
property are considered test mining or exploratory in nature. One of our top
priorities is to improve efficiencies and increase test mining production at
our
Plum Mine. In March 2005, we initiated a program to improve the operational
efficiency of our mining operation. As part of this program, we consolidated
our
corporate office with the Plum Mine office. We also made improvements to our
processing plant and took over crushing operations from our third-party
contractor, reducing costs and increasing our control over the crushing process.
Our improvement program continued throughout the year. In November 2005, we
retained licensed mining engineer Jim Golden to conduct a comprehensive review
of all aspects of the Plum Mine operation, including the overall mine plan,
with
the objective of further improving efficiency, increasing production, and
reducing costs. Our process improvement team, led by Jim Golden, is to be
commended for their excellent progress to date.
Furthermore,
Mine Development and Associates of Reno, Nevada has nearly completed a detailed
mine plan and a reserve report for the Plum Mine. Recent changes have included
revising the mine plan to reflect the current higher gold prices; adding various
efficiencies in the processing area; and re-positioning personnel to maximize
overall performance. The mine plan and reserve report are the culmination of
a
fifteen-month undertaking by our Company and Mine Development & Associates.
In a further effort to reduce costs and increase efficiencies,
we have
decided to take over the mining operations from our outside contractor. We
expect to complete this transition by the end of November 2006, with the delay
beyond the original May 2006 targeted date due to the weather problems which
have delayed production. We have successfully negotiated a mutual working
arrangement (which has not been formalized) to cover those activities through
November 2006, and we paid the contractor a $350,000 deposit for the initiation
of mining and as a partial down payment for acquisition of the contractor’s
mining fleet at the end of November 2006. Based on our mine plan and internal
calculations, we anticipate that taking over the mining operations will reduce
our gold production costs by $40 per ounce, resulting in a production cost
of
less than $350 per ounce.
In
the
second quarter, we have implemented changes to our crushing system,
including:
· |
Reducing
nominal size of material placed on the heap resulting in better overall
recovery
|
· |
Improving
the agglomeration system (agglomeration is treatment of materials
with
reagents to improve leaching)
|
· |
Introducing
recovery reagents to the conveyed ore to allow for a cure period
before
leaching
|
· |
Construction
of a new stacker to replace the rented stacker, [thus reducing costs
and
increasing reliability]
|
· |
Initiation
of repairs on a conveyor line which will be used to initiate the
next
twenty foot lift
|
The
second quarter also brought changes to the processing systems,
including:
· |
Reduction
in the amount of diatomaceous earth used in filtering solution in
the
Merrill-crowe plant
|
· |
New
formulation of smelting reagents resulting in a cleaner
slag
|
· |
Addition
of a hood in the smelt for safety
reasons
|
Operational
Details
Our
first
and second quarter production has been hampered by inclement weather in northern
Nevada in late 2005 and early 2006. Our Plum Mine received fourteen inches
of
rain between mid-December and the end of February, filling our leach ponds,
including our one hundred year storm pond, and utility pond to capacity. The
high levels of effluents in the ponds prevented us from adding additional
reagents to our leach pads. Because we were unable to add new material to the
pad and put it under leach, we made the decision to cease mining operations
in
early-January. Our team at the mine did an excellent job, in a challenging
situation, to insure the environmental integrity of our operation. The team
worked closely with the regulatory authorities throughout this process. In
order
to resume mining and processing with the necessary reagents, the level of
effluents in the ponds must be reduced through evaporation. The amount of rain
evaporated is estimated at 2.2 million gallons, and working with the Nevada
Division of Environmental Protection to ensure proper evaporation, full mining
production was able to resume in the last week of June 2006, only one month
behind the originally anticipated schedule. We continued to work with the NDEP
to ensure that we are in compliance with all environmental
regulations.
Other
operational activities in the second quarter included:
· |
In
May, operation of the mine’s recovery plant concentrating on re-leached
past ores
|
· |
In
June, delivery of the first ore by the mining contractor to our crusher
site using a Cat 988B FEL supported by two 35 ton trucks and addition
of
new lines to the leach pad which constituted the first ores to be
leached
since January 2006
|
Third
quarter undertaken and planned activities include:
· |
Four
50 ton Euclid R-50Haul-Paks were delivered in July and August replacing
two 35 ton hauling vehicles.
|
· |
Continuation
of mining in the Billie the Kid Pit where ore is to be stockpiled
until
the end of the third quarter, when crushing is due to continue at
a steady
state rate of approximately 1500 tons per
day.
|
· |
In
August and September, pre-stripping of the Lucerne Pit to expose
consistent ore to be mineable through approximately the end of
2008
|
Exploration
Details
We
also
plan to continue our exploration program in 2006. In March 2006, we retained
Larry Martin, a registered geologist, to oversee our exploration program at
the
Plum Mine and in the Comstock Lode district. We have allocated a budget of
$500,000 to explore and develop our claims at the Plum Mine. We intend to target
our exploration toward replenishing and expanding our mineralized material
inventory at our existing mine and toward developing new mineral properties.
The
successful location of additional mineralized material on the existing property
would allow us to expand the size and the lifespan of the Plum mining project,
exclusive of new property acquisitions. It is our belief that we possess an
advantage with our status as likely the only heap leach gold mining permit
holder in the area. This permit is relatively difficult to obtain, and it is
one
that we can expand to include new areas in the event we locate and wish to
process new deposits.
We
recently commenced our exploration activities. Initially, we have started
exploration in and around the Billie the Kid pit, and drilling results are
expected to be posted by the end of the third quarter of 2006. Also, we have
undertaken geologic mapping between the Billie the Kid pit, the Hartford pit
and
the Lucerne pit, and the results suggest that mapping will yield several
mineralized structures.
Placer
Claims, Water Rights, and Mineral Permits
We
originally became a mineral company through an acquisition of unpatented placer
mineral claims and the Big Mike copper claims in June 2003 from Ecovery, Inc.
The transaction had an effectuation date of March 11, 2003. Specifically, that
acquisition provided us with a number of Nevada-based placer claims, including
the Gold Canyon and Spring Valley claims, and 17 unpatented lode claims called
the Big Mike Copper property. This acquisition did not include any real property
rights. In November 2003, we acquired the Plum mine facility as well as water
rights that are usable at Plum Mine and the Gold Canyon and Spring Valley placer
claims. In a separate transaction, we obtained mineral permits in Alberta,
Canada in May 2004
The
Big
Mike Copper property is located in Pershing County, Nevada. It covers a total
of
310 acres and consists of 17 unpatented lode claims and one placer claim. We
have not established any proven or probable reserves that meet the requirements
of SEC Industry Guide 7. We have not completed any exploration activity on
the
project. The property includes an open pit, mineralized material in a stockpile
and waste dumps. We are actively exploring opportunities to bring this project
into production. The options being considered include finding a joint venture
partner or selling the property and retaining a production royalty.
Comparative
Financial Information
|
|
|
Six
Months ended June 30, 2006
|
|
|
Six
Months ended June 30, 2005
|
|
|
Difference
|
|
Revenue
|
|
$
|
663,260
|
|
$
|
1,203,951
|
|
$
|
(540,691
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Reclamation,
Exploration and Test Mining Expense
|
|
|
769,708
|
|
|
2,811,380
|
|
|
(2,041,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administration
|
|
|
322,137
|
|
|
518,535
|
|
|
(196,398
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
and Professional Service
|
|
|
268,189
|
|
|
678,464
|
|
|
(410,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Liquidated
Damages
|
|
|
-
|
|
|
2,860,468
|
|
|
(2,860,468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
1,247,458
|
|
|
723,366
|
|
|
524,092
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
($2,128,869
|
)
|
|
($6,531,422
|
)
|
$
|
4,402,553
|
|
|
|
|
Three
Months ended June 30, 2006
|
|
|
Three
Months ended June 30, 2005
|
|
|
Difference
|
|
Revenue
|
|
$
|
125,454
|
|
$
|
691,861
|
|
$
|
(566,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Reclamation,
Exploration and Test Mining Expense
|
|
|
343,932
|
|
|
1,541,290
|
|
|
(1,197,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administration
|
|
|
142,064
|
|
|
234,281
|
|
|
(92,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
and Professional Service
|
|
|
113,372
|
|
|
174,196
|
|
|
(60,824
|
) |
|
|
|
|
|
|
|
|
|
|
|
Liquidated
Damages
|
|
|
-
|
|
|
985,835
|
|
|
(985,835
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Interest
Expense
|
|
|
497,812
|
|
|
468,623
|
|
|
29,189
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
($1,111,736
|
)
|
|
($2,793,623
|
)
|
$
|
1,681,527
|
|
During
the first six months of 2006, we sold 1,163 ounces of gold at an average price
of $570 per ounce compared to gold sales of 2,817 ounces at an average price
of
$427 per ounce for the same period of 2005. Our gold production for the first
six months of 2006 was adversely impacted by the weather conditions from mid
December 2005 through February 2006. The accumulation of precipitation during
this period filled our leach ponds, including our one hundred year storm pond,
to capacity preventing us from adding additional reagents to our leach pads,
which slowed production. In early January, we ceased mining since we could
not
efficiently leach any new material further reducing production. We did not
have
significant production in the second quarter as in the first because the
cessation of mining in January left us with no raw product available, and all
of
our stockpiled ore was depleted during the first quarter of 2006.
Test
Mining Expenses in the second quarter of 2006 were $1,197,358 less than for
the
first quarter of 2005. Test Mining Expenses for the first six months of 2006
were $2,041,672 less than for the first six months of 2005. In early 2005 we
initiated an operational improvement program. This program focused on enhancing
the efficiencies of each
of
our processes as well as insuring we had the right personnel. We
believe we are now starting to experience the benefits of the operational
improvement program. We expect to realize further improvements in the upcoming
months.
General
and administrative expenses for the three months ended June 30, 2006 and June
30, 2005 were $142,064 and $234,281, respectively. General and administrative
expenses for the six months ended June 30, 2006 and June 30, 2005 were $322,137
and $518,535 respectively. The marked decrease in general and administrative
expenses for both comparison periods is based primarily upon the relocation
of
our Corporate office to the Plum Mine and the consolidation of functions
reducing the number of corporate employees.
The
$410,275 variance in consulting and professional services between the period
consisting of the first six months of 2006 compared to the period consisting
of
the first six months of 2005 reflects a reduction in legal fees. In the first
quarter 2005, we expensed approximately $180,000 of legal fees incurred by
our
Company’s founder during his purported takeover of our Company in December 2004.
The
liquidated damages included in the tables above stemmed from Non-Registration
Events Provisions in our November 2004 Subscription Agreement (“Non-Registration
Provisions”). The Non-Registration Provisions required us to file a registration
statement with the Securities and Exchange Commission no later than December
30,
2004 and to cause the registration statement to be declared effective no later
than February 14, 2005. Our former Chief Executive Officer withdrew our pending
registration statement and did not submit a new registration statement. His
failure to submit the registration statement to the SEC by December 30, 2004
triggered liquidated damages to be incurred at a rate of two percent (2%) of
the
principal amount of the Debenture for each thirty day period or part thereof
for
not having an effective Registration Statement. We have the option to pay the
liquidated damages in cash or common stock. If we choose to pay in stock, we
are
required to pay 200% of the liquidated damages amount. Because our Company
does
not currently have sufficient funds to pay in cash, we intend to meet this
obligation by issuing common shares. Thus, the total amount of liquidated
damages recorded for the third quarter represents 200% of the cash total. The
liquidated damages ceased when our registration statement became effective
on
October 3, 2005.
Interest
expense for the second quarter of 2006 was $29,189 higher than the same quarter
of 2005, and interest expense for the first six months of 2006 was $524,092
higher than for the first six months of 2005. This variance reflects the
issuance of $6,885,184 interest bearing note issued in March 2005 pursuant
to
the November 2004 subscription agreement. Specifically, we received a mandatory
redemption payment demand relating to our failure to deliver stock certificates
representing 29,573,803 shares of our common stock. Under the mandatory
redemption payment provisions of the November 2004 subscription agreement,
we
repurchased the 29,573,803 shares of common stock at $0.23 per share, or
$6,801,975. We issued a secured convertible note in the aggregate amount of
$6,885,184 with a 12% interest rate for the 29,573,803 shares and accrued
interest. The incremental interest recognized on this note for the second
quarter 2006 was approximately $279,308. At June 30, 2006, our Company had
approximately $12,601,987 of outstanding debt bearing an average interest rate
of 15%, and at June 30, 2005, our Company had approximately $14,603,543 of
outstanding debt bearing an average interest rate of 12%.
Liquidity
and Capital Resources
We
are
actively seeking additional capital to meet our working capital needs and to
grow our business. We recognize that our cash resources are limited. Our
continued existence and plans for future growth depend on our ability to obtain
the capital necessary to operate, through the generation of revenue or the
issuance of additional debt or equity. In 2005, we raised an aggregate of
$1,575,000 through five financing transactions. In the first six months of
2006,
we completed several additional financing transactions, which provided us with
$1,000,000 in funding. While this additional funding may meet our immediate
working capital needs, if we are not able to generate sufficient revenues and
cash flows or obtain additional or alternative funding, we will be unable to
continue as a going concern. We have yet to realize an operating profit at
our
Plum Mine location. As disclosed in the report of our independent registered
public accounting firm in our financial statements included in this Form 10-KSB
for the year ended December 31, 2005, our recurring losses and negative cash
flow from operations raise substantial doubt about our ability to continue
as a
going concern.
Furthermore,
the litigation in which our Company has been involved since late 2004 has
strained the Company’s financial resources. (See Part II, Item 1, “Legal
Proceedings,” for a detailed discussion.) If we are unable to resolve the
litigation in the near future, the ongoing legal costs may impact our ability
to
continue as a going concern. In
the
first quarter of 2006, we completed additional financing transactions, which
provided us with $400,000 in funding. In consideration for the funding, we
issued promissory notes with a term of ninety (90) days and an interest rate
of
sixteen percent (16%) per annum. The default interest rate on the note is
twenty-two percent (22%). The funds were used for working capital and general
corporate purposes.
In
April
2006, we obtained a financing commitment in the amount of $2.2 million from
a
group of our existing investors, for which $600,000 has been advanced. We expect
to close the transaction in the next 90 days, subject to completion of certain
closing conditions. Upon closing, the funds will be deployed to expand our
Plum
Mine operation in northern Nevada. Specifically, we plan to take over the mining
operations from our contract miner and have committed $500,000 to conduct
further exploration at the Plum property. We believe, with this additional
financing, that we have sufficient resources to operate throughout the next
twelve months.
Our
operations are significantly affected by changes in the market price of gold.
Gold prices can fluctuate widely and may be affected by numerous factors, such
as expectations for inflation, levels of interest rates, currency exchange
rates, central bank sales, forward selling or other hedging activities, demand
for precious metals, global or regional political and economic crises, and
production costs in major gold-producing regions, such as South Africa and
the
former Soviet Union. The aggregate effect of these factors, all of which are
beyond our control, is impossible for us to predict. The demand for and supply
of gold affect gold prices, but not necessarily in the same manner as supply
and
demand affect the prices of other commodities. The supply of gold consists
of a
combination of new mineral production and existing stocks of bullion and
fabricated gold held by governments, public and private financial institutions,
industrial organizations, and private individuals. As the amount produced in
any
single year constitutes a small portion of the total potential supply of gold,
normal variations in current production do not have a significant impact on
the
supply of gold or on its price. If gold prices decline substantially, it could
adversely affect the realizable value of our assets and potential future results
of operations and cash flow.
Based
on
the most recent evaluation, which was completed as of the end of the period
covered by this Form 10-QSB, we believe our company’s disclosure controls and
procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) are
effective to ensure that information required to be disclosed by us in this
report is accumulated and communicated to our management, including our
principal executive officer and principal financial officer, as appropriate,
to
allow timely decisions regarding required disclosure. We do not believe that
any
internal control deficiencies due to lack of segregated accounting functions
and
limited accounting staff constitute material weaknesses because of the use
of
accounting personnel from the consolidated offices with our Plum Mine operation
and use of outside consultants, along with oversight from our Audit Committee.
We are also in the process of taking further corrective measures to remedy
the
deficiencies in future periods.
There
have been no changes during the quarter ended June 30, 2006 in our Company's
internal control over financial reporting identified in connection with the
evaluation required by Exchange Act Rules 13a-15(d) and 15d-15(d) that have
materially affected, or are reasonably likely to materially affect, our internal
controls over our financial reporting.
PART
II - OTHER INFORMATION
Item
1. Legal
Proceedings
The
State Court Case
On
November 9, 2004, we filed a lawsuit in Maricopa County (Arizona) Superior
Court
against defendants Stephen B. Parent, Ron Haswell, Walter Doyle, Seth Shaw,
Antonio Treminio, together with their spouses, and Ecovery, Inc., a Nevada
corporation, or Ecovery.
The
12-count complaint alleges claims for violations of Arizona’s racketeering act,
state-law securities fraud (primary and secondary liability), common-law fraud,
negligent misrepresentation, breach of fiduciary duty, negligence/gross
negligence, breach of contract, unjust enrichment/restitution, theft/conversion,
conspiracy liability, and injunctive relief. In essence, the complaint alleges
that Stephen Parent misrepresented the value of certain placer mining claims
that his company, Ecovery, sold to us in 2003 in exchange for approximately
99,000,000 shares of our stock; that Ecovery no longer had good title to the
mining claims when they were sold to us; that Mr. Parent and the other
named defendants conspired to defraud us out of approximately 24,000,000 shares
of our stock; and that Mr. Parent misappropriated more than $300,000 in company
funds.
On
November 29, 2004, we moved for a temporary restraining order, or TRO,
prohibiting Mr. Parent and his spouse from selling, transferring, assigning,
or
otherwise disposing of up to approximately 46,000,000 shares of our stock in
their possession. After a hearing, at which the Parents appeared through
counsel, the Honorable Anna M. Baca granted the motion, conditioned on the
posting of an $8 million bond. We did not post the bond, and the TRO was
subsequently dissolved.
On
or
about December 9, 2004, Mr. Parent and fellow GoldSpring directors Jerrie W.
Gasch and Purnendu K. Rana Medhi purportedly seized control of our company.
Afterward, the Parent-led GoldSpring purported to fire Greenberg Traurig, LLP,
or GT, as counsel for our company in this litigation and to hire Ronan &
Firestone, PLC, or Ronan, as substitute counsel. Thereafter, on December 22,
2004, Ronan filed a stipulation to dismiss the lawsuit, purportedly on behalf
of
our company. Also on December 22, 2004, the Parents filed their answer, in
which
they generally denied the allegations of the complaint.
On
December 29, 2004, GT filed a motion on behalf of our company to strike the
stipulation to dismiss that Ronan had filed. Judge Baca heard oral argument
on
the motion on February 2, 2005 and took the matter under advisement. Further
oral argument was heard on March 22, 2005. In light of the preliminary
injunction that was issued in a related shareholder action in federal district
court (discussed below), and the resolutions passed by our Board of Directors
on
February 22, 2005, Judge Baca granted the motion in an Order dated March 22,
2005 and struck Ronan’s purported stipulation to dismiss.
In
the
same ruling, Judge Baca said that “there are serious conflicts in the continued
representation of the Parents in this lawsuit by Gust Rosenfeld.” The Court was
referring to the fact that Parent had hired Gust Rosenfeld as our counsel after
purportedly taking over our company on December 9, 2004. The Court therefore
ordered further briefing on whether Gust Rosenfeld should be disqualified as
the
Parents’ counsel. Shortly thereafter, on March 28, 2005, Gust Rosenfeld
voluntarily withdrew as the Parents’ counsel. The Parents have since retained
new counsel. The discovery process is currently ongoing.
Mr.
Treminio has since been dismissed from the suit in accordance with the terms
of
a prior settlement agreement between Mr. Treminio and GoldSpring, Inc..
Mr. Shaw filed an answer, in
pro per,
on
April 6, 2005, and generally denied the allegations of the complaint. Mr.
Haswell, Mr. Doyle and Ecovery, Inc. have filed answers and generally denied
the
allegations of the complaint.
At
the
end of June 2006, the Company settled its claims against Mr. Shaw for a $75,000
settlement and was in negotiations with another defendant for
settlement.
The
Federal Court Case
Background
Stephen
B. Parent and several others purporting to represent a majority of the
shareholders of our company adopted Consent Resolutions in Lieu of a Special
Meeting of Shareholder’s dated December 9, 2004, and Mr. Parent, Jerrie W.
Gasch, and Purnendu K. Rana Medhi, each of whom served as a director of our
company until Mr. Medhi’s resignation in April 2005, adopted Directors’ Consent
Resolutions (together the “December Consent Resolutions”) dated December 10,
2004. Taken together, the December Consent Resolutions, by their purported
terms, removed John F. Cook, Robert T. Faber, Leslie L. Cahan, Todd S. Brown,
Christopher L. Aguilar, Stanley A. Hirschman, and Phil E. Pearce as directors,
rescinded the restructuring of a $10 million financing transaction entered
into
in March 2004, removed Mr. Faber as President of our company, named Mr. Parent
as President of our company and his wife as Secretary of our company, designated
Mr. Parent as the sole signing officer of our company’s bank accounts, and
terminated our company’s legal counsel.
On
December 22, 2004, Robert T. Faber and Leslie L. Cahan (collectively, the
“plaintiffs”), who are shareholders and directors of our company, filed a
lawsuit in the United States District Court for the District of Arizona,
entitled Robert T. Faber, et al. v. Stephen B. Parent, et al., No.
CV04-2960-PHX-EHC (“the Litigation”). The plaintiffs asserted claims in both
their individual capacities and derivatively, on behalf of our company, against
directors Stephen B. Parent, Jerrie W. Gasch, and Purnendu K. Rana Medhi
(collectively, the “defendants”), alleging that, by adopting the Consent
Resolutions, the defendants had unlawfully orchestrated an illegal coup to
wrest
control of our company from its current officers and directors. As discussed
below, Messrs. Gasch and Medhi no longer support the Parent-led
board.
The
Temporary Restraining Order
Following
a hearing on December 22, 2004, at which the Court heard evidence and argument
of counsel, the Honorable Earl H. Carroll issued a December 23, 2004 Order
Granting Plaintiffs’ Motion for Temporary Restraining Order, or TRO. The TRO
precluded defendants and their agents from (1) making any withdrawals from
any
bank accounts of our company, other than reasonable withdrawals necessary to
the
daily operations of the business; (2) rescinding or interfering in any way
with
any transactions approved by our company’s Board of Directors prior to December
9, 2004; (3) entering into any contracts or agreements with third parties on
behalf of our company or disposing of or transferring any property or assets
of
our company; and (4) issuing or otherwise transferring any stock or debentures.
The
Court
subsequently continued the TRO through February 15, 2005 and confirmed that
none
of the defendants were to receive any payments from our company during the
pendency of the TRO. Despite the Court’s Order, the defendants have since
produced business records of our company demonstrating that, after adopting
the
December Consent Resolutions, the defendants arranged for our company to pay
them a collective total of $38,721, including $20,869 in payments to Stephen
Parent.
The
Preliminary Injunction and Notice of Appeal
Following
additional hearings in which the Court heard witness testimony and evidence,
the
Court issued an Order on February 15, 2005 granting plaintiffs’ Motion for a
Preliminary Injunction. The Preliminary Injunction ordered the reinstatement
of
our company’s Board of Directors as it existed prior to December 10, 2004. As a
result of the Court’s Order, John F. Cook, Robert T. Faber, Christopher L.
Aguilar, Todd S. Brown, Leslie L. Cahan, Stanley A. Hirschman, and Phil E.
Pearce have been reinstated as directors. Stephen B. Parent, Jerrie W. Gasch,
and Purnendu K. Rana Medhi remained directors until Mr. Medhi’s resignation in
April 2005. The Court’s February 15 Order also stayed the implementation of the
Consent Resolutions, and directed us to hold a special shareholders meeting
within 30 days.
In
concluding that the Preliminary Injunction should issue, the Court stated,
“The
Court is specifically concerned about the irreparable injury that would occur
to
GoldSpring and its shareholders and investors if Defendants [Mr. Parent, his
wife, Jerrie W. Gasch, and Purnendu K. Rana Medhi] are permitted to manage
the
corporation. There is substantial evidence of Parent’s wrongdoing in his former
position as CEO of GoldSpring, such as his misappropriation of corporate assets
for his personal use. The Defendants’ attempt to rescind the [financing]
transaction that was approved at the Board of Directors meeting on November
30,
2004 could adversely impact GoldSpring’s ability to meet its obligations under
the agreement. Rescission of the refinancing transaction would prove detrimental
for GoldSpring because the corporation would be forced to pay the $200,000.00
monthly penalty for failing to file the S-1 Registration with the SEC within
ninety (90) days of the March 22, 2004 agreement between GoldSpring and [various
investors]. This penalty had accrued to over $1,000,000.00 as of November 30,
2004.”
Thereafter,
the defendants filed a motion for reconsideration in which they asked that
the
Preliminary Injunction be dissolved or, alternatively, that the Court clarify
the injunction order and require the plaintiffs to post a bond. On February
25,
2005, the Court held a hearing on the defendants’ motion for reconsideration.
The Court denied the defendants’ requests to dissolve the Preliminary Injunction
and to require the posting of a bond. In response to defendants’ request for
clarification of the injunction order, the Court ordered that our company is
not
to issue additional shares prior to the special shareholders meeting, and that
the record date for the special shareholders meeting shall be December 9,
2004.
Our
company believed that this ruling would disenfranchise the investors that
participated in the November 30, 2004 restructuring transaction by preventing
them from receiving and voting the shares they are entitled to receive through
the conversion of their notes. A December 9, 2004 record date would also have
disenfranchised all shareholders that acquired their stock on the open market
after December 9, 2004.
Therefore,
on February 28, 2005, our company filed a legal memorandum with the Court
addressing these issues. In it, we pointed out that applicable federal
securities laws require us to provide shareholders with current financial
statements, which will not be available until June 30, 2005, and that Florida
law and our company’s bylaws require that a record date be fixed in advance
rather than in the past. On March 14, 2005, the Court held a hearing on these
issues. After hearing argument of counsel, the Court indicated that it agreed
with our position.
Accordingly,
on March 17, 2005, the Court vacated its earlier Order directing us to hold
a
special shareholders meeting and setting December 9, 2004 as the record date
for
purposes of that meeting. The Court also vacated the provision of its February
25 Order prohibiting us from issuing additional shares. Finally, the Court
reaffirmed its earlier Order reinstating our Board of Directors as it existed
prior to December 10, 2004. In doing so, the Court ordered that the reinstated
board shall remain in place until the Court orders otherwise.
On
April
13, 2005, a notice of appeal was filed on behalf of defendants (the Parents,
the
Gaschs, and the Medhis) seeking to reverse the Court’s March 17 Order. On April
21, 2005, the Gaschs moved to dismiss their appeal. On June 10, 2005, the
defendants (the Parents) filed their opening appellate brief. The plaintiffs
filed their response brief on August 16, 2005. The defendants’ response brief
was filed on October 3, 2005. The 9th Circuit Court of Appeals held oral
arguments on the appeal on January 12, 2006.
On
January 23, 2006, the United States Court of Appeals for the Ninth Circuit
issued a Memorandum disposition in the matter of Faber
v. Parent,
stating, “We reverse the district court’s decision to grant the preliminary
injunction for failure to comply with the requirements of Rule 52(a). However,
the injunction shall remain intact for a reasonable time not to exceed 90 days
from the date on which this disposition is filed or until an earlier date on
which the district court enters a succeeding preliminary injunction. During
this
time, the district court may issue a new preliminary injunction if, after
undertaking the required analysis and making the necessary findings, it deems
such an injunction appropriate.” The preliminary injunction, issued by the
district court on February 15, 2005, had reinstated GoldSpring’s Board of
Directors as it existed prior to Mr. Parent’s takeover of GoldSpring on December
10, 2004. The Memorandum disposition also stated that, “If, after further
proceedings, the district court does not order a new preliminary injunction,
we
leave it to the district court to restore, as near as possible, the situation
that would have existed if the preliminary injunction had never been granted.”
The
Investors’ Motion to Intervene
On
March
2, 2005, Longview Fund LP, Longview Equity Fund, Longview International Equity
Fund, and Alpha Capital AG (collectively, the “Investors”) moved to intervene in
the litigation. In doing so, the Investors sought to dissolve the portion of
the
Court’s February 25, 2005 Order that prohibited our company from issuing stock
to them under the refinancing transaction.
In
their
motion to intervene, the Investors alleged that they are holders of more than
$3
million of Convertible Notes issued by us, which they received pursuant to
the
transaction in March 2004. The Investors further alleged that, under the terms
of the Convertible Notes, they are entitled to convert the notes, in whole
or in
part, into our stock at any time. The Investors contended that, by preventing
us
from issuing stock, the Court’s February 25 Order is a de facto preliminary
injunction in favor of the defendants, and effectively deprived the Investors
of
much of the benefits to which they are contractually entitled. Because the
defendants had not met the requirements for injunctive relief, the Investors
argued, that portion of the Court’s Order should be dissolved. Alternatively,
the Investors asked the Court to order the defendants to post a $3.5 million
bond to protect the Investors against any damages stemming from the de facto
injunction.
On
March
7, 2005, the defendants filed their response to the Investors’ motion. They
contended that Judge Carroll’s February 25 Order was not an injunction and, in
any event, that the Investors had failed to meet the requirements for
intervention. Accordingly, they argued that the motion should be denied.
On
March
18, 2005, the Court issued an Order denying the Investors’ motion as moot. The
Court reasoned that, since its March 17 Order lifted the prohibition on the
issuance of additional shares of our stock, the Investors had, in essence,
already received the relief they requested in their motion to intervene.
Therefore, the issues raised in that motion had become moot.
The
Company’s Motion Re: the Gust Rosenfeld Retainer
After
purportedly seizing control of our company on December 9, 2004, Stephen Parent,
acting as the putative president of GoldSpring, authorized the payment of a
$250,000 retainer to the law firm of Gust Rosenfeld using funds of our company.
On March 1, 2005, we filed a motion for an order requiring Gust Rosenfeld to
provide a detailed accounting of its use of these funds and to refund the unused
portion.
On
March
14, 2005, Gust Rosenfeld sent us a refund check for $83,903.38 and a “ledger”
showing how the firm spent the other $166,096.62. Among other things, the ledger
revealed that Gust Rosenfeld withdrew approximately $109,000 as payment for
its
attorneys’ fees and costs. The ledger also showed payments to other lawyers and
outside vendors totaling approximately $57,000. Included in this amount were
two
“refund” payments to Stephen Parent totaling $21,000.
We
have
filed a reply brief asking the Court to order Gust Rosenfeld to provide a more
detailed accounting of its expenditures, including billing invoices for legal
services it purportedly rendered to our company. We have also asked the Court
to
require Gust Rosenfeld to provide a written explanation for the payments to
other lawyers and outside vendors, as well as the so-called refund payments
to
Parent.
The
“New” Consent Resolutions
On
March
21, 2005, defendants Stephen and Judith Parent filed a “Motion for Order” asking
the Court to remove certain directors of our company’s Board of Directors.
Attached to the motion was a “Consent in Lieu of a Special Meeting of the
Shareholders of GoldSpring, Inc.,” dated March 18, 2005 (the “March Consent”).
The March Consent was nearly identical to the one adopted by the Parents and
others on December 9, 2004. It purported to remove directors Robert T. Faber,
John F. Cook, Leslie L. Cahan, Todd S. Brown, Christopher L. Aguilar, Stanley
A.
Hirschman, and Phillip E. Pierce as directors of our company. The March Consent
was signed by shareholders Stephen Parent; Judith Parent; Aztech Environmental
Industries, Inc.; Jasmine House, LLC; Frontline 2001, LLC; Jubilee Investment
Trust PLC; Ronald M. Haswell; Mark and Jennifer Ward; Walter T. Plummer; Lynn
Zollinger; Maia Ray; and Rita Hardy.
On
March
25, 2005, our company and the plaintiffs filed a joint response to the Parents’
Motion for Order. In it, we argued that (1) the shareholders who signed the
March Consent did not hold a majority of our company’s stock, which rendered the
Consent ineffective; (2) the Parents solicited more than ten shareholders,
and
therefore violated Securities and Exchange Commission Rule 14a; and (3) the
Parents cannot obtain the relief they seek because they have not asserted an
affirmative claim in court.
The
Parents filed a reply and supplemental reply on March 20, 2005, and April 11,
2005, respectively. In the reply, the Parents argued that the shareholders
who
signed the Consent do, in fact, hold a majority of the outstanding shares as
of
the date it was executed, and that any shares issued after that date are not
to
be counted. They also denied having solicited more than ten persons and denied
any obligation to state an affirmative claim before seeking the relief asked
for
in their motion. In their supplemental reply, the Parents referred to our
company’s recent Form 8-K filing (the “8-K”) with the Securities and Exchange
Commission. In the 8-K, we disclosed that our company had issued (1) 59,203,918
shares of restricted common stock in connection with the Settlement Agreement
Regarding Failure to File a Registration Statement; (2) six secured convertible
notes in an aggregate amount of $6,584,005 in connection with the Settlement
Agreement Regarding Mandatory Redemption Payment; and (3) convertible notes
in
the amount of $403,175 in connection with the Settlement Agreement Regarding
Failure to deliver shares due upon conversion. The Parents contended that the
transactions referred to in the 8-K constituted an unfair dilution of the
“non-Merriman shareholders’” stock holdings.
On
April
20, 2005, we filed a Supplemental Notice to inform the Court that Messrs. Gasch
and Medhi do not support the March Consent. In addition, we informed the Court
that Mr. Gasch had signed a Declaration that (1) Mr. Gasch never agreed to
serve
on the proposed board of directors contemplated by the March Consent, (2) that
Mr. Gasch does not support the March Consent and, if the March Consent
constituted a valid shareholder resolution (which we do not believe) Mr. Gasch
would immediately vote to reinstate the entire Board of Directors as it
currently exists, (3) Mr. Gasch denounces and rescinds the purported Director’s
Consent Resolutions dated December 10, 2004 and no longer supports any of the
resolutions or purported corporate actions contemplated in that purported
consent, and (4) Mr. Gasch has terminated Gust Rosenfeld as his counsel because
he no longer wishes to be associated with or jointed represented by Mr. Parent.
Mr. Medhi also informed us that he resigned as a director of our Board of
Directors as currently constituted and as a member of the board of directors
designated by earlier consent resolution. We informed the Court that these
developments constitute additional reasons to deny the Parents’
motion.
On
January 23, 2006, the United States Court of Appeals for the Ninth Circuit
issued a Memorandum disposition in the matter of Faber
v. Parent,
reversing the Preliminary Injunction, which had been granted by the United
States District Court for the District of Arizona on February 15, 2005 for
Mr.
Parent’s failure to comply with the requirements of Rule 52(a). The Court of
Appeals ordered that the injunction shall remain intact for a reasonable period
of time not to exceed 90 days or until an earlier date on which the district
court enters a succeeding preliminary injunction. The Court of Appeals remanded
the case to the district court to allow the district court to conduct further
proceedings, which may include issuing a new preliminary
injunction.
April
18, 2006 Order
On
April
18, 2006, the United States District Court for the District of Arizona issued
an
Order Granting a Preliminary Injunction in favor of the Plaintiff which finally
provided firm direction on several of the matters which were the subject of
motions described above. The Order accomplished the following:
(i)
it
stayed the implementation of the Consent Resolutions purportedly passed on
December 9, 2004 to effect the attempted takeover of the Company by Stephen
Parent’s group;
(ii)
it
denied Defendants’ motion for an Order removing seven current directors from
Goldspring’s Board (which would have had the effect of allowing Parent to
rescind the refinancing transaction dated November 30, 2004 with the Merriman
investors); and
(iii)
it
granted GoldSpring’s Motion for an Order requiring the law firm of Gust
Rosenfeld PLC to provide a detailed accounting of the unreturned portion of
the
$250,000 retainer (namely $166,096.62), given to Gust Rosenfeld PLC by Mr.
Parent in December 2004.
On
July
31, 2006, the Court issued an order denying the Defendants’ Motion for New Trial
(Reconsideration) which had requested that the Court vacate the April
18th
order.
The Motion was denied as the Defendants failed to demonstrate clear error or
offer new evidence.
Degerstrom
Suit
On
April
11, 2006, in the First Judicial District Court, Storey County, Nevada, wherein
N.A. Degerstrom, Inc. (“Degerstrom”) sued the Company on various counts,
including breach of contract, quantum
merit,
foreclosure of mechanic's lien, and assertion that the Degerstrom lien has
priority over all other liens on the Plum Mine property. The plaintiff claims
damages in excess of $806,000 plus interest. The Company subsequently answered
the Complaint and counterclaimed for breach of contract, breach of implied
covenant of good faith and fair dealing, and for negligence, alleging damages
in
excess of $10,000.
The
lawsuit arises out of a dispute as to how much the Company owes the Degerstrom
for services provided. Pursuant to a December 27, 2005 agreement, the parties
agreed that the amount to be paid by the Company to Degerstrom would be subject
to volume reconciliation by aerial survey. According to Company management,
pursuant to prepared aerial and ground surveys, the Company has been over-billed
for amounts of ore and waste which have been hauled by Degerstrom. The results
of the surveys are to be presented to the Court as evidence as to the Company’s
affirmative defenses that it does not owe the amounts claimed by
Degerstrom.
Additionally,
the Company has what it believes to be valid counterclaims, arising out of
activities of Degerstrom, including, but not limited to, negligent crushing
of
ore, failure to accurately measure and charge for waste and ore hauled and
crushed, and failure to adequately man the job and provide sufficient equipment.
These activities, as alleged in the Counterclaim, resulted in damages to the
Company in excess of $10,000.
Degerstrom
filed a mechanic's lien against the property of Plum, and at the time of filing
of the Complaint, filed and recorded a lis pendens against the property of
Plum
based upon Degerstrom's claim. Counsel has advised management that the Company
may challenge the lis pendens by asserting that the lis pendens is based upon
a
mechanic's lien which is overstated. However, the time is not ripe for the
bringing of such a motion until the survey results have been presented and
analyzed. Alternatively, Plum may request the court to establish a bond in
an
amount that would secure, pending litigation, Degerstrom's mechanic's lien
claim. Typically, the court would charge one and one-half times the amount
it
found to be the mechanic's lien claim.
Management
believes the ground and aerial surveys support a much lower amount of ore and
waste which was processed by Degerstrom than is alleged in the Complaint, and
if
the Court accepts that volume reconciliation would be as established by such
surveys (as is established in the written documentation between the parties),
there is a reasonable probability of success in reduction, if not elimination,
of the amount claimed by Degerstrom. However, until the Court rules on the
method of volume reconciliation, it is premature to predict the probability
of
likelihood of success on the merits.
Item
2. Unregistered
Sales of Equity Securities and Use of Proceeds
Not
applicable.
Item
3. Defaults
Upon Senior Securities
In
connection with our acquisition of the Plum Mining Company, LLC, we issued
a
promissory note to the seller for $1 million (the balance of the purchase
price). At June 30, 2006, the outstanding balance on the Note was $400,000.
We
are in default on this Note.
Under
the
terms of our November 2004 subscription agreement, we issued 8% convertible
notes in the aggregate principal amount of $11.1 million to an investor group.
Under the terms of the notes, our first principal and interest repayment was
scheduled for April 1, 2005. We are in default on these notes. The default
interest rate is 12%.
In
March
2005, we issued a secured convertible note in the aggregate amount of $6,885,184
with a 12% interest rate for the 29,573,803 shares and accrued interest due
under the mandatory redemption payment provisions of our November 2004
subscription agreement. Payments on this note were scheduled to begin on April
1, 2005. We are in default on this note, causing the interest rate to increase
to the default rate of 18%.
On
July
15, 2005, we completed a financing transaction, which provided us with $800,000
in funding. In consideration for the financing, we issued promissory notes
with
a face value of $1.2 million, reflecting an original issue discount of
thirty-three and one-third (33.3%) percent. The term of the notes is two years,
with an optional extension of one year at the option of the investor. The annual
interest rate on the notes is 15% of the face value and is payable monthly.
On
September 28, 2005, we completed another financing transaction under the same
terms and conditions as the July 2005 financing. The September 2005 financing
provided us with $200,000 in funding. We have not made the monthly interest
payments on these notes, and thus we are in default. The default interest rate
on these notes is 22%.
During
the fourth quarter of 2005, we completed three financing transactions, which
provided us with a total of $575,000 in funding. In consideration for the
financing, we issued promissory notes with a term of ninety (90) days and an
interest rate of sixteen percent (16%) per annum. The default interest rate
on
the notes is twenty-two percent (22%). These notes had a maturity date of May
15, 2006, at which time all outstanding principal and interest became due.
We
are
working with the above-referenced note holders to cure the defaults. The above
referenced notes, including interest, have a total value of approximately
$12,116,626 at June 30, 2006. While failure to reach a resolution would likely
cause us to seek external funding in order to meet our obligations, there can
be
no assurance that such funding would be available.
Item
4. Submission
of Matters to a Vote of Security Holders
Not
applicable.
Item
5. Other
Information
Not
applicable.
Item
6. Exhibits
and Reports on Form 8-K
(a)
|
The
following documents are filed as part of this
Report:
|
(1)
|
Financial
statements filed as part of this
Report:
|
·
|
Consolidated
Balance Sheet as of June 30, 2006
(Unaudited)
|
·
|
Consolidated
Statement of Operations for the three- and six-month periods ended
June
30, 2006 and 2005 (Unaudited)
|
·
|
Consolidated
Statement of Cash Flows for the six-month periods ended June 30,
2006 and
2005 (Unaudited)
|
·
|
Notes
to Financial Statements
|
(2) Exhibits
filed as part of this Report:
Exhibit
Number
|
Exhibit |
|
|
31.1 |
Certification
of Chief Executive Officer and Chief Financial
Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated
under
the Securities
Exchange Act of 1934, as amended.
|
|
|
32.1 |
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of
2002
|
(b)
Reports filed on Form 8-K during the quarter ended June 30, 2006:
|
(1)
|
A
Report on Form 8-K was filed with the Securities and Exchange Commission
on April 24, 2006 under Item 8.01 relating to the U.S. District Court
for
the District of Arizona’s issuance an Order in the matter of Faber
v. Parent,
which accomplished the following:
(i)
it stayed the implementation of the Consent Resolutions purportedly
passed
on December 9, 2004 to effect the attempted takeover of the Company
by
Stephen Parent’s group;
(ii)
it denied Defendants’ motion for an Order removing seven current directors
from Goldspring’s Board; and
(iii)
it granted GoldSpring’s Motion for an Order requiring the law firm of Gust
Rosenfeld PLC to provide a detailed accounting of the unreturned
portion
of the $250,000 retainer (namely $166,096.62), given to Gust Rosenfeld
PLC.
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(2)
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A
report on Form 8-K was filed with the Securities and Exchange Commission
on May 9, 2006 under Item 8.01 relating to disclosure of the first
quarter
net profit at Plum Mine.
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(3)
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A
report on Form 8-K was filed with the Securities and Exchange Commission
on August 10, 2006 under Items 5.01 and 8.01 relating to disclosure
regarding an amendment to the Company’s Bylaws and an update to federal
court litigation involving the
Company.
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
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GOLDSPRING,
INC.
(Registrant)
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Date:
August 14, 2006
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By:
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/s/
Robert T. Faber
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Robert
T. Faber
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President
and Chief Executive Officer
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By:
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/s/
Robert T. Faber
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Robert
T. Faber
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Chief
Financial and Accounting
Officer
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