Overview
We
are
a
North
American
natural
resource
company
whose
objective
is
to
achieve
growth
and
profitability
through
enhancements
at
our
active
gold
and
silver-producing
mine
near
Reno,
Nevada
and
through
the
acquisition
of
additional
mining
projects
that
can
be
efficiently
put
into
near-term
operation
and
production.
We
currently
own
mineral
property
rights
and
conduct
our
primary
mining
operations
in
Storey
County,
Nevada,
located
about
30
miles
southeast
of
Reno,
Nevada.
This
operation
consists
of
the
Plum
Mining
facility.
We
also
own
mineral
permits
in
Alberta,
Canada.
We
have
no
active
operations
in
Canada.
Our
current
management
team
was
reinstated
in
mid-February
2005
(see
Part
II,
Item
1
-
Legal
Proceedings).
One
of
current
management's
top
priorities
upon
regaining
control
of
the
company
was
to
improve
efficiencies
and
increase
production
at
our
Plum
Mine.
To
this
end,
we
hired
a
new
mine
manager,
who
has
significant
experience
in
gold
mining,
primarily
in
and
around
the
area
of
our
current
operation.
We
also
implemented
modifications
to
our
plant,
equipment,
and
operations
during
the
first
half
of
2005
to
address
our
past
difficulties
and
increasing
operating
efficiency.
In
the
spirit
of
maximizing
overall
operating
performance
and
reducing
costs,
effective
August
1,
2005,
the
Company
has
consolidated
its
corporate
office
with
the
Plum
Mine
facility.
The
relocation
will
reduce
costs
and
allow
for
more
effective
utilization
of
our
resources,
both
human
and
capital.
The
new
contact
information
for
the
corporate
office
and
personnel
is
listed
below.
The
new
contact
information
for
the
corporate
office,
effective
August
1,
2005,
is:
P.O.
Box
1118
Virginia
City,
NV
89440
Tel
775.847.5272
Fax
775.847.4762
www.goldspring.us
Additional
Contact
Information:
Lisa
Boksenbaum,
Corporate
and
Investor
Relations
(480)
203-0510
Robert
Faber,
President
and
CEO
(480)
603-5151
We
believe
that
many
of
the
non-operating
issues
that
have
plagued
our
company
since
early-December
2004
are
now
being
resolved.
We
are
now
focusing
our
efforts
on
achieving
positive
cash
flow
and
increased
production
in
2005.
Our
ability
to
maintain
that
focus
will
depend
largely
upon
our
relationships
with
a
number
of
our
investors
that
are
now
note
holders
as
the
result
of
our
2004
financial
restructuring.
Although
this
debt
obligation
is
substantial,
we
believe
that
we
will
be
able
to
reach
an
arrangement
with
our
investors
that
will
allow
us
to
structure
the
repayments
in
a
manageable
fashion.
During
the
first
half
of
2005,
we
incurred
approximately
$2.8
million
of
liquidated
damages
and
other
expenses
related
to
our
obligations
under
the
March
2004
and
November
2004
subsription
agreements.
The
damages
were
compounded
by
the
former
Chief
Executive
Officer’s
decision
to
withdraw
the
SEC
registration
statement
and
his
failure
to
deliver
common
shares
pursuant
to
the
November
2004
restructuring
agreement.
We
filed
the
SB-2
registration
statement
in
April
of
2005
and
have
delivered
the
shares.
We
are
now
in
the
process
of
trying
to
get
the
registration
statement
declared
effective
by
the
SEC.
Until
the
registration
statement
is
declared
effective,
we
continue
to
incur
liquidated
damages
under
the
November
30,
2004
Subscription
Agreement
(See
Recent
Financing
Events
and
Restructuring
for
additional
information).
Between
April
28,
2005
and
June
30,
2005,
the
end
of
the
period
covered
by
this
report,
we
incurred
approximately
$
600,000
in
liquidated
damages,
and
such
damages
continued
to
accrue
after
the
end
of
such
period.
Pursuant
to
the
terms
of
the
Subscription
Agreement,
the
damages
may
be
paid
in
cash
or
in
unrestricted
common
stock.
If
paid
in
stock,
we
are
required
to
pay
200%
of
the
cash
penalty,
or
approximately
$1.2
million.
Because
we
do
not
have
the
cash
or
stock
which
was
issued
in
a
registered
transaction
to
pay
the
liquidated
damages,
we
have
reached
a
settlement
agreement
with
the
investors
to
pay
the
$1.2
million
in
liquidated
damages
in
restricted
common
stock
valued
at
$0.03
per
share.
We
accrued
$1.2
million
in
the
second
quarter
of
2005
to
reflect
this
obligation.
Pursuant
to
this
settlement
agreement,
we
will
be
issuing
approximately
40
million
shares
of
restricted
common
stock
in
the
third
quarter
of
2005.
The
Plum
Mine
operation
showed
material
improvements
in
efficiency
and
production
in
the
second
quarter
of
2005.
The
crusher,
which
has
been
the
primary
source
of
setbacks
in
increasing
production,
received
substantial
mechanical
improvements
early
in
the
quarter.
Due
to
these
improvements,
we
crushed
144,000
tons
of
mineralized
material
in
the
second
quarter,
representing
an
increase
of
141%
from
the
first
quarter
2005.
We
are
in
the
process
of
assembling
our
crushing
circuit.
Our
third-party
contractor
has
discontinued
its
crushing
operations
to
allow
for
the
set-up
of
our
crushing
equipment.
We
expect
our
crushing
operations
to
commence
in
mid-August
2005.
This
transition
from
a
third-party
crushing
operator
to
an
in-house
operation
will
bring
immediate
cost
savings
and
should
allow
us
to
reach
our
target
of
crushing
60,000
tons
of
material
per
month.
We
also
made
significant
improvements
to
the
Merrill
Crowe
processing
plant
during
the
second
quarter.
Through
a
change
in
pumps
and
the
addition
of
a
second
clarifier,
we
increased
capacity
at
the
plant
from
100
gallons
per
minute
to
300
gallons
per
minute
and
we
are
now
operating
24
hours
per
day,
7
days
per
week.
We
will
continue
to
focus
on
improving
efficiency
at
the
Plum
Mine
operation
through
the
remainder
of
2005.
The
improvements
at
the
Plum
Mine
have
resulted
in
a
steady
increase
in
gold
production
during
the
second
quarter.
We
produced
353
ounces
of
gold
in
April,
527
ounces
in
May,
1,126
ounces
in
June,
and
we
are
ramping
up
to
our
target
production
of
2,000
ounces
of
gold
per
month.
Our
primary
objectives
in
the
third
quarter
of
2005
are
to
achieve
positive
cash-flow
and
to
improve
our
overall
mine
operation.
We
continue
to
look
for
growth
opportunities.
This
process
consists
of
actively
conducting
exploration
to
identify
additional
mineralized
material.
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
also
seek
growth
through
the
acquisition
of
mining
projects
which
have
proven
in-ground
reserves,
advanced
permitting,
and
solid
exploration
potential.
We
seek
to
acquire
proven
projects
whose
business
operations
and
business
models
make
those
projects
economically
feasible
for
a
company
of
our
size.
In
line
with
this
strategy,
on
May
4,
2005,
we
announced
that
we
executed
a
Letter
of
Intent
to
acquire
the
leases
on
three
patented
mineral
claims
from
Comstock
Gold,
LLC.
The
Justice,
Woodville,
and
Keystone
claims
are
adjacent
to
our
existing
operation
at
the
Plum
Mine.
The
Letter
of
Intent
is
subject
only
to
the
successful
completion
of
our
due
diligence
and
our
board’s
approval.
We
expect
to
complete
our
due
diligence
prior
to
September
30,
2005,
after
which
time
we
plan
to
enter
into
a
definitive
purchase
agreement.
The
proximity
of
these
claims
should
allow
us
to
develop
the
property
in
a
cost-effective
manner
and
likely
increase
the
efficiency
of
our
overall
mining
operation.
This
acquisition
is
important
for
our
company
for
a
number
of
other
reasons
as
well.
First,
the
claims
will
expand
our
mining
property
by
40
acres,
increasing
our
mineralized
material
inventory
by
approximately
33%.
Second,
the
claims
will
contribute
to
the
enhancement
of
overall
mine
extraction
and
waste
disposal
efficiencies.
Third,
these
claims
will
enlarge
our
footprint
in
the
Comstock
Lode
region
and
have
the
potential
for
expanding
the
life
of
our
existing
Plum
Mine
operation.
Finally,
the
addition
of
these
properties
will
improve
our
geologic
understanding
of
the
entire
physical
area
and
its
trends.
Results
of
Operations
and
Operational
Plan
Our
Plum
Mine,
which
is
located
in
Storey
County,
Nevada,
went
into
production
in
late
third
quarter
2004.
The
region
experienced
record
level
snowfalls
at
approximately
the
same
time,
continuing
through
the
winter
of
2004/2005.
While
the
unusually
heavy
precipitation
did
not
interfere
with
the
overall
recovery
of
mineralized
material,
it
did
impact
our
ability
to
mine
and
crush
the
mineralized
material.
As
mentioned
above,
our
mining
operations
essentially
shut
down
in
January
2005
due
to
a
combination
of
harsh
weather,
equipment
difficulties,
and
management
disruption.
Although
mining
operations
resumed
when
the
current
management
was
reinstated
in
mid-February
2005,
the
equipment
difficulties
continued
throughout
the
first
quarter.
For
example,
between
March
15,
2005
and
April
1,
2005,
we
had
no
crusher
production
due
to
inoperable
equipment.
We
have
since
taken
steps
to
remedy
our
equipment
challenges,
including
replacing
the
cone
and
screen
plant
on
the
crusher.
Due
to
these
improvements,
we
crushed
144,000
tons
of
mineralized
material
in
the
second
quarter,
representing
an
increase
of
141%
from
the
first
quarter
2005.
We
have
made
several
other
improvements
to
our
equipment
and
operations
during
the
second
quarter
of
2005
to
increase
production
and
improve
operating
efficiency.
On
the
operations
side,
we
have
added
additional
solution
lines
to
the
mineralized
material
on
leach
pad
number
two,
adjusted
the
amount
of
cement
used
during
the
agglomeration
phase
of
processing,
and
added
an
agglomeraid
to
our
mineralized
material.
We
believe
these
adjustments
will
increase
recovery
results
and
minimize
problems
with
the
crusher.
We
have
also
increased
production
capacity
at
our
Merrill
Crowe
processing
plant
by
adding
a
new
clarifier,
changing
the
pumps
and
raising
the
height
of
the
vacuum
tower.
With
these
changes,
we
increased
capacity
at
the
plant
from
100
gallons
per
minute
to
300
gallons
per
minute
and
we
are
now
operating
24
hours
per
day,
7
days
per
week.
We
believe
the
combination
of
the
equipment
modifications,
operational
improvements,
and
management
changes
made
since
late-February
2005
leaves
us
poised
to
reach
our
goals
for
2005.
In
the
remainder
of
2005,
we
plan
to
focus
the
bulk
of
our
efforts
on
achieving
additional
operational
improvements
in
both
production
and
efficiency
at
our
Plum
Mine
operation.
We
are
continuing
to
pursue
operational
improvements
through
enhancements
to
our
existing
processes.
These
enhancements
are
expected
to
stem
from
increasing
our
volume
of
production
combined
with
lowering
the
cost
of
our
processes.
Our
objective
for
operational
performance
in
2005
is
to
establish
a
stable
and
predictable
level
of
gold
and
silver
production
at
the
Plum
Mine
resulting
in
profitability
and
positive
cash
flow.
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
Project.
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
Project
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
believe
the
property
has
exploration
potential
for
primary
and
oxide
copper.
In
November
2004,
we
entered
into
a
Memorandum
of
Understanding
to
form
a
joint
venture
to
begin
exploration
activities
on
this
property.
The
negotiations
were
put
on
hold
in
December
2004
by
the
dispute
over
control
of
the
company.
We
continue
to
look
for
a
business
partner
to
develop
this
project.
We
are
still
in
discussions
with
the
party
who
executed
the
Memorandum
of
Understanding
in
November
2004.
In
May
2004,
the
Alberta
government
granted
us
mineral
permits
for
all
non-energy
minerals
on
nearly
800
square
miles
of
Alberta,
Canada
mineral
property.
Sedimentary
Oolitic
iron
bearing
material
was
discovered
in
1953
from
oil
and
gas
drilling
in
the
area
covered
by
our
mineral
permits.
We
are
in
the
process
of
reviewing
existing
data
and
conducting
a
pre-feasibility
study
on
the
project.
The
study
will
include
new
test
work
to
follow-up
earlier
test
work
performed
on
the
property.
From
1995
through
1997,
a
series
of
tests
were
performed
that
showed
the
mineralized
material
present
was
amenable
to
treatment
to
produce
iron
pellets
and
pig
iron.
We
are
negotiating
the
acquisition
of
the
coal
rights
in
this
area.
We
are
also
investigating
the
possible
acquisition
of
the
rights
to
the
energy
minerals,
gas,
and
oil
on
this
property.
This
is
an
early
stage
project
and
our
activities
associated
with
this
mineral
area
are
exploratory
in
nature.
We
have
not
established
any
reserves
on
this
property.
The
scope
and
size
of
this
potential
project
will
require
substantial
capital,
time
and
outside
assistance
during
both
the
pre-
and
post-feasibility
stages.
We
are
considering
several
financial
alternatives,
including
a
joint
venture,
to
develop
this
project.
Liquidity
and
Capital
Resources
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
July
2005,
we
received
$800,000
in
financing
(See
Recent
Financing
Events
and
Restructuring,
below).
While
this
additional
funding
will
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.
As
disclosed
in
the
report
of
our
independent
registered
public
accounting
firm
in
our
financial
statements
provided
in
our
Form
10-KSB
for
the
year
ended
December
31,
2004,
our
recurring
losses
and
negative
cash
flow
from
operations
raise
substantial
doubt
about
our
ability
to
continue
as
a
going
concern.
Under
the
terms
of
our
November
2004
subscription
agreement,
we
issued
8%
convertible
notes
to
an
investor
group.
Under
the
terms
of
the
notes,
our
first
principal
and
interest
repayment
was
scheduled
for
April
1,
2005.
Prior
to
April
1,
2005,
knowing
that
we
did
not
have
sufficient
cash
available
to
meet
these
obligations,
we
began
negotiations
with
the
major
note
holders
in
an
effort
to
delay
repayment
of
both
the
principal
and
interest
amounts
for
a
12-month
period.
Our
negotiations
with
these
note
holders
regarding
the
repayment
delay
have
so
far
been
successful
and
we
have
reached
a
tentative
agreement
regarding
the
12-month
payment
deferral.
We
remain
optimistic
that
we
will
reach
a
definitive
agreement.
However,
we
are
in
default
on
these
notes,
and
in
the
event
we
are
not
successful
in
achieving
a
payment
deferral,
we
will
be
unable
to
meet
the
current
note
obligations.
While
failure
to
reach
a
resolution
would
likely
cause
us
to
seek
external
funding
in
order
to
meet
our
obligation,
there
can
be
no
assurance
that
such
funding
would
be
available.
If
such
funding
were
not
available,
we
might
have
no
alternative
other
than
to
default
on
these
notes.
We
have
yet
to
realize
an
operating
profit
at
our
Plum
Mine
location.
However,
we
believe
that
our
Plum
Mine
operations
will
become
profitable
and
generate
positive
cash
flow
during
the
year
2005.
We
expect
to
expand
our
existing
leach
pads,
which
currently
number
three,
to
a
total
of
either
four
or
five
leach
pads
during
2005.
The
cost
of
this
expansion
will
be
approximately
$600,000.
We
are
also
in
the
process
of
taking
over
the
crushing
operations
from
our
third-party
contractor.
This
transition
requires
us
to
acquire
and
assemble
our
own
crushing
equipment,
at
an
approximate
cost
of
$100,000.
These
expenditures
represent
our
only
major
capital
expenditures
currently
planned
for
2005.
We
intend
to
finance
our
crushing
equipment,
our
leach
pad
expansion
project
and
any
other
capital
expenditures
in
2005
through
the
issuance
of
debt
and
equity
instruments
to
existing
shareholders
and
other
parties.
Restatement
of
Financial
Statements
Upon
review
of
the
standards
for
reporting
mineral
reserves
as
defined
by
SEC
Industry
Guide
7
(“Guide
7”),
we
have
concluded
that
we
did
not
have
sufficient
information
to
establish
the
existence
of
reserves
as
of
December
31,
2004
and
that
certain
costs
that
we
had
incurred
in
the
development
of
our
mining
facility
must
be
expensed
as
exploration
or
“test
mining”
costs.
We
have
restated
our
2004
financial
statements
to
classify
all
costs
previously
capitalized
(the
recovery
of
which
is
dependent
upon
the
economical
extraction
of
gold
from
the
mineralized
material
we
are
currently
processing),
as
test
mining
expenses.
These
costs,
which
total
approximately
$4.5
million
net
of
accumulated
depreciation,
include
our
asset
retirement
obligation
asset
of
$453,786.
In
connection
with
our
restatement
of
our
mineral
property
assets,
we
have
also
restated
our
asset
retirement
obligation
liability,
classifying
it
as
an
environmental
reclamation
liability
and
not
an
asset
retirement
obligation
as
described
by
Financial
Accounting
Standards
Board
Statement
No.
143.
We
have
also
restated
our
shareholders’
equity.
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.
In
connection
with
the
notice
we
reduced
convertible
notes
payable
by
$3.8
million
and
recorded
an
additional
33,817,594
shares
(converted
at
approximately
$0.11
per
share)
at
December
31,
2004.
Upon
further
consideration,
we
have
determined
that
since
the
shares
had
not
been
physically
issued
prior
to
year
end,
the
liability
and
stockholders’
equity
accounts
should
not
be
adjusted
until
the
shares
have
been
issued.
Accordingly,
we
restated
our
convertible
note
and
stock
holder
equity
accounts
by
approximately
$3.8
million.
The
restatement
has
no
affect
on
net
loss
or
cash
flows
as
previously
reported.
Recent
Financing
Events
and
Restructuring
On
July
15,
2005,
we
completed
a
financing
transaction,
which
has
provided
us
with
$800,000
in
funding.
In
consideration
for
the
financing,
the
Company
has
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.
The
funds
will
be
used
for
working
capital
and
general
corporate
purposes.
In
2004,
we
offered
securities
in
a
private
placement
transaction
completed
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
offering’s
close,
we
failed
to
meet
certain
requirements
of
the
offering
regarding
filing
an
effective
registration
statement
with
the
Securities
and
Exchange
Commission.
Under
the
terms
of
the
March
2004
subscription
agreement,
failure
to
have
an
effective
registration
statement
by
the
required
date
resulted
in
liquidated
damages
in
the
amount
of
2%
of
the
principal
investment
amount
(i.e.,
$200,000)
for
each
30-day
period
until
the
registration
statement
was
declared
effective.
We
accrued
approximately
$1.1
million
in
liquidated
damages
through
November
30,
2004
associated
with
our
failure
to
cause
our
registration
statement
to
be
effective.
During
the
SEC
review
process
of
the
registration
statement
we
filed
in
connection
with
the
March
Offering,
we
learned
that
our
founder
and
former
Chief
Executive
Officer
may
have
misrepresented
the
value
of
certain
mineral
properties
that
his
company
sold
to
us
in
a
June
2003
transaction.
Our
discussions
with
the
SEC
led
to
our
decision
to
restate
our
annual
and
quarterly
SEC
filings
to
reflect
our
reevaluation
of
the
value
of
those
mineral
properties.
This
reevaluation
led
to
an
investigation
into
the
activities
of
our
founder.
On
November
9,
2004,
we
filed
a
lawsuit
in
Maricopa
County
(Arizona)
Superior
Court
against
Stephen
B.
Parent
and
four
other
Defendants,
together
with
their
spouses,
and
Ecovery,
Inc.
(See
-
Legal
Proceedings).
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.
The
allegations
made
in
our
lawsuit
raised
questions
about
the
representations
that
our
founder
made
during
the
March
2004
Offering.
The
delay
in
effectiveness
of
our
registration
statement
combined
with
the
allegations
raised
in
the
lawsuit
caused
concern
among
the
investors
in
the
March
2004
Offering.
We
worked
with
the
investors
to
address
their
concerns
in
a
manner
that
would
not
force
us
to
pay
a
large
cash
penalty
or
face
a
lawsuit,
both
of
which
would
be
detrimental
to
our
shareholders.
In
consideration
for
restructuring
the
original
transaction,
the
investors
agreed
to
grant
us
a
release
for
any
misrepresentations
that
may
have
been
made,
allowed
us
to
capitalize
the
accrued
liquidated
damages,
and
provided
us
with
an
additional
90
days
to
cause
the
registration
statement
to
become
effective,
thereby
avoiding
potential
liquidated
damages
of
$600,000
if
the
registration
statement
were
to
be
filed
before
December
30,
2004.
As
a
result,
and
effective
November 30,
2004,
we
restructured
the
private
placement
transaction.
In
connection
with
the
restructuring,
we
exchanged
the
21,739,129
shares
of
common
stock
and
the
21,739,129
warrants
to
purchase
shares
of
common
stock
issued
to
the
investors
in
the
March
Offering
for
8%
convertible
notes
in
the
aggregate
principal
amount
of
approximately
$11.1 million
and
four-year
warrants
to
purchase
27,750,000
shares
of
common
stock
at
an
exercise
price
of
$0.20
per
share,
subject
to
anti-dilution
adjustments.
The
principal
amount
of
the
convertible
notes
consists
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.
The
restructured
subscription
agreement
also
permitted
the
convertible
note
holders
to
convert
their
notes
into
common
stock
at
a
discounted
conversion
rate
if
they
delivered
their
notices
of
conversion
within
20
trading
days
of
the
November
30,
2004
restructuring
closing
date.
On
or
about
December
9,
2004,
Mr.
Parent
and
fellow
directors
Jerrie
W.
Gasch
and
Purnendu
K.
Rana
Medhi
purportedly
seized
control
of
our
company.
They
attempted
to
remove
the
remaining
seven
members
of
our
board
and
announced
their
intention
not
to
honor
the
restructured
subscription
agreement
of
November
30,
2004,
which
both
Mr.
Medhi
and
Mr.
Gasch
had
approved.
On
December
21,
2004,
Mr.
Parent
caused
our
pending
registration
statement
to
be
withdrawn
from
SEC
consideration,
resulting
in
further
delays
to
the
registration
process
and
additional
liquidated
damages.
Mr.
Parent
remained
in
control
of
our
corporate
office
until
February
16,
2005
(See
-
Legal
Proceedings).
During
his
period
of
purported
control
of
our
company,
Mr.
Parent
refused
to
honor
our
obligations
under
either
the
March
2004
subscription
agreement
or
the
restructured
November
2004
subscription
agreement.
On
December
20,
2004,
we
received
notice
from
holders
of
approximately
$3.8
million
of
convertible
notes
payable
of
their
intention
to
convert
into
shares
of
our
common
stock.
As
a
result,
we
recorded
the
issuance
of
33,817,594
shares
on
December
20,
2004.
We
were
required
to
deliver
certificates
representing
unrestricted,
stock
which
was
issued
in
a
registered
transaction within
three
business
days
of
our
receipt
of
the
notices
of
conversion.
As
discussed
above,
our
former
Chief
Executive
Officer
did
not
deliver
the
stock
certificates
within
the
required
period,
resulting
in
material
financial
damages
to
our
company.
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
the
product
of
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
convertible
note
in
the
aggregate
amount
of
$6,885,184
for
the
29,573,803
shares
and
accrued
interest.
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,
stock
which
was
issued
in
a
registered
transaction
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.
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.
As
discussed
above,
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.
Pursuant
to
the
terms
of
the
Subscription
Agreement,
the
damages
may
be
paid
in
cash
or
in
unrestricted
common
stock.
If
paid
in
stock,
we
are
required
to
pay
200%
of
the
cash
penalty.
Because
we
do
not
have
the
cash
or
stock
which
was
issued
in
a
registered
transaction
to
pay
the
liquidated
damages,
we
reached
a
settlement
agreement
with
the
investors
to
pay
the
liquidated
damages
in
restricted
common
stock
valued
at
$0.03
per
share.
The
total
liquidated
damages
accrued
between
December
30,
2004
and
April
27,
2005
was
approximately
$
1,776,000.
Pursuant
to
this
settlement
agreement,
we
issued
approximately
59
million
shares
of
restricted
common
stock
in
April
2005.
During
the
first
half
of
2005,
we
incurred
approximately
$2.8
million
of
liquidated
damages
and
other
expenses
related
to
our
obligations
under
the
March
2004
and
November
2004
subscription
agreements.
The
damages
were
compounded
by
the
former
Chief
Executive
Officer’s
decision
to
withdraw
the
SEC
registration
statement
and
his
failure
to
deliver
common
shares
pursuant
to
the
November
2004
restructuring
agreement.
We
filed
the
SB-2
registration
statement
in
April
of
2005
and
have
delivered
the
shares.
We
are
now
in
the
process
of
trying
to
get
the
registration
statement
declared
effective
by
the
SEC.
Until
the
registration
statement
is
declared
effective,
we
continue
to
incur
liquidated
damages
under
the
November
30,
2004
Subscription
Agreement
(See
Recent
Financing
Events
and
Restructuring
for
additional
information).
Pursuant
to
the
terms
of
the
Subscription
Agreement,
the
damages
may
be
paid
in
cash
or
in
unrestricted
common
stock.
If
paid
in
stock,
we
are
required
to
pay
200%
of
the
cash
penalty.
Because
we
do
not
have
the
cash
or
stock
which
was
issued
in
a
registered
transaction to
pay
the
liquidated
damages,
we
have
reached
a
settlement
agreement
with
the
investors
to
pay
the
liquidated
damages
in
restricted
common
stock
valued
at
$0.03
per
share.
The
total
liquidated
damages
accrued
between
April
28,
2005
and
July
26,
2005,
was
approximately
$
1.2
million.
Pursuant
to
this
settlement
agreement,
we
will
issue
approximately
40
million
shares
of
restricted
common
stock
in
the
third
quarter
of
2005.
Off-Balance
Sheet
Arrangements.
We
were
not
a
party
to
any
off-balance
sheet
arrangements
during
the
period
covered
by
this
report.
[See
Regulation
S-B
303(c)
for
required
disclosure
of
off-balance
sheet
arrangements.
I
have
made
the
assumption
that
there
were
none,
but
if
the
company
did
have
them,
they
need
to
be
disclosed
here
under
a
separate
caption.]
Item
3. Controls
and
Procedures
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.
Our
executive
officers
have
also
concluded
that
our
disclosure
controls
and
procedures
are
also
effective
to
give
reasonable
assurance
that
the
information
required
to
be
disclosed
in
our
filings
is
recorded,
processed,
summarized
and
reported
within
the
time
periods
specified
in
the
rules
and
forms
of
the
SEC.
We
have
identified
conditions
as
of
June
30,
2005
that
we
believe
are
significant
deficiencies
in
internal
controls
that
include:
1)
a
lack
of
segregation
of
duties
in
accounting
and
financial
reporting
activities;
and
2)
the
lack
of
a
sufficient
number
of
qualified
accounting
personnel.
We
have
taken
corrective
measures
since
the
end
of
the
second
quarter
of
2005
to
remedy
these
deficiencies.
These
measures
include
our
decision
to
consolidate
the
corporate
office
with
the
office
at
the
Plum
Mine
operation.
This
consolidation
has
provided
the
corporate
office
with
additional
accounting
personnel.
We
believe
that
the
presence
of
additional
qualified
accounting
personnel
will
allow
us
to
effectively
correct
the
lack
of
segregation
of
duties
in
accounting
and
financial
reporting
activities.
In
December
2003
our
CFO
implemented
a
business
expense
reimbursement
policy
which
he
reviewed
with
all
employees
who
regularly
traveled
for
business
including
the
Company’s
founder,
CEO
and
Chairman.
The
CFO
discussed
the
policy
again
with
the
former
CEO
and
Chairman
in
January
2004
due
to
his
failure
to
comply
with
the
policy.
The
CEO’s
continued
failure
to
properly
document
business
expenses
led
the
CFO
to
discuss
the
problem
with
the
Company’s
Board
of
Directors,
the
Company’s
outside
auditor
and
legal
counsel.
In
April
/
May
2004
the
Company’s
outside
auditor
spoke
with
the
CEO
regarding
his
failure
to
document
travel
and
entertainment
expenses.
In
August
2004
the
Company’s
Board
of
Directors
decided
to
take
firm
measures
to
resolve
this
problem
with
the
CEO.
These
steps
led
to
the
CEO’s
resignation
on
September
3,
2004.
The
Board
then
appointed
the
CFO
as
President
and
Chief
Executive
Officer.
In
response
to
this
deficiency,
five
independent
board
members
were
added
and
an
audit
committee,
composed
of
directors’
independent
of
the
Company’s
day-to-day
management
function,
was
formed
to
oversee
the
financial
reporting
and
to
review
and
approve
executive
expense
account
charges.
As
our
former
CFO
is
assuming
the
duties
of
the
CEO
and
the
Company
has
presently
not
hired
another
individual
to
act
as
CFO,
we
believe
we
have
a
significant
deficiency
with
respect
to
the
lack
of
qualified
accounting
personnel.
We
have
been
able
to
mitigate
this
deficiency
by
engaging
outside
consultants
to
assist
the
Company
in
its
accounting
activities,
but
acknowledge
that
the
only
effective
long-term
solution
to
our
accounting
needs
is
to
hire
a
qualified
CFO.
Due
to
our
budgetary
constraints
and
the
small
size
of
our
company
we
are
uncertain
as
to
when
we
will
be
able
to
accomplish
this.
We
estimate
that
the
annual
cost
of
a
qualified
individual
to
act
as
the
Company’s
CFO
would
be
between
$75,000
and
$100,000.
We
are
in
the
process
of
taking
additional
corrective
measures
to
remedy
the
deficiencies
in
future
periods.
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
123,000,000
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
and
Mr.
Doyle
have
filed
answers
and
generally
denied
the
allegations
of
the
complaint.
Ecovery,
Inc.
has
not
yet
responded
to
the
complaint.
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
March
31,
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
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
Parents
filed
their
opening
appellate
brief.
The
response
to
the
Parents’
opening
brief
is
due
on
August
16,
2005.
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
share
joint
representation
with
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.
Item
2. Unregistered
Sales
of
Equity
Securities
and
Use
of
Proceeds
Not
applicable.
Item
3. Defaults
Upon
Senior
Securities
Under
the
terms
of
our
November
2004
subscription
agreement,
we
issued
8%
convertible
notes
to
an
investor
group.
Under
the
terms
of
the
notes,
our
first
principal
and
interest
repayment
was
scheduled
for
April
1,
2005.
Prior
to
April
1,
2005,
knowing
that
we
did
not
have
sufficient
cash
available
to
meet
these
obligations,
we
began
negotiations
with
the
major
note
holders
in
an
effort
to
delay
repayment
of
both
the
principal
and
interest
amounts
for
a
12-month
period.
Our
negotiations
with
these
note
holders
regarding
the
repayment
delay
have
so
far
been
successful
and
we
have
reached
a
tentative
agreement
regarding
the
12-month
payment
deferral.
We
remain
optimistic
that
we
will
reach
a
definitive
agreement.
However,
in
the
event
we
are
not
successful
in
achieving
a
payment
deferral,
we
will
be
unable
to
meet
the
current
note
obligations.
While
failure
to
reach
a
resolution
would
likely
cause
us
to
seek
external
funding
in
order
to
meet
our
obligation,
there
can
be
no
assurance
that
such
funding
would
be
available.
If
such
funding
were
not
available,
we
might
have
no
alternative
other
than
to
default
on
these
notes.
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,
2005
(Unaudited)
|
· |
Consolidated
Statements
of
Operations
for
the
three
month
periods
ended
June
30,
2005
and
2004
(Unaudited)
|
· |
Consolidated
Statements
of
Operations
for
the
six
month
periods
ended
June
30,
2005
and
2004
(Unaudited)
|
· |
Consolidated
Statements
of
Cash
Flows
for
the
periods
ended
June
30,
2005
and
2004
(Unaudited)
|
· |
Notes
to
Financial
Statements
|
(2) Exhibits
filed
as
part
of
this
Report:
Exhibit Number |
Exhibit |
|
|
|
10.8(c) |
|
Funds
Escrow
Agreement,
dated
as
of
March
31,
2005
among
the
Registrant,
the
subscriber
parties
thereto,
and
the
escrow
agent |
|
|
|
10.9 |
|
Settlement
Agreement
dated
as
of
March
29,
2005
by
and
among
the
Registrant
and
the
subscriber
parties
to
the
Subscription
Agreement
dated
as
of
November
30,
2004
related
to
the
payment
of
liquidated
damages
incurred
for
Registrant’s
failure
to
have
an
effective
registration
statement |
|
|
|
10.10 |
|
Settlement
Agreement
dated
as
of
March
31,
2005
by
and
among
the
Registrant
and
certain
subscriber
parties
to
the
Subscription
Agreement
dated
as
of
November
30,
2004
related
to
the
payment
of
a
mandatory
redemption
payment
demand
incurred
for
Registrant’s
failure
to
deliver
shares
following
Registrant’s
receipt
of
Notices
of
Conversion |
|
|
|
10.11 |
|
Settlement
Agreement
dated
as
of
March
31,
2005
by
and
among
the
Registrant
and
certain
subscriber
parties
to
the
Subscription
Agreement
dated
as
of
November
30,
2004
related
to
the
payment
of
liquidated
damages
incurred
for
Registrant’s
failure
to
deliver
shares
following
Registrant’s
receipt
of
Notices
of
Conversion |
|
|
|
10.12 |
|
Security
Agreement,
dated
as
of
March
31,
2005,
by
and
among
the
Registrant
and
the
parties
to
the
Settlement
Agreement
dated
March
31,
2005
related
to
the
payment
of
a
mandatory
redemption
payment
demand
incurred
for
Registrant’s
failure
to
deliver
shares
following
Registrant’s
receipt
of
Notices
of
Conversion |
|
|
|
10.13 |
|
Form
of
Secured
Convertible
Debenture,
dated
as
of
March
31,
2005
issued
by
the
Registrant
to
the
subscribers
|
|
|
|
10.14 |
|
Form
of
Convertible
Note,
dated
as
of
March
31,
2005
issued
by
Registrant
to
the
subscribers |
|
|
|
10.15 |
|
Loan
Agreement
dated
as
of
July
15,
2005
by
and
among
the
Registrant
and
the
subscriber
parties
thereto |
|
|
|
10.16 |
|
Security
Agreement
dated
as
of
July
15,
2005
by
and
among
the
Registrant
and
the
subscriber
parties
to
the
Loan
Agreement
dated
July
15,
2005 |
|
|
|
10.17 |
|
Form
of
Promissory
Note,
dated
as
of
July
15,
2005
issued
by
the
Registrant
to
the
subscribers
to
the
Loan
Agreement
dated
July
15,
2005 |
|
|
|
31.1 |
|
Certification
of
Chief
Executive
Officer
pursuant
to
Rule
13a-14(a)
and
Rule
15d-14(a),
promulgated
under
the
Securities
Exchange
Act
of
1934,
as
amended |
|
|
|
31.2 |
|
Certification
of
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 |
|
|
|
32.2 |
|
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,
2005:
|
(1)
|
A
Report
on
Form
8-K
was
filed
with
the
Securities
and
Exchange
Commission
on
April
6,
2005
under
Item
1.01
relating
to
our
entry
into
three
settlement
agreements
concerning
liquidated
damages
owed
to
certain
investors
pursuant
to
our
November
30,
2004
subscription
agreement.
A
disclosure
was
also
made
in
this
report
under
Item
3.02
relating
to
our
issuance
of
securities
in
connection
with
the
settlement
agreements.
|
|
(2)
|
A
Report
on
Form
8-K
was
filed
with
the
Securities
and
Exchange
Commission
on
April
14,
2005
under
Item
5.02
relating
to
the
resignation
of
one
of
our
directors,
P.K.
Rana
Medhi.
Mr. Medhi
expressed
no
disagreements
with
the
Company
in
tendering
his
resignation.
|
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.
Date:
August
15,
2005 |
|
GOLDSPRING,
INC. |
|
|
(Registrant) |
|
|
|
|
|
By: /s/
Robert
T.
Faber |
|
|
Name: Robert
T.
Faber |
|
|
Title: President
and
Chief
Executive
Officer |
|
|
|
|
|
By: /s/
Robert
T.
Faber |
|
|
Name: Robert
T.
Faber |
|
|
Title: Chief
Financial
Officer |