SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
AMENDMENT
NO. 1 TO FORM 10-KSB
x
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the
fiscal year ended December 31, 2007
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)
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FLORIDA
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1081
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65-0955118
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(State
or other jurisdiction of
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(Primary
Standard Industrial
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(I.R.S.
Employer Identification No.)
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incorporation
or organization)
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Classification
Code Number)
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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-KSB or any
amendment to this Form 10-KSB o
State
issuer's revenues for the most recent fiscal year: $395,451
State
the
aggregate market value of the voting and non-voting common equity held by
non-affiliates based on the average bid and asked price as of April 3, 2008:
$56,200,000
State
the
number of shares outstanding of each of the issuer's classes of common equity,
as of the last practicable date: 2,990,552,847 shares of Common Stock, $0.000666
Par Value, as of April 3, 2008.
TABLE
OF
CONTENTS
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PART
I
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ITEM
1
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DESCRIPTION
OF BUSINESS
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3
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ITEM
2
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DESCRIPTION
OF PROPERTY
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12
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ITEM
3
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LEGAL
PROCEEDINGS
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25
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ITEM
4
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SUBMISSION
OF MATTERS TO VOTE OF SECURITY HOLDERS
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25
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PART
II
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ITEM
5
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MARKET
FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
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25
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ITEM
6
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MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
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26
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ITEM
7
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FINANCIAL
STATEMENTS
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34
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ITEM
8
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CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
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34
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ITEM
8A
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CONTROLS
AND PROCEDURES
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34
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ITEM
8B
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OTHER
INFORMATION
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35
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PART
III
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ITEM
9
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DIRECTORS
AND EXECUTIVE OFFICERS OF THE REGISTRANT
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35
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ITEM
10
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EXECUTIVE
COMPENSATION
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36
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ITEM
11
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
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39
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ITEM
12
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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40
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ITEM
13
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EXHIBITS
AND REPORTS ON FORM 8-K
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40
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ITEM
14
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PRINCIPAL
ACCOUNTANT FEES AND SERVICES
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41
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SIGNATURES
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42
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INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
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F-1
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Statement
Regarding Forward-Looking Statements
The
statements contained in this report on Form 10-KSB 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, “Description of Business - Risk Factors.”
2
PART
I
We
are a
North American precious metals mining company with extensive, contiguous
property in the Comstock Lode District and an operating gold and silver mine.
In
the Company's relatively short history, it secured permits, built an
infrastructure and brought the Comstock Lode project into production. Since
2005, the Company has been acquiring additional properties around its Comstock
Lode project in northern Nevada, expanding its footprint and creating
opportunities for exploration. The Company's objectives are to optimize
production, increase reserves through exploration and acquisitions, expand
its
footprint in the Comstock, and maximize shareholder value.
2007
began with the temporary closure of mining operation. This shutdown allowed
the
Company to focus on the geology to gain a comprehensive understanding of the
mineralization at the Hartford complex. In addition, the company commenced
a
drilling program in December 2007 to further delineate the ore body and to
determine the most effective process for mining operations. The goal is to
define and map the ore body and to prepare geologic cross sections to be
utilized in mine planning and as a result, to be able to build a new mine model
using geostatistics and extensive drill hole data.
There
is
also ongoing metallurgic testing to attempt to maximize recovery of the high
grade fraction of the ore and to determine optimum size to continue heap
leaching. The Company is also assessing whether if a small mill sould be added
to increase overall recovery and to determine if previously leached ore has
been
adequately leached and to determine optimum heap height.
The
exploration drilling program commenced in December 2007 with 4 drill holes.
The
Company intends to continue the exploration drilling program throughout 2008;
however, lack of sufficient funds could impact the pace of the drilling
program.
The
Company turned a corner in the first quarter of 2007 with the final settlement
of the Parent litigation as continued financial and human resource drain which
all but consumed the Company is finally over. Given the end of this litigation,
change in Board composition and continued challenges in capital raising efforts,
the Company’s management has determined that there is a need to reevaluate the
Company’s business plan with a view toward the best way to maximize shareholder
value and protection of our secured creditors. In addition, in December 2007
the
Company settled its litigation with N.A. Degerstrom. The lawsuit originated
out
of a dispute as to how much the Company owed 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. GoldSpring, pursuant to prepared aerial and ground surveys,
asserted the Company had been over-billed for amounts of ore and waste which
had
been hauled by Degerstrom. Degerstrom, according to the original lawsuit,
claimed in excess of $806,000 plus interest for services provided, totaling
approximately $1,000,000. Under the settlement agreement, GoldSpring will pay
Degerstrom $250,000 and both parties agree to dismiss their claims against
the
other. The agreement is subject to GoldSpring remitting $100,000 by December
11,
2007 and the balance of $150,000 by January 31, 2008. These payments were made
in a timely manner.
3
We
are
actively seeking financing to meet our working capital needs and fuel our
growth. If we are unable to secure such financing, we may be unable to continue
as a going concern.
The
following table sets forth certain information regarding our current projects.
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Name
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Location
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Type
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Comstock
Lode Properties
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Storey
and Lyon County, Nevada
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Gold
and silver lode claims- open pit test mining
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Como
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Lyon
County, Nevada
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Gold
and silver lode claims
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Gold
Canyon
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Lyon
County, Nevada
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Placer
gold claims
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Spring
Valley
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Lyon
County, Nevada
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Placer
gold claims
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Our
Comstock Lode exploration project is located between Carson City and Virginia
City, Nevada, about 30 miles southeast of Reno in an area known as American
Flat. Our Gold Canyon and Spring Valley placer claims are located in Lyon
County, Nevada, five miles south of our Plum property, in American Flat / Gold
Hill, Nevada. Our Big Mike Copper property is located approximately two hours
east of Reno near Winnemucca, Nevada.
Our
Plum
exploration activities include open pit gold and silver test mining. As defined
by SEC Industry Guide 7, we have not yet established any proven or probable
reserves at this project. Therefore, all of our activities are considered test
mining and exploratory in nature. Test mining at Plum commenced in the third
quarter of 2004. We have not as yet explored or developed our Como claims.
We
also have not completed any exploratory activities on our Gold Canyon, Spring
Valley, or Big Mike properties. We have not established reserves on any of
these
properties. Therefore, there can be no assurance that we will be able to produce
sufficient gold to cover our investment and operating costs.
Employees
We
approximately have 10 employees, including our managers, administrative staff,
engineers, geologists, lab technicians, and process operators. We use
consultants with specific skills to assist with various aspects of our
operation, including project evaluation, due diligence, and acquisition
initiatives.
Principal
Markets
We
plan
to sell our production on world markets at prices established by market forces.
These prices are not within our control.
Mining
operations and exploration activities are subject to various national, state,
and local laws and regulations in the United States, which govern prospecting,
development, mining, production, exports, taxes, labor standards, occupational
health, waste disposal, protection of the environment, mine safety, hazardous
substances, and other matters. We have obtained or have pending applications
for
those licenses, permits, and other authorizations currently required to conduct
our exploration and other programs. We believe that we are in compliance in
all
material respects with applicable mining, health, safety, and environmental
statutes and regulations.
4
We
are
generally required to mitigate long-term environmental impacts by stabilizing,
contouring, resloping, and revegetating various portions of a site after mining
and mineral processing operations are completed. These reclamation efforts
are
conducted in accordance with detailed plans, which must be reviewed and approved
by the appropriate regulatory agencies.
The
Nevada Revised Statutes and regulations promulgated thereunder by the Nevada
State Environmental Commission and the Nevada Division of Environmental
Protection, Bureau of Mining and Reclamation require a surety bond to be posted
for mining projects to assure we will leave the site safe, stable and capable
of
providing for a productive post-mining land use. Pursuant to the approved
Reclamation Plan for Billie the Kid, we posted a surety bond in the amount
of
$553,000, of which $377,000 was in the form of a cash deposit and the balance
was secured from a surety agent.
We
compete with other mineral exploration and mining companies in connection with
the acquisition of gold and other mineral properties. There may be competition
for gold acquisition opportunities, some of which may involve other companies
having substantially greater financial resources than we do.
Officers
of our Company
Robert
T.
Faber, CPA*
has
served as President and Chief Executive Officer of our company since September
2004 and Chief Financial Officer since June 2003. Mr. Faber is an executive
with
20 years of diverse senior financial and operational management, business and
acquisition experience, including 10 years of international experience. Mr.
Faber was named Chief Executive Officer and President of GoldSpring in September
2004. Prior to his appointment, he had served as Chief Financial Officer since
June 2003. Mr. Faber served from 2002 until 2003 as Vice President of United
Site Services, Inc., a privately held service consolidator in the waste service
industry. Additionally, Mr. Faber served as an executive with Allied Waste
Industries from 2001 until 2002, overseeing a $1.2 billion multi-state area
and
served as Chief Financial Officer with Frontier Waste Services, LLC from 1999
until 2001. Prior to Frontier Waste, Mr. Faber spent 17 years with Waste
Management, Inc., a publicly traded environmental services company, during
which
time he served in senior positions both internationally and domestically. Mr.
Faber’s positions included Director of Finance of Waste Management’s $1.4
billion multi-country International operations based in London, England and
Vice
President and Controller for several $100 million plus multi-state market areas.
(*Not licensed to practice)
Jim
Golden has served as the Company’s COO since May 2006. Mr. Golden, who is a
mining engineer, has over twenty-five years of experience in the mining
industry, including ten years with Peter Kiewit's mining division, where he
was
a district manager. A graduate of Montana Tech, Mr. Golden has owned his own
consulting firm since 1990, where he has provided consulting services throughout
the world for over 50 mining companies.
Financing
Events and Restructuring
In
February 2006, we completed an additional financing transaction, which provided
us with $250,000 in funding. In consideration for the funding, we issued a
promissory note 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 March 2006, we completed an additional financing transaction,
which
provided us with $150,000 in funding under the same terms and conditions as
the
February 2006 financing.
5
$2,200,000
Convertible Debenture Financing
On
August
23 - 24, 2006, the Company formally entered into an agreement with several
investors to loan $1,900,000 to the Company. In March 2007, the Company amended
the agreement increasing the loan amount to $2,200,000. The notes evidencing
the
loan bear interest at the rate of 12% per annum, payable monthly on the first
of
each month commencing October 1, 2006, along with 1/24 of the principal amount
of such notes on each repayment date and were issued between May 18, 2006 -
August 24, 2006, with the second quarter notes being treated as “bridge debt”
until the loan agreement was formally signed.. The notes are also convertible
into Common Stock at a 50% discount to market until a registration statement
registering the Common Stock underlying the notes is effective and at a 15%
discount to market thereafter. As additional consideration, the investors are
to
be issued a total of 20,000,000 warrants to purchase common stock at exercise
prices based upon the same formulas as for conversion of the amounts due under
the notes. The notes are secured by a lien on the assets of Goldspring, Inc.
and
a pledge of all of the interests in Plum Mine Special Purpose, LLC, which owns
the Plum Mine operation. In connection with this loan, one of the lenders has
agreed to acquire the existing mortgage on the Plum Mine property from the
Brockbank Trust. As of December 31, 2007, $2,170,000 of the $2,200,000 has
been
funded by the investors.
The
notes
issued are as follows:
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Issued
date
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Face
amount
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Winfield
Debenture Payable
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5/15/2006
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$
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300,000
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Winfield
Debenture Payable
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6/21/2006
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300,000
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Winfield
Debenture Payable
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8/23/2006
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300,000
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Longview
Debenture Payable
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8/24/2006
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300,000
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Winfield
Debenture Payable
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12/12/2006
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100,000
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Winfield
Debenture Payable
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First
Quarter 2007
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331,120
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Winfield
Debenture Payable
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Second
Quarter 2007
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288,880
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Longview
Debenture Payable
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4/1/07
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250,000
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Total
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$
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2,170,000
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In
July
2007, we completed an additional financing transaction, which provided us with
$300,000 in funding. In consideration for the funding, we issued a promissory
note with a term of one hundred and twenty (120) 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.
On
October 9, 2007, we completed a financing transaction, which provided us with
$137,500 in funding. In consideration for the financing, we issued promissory
notes with a face value of $200,000, reflecting an original issue discount
of
thirty-one and a quarter (31.25%) percent. The term of the notes is one year.
The note does not bear interest These funds were used for working capital and
general corporate purposes.
On
December 11, 2007, the Company formally entered into an agreement with several
investors to loan $1,000,000 to the Company. In consideration for the financing,
we issued promissory notes with a face value of $1,200,000, reflecting an
original discount of sixteen and seventeen hundreds (16.17%) percent. The notes
evidencing the loan bear interest at the rate of 4.9% per annum, payable on
or
prior to the one year anniversary of the respective loan date As of December
31,
2007, $500,000 of the $1,000,000 has been funded by the investors.
The
aggregate total of 2007 financing transactions was $1,970,000.
6
Risk
Factors
An
investment in our common stock involves risk. You should carefully consider
the
following risk factors, in addition to those discussed elsewhere in this report,
in evaluating our company, its business, and prospects. The following risks
could cause our business, financial condition, and operating results to be
materially and adversely affected.
We
have
incurred substantial losses since our inception, and we are currently
experiencing a cash flow deficiency from operations. Our current cash flow
and
capital resources are limited, and we may require additional funds to pursue
our
business. We may not be able to secure further financing in the future. If
we
are not able to obtain additional financing on reasonable terms, we may not
be
able to execute our business strategy, conduct our operations at the level
desired, or even to continue business.
We
have received a qualified report from our independent
auditors
The
report by the independent auditors on our financial statements indicates that
our financial statements have been prepared assuming that we will continue
as a
going concern. The report indicates that our recurring losses from operations
and working capital deficit raise substantial doubt about our ability to
continue as a going concern.
Inability
to raise sufficient funds to increase growth
Our
recent financings have only provided capital to continue existing operations
but
not to continue significant exploration and growth. Without the ability to
attract sufficient amounts of capital at any one time, it is unlikely that
we
can achieve profitability in the foreseeable future.
We
have invested capital in high-risk mineral projects where we have not conducted
sufficient exploration and engineering studies.
We
have
invested capital in various mineral properties and projects in North America
where we may not have conducted sufficient exploration and engineering studies
to minimize the risk of project failure to the extent that is typical in the
mining industry. Our mineral projects involve high risks because we have not
invested substantial sums in the characterization of mineralized material,
geologic analysis, metallurgical testing, mine planning, and economic analysis
to the same extent that other mining companies might deem reasonable. Standard
industry practice calls for a mining company to prepare a formal mine plan
and
mining schedule and have these documents reviewed by a third party specialist.
We do not have a formal mine plan that has been reviewed by a third party
specialist. Because we have not established proven or probable reserves, there
can be no assurance that we will be able to produce sufficient gold to recover
our investment and operating costs.
Our
corporate officers lack sufficient technical training and mining
experience.
Our
corporate officers lack technical training and experience in operating a mine.
Although Jim Golden, our COO, is a licensed mining engineer, with substantial
mining experience we may lack sufficient qualified support personnel to
effectively manage our mining operation . Without sufficient training or
experience in all areas, our corporate officers may not be fully aware of all
of
the specific requirements related to working within the mining industry. The
decisions of our corporate officers may not take into account standard
engineering or managerial approaches that operating mining companies commonly
use. Consequently, our operations, earnings, and ultimate financial success
could suffer irreparable harm due to corporate officers’ lack of experience in
the mining industry.
7
Our
success depends on our ability to recover precious metals, process them, and
successfully sell them for more than the cost of production. The success of
this
process depends on the market prices of metals in relation to our costs of
production. We may not always be able to generate a profit on the sale of gold
or other minerals because we can only maintain a level of control over our
costs
and have no ability to control the market prices. The total cash costs of
production at any location are frequently subject to great variation from year
to year as a result of a number of factors, such as the changing composition
of
ore grade or mineralized material production, and metallurgy and exploration
activities in response to the physical shape and location of the ore body or
deposit. In addition costs are affected by the price of commodities, such as
fuel and electricity. Such commodities are at times subject to volatile price
movements, including increases that could make production at certain operations
less profitable. A material increase in production costs or a decrease in the
price of gold or other minerals could adversely affect our ability to earn
a
profit on the sale of gold or other minerals.
We
do not have proven or probable reserves, and there is no assurance that the
quantities of precious metals we produce will be sufficient to recover our
investment and operating costs.
Our
success depends on our ability to produce sufficient quantities of precious
metals to recover our investment and operating costs. We do not have proven
or
probable reserves. There can be no assurance that our exploration activities
will result in the discovery of sufficient quantities of mineralized material
to
lead to a commercially successful operation.
The
cost of our exploration and acquisition activities are substantial, and there
is
no assurance that the quantities of minerals we discover or acquire will justify
commercial operations or replace reserves established in the
future.
Mineral
exploration, particularly for gold and other precious metals, is highly
speculative in nature, involves many risks, and frequently is nonproductive.
There can be no assurance that our exploration and acquisition activities will
be commercially successful. Once gold mineralization is discovered, it may
take
a number of years from the initial phases of drilling until production is
possible, during which time the economic feasibility of production may change.
Substantial expenditures are required to acquire existing gold properties,
to
establish ore reserves through drilling and analysis, to develop metallurgical
processes to extract metal from the ore, and in the case of new properties,
to
develop the processing facilities and infrastructure at any site chosen for
mineral exploration. There can be no assurance that any gold reserves or
mineralized material that may be discovered or acquired in the future will
be in
sufficient quantities or of adequate grade to justify commercial operations
or
that the funds required for mineral production operation can be obtained on
a
timely or reasonable basis. Mineral exploration companies must continually
replace mineralized material or reserves depleted by production. As a result,
there can be no assurance that we will be successful in replacing any reserves
or mineralized material acquired or established in the future.
The
price of gold fluctuates on a regular basis and a downturn in price could
negatively impact our operations and cash flow.
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.
8
The
use of hedging instruments may not prevent losses being realized on subsequent
price decreases or may prevent gains being realized from subsequent price
increases.
We
may
from time to time sell some future production of gold pursuant to hedge
positions. If the gold price rises above the price at which future production
has been committed under these hedge instruments, we will have an opportunity
loss. However, if the gold price falls below that committed price, our revenues
will be protected to the extent of such committed production. In addition,
we
may experience losses if a hedge counterparty defaults under a contract when
the
contract price exceeds the gold price. As of the date of filing of this report,
we have no open hedge positions.
We
plan
to pursue opportunities to acquire properties with gold mineralized material
or
reserves with exploration potential. The price that we pay to acquire these
properties will be influenced, in large part, by the price of gold at the time
of the acquisition. Our potential future revenues are expected to be derived
from the production and sale of gold from these properties or from the sale
of
some of these properties. The value of any gold reserves and other mineralized
material, and the value of any potential mineral production therefrom, will
vary
in direct proportion to variations in those mineral prices. The price of gold
has fluctuated widely as a result of numerous factors beyond our control. The
effect of these factors on the price of gold, and therefore the economic
viability of any of our projects, cannot accurately be predicted. Any drop
in
the price of gold would negatively affect our asset values, cash flows,
potential revenues, and profits.
We
compete with other mineral exploration and mining companies or individuals,
including large, established mining companies with substantial capabilities
and
financial resources, to acquire rights to mineral properties containing gold
and
other minerals. There is a limited supply of desirable mineral lands available
for claim staking, lease, or other acquisition. There can be no assurance that
we will be able to acquire mineral properties against competitors with
substantially greater financial resources than we have.
Mineral
exploration and operating activities are inherently hazardous. Operations in
which we have direct or indirect interests will be subject to all the hazards
and risks normally incidental to exploration and production of gold and other
metals, any of which could result in work stoppages, damage to property, and
possible environmental damage. The nature of these risks is such that
liabilities might exceed any liability insurance policy limits. It is also
possible that the liabilities and hazards might not be insurable, or we could
elect not to insure ourselves against such liabilities because of the high
premium costs, in which event, we could incur significant costs that could
have
a material adverse effect on our financial condition.
9
We
do not have proven or probable reserves, and our mineral calculations are only
estimates; any material change may negatively affect the economic viability
of
our properties.
Substantial
expenditures are required to acquire existing gold properties with established
reserves or to establish proven or probable reserves through drilling and
analysis. We do not anticipate expending sums for additional drilling and
analysis to establish proven or probable reserves on our properties. We drill
in
connection with our mineral exploration activities and not with the purpose
of
establishing proven and probable reserves. Therefore, our activity must be
called exploration or test mining. While we estimate the amount of mineralized
material we believe exists on our properties, our calculations are estimates
only, subject to uncertainty due to factors, including the quantity and grade
of
ore, metal prices, and recoverability of minerals in the mineral recovery
process. There is a great degree of uncertainty attributable to the calculation
of any mineralized material, particularly where there has not been significant
drilling, mining, and processing. Until the mineralized material located on
our
properties is actually mined and processed, the quantity and quality of the
mineralized material must be considered as an estimate only. In addition, the
quantity of mineralized material may vary depending on metal prices. Any
material change in the quantity of mineralized material may negatively affect
the economic viability of our properties. In addition, there can be no assurance
that we will achieve the same recoveries of metals contained in the mineralized
material as in small-scale laboratory tests or that we will be able to duplicate
such results in larger scale tests under on-site conditions or during
production.
Our
operations are subject to environmental regulations, which could result in
additional costs and operational delays. All phases of our operations are
subject to environmental regulation. Environmental legislation is evolving
in
some countries and jurisdictions in a manner that may require stricter standards
and enforcement, increased fines and penalties for non-compliance, more
stringent environmental assessments of proposed projects, and a heightened
degree of responsibility for companies and their officers, directors, and
employees. There is no assurance that any future changes in environmental
regulation will not negatively affect our projects.
Insurance
against environmental risks, including potential liability for pollution or
other hazards as a result of the disposal of waste products occurring from
exploration and production, has not been available generally in the mining
industry. We have no insurance coverage for most environmental risks. In the
event of a problem, the payment of environmental liabilities and costs would
reduce the funds available to us for future operations. If we are unable to
fund
fully the cost of remedying an environmental problem, we might be required
to
enter into an interim compliance measure pending completion of the required
remedy.
The
Bureau of Land Management requires that mining operations on lands subject
to
its regulation obtain an approved plan of operations subject to environmental
impact evaluation under the National Environmental Policy Act. Any significant
modifications to the plan of operations may require the completion of an
environmental assessment or Environmental Impact Statement prior to approval.
Mining companies must post a bond or other surety to guarantee the cost of
post-mining reclamation. These requirements could add significant additional
cost and delays to any mining project undertaken by us. Our mineral exploration
operations are required to be covered by reclamation bonds deemed adequate
by
regulators to cover these risks. We believe we currently maintain adequate
reclamation bonds for our operations.
10
At
the
state level, mining operations in Nevada are regulated by the Nevada Division
of
Environmental Protection, or NDEP. Nevada state law requires our Nevada projects
to hold Nevada Water Pollution Control Permits, which dictate operating controls
and closure and post-closure requirements directed at protecting surface and
ground water. In addition, we are required to hold Nevada Reclamation Permits
required under Nevada law. These permits mandate concurrent and post-mining
reclamation of mines and require the posting of reclamation bonds sufficient
to
guarantee the cost of mine reclamation. Other Nevada regulations govern
operating and design standards for the construction and operation of any source
of air contamination and landfill operations. Any changes to these laws and
regulations could have a negative impact on our financial performance and
results of operations by, for example, requiring changes to operating
constraints, technical criteria, fees or surety requirements.
There
may
be challenges to our title in the properties in which we hold material
interests. If there are title defects with respect to any of our properties,
we
might be required to compensate other persons or perhaps reduce our interest
in
the effected property. The validity of unpatented mineral claims, which
constitute most of our holdings in the United States, is often uncertain and
may
be contested by the federal government and other parties. The validity of an
unpatented mineral claim, in terms of both its location and its maintenance,
depends on strict compliance with a complex body of federal and state statutory
and decisional law. Although we have attempted to acquire satisfactory title
to
our properties, we have not obtained title opinions or title insurance with
respect to the acquisition of the unpatented mineral claims. While we have
no
pending claims or litigation pending contesting title to any of our properties,
there is nothing to prevent parties from challenging our title to any of our
properties. While we believe we have satisfactory title to our properties,
some
risk exists that some titles may be defective or subject to challenge. Also,
in
any such case, the investigation and resolution of title issues would divert
management’s time from ongoing exploration programs.
We
have never paid a cash dividend on our common stock and do not expect to pay
cash dividends in the foreseeable future.
We
have
never paid cash dividends, and we do not plan to pay cash dividends in the
foreseeable future. Consequently, your only opportunity to achieve a return
on
your investment in us will be if the market price of our common stock
appreciates and you sell your shares at a profit. There is no assurance that
the
price of our common stock that will prevail in the market after this offering
will ever exceed the price that you pay.
Robert
Faber, Chief Executive Officer, President and acting-Chief Financial Officer
is
important to our success. If he becomes unable or unwilling to continue in
his
present position, our business and financial results could be materially
negatively affected.
We
plan
to expand our business and the number of employees over the next 12 months.
In
particular, we intend to hire additional operational personnel. Our inability
to
hire and retain additional qualified employees could have a negative impact
on
our chances of success.
11
The
issuance of securities by us may not have complied with or violated federal
and
state securities laws and, as a result, the holders of these shares and warrants
may have rescission rights.
Securities
issued by us may not have complied with applicable federal and state securities
laws, the result of which is that the holders of these securities may have
rescission rights that could require us to reacquire the
securities.
Outstanding
convertible securities and warrants may result in substantial
dilution.
At
December 31, 2007, we had outstanding 2,743,508,248 shares of common stock.
In
addition, we had outstanding convertible notes and various common stock purchase
warrants. At December 31, 2007, these notes and warrants were convertible into
or exercisable for a total of approximately 1.164 billion additional shares
of
our common stock, subject to further anti-dilution provisions.
Our
stock is a penny stock and trading of our stock may be restricted by the SEC’s
penny stock regulations, which may limit a stockholder’s ability to buy and sell
our stock.
Our
stock
is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9,
which generally defines “penny stock” to be any equity security that has a
market price (as defined) less than $5.00 per share or an exercise price of
less
than $5.00 per share, subject to certain exceptions. Our securities are covered
by the penny stock rules, which impose additional sales practice requirements
on
broker-dealers that sell to persons other than established customers and
“accredited investors.” The term “accredited investor” refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net
worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to
a
transaction in a penny stock not otherwise exempt from the rules, to deliver
a
standardized risk disclosure document in a form prepared by the SEC, which
provides information about penny stocks and the nature and level of risks in
the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer’s
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer’s confirmation. In addition, the penny stock rules
require that, prior to a transaction in a penny stock not otherwise exempt
from
these rules, the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the
purchaser’s written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in the secondary
market for the stock that is subject to these penny stock rules. Consequently,
these penny stock rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage investor interest
in and limit the marketability of our common stock. NASD sales practice
requirements may also limit a stockbroker’s ability to buy or sell our
stock.
In
addition to the “penny stock” rules promulgated by the Securities and Exchange
Commission, the NASD has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to
recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer’s financial status, tax status, investment objectives, and
other information. Under interpretation of these rules, the NASD believes that
there is a high probability that speculative low priced securities will not
be
suitable for at least some customers. The NASD requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy or sell our stock and have an adverse
effect on the market for our shares.
Comstock
Lode Project
We
own
the following mineral exploration projects: The Plum Mine gold and silver
exploration and test mining project and the Como mineral Claims. The Plum
project is located in Storey and Lyon Counties, Nevada. The Plum property is
physically situated roughly three miles south of Virginia City, Nevada. Paved
state highways from Reno, Carson City, and Virginia City provide access to
the
property. The Como mineral Claims are located in Lyon County, Nevada,
approximately 15 miles east of Carson City, and have not been explored or
developed by us.
12
13
OBESTOR
LEASE:
Our
property rights to the mineral properties consist of several mineral leases,
unpatented mineral claims, and fee ownership of real property. We have a mineral
exploration and mining lease agreement with Claire Obester and the Estate of
Dorothy Obester dated January 1, 1997 covering mineral rights to five patented
claims located in both Storey and Lyon Counties, including the Billie the Kid
and Lucerne patented lode claims. The lease remains in effect for as long as
exploration, development, mining, or processing operations are conducted on
a
continuous basis, without a lapse of activity for more than 180 days. We pay
a
royalty to the lessor equal to the greater of $500 per month or a royalty
percentage on the amount received by us on the sale of the mineral products
less
the costs incurred for marketing, distribution, processing and sales, commonly
referred to as a Net Smelter Return. The royalty percentage varies based on
the
price of gold: 3% if gold is less than $400 per ounce, 4% if gold is at least
$400 per ounce but less than $500 per ounce, and 5% if gold is $500 or greater
per ounce. We are also responsible for payment and filing of annual maintenance
fees, if any, and taxes for these claims.
Obestor
Patented Claims:
|
Claim
Number
|
Claim
Name
|
Position
|
Land
Status
|
Acres
|
|
50
|
Echo
Lode
|
Lease
|
Private
Land
|
7
|
|
67
|
St.
Louis PT
|
Lease
|
Private
Land
|
7
|
|
95
|
Green
Lode
|
Lease
|
Private
Land
|
11
|
|
140
|
Lucerne
Lode
|
Lease
|
Private
Land
|
8
|
|
5011
|
Billie
the Kid
|
Lease
|
Private
Land
|
18
|
DONOAN
LEASE:
We
have a
second mineral exploration and mining lease agreement with the Donovan Silver
Hills, LLC dated September 1, 1999 covering seven patented claims and 13
unpatented claims located in Storey and Lyon Counties. The lease remains in
effect for as long as exploration, development, mining, or processing operations
are conducted on a continuous basis, without a lapse of activity for more than
180 days. We pay a royalty to the lessor amounting to the greater of $500 per
month or a royalty percentage of the Net Smelter Returns. The royalty percentage
varies based on the price of gold: 3% if gold is less than $400 per ounce,
4% if
gold is at least $400 per ounce but less than $500 per ounce, and 5% if gold
is
$500 or greater per ounce. We are also responsible for payment and filing of
annual maintenance fees, if any, and taxes for these claims.
Donovan
Patented Claims:
|
Claim
Number
|
Claim
Name
|
Position
|
Land
Source
|
Acres
|
|
84
|
Tarto
Lode
|
Lease
|
Private
Land
|
1
|
|
86
|
Hartford
|
Lease
|
Private
Land
|
14
|
|
1723
|
Succor
Lode
|
Lease
|
Private
Land
|
6
|
|
3760
|
Olympia
|
Lease
|
Private
Land
|
6
|
|
4728
|
Hardluck
|
Lease
|
Private
Land
|
6
|
|
4728
|
Friendship
|
Lease
|
Private
Land
|
7
|
|
4728
|
Brown
Lode
|
Lease
|
Private
Land
|
8
|
|
Niagra
Mining Claim
|
Lease
|
Private
Land
|
3
|
|
|
1066
|
S.
Comstock Mining Claim
|
Lease
|
Private
Land
|
12
|
14
Donovan
Unpatented Claims:
|
Serial
#
|
Claim
Name
|
Location
Date
|
Owner
/ Lease Holder
|
Type
|
Position
|
Land
Source
|
Acres
|
|
NMC416049
|
Big
Mike
|
4/7/1987
|
Donovan
|
Lode
|
Lease
|
BLM
|
20
|
|
NMC416048
|
Cliff
House Fraction
|
4/7/1987
|
Donovan
|
Lode
|
Lease
|
BLM
|
4
|
|
NMC416043
|
Echo
St. Louis Fraction
|
4/7/1987
|
Donovan
|
Lode
|
Lease
|
BLM
|
.30
|
|
NMC416041
|
Green
St. Louis Fraction
|
3/41987
|
Donovan
|
Lode
|
Lease
|
BLM
|
7
|
|
NMC676492
|
Hartford
Lucerne Fraction
|
4/7/1987
|
Donovan
|
Lode
|
Lease
|
BLM
|
0.9
|
|
NMC416040
|
Hartford
South Extension
|
4/7/1987
|
Donovan
|
Lode
|
Lease
|
BLM
|
3
|
|
NMC416042
|
Hartford
St. Louis Fraction
|
4/7/1987
|
Donovan
|
Lode
|
Lease
|
BLM
|
6.5
|
|
NMC416044
|
Justice
Lucerne Fraction
|
4/7/1987
|
Donovan
|
Lode
|
Lease
|
BLM
|
1.7
|
|
NMC416046
|
Justice
Woodville Fraction
|
4/7/1987
|
Donovan
|
Lode
|
Lease
|
BLM
|
3.1
|
|
NMC416047
|
New
Deal Fraction
|
4/7/1987
|
Donovan
|
Lode
|
Lease
|
BLM
|
12
|
|
NMC416045
|
South
Comstock St. Louis
|
4/7/1987
|
Donovan
|
Lode
|
Lease
|
BLM
|
1
|
|
NMC416033
|
Vindicator
#8
|
4/61987
|
Donovan
|
Lode
|
Lease
|
BLM
|
20.7
|
In
addition to the mineral leases, we hold 62 unpatented mineral claims in Storey
County, hold eight unpatented mineral claims in Lyon County, and own title
to 40
acres of land in Storey County. The W. Hughes Brockbank Living Trust has a
lien
against and a security interest in these unpatented mineral claims and the
40
acres of land pursuant to a Deed of Trust dated October 31, 2003, entered into
with W. Hughes Brockbank Living Trust. The Deed of Trust was granted to secure
a
promissory note, dated October 31, 2003, in the amount of $1 million for the
balance of the purchase price for the property. The non-interest bearing
promissory note requires ten quarterly payments of $100,000 each. As of December
31, 2007, the outstanding balance of the note was $250,000.
15
Unpatented
Mineral Claims:
|
Serial
#
|
Claim
Name
|
Location
Date
|
Owner
/ Lease Holder
|
Type
|
Position
|
Land
Source
|
Acres
|
|
NMC821729
|
Comstock
#1
|
10/16/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821739
|
Comstock
#11
|
10/16/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821740
|
Comstock
#12
|
10/16/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.6
|
|
NMC821741
|
Comstock
#13
|
12/1/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.6
|
|
NMC821742
|
Comstock
#14
|
10/16/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821743
|
Comstock
#15
|
10/16/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821744
|
Comstock
#16
|
10/16/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821745
|
Comstock
#17
|
12/1/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821746
|
Comstock
#18
|
12/1/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
13.8
|
|
NMC821730
|
Comstock
#2
|
10/16/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821731
|
Comstock
#3
|
10/16/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821735
|
Comstock
#7
|
10/16/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821736
|
Comstock
#8
|
10/16/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821737
|
Comstock
#9
|
10/16/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821492
|
Comstock
#115
|
4/8/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821493
|
Comstock
#116
|
4/8/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821494
|
Comstock
#117
|
4/8/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821495
|
Comstock
#118
|
4/8/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821496
|
Comstock
#119
|
4/8/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821497
|
Comstock
#120
|
4/8/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821498
|
Comstock
#121
|
4/8/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821499
|
Comstock
#122
|
4/8/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821500
|
Comstock
#123
|
4/8/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821501
|
Comstock
#124
|
4/8/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821502
|
Comstock
#125
|
4/8/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821503
|
Comstock
#126
|
4/8/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821504
|
Comstock
#127
|
4/8/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821505
|
Comstock
#128
|
4/8/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
13.8
|
|
NMC821506
|
Comstock
#129
|
7/1/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821507
|
Comstock
#130
|
7/1/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821508
|
Comstock
#131
|
7/1/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821509
|
Comstock
#132
|
7/1/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821510
|
Comstock
#133
|
7/1/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821511
|
Comstock
#134
|
7/1/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821512
|
Comstock
#135
|
7/1/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821513
|
Comstock
#136
|
7/1/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
16
|
Serial
#
|
Claim Name | Location Date | Owner / Lease Holder | Type | Position | Land Source | Acres |
|
NMC821514
|
Comstock
#137
|
7/1/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821515
|
Comstock
#138
|
7/1/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821516
|
Comstock
#139
|
7/1/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
14.4
|
|
NMC821517
|
Comstock
#140
|
7/1/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
18.3
|
|
NMC821518
|
Comstock
#141
|
7/1/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC821519
|
Comstock
#142
|
7/1/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC965375
|
Ghost
#1
|
9/30/2007
|
GSPG
|
Load
|
Fee
|
BLM
|
20.7
|
|
NMC965384
|
Ghost
#10
|
9/30/2007
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC965385
|
Ghost
#11
|
9/30/2007
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC965376
|
Ghost
#2
|
9/30/2007
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC965377
|
Ghost
#3
|
9/30/2007
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC965378
|
Ghost
#4
|
9/30/2007
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC965379
|
Ghost
#5
|
9/30/2007
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC965380
|
Ghost
#6
|
9/30/2007
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC965381
|
Ghost
#7
|
9/30/2007
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC965382
|
Ghost
#8
|
9/30/2007
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC965383
|
Ghost
#9
|
9/30/2007
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC810323
|
Lee
#2
|
11/31/1999
|
GSPG
|
Lode
|
Fee
|
BLM
|
19.8
|
|
NMC810324
|
Lee
#3
|
11/31/1999
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.7
|
|
NMC810321
|
Lee
#5
|
11/31/1999
|
GSPG
|
Lode
|
Fee
|
BLM
|
19.4
|
|
NMC814553
|
Lee
#8
|
1/29/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
19.5
|
|
NMC814554
|
Lee
#9
|
1/29/2000
|
GSPG
|
Lode
|
Fee
|
BLM
|
19.2
|
|
NMC555211
|
Overlap
#3
|
4/24/1989
|
GSPG
|
Lode
|
Fee
|
BLM
|
3.0
|
|
NMC704516
|
Overman
#1
|
8/27/1994
|
GSPG
|
Lode
|
Fee
|
BLM
|
1.0
|
|
NMC884216
|
Plum
|
11/19/2004
|
GSPG
|
Lode
|
Fee
|
BLM
|
20.4
|
|
NMC705983
|
Woodville
Extension
|
8/10/1994
|
GSPG
|
Lode
|
Fee
|
BLM
|
1.0
|
|
NMC17092
|
Como
Comet 1
|
8/28/1976
|
GSPG
|
Lode
|
Fee
|
BLM
|
21.0
|
|
NMC17093
|
Como
Comet 2
|
8/28/1976
|
GSPG
|
Lode
|
Fee
|
BLM
|
21.0
|
|
NMC4439
|
Como
Comet 3
|
4/26/1977
|
GSPG
|
Lode
|
Fee
|
BLM
|
21.0
|
|
NMC4440
|
Como
Comet 4
|
4/26/1977
|
GSPG
|
Lode
|
Fee
|
BLM
|
21.0
|
|
NMC6121
|
Como
Comet 6
|
4/30/1977
|
GSPG
|
Lode
|
Fee
|
BLM
|
21.0
|
|
NMC6122
|
Como
Comet 7
|
5/15/1977
|
GSPG
|
Lode
|
Fee
|
BLM
|
21.0
|
|
NMC6123
|
Como
Comet 8
|
5/15/1977
|
GSPG
|
Lode
|
Fee
|
BLM
|
21.0
|
|
NMC6124
|
Como
Comet 9
|
5/15/1977
|
GSPG
|
Lode
|
Fee
|
BLM
|
21.0
|
17
18
19
Present
Condition of Property and Work Performed
Description
of Equipment and other Infrastructure Facilities
Our
third-party contract mining company owns and provided the haul trucks, front
end
shovel, loaders and blade. We own the Merrill-Crowe gold precipitation plant,
the agglomerator, crushers, screen, water truck, generators, dozers, cement
silo
with a screw feeder, and conveyors. The Merrill-Crowe gold precipitation plant
and the mineral processing equipment are less than four years old. The total
book value of our equipment associated with the Billie the Kid and the Lucerne
facilities is approximately $1,500,000.
Power
Utilization at the Plum Property:
We
completed the installation of the grid power line replacing a Caterpillar 3516
(1000 kilowatt) diesel generator. The change has reduced our crushing costs
and
directly attributed to expanding our permit for tons crushed.
Several
large low angle brecciated structural zones (faults) dominate the geology of
the
Billie the Kid/Lucerne deposit. The thickness of these structural zones ranges
from 20 to 30 feet. Gold mineralization within the Billie the Kid/Lucerne
deposit is closely associated with dikes and sills that are composed of Alta
Andesite, a dark-colored, fine-grained volcanic rock, but these rocks are rarely
or weakly mineralized. Hartford Rhyolite, a fine-grained volcanic rock, hosts
approximately 70% to 80% of the gold mineralization and the remaining 20% to
30%
is associated with Alta Andesite.
We
have
not established any proven or probable reserves that meet the requirements
of
SEC Industry Guide 7. Therefore, all of our activities are considered
exploratory in nature. Part of our exploration includes operating a test mine.
The purpose of the test mine is to determine our capital and operating costs,
metallurgical recoveries, and other mining factors, and demonstrate that we
can
make a profit over and above our capital and operating cost. These test mining
activities may provide us with sufficient data to prepare a formal mine plan
and
establish reserves.
It
should
also be noted that the above-stated tonnage of mineralized material does not
reflect waste dilution during test mining or metal value losses in processing.
Nor do the above numbers reflect the drilling and exploration work performed
in
2004, 2005 and 2006. We have established procedures to recalculate and update
our mineral inventory annually, and we plan do so in the first half of 2008.
Future
Exploration Potential
We
are
conducting an exploration program to test surface mineral targets as well as
deep underground bonanza targets by using geological mapping,
geochemical/geophysical investigations and drilling.
20
We
own a
100% interest in the 25 federal unpatented placer claims located in Lyon County,
Nevada known as the Gold Canyon and Spring Valley claims. The 25 unpatented
placer claims cover approximately 850 acres and are located about 30 miles
southeast of Reno and six miles south of Virginia City, Nevada. We have not
completed any exploration activity on the Gold Canyon or Spring Valley
properties. The properties are undeveloped and do not contain any open-pit
or
underground mines. We have not established any proven or probable reserves
on
the mineral claims. All of our activities associated with these properties
are
exploratory in nature. The processing plant is stored at our Plum Mining
property in American Flat, Nevada. We have no plans to begin test mining
operations on these properties in the near-term.
Lyon
County Unpatented Placer Claims:
|
Serial
#
|
Claim
Name
|
Location
Date
|
Type
|
Lease
Holder
|
Position
|
Land
Source
|
Acres
|
|
NMC677117
|
Harlesk
#1
|
3/8/1993
|
Placer
|
GSPG
|
Fee
|
BLM
|
4.4
|
|
NMC677118
|
Harlesk
#2
|
3/8/1993
|
Placer
|
GSPG
|
Fee
|
BLM
|
19.7
|
|
NMC677119
|
Harlesk
#3
|
3/8/1993
|
Placer
|
GSPG
|
Fee
|
BLM
|
17.8
|
|
NMC677120
|
Harlesk
#4
|
3/8/1993
|
Placer
|
GSPG
|
Fee
|
BLM
|
4.5
|
|
NMC677121
|
Harlesk
#5
|
3/8/1993
|
Placer
|
GSPG
|
Fee
|
BLM
|
20.1
|
|
NMC677122
|
Harlesk
#6
|
3/8/1993
|
Placer
|
GSPG
|
Fee
|
BLM
|
17.7
|
|
NMC677123
|
Harlesk
#7
|
3/8/1993
|
Placer
|
GSPG
|
Fee
|
BLM
|
20.3
|
|
NMC677124
|
Harlesk
#8
|
3/8/1993
|
Placer
|
GSPG
|
Fee
|
BLM
|
17.4
|
|
NMC677125
|
Harlesk
#9
|
3/8/1993
|
Placer
|
GSPG
|
Fee
|
BLM
|
18.9
|
|
NMC677126
|
Harlesk
#10
|
3/8/1993
|
Placer
|
GSPG
|
Fee
|
BLM
|
19.9
|
|
NMC872176
|
Harlesk
#100
|
4-19-2004
|
Placer
|
GSPG
|
Fee
|
BLM
|
21.0
|
|
NMC872177
|
Harlesk
#101
|
4-19-2004
|
Placer
|
GSPG
|
Fee
|
BLM
|
21.2
|
|
NMC872178
|
Harlesk
#102
|
4-19-2004
|
Placer
|
GSPG
|
Fee
|
BLM
|
21.0
|
|
NMC872179
|
Harlesk
#103
|
4-19-2004
|
Placer
|
GSPG
|
Fee
|
BLM
|
20.8
|
|
NMC99064
|
SD
Placer
|
9/30/1967
|
Placer
|
GSPG
|
Fee
|
BLM
|
42.3
|
|
NMC99065
|
DS
Placer
|
9/30/1967
|
Placer
|
GSPG
|
Fee
|
BLM
|
82.1
|
|
NMC99066
|
Trio
Claims
|
9/30/1967
|
Placer
|
GSPG
|
Fee
|
BLM
|
41.5
|
|
NMC99067
|
Gold
Star Placers
|
7/18/1972
|
Placer
|
GSPG
|
Fee
|
BLM
|
81
|
|
NMC99068
|
Badger
Placer
|
8/13/1966
|
Placer
|
GSPG
|
Fee
|
BLM
|
21.0
|
|
NMC99072
|
EZ
Placer
|
2/6/1970
|
Placer
|
GSPG
|
Fee
|
BLM
|
40.2
|
|
NMC99075
|
Nugget
Placer
|
9/1/1959
|
Placer
|
GSPG
|
Fee
|
BLM
|
80.0
|
|
NMC99076
|
Star
Placer
|
11/12/1966
|
Placer
|
GSPG
|
Fee
|
BLM
|
41.1
|
|
NMC99078
|
Stans
Placer
|
9/2/1969
|
Placer
|
GSPG
|
Fee
|
BLM
|
80.3
|
|
NMC99079
|
Stangs
Placer
|
10/15/169
|
Placer
|
GSPG
|
Fee
|
BLM
|
41
|
|
NMC99074
|
Mustang
|
9/6/1969
|
Placer
|
GSPG
|
Fee
|
BLM
|
38
|
21
22
At
the
end of September 2006, the Company entered into a ten year lease with a local
company, controlled by a former GoldSpring director, for a 10 year lease of
all
of its mining claims for its Big Mike copper mine. The Lease calls for a $50,000
initial payment, to cover royalty payments due for the first two years of the
lease term. Additionally, the lessee must pay Goldspring $75,000 when a
production permit is awarded and $125,000 when commercial mining commences.
Additionally, the lessee agrees to a work expenditure of $300,000 for
environmental and engineering matters in the first thirty-six months of the
lease. During the term of the lease, Goldspring will also receive a production
royalty of between 3% and 5% of net returns from copper mining, dependent on
the
price of copper.
|
Serial
#
|
Claim
Name
|
Location
Date
|
Type
|
Lease
Holder
|
Position
|
Land
Source
|
Acres
|
|
NMC-87482
|
Big
Mike Lode
|
6/18/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
20.7
|
|
NMC-87483
|
Big
Mike 4 Lode
|
6/18/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
20.7
|
|
NMC-87484
|
Big
Mike 6 Lode
|
6/18/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
20.7
|
|
NMC-87485
|
Big
Mike 7 Lode
|
6/18/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
20.7
|
|
NMC-87486
|
Big
Mike 9 Lode
|
6/18/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
20.7
|
|
NMC-87487
|
Big
Mike 10 Lode
|
6/18/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
20.7
|
|
NMC-87488
|
Big
Mike 11 Lode
|
6/18/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
20.7
|
|
NMC-87489
|
Big
Mike 12 Lode
|
6/18/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
20.7
|
|
NMC-87490
|
Big
Mike 16 Lode
|
6/18/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
20.7
|
|
NMC-87491
|
Big
Mike 20 Lode
|
6/18/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
20.7
|
|
NMC-87492
|
Big
Mike 24 Lode
|
6/18/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
20.7
|
|
NMC-87493
|
Big
Mike 30 Lode
|
6/18/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
20.7
|
|
NMC-87494
|
Big
Mike Extension
|
7/27/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
17.7
|
|
NMC-87495
|
Big
Mike Extension #1
|
7/27/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
17.7
|
|
NMC-87496
|
Big
Mike Extension #2
|
7/26/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
17.7
|
|
NMC-87497
|
Brandi
Placer
|
6/18/1979
|
Placer
|
GSPG
|
Fee
|
BLM
|
20.0
|
|
NMC-510111
|
Big
Ron
|
7/26/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
20.0
|
|
NMC510112
|
Big
Bruce
|
7/26/1979
|
Lode
|
GSPG
|
Fee
|
BLM
|
20.0
|
23
24
Item
3. Legal
Proceedings
The
Settlement of the Parent Litigation
On
March
23, 2007, the Company and related parties entered into a global settlement
with
Stephen B. Parent, Goldspring’s former CEO and related parties, which brought
final resolution in the following cases: (i) GoldSpring,
Inc. v. Stephen B. Parent, et al.,
Case
No. CV2004-021755, Maricopa County Superior Court (“the State Court Action”);
and (ii) Robert
T. Faber, et al. v. Stephen B. Parent, et al.,
Case
No. CV04-2960-PHX-EHC, the United States District Court, District of Arizona
(“the Federal Court Action”).The settlement agreement contains the following
terms, among others:
|
·
|
Settlement
without payment of cash consideration by either side in either
case
|
|
|
|
|
|
|
·
|
Dismissal
of both the Federal Court Action and the State Court Action with
prejudice
(including dismissal by Parent of the pending Federal Court
appeal)
|
|
|
|
|
|
|
·
|
Mutual
release of liability and covenants not to sue
|
|
|
|
|
|
|
·
|
Invalidity
of Consent Resolutions described in the Federal Court’s April 18, 2006
Order Granting Preliminary Injunction in the Federal Court Action
and
agreement by the Parents and Medhi further to not further contest
or
challenge in any way the election of GoldSpring’s current Board of
Directors or any of the actions taken by GoldSpring’s Board of Directors
or its officers at any time up to the date of this Agreement, including,
but not limited to the approval and/or implementation of the November
30,
2004 financial restructuring.
|
|
|
·
|
No
admission of liability by any party to either the Federal Court Action
or
the State Court Action.
|
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.
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.
The
litigation was settled in early December 2007. Under the settlement agreement,
Under the settlement agreement, GoldSpring paid Degerstrom $250,000 and both
parties agree to dismiss their claims against the other. The agreement was
subject to GoldSpring remitting $100,000 by December 11, 2007 and the balance
of
$150,000 by January 31, 2008. The Company made both payments in a timely
manner.
Item
4. Submission
of Matters to a Vote of Security Holders
None.
PART
II
Item
5. Market
for Common Equity, Related Stockholder Matters and Small Business Issuer
Purchases of Equity Securities
PRICE
RANGE OF COMMON STOCK
Our
common stock is currently traded on the OTC Bulletin Board under the symbol
“GSPG:OB”. The following table sets forth, for the periods indicated, the high
and low inter-dealer closing prices per share of our common stock as reported
on
the Over The Counter Bulletin Board, without retail mark-up, mark-down or
commission and may not represent actual transactions. As of December 31, 2007,
we had over 5,000 holders of our common stock. That does not include the number
of beneficial holders whose stock is held in the name of broker-dealers or
banks. At December 31, 2007, we had 2,743,508,245 shares of common stock
outstanding.
25
The
following table sets forth the high and low bid prices for our common stock
since for the last two years.
|
Year
|
Quarter
|
High
|
Low
|
|||||||
|
|
|
|
|
|||||||
|
2005
|
First
|
|
0.23
|
0.06
|
||||||
|
2005
|
Second
|
0.10
|
0.03
|
|||||||
|
2005
|
Third
|
0.11
|
0.05
|
|||||||
|
2005
|
Fourth
|
0.06
|
0.02
|
|||||||
|
2006
|
First
|
.043
|
.014
|
|||||||
|
2006
|
Second
|
.02
|
.009
|
|||||||
|
2006
|
Third
|
.014
|
.003
|
|||||||
|
2006
|
Fourth
|
.012
|
.003
|
|||||||
|
2007
|
First
|
.0047
|
.0028
|
|||||||
|
2007
|
Second
|
.0035
|
.001
|
|||||||
|
2007
|
Third
|
.001
|
.0005
|
|||||||
|
2007
|
Fourth
|
.01538
|
.0005
|
|||||||
EQUITY
COMPENSATION PLAN INFORMATION
The
following table sets forth information with respect to our common stock that
may
be issued upon the exercise of stock options under our incentive stock option
plans as of December 31, 2007
|
Plan
Category
|
(a)
Number
of Securities
to
Be
Issued
Upon Exercise
of Outstanding
Options,
Warrants,
and
Rights
|
(b)
Weighted-Average
Exercise
Price of
Outstanding
Options,
Warrants,
and
Rights
|
(c)
Number
of Securities
Remaining
Available
for Future
Issuance Under
Equity Compensation
Plans
(Excluding Securities
Reflected in
Column (a))
|
|||||||
|
Equity
Compensation Plans Approved by Stockholders
|
100,000,000
|
$
|
.00963
|
0
|
||||||
|
Equity
Compensation Plans Not Approved by Stockholders
|
0
|
$
|
0
|
800,000,000
|
||||||
|
Total
|
100,000,000
|
$
|
.00963
|
0
|
||||||
Pursuant
to the Employment Agreement, Mr. Golden shall be granted 10,000,000 stock
options currently and will be eligible for an additional 10,000,000 options
for
each addition one hundred thousand ounces of gold reserves up to 90,000,000
options. Options will vest over 36 months from the date of the grant. All earned
and vested options have an exercise price of $0.00963
Dividend
Policy
We
have
never declared or paid any dividends on our common stock. We do not anticipate
paying any cash dividends on our common stock in the foreseeable future. We
currently intend to retain future earnings, if any, to finance operations and
the expansion of our business. Any future determination to pay cash dividends
will be at the discretion of the board of directors and will depend upon our
financial condition, operating results, capital requirements and other factors
the board of directors deems relevant, including the provisions of any
applicable credit agreements. We are restricted from declaring dividends under
the terms of the senior secured convertible debentures.
Item
6. 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 year ended December 31, 2007, as well as our future results.
26
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. Beginning in 2005, we started acquiring
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 value 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 are currently being 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 end of November 2006. However, when we do take
over operations, based on our mine plan and internal calculations and reach
our
targeted production numbers, we had expected our production cost to be less
than
$400 per ounce but due to shutdown of Plum Mine in February 2007, we have not
been able to continue production.
Our
first
quarter 2006 production was 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 September
2006.
Due
to
the nine 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. The third quarter
of 2006 marked the recommencement of mining activities. Recent focus has
included (i) ramping up of mining and processing on a continued basis; (ii)
stockpiling of ore for processing during inclement weather; and (iii) transition
preparation for December 1, 2006 takeover of mining operations by the Company’s
own staff. Furthermore, significant fluid management steps had been taken to
avoid another shut down of activity as experienced during the first five months
of 2006. The mine was shut down again in the first quarter of 2007 due to
insufficient funds to run operations.
In
the
first quarter of 2007 three of our four remaining directors resigned to pursue
other opportunities which leaves the Company with the opportunity to seek a
new
Board well experienced in the mining industry.
The
Company turned a corner during 2007 with the final settlement of the Parent
litigation and settlement of the Degerstrom litigation which have continued
financial and human resource drain which all but consumed the Company are
finally over. Given the end of this litigation, change in Board composition
and
continued challenges in capital raising efforts, the Company’s management
determined that there is a need to reevaluate the Company’s business plan with a
view toward the best way to maximize shareholder value and protection of our
secured creditors.
In
detail, this evaluation is covering the following matters:
|
·
|
Expanding
our footprint in the Comstock Region and other acquisition
opportunities
|
27
|
·
|
Further
exploration in the Comstock Region to accomplish the above, including
a
decision to review the geology of the Hartford complex in a more
detailed
manner
|
|
|
|
|
·
|
Completion
of the Plum Mine reserve report
|
|
|
|
|
·
|
Strategic
acquisitions in other areas of North
America
|
Adjustments
to this analysis have been made over the past few months, all with the goal
to
best utilize the Company’s limited financial resources to increase shareholder
value and to focus on raising additional capital to reinstate operations.
Despite
the mine shutdown in February 2007, the Company has had activity in ore body
delineation, metallurgic testing and exploration. Ore body delineation included
plans to commence developmental drilling in December 2007, with drilling to
be
completed in three phases of 100 holes per phase. The goal is to define and
map
the ore body and to prepare geologic cross sections to be utilized in mine
planning and as a result, to be able to build a new mine model using
geostatistics and extensive drill hole data.
There
is
also ongoing exhaustive metallurgic testing to attempt to maximize recovery
of
the high grade fraction of the ore and to determine optimum size to continue
heap leaching. The Company is also assessing if whether a small mill could
be
added to increase overall recovery.
The
exploration drilling program, which is heavily dependent on funds availability,
commenced in December 2007. The Company is scheduled to continue with the
exploration drilling program throughout 2008.
Assuming
sufficient funds are raised in a timely manner, the Company’s goal would be to
reopen the Mine during the second half of 2008 if it can complete a reserve
report with a qualified third party and complete a comprehensive mine plan
and
schedule, all of which is dependent upon ability to secure sufficient funds
to
procure the mining fleet.
In
conjunction with the business plan reconsideration, the Company has taken steps
to minimize operations in order to conserve cash flow and has presented a
temporary Mine Closure Plan to the NDEP, which if approved, would call for
closure through March 2008, at the latest.
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.
|
28
There
are
also risks involved in the fact that one individual and his affiliates, as
of
September 30, 2007, beneficially own in excess of 50% of our voting stock.
Pursuant to our recent financing agreement, this convertible debt holder and
his
affiliates with a 61 day notice can waive the 4.9% ownership restriction,
allowing him to convert 100% of his convertible debt and related interest,
which
totals $8,,721,478 at December 31, 2007, into our common shares. This group,
if
they waive the ownership restriction and convert all convertible debt and
related interest into our voting common stock,
may
take
actions that could conflict with your interests.
This
includes the election of Company directors, approval of actions generally
requiring the approval of the holders of our voting stock, including adopting
amendments to our articles of incorporation and bylaws and approving mergers,
certain acquisitions or sales of all or substantially all of our assets, which
could delay or prevent someone from acquiring or merging with us or limit the
ability of our other stockholders to approve transactions that they may deem
to
be in their best interests.
Results
of Operations and Operational Plan
Our
Plum
Mine, which is located in Storey County, Nevada, went into test mining
production in late third quarter 2004. We have not 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
in
2005 was 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, who became our COO in 2006, 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. Furthermore Mine
Development and Associates of Reno, Nevada is expected to complete a detailed
mine plan and a reserve report for the Plum Mine by the end of the third quarter
2007. 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 twelve-month undertaking by our Company
and Mine Development & Associates. We believe that these improvements,
including the updated mine plan, will improve our overall performance at the
Plum Mine.
Inclement
weather in northern Nevada in late 2005 and early 2006 presented a challenge
to
our Plum Mine operation. The mine received twelve inches of rain between
mid-December and mid-January, filling our leach ponds nearly to capacity. This
situation impacted our ability to mine and to process at our normal capacity,
thus decreasing production. 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 mid-January, we ceased mining operations to allow time for our crew to
stabilize the leach ponds and the processing plant. During this interruption
from mining, we took steps to implement additional process modifications
identified through our operational improvement plan.
We
also
had planned to continue our exploration program in 2007 if capital resources
allowed; however, due to insufficient funds, this was delayed until the first
quarter of 2008. 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. Mr. Martin has over twenty-five years of diverse
geological and exploration experience in the mining industry. He has worked
for
several major mining enterprises, including Peter Kiewit, where he served as
manager of geological services. We have allocated a budget of $500,000 to
explore and develop our claims at the Plum Mine. We hoped to begin exploration
in late spring or early summer of 2006 but due to inability to obtain a large
enough capital investment this exploration is substantially delayed into
sometime in 2007 (assuming the Company is able to secure adequate financing).
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.
29
In
December 2005, we initiated a review of the invoices of our mining contractor.
Specifically, we sought to reconcile the volume of material for which we were
billed with the volume of material that was actually mined. We used an outside
surveyor to conduct a comprehensive analysis of bank cubic yards mined. The
results of the survey indicated that we had been over-billed by over $500,000.
We met with the mining contractor in early 2006 to discuss this issue and
presented our proposed billing adjustment. The mining contractor has contracted
an engineering firm to perform an independent analysis of the data generated
from our surveys to determine the accuracy of our calculations. We anticipated
a
resolution of this issue by September of 2006 but due to continuing litigation
this issue is still outstanding.
In
all
2006 proved to be another challenging year for the Company although some
advances were made. In the first half of 2006, weather conditions caused delays
which prevented any ore processing and mining activity ceased. Additionally,
the
Company undertook substantial corrective measures to ensure proper water
management and continuation of mining activity during future heavy moisture
periods. Additionally, an aerial survey was completed which confirmed over
billing by Degerstrom Inc, the former mining contractor. The Company took
advantage of the “down time” in 2006 to improve the overall operation of the
mine with solid results in reduced costs and improved efficiencies.
In
the
second half of 2006, a new mining contractor was hired, with mining activities
recommencing in July 2006 and again suspended in early 2007.
On
a
positive note is the resolution, without liability to the Company, of the 2-½
year legal battle with a former director thus stopping the ongoing drain of
litigation on the human and financial resources of the Company. To date, over
$1,000,000 was spent on legal fees in that litigation. With the litigation
settled, all diverted human and financial resources can be refocused on
readjusting the business plan of the Company with the goal of restarting and
revamping operations no later than early 2008.
Among
the
exploration and business development activities that are in
process:
|
·
|
Ore
body delineation
|
|
|
|
|
·
|
Reserve
definition
|
|
|
|
|
·
|
Completion
of reserve report
|
|
|
|
|
·
|
Development
of comprehensive mine plan from exploration results
|
|
|
|
|
·
|
Increase
of ore reserves
|
|
|
|
|
·
|
Augment
ability to mine and operate at more efficient levels
|
|
|
|
|
·
|
Intent
to resume mine operations after completion of the 43101 reserve report
and
the comprehensive mine plan.
|
|
|
|
|
·
|
Expansion
of existing footprint in the Comstock region
|
|
·
|
Expansion
of team of experts to study geology and metallurgy, as well as develop
mine plan, define reserves and complete reserve report
|
|
·
|
Secure
funds to commence drilling
|
30
Due
to our current plan to realign our operations, we have not yet been able to
and
may not be able to meet any or all of the above goals (as stated for each goal,
where not completed in 2007).
Notwithstanding
the foregoing, November and December 2007 were productive months. The Company
hired Orbit Garant Drilling to perform exploration and developmental drilling
at
the Comstock project, and four holes were drilled by the end of December, with
third party laboratory testing yielding encouraging ore grades from samples
tested from the first four holes. The Company also hired two mining engineers
and a Ph. D. geologist as consultants to its team to further augment its
expertise in exploration. In order to fund its exploration efforts, the Company
raised $1,000,000 in capital to finance the commencement in
drilling.
Early
2008 Developments
The
Company has drilled a total of 25 holes in its exploratory program through
March
2008, with better assay results than the grades yielded during 2005 and 2006
production. With the appointment of two new directors in 2008 (Rob Faber, the
Company’s CEO, and Scott Jolcover (a former Company employee with significant
mining experience in the region), the Company has commenced the task of
rebuilding its Board, which lost 4 of 5 Directors in early 2007. The Company
looks to continue expanding its Board during 2008, to include independent
directors. In early March 2008, the Company appointed a new metallurgical team
with resources and expertise geared toward efficiency maximization in
anticipation of recommencement of production, which is scheduled for the second
quarter of 2008 (subject to expert advice). The Company has secured an
additional $1,000,000 for further drilling and general corporate
expenses.
Comparative
Financial Information
|
|
Twelve
Months
ended
December
31,
2007
|
Twelve
Months
ended
December
31,
2006
|
Difference
|
|||||||
|
Revenue
|
$
|
395,541
|
$
|
1,255,013
|
$
|
(859,472
|
)
|
|||
|
|
||||||||||
|
Reclamation,
Exploration and Test Mining Expenses
|
473,594
|
1,985,611
|
(1,512,017
|
)
|
||||||
|
|
||||||||||
|
Consulting
and professional
|
297,531
|
468,951
|
(171,420
|
)
|
||||||
|
|
||||||||||
|
General
and administrative
|
535,739
|
573,683
|
(37,944
|
)
|
||||||
|
|
||||||||||
|
Interest
Expense
|
2,868,455
|
2,779,420
|
89,035
|
|||||||
|
|
||||||||||
|
Net
Loss
|
$
|
(4,416,527
|
)
|
$
|
(4,416,527
|
)
|
$
|
(359,171
|
)
|
|
We
sold
531,ounces of gold at an average price of $744 per ounce during the twelve-month
period ended December 31, 2007 compared to gold sales of 2,116 ounces at an
average price of $ 578 per ounce during the same period of 2006. In February
2007 the Company shutdown mining operation to focus on the geology and
exploration drilling. Reclamation, Exploration and Test Mining Expenses were
$
1,512,017 less for the year ended December 31, 2007 than for the year ended
December 31, 2006. The variance reflects the reduction in accrued contract
mining liabilities of approximately $500,000 resulting from the December 2007
settlement with N.A. Degerstrom. In addition, this 2007expense decrease reflects
the suspension of mining activity in February 2007. Our Company is an
Exploration Stage enterprise as defined by SEC Industry Guide 7, and, in
accordance with SEC Industry Guide 7, infrastructure expenditures such as haul
roads, leach pads and start-up costs were expensed.
|
|
Quarter
ended
December
31,
2007
|
Quarter
ended
December
31,
2006
|
Difference
|
|||||||
|
Revenue
|
$
|
44,946
|
$
|
263,908
|
$
|
(218,962
|
)
|
|||
|
|
||||||||||
|
Reclamation,
Exploration and Test Mining Expense
|
(197,356
|
)
|
601,384
|
(798,740
|
)
|
|||||
|
|
||||||||||
|
Consulting
and professional
|
116,865
|
63,613
|
(53,252
|
)
|
||||||
|
|
||||||||||
|
General
and administrative
|
231,373
|
204,516
|
(53,252
|
)
|
||||||
|
|
||||||||||
|
Interest
Expense
|
486,729
|
681,769
|
(195,040
|
)
|
||||||
|
|
||||||||||
|
Net
Loss
|
$
|
(644,665
|
)
|
$
|
(1,211,206
|
)
|
$
|
566,541
|
||
During
the fourth quarter of 2007 we sold 74 ounces of gold at an average price of
$607
per ounce compared to gold sales of 337 ounces at an average price of $ 545
per
ounce during the same period of 2006. Reclamation, Exploration and Test Mining
Expenses in the fourth quarter of 2006 were $787,740 less than the fourth
quarter of 2006. The variance reflects the reduction in accrued contract mining
liabilities of approximately $500,000 resulting from the December 2007 contract
settlement with N.A. Degerstrom. In addition, the variance reflects the shutdown
of mining since February 2007. As detailed above, our Company is an Exploration
Stage enterprise and in accordance with Industry Guide 7 infrastructure
expenditures such as haul roads, leach pads and start-up costs were expensed.
31
At
December 31, 2007, our Company had approximately $13,552,000 of outstanding
debt
bearing an average interest rate of 20% of which $7,398,239 originated from
our
November 2004 restructuring of the March 2004 private placement. (See “Recent
Financing Events and Restructuring,” above) Prior to November 2004, our Company
had no outstanding interest-bearing debt.
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 2007, we raised an aggregate of $1,970,000 through three financing
transactions. Through March 30, 2008, we received $1,500,000 in additional
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 Company. 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, 2007, our recurring losses and negative cash flow from operations
raise substantial doubt about our ability to continue as a going concern.
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 December 31, 2007, the outstanding balance on the Note was $250,000.
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 15%.
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%.
We
are
working with the above-referenced note holders to cure the defaults. The above
referenced notes have a total value of approximately 11,726,000 at December
31,
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.
“Other
-
embedded derivatives” totaling $906,989 at December 31, 2007 represents the net
debt discount resulting from the original determination of the fair value of
the
conversion feature (embedded derivative) included in the debt, net of periodic
amortizations of interest expense. “Derivative liability” totaling $776,385 at
December 31, 2007 represents the fair value of warrants and the conversion
features (embedded derivatives).
32
$2,200,000
Convertible Debenture Financing
On
August
23 - 24, 2006, the Company formally entered into an agreement with several
investors to loan $1,900,000 to the Company. In March 2007, the Company amended
the agreement increasing the loan amount to $2,200,000. The notes evidencing
the
loan bear interest at the rate of 12% per annum, payable monthly on the first
of
each month commencing October 1, 2006, along with 1/24 of the principal amount
of such notes on each repayment date and were issued between May 18, 2006 -
August 24, 2006, with the second quarter notes being treated as “bridge debt”
until the loan agreement was formally signed.. The notes are also convertible
into Common Stock at a 50% discount to market until a registration statement
registering the Common Stock underlying the notes is effective and at a 15%
discount to market thereafter. As additional consideration, the investors are
to
be issued a total of 20,000,000 warrants to purchase common stock at exercise
prices based upon the same formulas as for conversion of the amounts due under
the notes. The notes are secured by a lien on the assets of Goldspring, Inc.
and
a pledge of all of the interests in Plum Mine Special Purpose, LLC, which owns
the Plum Mine operation. In connection with this loan, the lender has agreed
to
acquire the existing mortgage on the Plum Mine property from the Brockbank
Trust
. To date, $2,170,000 of the $2,200,000 has been funded by the investors.
The
notes
issued are as follows:
|
|
Issued
date
|
Face
amount
|
|||||
|
Winfield
Debenture Payable
|
5/15/2006
|
$
|
300,000
|
||||
|
Winfield
Debenture Payable
|
6/21/2006
|
300,000
|
|||||
|
Winfield
Debenture Payable
|
8/23/2006
|
300,000
|
|||||
|
Longview
Debenture Payable
|
8/24/2006
|
300,000
|
|||||
|
Winfield
Debenture Payable
|
12/12/2006
|
100,000
|
|||||
|
Winfield
Debenture Payable
|
First
Quarter
2007
|
331,120
|
|||||
|
Winfield
Debenture Payable
|
Second
Quarter
2007
|
288,880
|
|||||
|
Longview
Debenture Payable
|
4/1/07
|
250,000
|
|||||
|
Total
|
$
|
2,170,000
|
|||||
In
July
2007, we completed an additional financing transaction, which provided us with
$300,000 in funding. In consideration for the funding, we issued a promissory
note with a term of one hundred and twenty (120) days and an interest rate
of
sixteen percent (16%) per annum. The default interest rate on the note is
twenty-two percent (18%). The funds were used for working capital and general
corporate purposes.
On
October 9, 2007, we completed a financing transaction, which provided us with
$137,500 in funding. In consideration for the financing, we issued promissory
notes with a face value of $200,000, reflecting an original issue discount
of
thirty-one and a quarter (31.25%) percent. The term of the notes is one. The
note does not bear interest The funds were used for working capital and general
corporate purposes.
On
December 11, 2007, the Company formally entered into an agreement with several
investors to loan $1,000,000 to the Company. In consideration for the financing,
we issued promissory notes with a face value of $1,200,000, reflecting an
original discount of sixteen and seventeen hundreds (16.17%) percent. The notes
evidencing the loan bear interest at the rate of 4.9% per annum, payable on
or
prior to the one year anniversary of the respective loan date As of December
31,
2007, $600,000 of the $1,200,000 has been funded by the investors.
The
aggregate total of 2007 financing transactions was $1,970,000.
33
Accordingly,
at December 31, 2007 and December 31, 2006, we classified the following
convertible debentures as current liabilities as follows:
|
|
Dec.
31, 2007
|
Dec.
31, 2006
|
|||||
|
Convertible
Debentures Payable-Investors
|
$
|
1,570,237
|
$
|
2,600,812
|
|||
|
Convertible
Debentures Payable- Mandatory Redemption payment
|
5,737,058
|
5,886,059
|
|||||
|
Convertible
Debentures Payable- Failure to Deliver Shares
|
90,944
|
356,348
|
|||||
|
Convertible
Notes Payable - 2006
|
2,170,000
|
1,300,000
|
|||||
|
Total
|
$
|
9,568,239
|
$
|
10,143,219
|
|||
The
aggregate proceeds from 2007 financing transactions totaled
$1,970,000.
We
expect
to initiate a comprehensive exploration program during 2008 and expand our
footprint at our Plum mine. We intend to finance our exploration project,
acquisitions and any other capital expenditures in 2008 through the issuance
of
debt or equity instruments to existing shareholders and other parties. There
can
be no assurance that such financing will be available.
Item
7. Financial
Statements
See
index
to Financial Statements and Financial Statements Schedules beginning on page
F-1
of this Form 10-KSB.
Item
8. Changes
and Disagreements with Accountants on Accounting and Financial
Disclosure
Not
applicable.
ITEM
8A(T). CONTROLS AND PROCEDURES.
Evaluation
of Disclosure Controls and Procedures
As
of the
end of the period covered by this Annual Report on Form 10-KSB, management
performed, with the participation of our Chief Executive Officer and Chief
Financial Officer, an evaluation of the effectiveness of our disclosure controls
and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange
Act.
Our disclosure controls and procedures are designed to ensure that information
required to be disclosed in the report we file or submit under the Exchange
Act
is recorded, processed, summarized, and reported within the time periods
specified in the SEC’s forms, and that such information is accumulated and
communicated to our management including our Chief Executive Officer and our
Chief Financial Officer, to allow timely decisions regarding required
disclosures. Based on the evaluation and the identification of the significant
deficiencies in our internal control over financial reporting described below,
which we do not believe to be material weaknesses, our Chief Executive Officer
and our Chief Financial Officer concluded that, as of December 31, 2007, our
disclosure controls and procedures were effective.
Management's
Annual Report on Internal Control Over Financial Reporting.
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the company in accordance with as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control
over financial reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted
accounting principles. Our internal control over financial reporting includes
those policies and procedures that:
(i)
pertain to the maintenance of records that, in reasonable detail, accurately
and
fairly reflect the transactions and dispositions of our assets;
(ii)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements; and
(iii)
provide reasonable assurance regarding prevention or timely detection of
unauthorized transactions.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management's
assessment of the effectiveness of our internal control over financial reporting
is for the year ended December 31, 2007. In making this assessment, our
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control - Integrated Framework and
Internal
Control over Financial Reporting-Guidance for Smaller Public
Companies.
Management's
assessment of the effectiveness of the small business issuer's internal control
over financial reporting is as of the year ended December 31, 2007. We believe
that internal control over financial reporting is effective. We have not
identified any, current material weaknesses considering the nature and extent
of
our current operations and any risks or errors in financial reporting under
current operations.
34
This
annual report does not include an attestation report of the company's registered
public accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's registered
public accounting firm pursuant to temporary rules of the SEC that permit the
Company to provide only management's report in this annual report.
There
was
no change in our internal control over financial reporting that occurred during
the fiscal quarter ended December 31, 2007, that has materially affected, or
is
reasonably likely to materially affect, our internal control over financial
reporting.
We
have
identified conditions as of December 31, 2007 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 to remedy these deficiencies. These measures include our consolidation
of 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.
Our
former Chief Financial Officer became our Chief Executive Officer in September
2004. Our Company has not hired another individual to act as Chief Financial
Officer. We believe the absence of a full-time Chief Financial Officer or Chief
Accounting Officer has resulted in 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 believe 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 the annual cost of these remedial
actions which include compensation, fees, additional insurance, board meetings,
travel and record keeping costs to be approximately $60,000.
We
do not
believe that these deficiencies constitute material weaknesses because of (i)
additional accounting support through the office consolidation with Plum Mine
and (ii) the use of outside consultants.
We
are
also in the process of taking additional corrective measures to further remedy
the deficiencies in future periods.
There
have been no changes during the quarter ended December 31, 2007 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
material affected, or are reasonably likely to materially affect, our internal
controls over our financial reporting.
Item
8B. Other
Information
Not
applicable.
The
following table sets forth certain information regarding our directors and
officers:
|
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
|
|
William
J. Nance
|
|
64
|
|
Director
|
35
William
J. Nance
has been
a director of our Company since October 2005. Mr. Nance is a Certified Public
Accountant and private consultant to the real estate and banking industries.
He
is also President of Century Plaza Printers, Inc. Mr. Nance is also a Director
of Intergroup Corporation, Santa Fe and Portsmouth.
Scott
Jolcover and Robert Faber were elected to the Board of Directors on January
17,
2008 to fill vacancies on the board. Mr. Faber has served as the Company’s
President and Chief Financial Officer since September 2004 and the Chief
Financial Officer since June 2003. Mr. Jolcover served as General Manager of
the
Plum Mine prior to and after it was acquired by GoldSpring in November 2003.
Since leaving GoldSpring in 2006, Mr. Jolcover has worked as a consultant.
. Mr.
Faber has served as the Company’s President and Chief Financial Officer since
September 2004 and the Chief Financial Officer since June 2003
Executive
Officers
Robert
T. Faber
has
served as President and Chief Executive Officer of our Company since September
2004 and Chief Financial Officer since June 2003. Mr. Faber served from 2002
until 2003 as Vice President of United Site Services, Inc., a privately held
service consolidator in the waste service industry. Additionally, Mr. Faber
served as an executive with Allied Waste Industries from 2001 until 2002,
overseeing a $1.2 billion multi-state area and served as Chief Financial Officer
with Frontier Waste Services, LLC from 1999 until 2001. Prior to joining
Frontier Waste, Mr. Faber spent 17 years with Waste Management, Inc., a publicly
traded environmental services company, during which time he served in senior
positions both internationally and domestically. Mr. Faber’s positions included
Director of Finance of Waste Management’s $1.4 billion multi-country
International operations based in London, England and Vice President and
Controller for several $100 million plus multi-state market areas. Mr. Faber
is
a certified public accountant.(not licensed to practice).
Jim
Golden has served as the Company’s COO since May 2006. Mr. Golden, who is a
licensed mining engineer, has over twenty years of experience in the mining
industry, including ten years with Peter Kiewit's mining division, where he
was
a district manager. A graduate of Montana Tech, Mr. Golden has owned his own
consulting firm since 1990, where he has provided consulting services throughout
the world for over 50 mining companies.
Information
Relating to Corporate Governance and the Board of
Directors
Our
Board
of Directors has determined, after considering all the relevant facts and
circumstances, that Mr. William J. Nance is an independent director, as
“independence” is defined by Nasdaq, because they have no relationship with us
that would interfere with their exercise of independent judgment.
Our
Board
of Directors had established three standing committees: an Audit Committee,
a
Compensation Committee, and a Nominations and Corporate Governance Committee.
Due to the fact that Mr. Nance, who is not independent, was the sole Director
during most of 2007, those Committees have been inactive. Once a full slate
of
Directors is appointed, the Company will review and update charters and
reconstitute its Committees, as practicable.
The
following table sets forth, for the periods indicated, the total compensation
for services provided to us in all capacities by our Chief Executive Officer.
No
other executive officer received aggregate compensation exceeding $100,000
during 2007.
36
SUMMARY
COMPENSATION TABLE
|
|
Annual
Compensation(1)
|
Long-Term
Compensation
Awards
Securities
|
All
Other
|
|
|||||||||||||||
|
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Underlying
Options
(#)
|
Compensation
($)
|
TOTAL
|
|||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
Robert
T. Faber(1)(2)(4)
|
2007
|
180,000
|
0
|
$
|
180,000
|
||||||||||||||
|
Robert
T. Faber(2)(3)(4)
|
2006
|
$
|
147,500
|
$
|
0
|
0
|
$
|
0
|
$
|
147,500
|
|||||||||
|
Robert
T. Faber, President and
Chief
Executive Officer;
|
2005
|
$
|
120,000
|
$
|
0
|
0
|
$
|
0
|
$
|
120,000
|
|||||||||
|
Chief
Financial Officer
|
2004
|
$
|
115,000
|
$
|
10,000
|
0
|
$
|
0
|
$
|
125,000
|
|||||||||
|
Jim
Golden, COO(3)(4)
|
2007
|
150,000
|
0
|
100,000,000
|
0
|
$
|
150,000
|
||||||||||||
|
Jim
Golden, COO (3)(4)
|
2006
|
$
|
150,000
|
$
|
0
|
0
|
$
|
0
|
$
|
150,000
|
|||||||||
|
(1)
|
Mr.
Faber has served as President and Chief Executive Officer since September
2004 and Chief Financial Officer since June
2003.
|
|
(2)
|
$90,000
of Mr. Faber’s 2005 - 2007 salary has not yet been paid. We intend to pay
this amount in 2008.
|
|
|
|
|
(3)
|
Mr.
Golden has served as Chief Operating Officer since October 2006.
Prior to
October 2006, Mr. Golden served as a consultant to our
Company
|
|
|
|
|
(4)
|
$90,000
of Mr. Faber’s 2005 - 2007 salary and $10,000 of Mr. Golden’s 2006 salary
remains unpaid. Mr. Golden was paid the pending $10,000 in January
and
February 2008.
|
Stock
Options
We
did
grant stock options to an officer in 2007. There were shares of common stock
underlying unexercised stock options at December 31, 2007. This information
is
summarized hereinbelow.
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR END FOR 2007
|
|
Option
Awards
|
Stock
Awards
|
||||||||||||||||||||||||||
|
Name
and
Principal
Position
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
|
Option
Expiration
Date
|
Number
of
Shares
or
Units of
Stock
That
Have
Not
Vested
|
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
|
|
Number
of
Unearned
Shares
or Other
Rights
That
Have
Not Vested
|
|
Market
Value
or Payout
Value
of Unearned
Shares,
Units
or Other
Rights
That
Have
Not Vested
|
||||||||||||||||
|
Robert
T. Faber
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
|
Jim
Golden
|
10,000,000
|
0
|
90,000,000
|
.00963
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||||
37
Employment
Agreements
Effective
as of November 27, 2006, the Company entered into an Executive Employment
Agreement with Robert T. Faber, its CEO. The Agreement carries a three year
term
from August 15, 2006 and is retroactive to that date. During the term of the
Agreement, Mr. Faber’s base salary shall be $180,000 per year, with such
increases as may be determined by the Company’s Compensation Committee, with a
bonus not to exceed 50% of the base salary then in effect. Also pursuant to
the
Agreement, Mr. Faber shall be granted 80,000,000 stock options currently with
exercise price per the terms of the Company’s 2006 Stock Option and Incentive
Plan. The Company granted Mr. Faber the options on January 2008. In the case
of
a termination not for cause, Mr. Faber shall continue to receive his full base
salary for a period of one year from date of termination and upon a sale of
the
Company, he shall receive a one time lump sum payment equal to 100% of his
then
in effect base salary, with all options vesting immediately.
Effective
as of December 13, 2007, the Company entered into an Executive Employment
Agreement with Jim Golden, its COO. The Agreement carries a three year term
from
December 13, 2007. During the term of the Agreement, Mr. Golden’s base salary
shall be $150,000 per year, with such increases as may be determined by the
Company’s Compensation Committee, with a bonus not to exceed 50% of the base
salary then in effect. Also pursuant to the Agreement, Mr. Golden shall be
granted 10,000,000 stock options currently and will be eligible for an
additional 10,000,000 options for each addition one hundred thousand ounces
of
gold reserves up to 90,000,000 options. Options will vest over 36 months from
the date of the grant. All earned and vested options have an exercise price
of
$0.00963. Mr. Golden shall continue to receive his full base salary for a period
of one year from date of termination and upon a sale of the Company, he shall
receive a one time lump sum payment equal to 100% of his then in effect base
salary, with all options vesting immediately.
Compensation
of Directors
During
the fiscal year ended, our Directors were/were not given compensation for
services rendered as Directors. The following table summarizes any compensation
given in 2007:
DIRECTOR
COMPENSATION TABLE
|
Name
|
Fees
Earned
or
Paid
in Cash
|
Stock
Awards
|
Option
Awards
|
Non-Equity
Incentive
Plan
Compensation
|
Nonqualified
Deferred
Compensation
Earnings
|
All
Other
Compensation
|
Total
|
|||||||||||||||
|
William
Nance
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
|
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||
38
Item
11.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
The
following table sets forth certain information regarding the beneficial
ownership of our common stock as of December 31, 2007 by (1) each person who
is
known by us to be the beneficial owner of more than five percent of our issued
and outstanding shares of common stock, (2) each of our directors and executive
officers, and (3) all directors and officers as a group.
|
|
Shares
Beneficially
Owned
|
||||||
|
Name
of Beneficial Owner
|
Number(1)
|
Percent(2)
|
|||||
|
|
|
|
|||||
|
Directors
and Executive Officers:
|
|
|
|||||
|
Robert
T. Faber (1) (2) (4)
|
1,990,000
|
0.1
|
%
|
||||
|
Jim
Golden(1) (2)
|
10,000,000
|
.4
|
%
|
||||
|
William
Nance
|
0
|
0.0
|
%
|
||||
|
|
|||||||
|
All
directors and executive officers as a group (four persons)
|
11,990,000
|
0.5
|
%
|
||||
|
|
|||||||
|
5%
Shareholders:
|
|||||||
|
Merriman
Curhan Ford(5)
|
343,747,233
|
12.5
|
%
|
||||
|
(1)
|
Includes,
when applicable, shares owned of record by such person’s minor children
and spouse and by other related individuals and entities over whose
shares
of common stock such person has custody, voting control, or power
of
disposition. Also includes shares of common stock that the identified
person had the right to acquire within 60 days of December 31, 2007
by the
exercise of vested stock options.
|
|
(2)
|
The
percentages shown include the shares of common stock that the person
will
have the right to acquire within 60 days of December 31, 2007. In
calculating the percentage of ownership, all shares of common stock
which
the identified person will have the right to acquire within 60 days
of
December 31, 2007 upon the conversion of convertible notes or the
exercise
of warrants or stock options are deemed to be outstanding for the
purpose
of computing the percentage of shares of common stock owned by such
person, but are not deemed to be outstanding for the purpose of computing
the percentage of shares of common stock owned by any other
person.
|
|
(3)
|
.Includes
shares beneficially owned by John W. Winfield, Santa Fe Financial
Corp.,
Portsmouth Square, Inc. and InterGroup Corporation. Mr. Winfield’s address
is 820 Moraga Drive, Los Angeles, California
90049.
|
|
(4)
|
Appointed
as Director on January 17, 2008
|
|
(5)
|
Merriman
Curhan and Ford’s address is 600 California Street, 9th
Floor, San Francisco, California
94108.
|
39
Item
12.
Certain Relationships and Related Transactions
Not
applicable.
Item
13.
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:
|
|
Report
of Independent Registered Public Accounting Firm
|
F
-
2
|
|
|
Consolidated
Balance Sheet as of December 31, 2007
|
F
-
3
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2007 and
2006
|
F
-
5
|
|
|
Consolidated
Statements of Changes in Stockholders' Equity for the year ended
December
31, 2007 and 2006
|
F
-
6
|
|
|
Consolidated
Statements of Cash Flows for the year ended December 31, 2007 and
2006
|
F
-
7
|
|
|
Notes
to Consolidated Financial Statements
|
F-8
- 26
|
|
| (2) |
Exhibits
filed as part of this Report:
|
|
Exhibit
Number
|
|
Exhibit
|
|
3.1
|
|
Borrower
Security Agreement
|
|
|
|
|
|
23.1
|
|
Consent
of Jewett, Schwartz Wolfe & Associates
|
|
|
|
|
|
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
|
40
| (b) |
Reports
filed on Form 8-K during the quarter ended December 31,
2007:
|
None.
Item
14. Principal
Accountants Fees and Services
The
aggregate fees billed to our company by Jewett Schwartz, for the fiscal years
ended December 31, 2006 and December 31, 2007, are as follows:
|
|
2006
|
2007
|
|||||
|
Audit
fees
|
$
|
37,500
|
$
|
37,500
|
|||
|
Audit-related
fees
|
$
|
11,700
|
$
|
15,000
|
|||
|
Tax
fees
|
$
|
10,000
|
$
|
10,000
|
|||
|
All
other fees
|
$
|
0
|
$
|
0
|
|||
Audit
Committee Pre-Approval Policies
The
charter of our Audit Committee provides that the duties and responsibilities
of
our Audit Committee include the pre-approval of all audit, audit-related, tax,
and other services permitted by law or applicable SEC regulations (including
fee
and cost ranges) to be performed by our independent auditor. Any pre-approved
services that will involve fees or costs exceeding pre-approved levels will
also
require specific pre-approval by the Audit Committee. Unless otherwise specified
by the Audit Committee in pre-approving a service, the pre-approval will be
effective for the 12-month period following pre-approval. The Audit Committee
will not approve any non-audit services prohibited by applicable SEC regulations
or any services in connection with a transaction initially recommended by the
independent auditor, the purpose of which may be tax avoidance and the tax
treatment of which may not be supported by the Internal Revenue Code and related
regulations.
To
the
extent deemed appropriate, the Audit Committee may delegate pre-approval
authority to the Chairman of the Audit Committee or any one or more other
members of the Audit Committee provided that any member of the Audit Committee
who has exercised any such delegation must report any such pre-approval decision
to the Audit Committee at its next scheduled meeting. The Audit Committee will
not delegate to management the pre-approval of services to be performed by
the
independent auditor.
Our
Audit
Committee requires that our independent auditor, in conjunction with our Chief
Financial Officer, be responsible for seeking pre-approval for providing
services to us and that any request for pre-approval must inform the Audit
Committee about each service to be provided and must provide detail as to the
particular service to be provided. Our Audit Committee Chair and Audit Committee
Financial Expert is Bill Nance.
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) 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.
41
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
|
|
Goldspring,
Inc.
|
|
|
|
|
|
|
|
/s/
Robert T. Faber
|
|
|
|
Robert
T. Faber
|
|
|
|
President,
Chairman and Director
(Principal
Executive Officer and
Principal
Financial Officer)
|
|
|
|
|
|
|
|
Date:
November 21, 2008
|
Pursuant
to the requirements of Section 12 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.
|
|
/s/
Robert T. Faber
|
|
|
|
Robert
T. Faber
|
|
|
|
President,
Chairman and Director
(Principal
Executive Officer and
Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
Date:
November 21, 2008
|
42
GOLDSPRING,
INC.
CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER
31, 2007 AND 2006
|
|
|
Page
|
|
|
|
Report
of Independent Registered Public Accounting Firm
|
|
|
F-2
|
|
|
|
|
|
|
|
|
Consolidated
Balance Sheet as of December 31, 2007
|
|
|
F-3
|
|
|
|
|
|
|
|
|
Con
Consolidated Statements of Operations for the years ended December
31,
2007 and 2006
|
|
|
F-5
|
|
|
|
|
|
|
|
|
Con
Consolidated Statements of Changes in Stockholders’ Deficiency for the
years ended December 31, 2007 and 2006
|
|
|
F-6
|
|
|
|
|
|
|
|
|
Con
Consolidated Statements of Changes in Cash Flows for the years ended
December 31, 2007 and 2006
|
|
|
F-7
|
|
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements
|
|
|
F-8-26
|
|
F-1
Report
of
Independent Registered Public Accounting Firm
To
the
board of directors and shareholders of
Goldspring,
Inc.
We
have
audited the accompanying consolidated balance sheet of Goldspring, Inc. as
of
December 31, 2007 and the related consolidated statements of operations, changes
in shareholders’ deficiency and cash flows for the years ended December 31, 2007
and 2006. These consolidated financial statements are the responsibility of
the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provided a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Goldspring, Inc. as of December
31,
2007, and the results of its operations and its cash flows for the years then
ended 2007 and 2006 in conformity with accounting principles generally accepted
in the United States.
These
financial statements have been prepared assuming that the Company will continue
as a going concern. As discussed in Note 2 to the financial statements, the
Company has operating and liquidity concerns, has incurred in net losses
approximating $32,000,000 as of December 31, 2007. These factors raise
substantial doubt about the ability of the Company to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties. In this regard, Management
is
proposing to raise any necessary additional funds through loans and additional
sales of its common stock. There is no assurance that the Company will be
successful in raising additional capital.
|
/s/
Jewett, Schwartz, Wolfe & Associates
|
|
|
|
Jewett,
Schwartz, Wolfe & Associates
|
|
|
|
|
|
|
|
Hollywood,
Florida
April
11, 2008
|
|
|
F-2
GOLDSPRING,
INC.
CONSOLIDATED
BALANCE SHEET
|
|
December
31,
2007
|
|||
|
ASSETS
|
||||
|
Current
Assets:
|
||||
|
Cash
and cash equivalents
|
174,996
|
|||
|
Prepaid
expenses and other current assets
|
-
|
|||
|
Deferred
financing fees, net
|
185,417
|
|||
|
Total
Current Assets
|
360,413
|
|||
|
|
||||
|
PLANT,
EQUIPMENT, AND MINERAL PROPERTIES
|
||||
|
|
||||
|
Mineral
properties
|
1,619,837
|
|||
|
Plant
and equipment
|
411,040
|
|||
|
Total
property and equipment
|
2,030,877
|
|||
|
Reclamation
deposit
|
377,169
|
|||
|
Other
- embedded derivatives (See Note 14)
|
906,989
|
|||
|
Total
Assets
|
$
|
3,675,448
|
||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-3
GOLDSPRING,
INC.
LIABILITIES
AND STOCKHOLDERS’ DEFICIENCY
|
|
December
31, 2007
|
|||
|
CURRENT
LIABILITIES
|
||||
|
Accounts
payable
|
305,638
|
|||
|
Accrued
expenses
|
683,575
|
|||
|
Accrued
liquidated damages
|
1,745,751
|
|||
|
Accrued
interest payable
|
3,205,813
|
|||
|
Lease
obligations
|
42,459
|
|||
|
Convertible
debentures
|
9,568,239
|
|||
|
Promissory
notes
|
3,575,000
|
|||
|
Other
notes payable & current portion of long-term debt
|
408,800
|
|||
|
Total
Current Liabilities
|
19,535,275
|
|||
|
|
||||
|
LONG-TERM
DEBT AND OTHER LONG-TERM LIABILITIES
|
||||
|
Long-term
debt obligation, net of current portion
|
11,612
|
|||
|
Derivative
liability (See Note 14)
|
776,385
|
|||
|
Long-term
reclamation liability
|
553,190
|
|||
|
Total
long-term debt and other Long-term Liabilities
|
1,341,187
|
|||
|
|
||||
|
Total
Liabilities
|
20,876,462
|
|||
|
|
||||
|
STOCKHOLDERS’
DEFICIT
|
||||
|
C
Common stock, $.000666 par value, 3,9500,000,000 shares authorized,
and
2,743,508,248 shares issued and outstanding
|
1,827,177
|
|||
|
Additional
paid-in capital
|
12,969,210
|
|||
|
Accumulated
deficit - prior years
|
(27,940,045
|
)
|
||
|
Accumulated
deficit - current year
|
(4,057,356
|
)
|
||
|
Total
Stockholders’ Deficiency
|
(17,201,014
|
)
|
||
|
|
||||
|
Total
Liabilities and Stockholders’ Deficiency
|
$
|
3,675,448
|
||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-4
GOLDSPRING,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Years
Ended December
31,
|
||||||
|
|
2007
|
2006
|
|||||
|
Revenue
from gold sales, net
|
$
|
395,541
|
$
|
1,255,013
|
|||
|
Cost
and expenses
|
|||||||
|
Costs
applicable to sales (exclusive of depreciation and amortization
shown separately below)
|
-
|
-
|
|||||
|
Depreciation
and amortization
|
277,578
|
288,305
|
|||||
|
Reclamation,
exploration and test mining expenses
|
473,594
|
1,985,611
|
|||||
|
General
and administrative
|
535,739
|
573,683
|
|||||
|
Consultants
and professional fees
|
297,531
|
468,951
|
|||||
|
|
1,584,442
|
3,316,550
|
|||||
|
Operating
Loss
|
(1,188,901
|
)
|
(2,061,537
|
)
|
|||
|
|
|||||||
|
Other
Income (Expense):
|
|||||||
|
Liquidated
damages expense (See Note 11)
|
-
|
-
|
|||||
|
Gain
on Sale of Fixed Assets
|
-
|
91,953
|
|||||
|
Other
-Settlement Agreement
|
-
|
85,000
|
|||||
|
Derivative
Change in Fair Value
|
-
|
247,477
|
|||||
|
Interest
income
|
-
|
-
|
|||||
|
Interest
expense
|
(2,868,455
|
)
|
(2,779,420
|
)
|
|||
|
|
(2,868,455
|
)
|
(2,354,990
|
)
|
|||
|
|
|||||||
|
Net
Loss:
|
(4,057,356
|
)
|
(4,416,527
|
)
|
|||
|
|
|||||||
|
Net
loss per common share - basic
|
(0.002
|
)
|
(0.006
|
)
|
|||
|
|
|||||||
|
Basic
weighted average common shares outstanding (See Note 13)
|
1,590,580,692
|
701,486,485
|
|||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-5
GOLDSPRING,
INC.
STATEMENT
OF CHANGES IN STOCKHOLDERS’ DEFICIENCY
For
the Years Ended December 31, 2007 and 2006
(Common
Stock Par value, $.000666 per share; 3,950,000,000 shares authorized
Preferred
Stock Par Value, per share; 50,000,000 shares authorized)
|
|
Common
Shares
Issued
|
Par
value
$.000666
per
share
|
Additional
Paid-in
Capital
|
Treasury
Stock
(at
cost)
|
Accumutaled
Deficit
|
Total
|
|||||||||||||
|
|
|
|
|
|
|
|
|||||||||||||
|
Balance
- December 31, 2005,
|
325,047,122
|
$
|
216,482
|
$
|
5,398,330
|
(67
|
)
|
$
|
(23,524,302
|
)
|
$
|
(17,909,557
|
)
|
||||||
|
Retirement
of treasury shares
|
(100,000
|
)
|
(67
|
)
|
-
|
67
|
-
|
-
|
|||||||||||
|
Common
stock issued for debenture principal
|
433,316,756
|
288,589
|
4,321,082
|
-
|
4,609,671
|
||||||||||||||
|
Common
stock issued for debenture interest
|
200,529,058
|
133,552
|
1,884,148
|
-
|
2,017,700
|
||||||||||||||
|
Other
|
146,004
|
97
|
-
|
97
|
|||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
(4,416,527
|
)
|
(4,416,527
|
)
|
|||||||||||
|
Balance
- December 31, 2006,
|
$
|
958,938,940
|
$
|
638,653
|
$
|
11,603,560
|
-
|
$
|
(27,940,829
|
)
|
$
|
(15,698,616
|
)
|
||||||
|
Liquidated
damages
|
50,000,000
|
33,300
|
121,047
|
154,347
|
|||||||||||||||
|
Common
stock issued for debenture principal
|
898,776,970
|
598,585
|
846,362
|
-
|
1,444,947
|
||||||||||||||
|
Common
stock issued for debenture interest
|
835,792,338
|
556,639
|
398,241
|
-
|
954,880
|
||||||||||||||
|
Other
|
784
|
784
|
|||||||||||||||||
|
Net
loss
|
-
|
-
|
-
|
-
|
(4,057,356
|
)
|
(4,057,356
|
)
|
|||||||||||
|
Balance,
December 31, 2007
|
$
|
2,743,508,248
|
$
|
1,827,177
|
$
|
12,969,210
|
$
|
-
|
$
|
(31,997,401
|
)
|
$
|
(17,201,015
|
)
|
|||||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-6
GOLDSPRING,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Years
Ended December 31,
|
||||||
|
|
2007
|
2006
|
|||||
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|||||||
|
Net
loss
|
$
|
(4,057,356
|
)
|
$
|
(4,416,527
|
)
|
|
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|||||||
|
Depreciation
and amortization
|
277,578
|
739,348
|
|||||
|
LiLiquidated
damages from March 2004 financing and November 2004
restructuring
|
―
|
―
|
|||||
|
Interest
paid through the issuance of company stock
|
954,877
|
2,017,700
|
|||||
|
Changes
in operating assets and liabilities
|
|||||||
|
Inventories
|
―
|
52,000
|
|||||
|
Prepaid
and other current assets
|
(24,607
|
)
|
2,893
|
||||
|
Other
current assets
|
(60,064
|
)
|
(37,500
|
)
|
|||
|
Bank
overdraft
|
―
|
15,491
|
|||||
|
Accounts
payable
|
(214,033
|
)
|
(750,670
|
)
|
|||
|
Accrued
expenses
|
1,160,389
|
1,046,195
|
|||||
|
Net
Change - derivative change fair value
|
378,073
|
(247,477
|
)
|
||||
|
Other
|
87,078
|
102,521
|
|||||
|
Net
cash used in operating activities
|
(1,498,065
|
)
|
(1,476,026
|
)
|
|||
|
|
|||||||
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|||||||
|
Equipment
/ acquisition deposit
|
―
|
―
|
|||||
|
Acquisition
of plant and equipment
|
20,000
|
10,969
|
|||||
|
Net
used in investing activities
|
20,000
|
10,969
|
|||||
|
|
|||||||
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|||||||
|
Principal
payments on Note Payable
|
(44,439
|
)
|
(154,308
|
)
|
|||
|
Proceeds
from the issuance of note payable to related party
|
1,697,500
|
1,592,500
|
|||||
|
Net
cash provided by financing activities
|
1,653,061
|
1,438,192
|
|||||
|
|
|||||||
|
Net
increase in cash and cash equivalents
|
174,996
|
(26,865
|
)
|
||||
|
Cash
and cash equivalents, beginning of year
|
―
|
26,865
|
|||||
|
Cash
and cash equivalents, end of year
|
$
|
174,996
|
$
|
―
|
|||
|
Supplemental
disclosure of non-cash investing and financing
activities:
|
|||||||
|
Issuance
of company stock for interest
|
$
|
954,877
|
$
|
2,017,700
|
|||
|
Issuance
of company stock for liquidated damages
|
$
|
154,346
|
$
|
―
|
|||
|
Conversion
of debt into company’s common shares
|
$
|
1,444,947
|
$
|
4,609,671
|
|||
The
accompanying notes are an integral part of these consolidated financial
statements.
F-7
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
1 — Nature of Business
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. (“we” “Goldspring,” or the “Company”). The
primary nature of our business is the exploration and development of mineral
producing properties.
Note
2 — Going Concern
The
accompanying consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States of America
which contemplate continuation of the Company as a going concern. However,
the
Company has year end losses from operations and had minimal revenues from
operations in 2007. For the year ended December 31, 2007 the Company incurred
net loss of $4,057,356. Further, the Company has inadequate working capital
to
maintain or develop its operations, and is dependent upon funds from private
investors and the support of certain stockholders.
These
factors raise substantial doubt about the ability of the Company to continue
as
a going concern. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties. In this regard, Management
is proposing to raise any necessary additional funds through loans and
additional sales of its common stock. There is no assurance that the Company
will be successful in raising additional capital.
Note
3 — Summary of Significant Accounting Policies
Summarized
below are the significant accounting policies of Goldspring, Inc.
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 December 31, 2007 and 2006.
F-8
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
3 — Summary of Significant Accounting Policies - Continued
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.
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 Notes 2 and
3.
Revenue
Recognition
Sales
of
gold and silver dore 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 dore’s precious metal content and its weight. Recorded values are adjusted
upon final settlement from the refiner which 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.
Deferred
Financing Charges
During
2007 we recorded deferred financing charges associated with the issue of
promissory notes payable totaling $110,000. We amortize the charges over the
respective lives of the promissory notes payable as interest expense. During
the
year ended December 31, 2007 we recognized $166,939 of interest expense related
to the amortization of deferred financing fees.
F-9
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
3 — Summary of Significant Accounting Policies — Continued
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 SFAS 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.
F-10
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
3 — Summary of Significant Accounting Policies — Continued
Reclamation
Liabilities and Asset Retirement Obligations
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 (SOP) No. 96-1.
In
August
2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement
Obligations.” SFAS No. 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 SFAS 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 years ended
December 31, 2007 and 2006, we had net losses for which the affect of common
stock equivalents would be anti-dilutive. Accordingly only basic and dilutive
loss per share is presented.
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.
F-11
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
3 — Summary of Significant Accounting Policies — Continued
Recent
Authoritative Pronouncements
Recent
accounting pronouncements that the Company has adopted or will be required
to
adopt in the future are summarized below.
In
May
2005, the Financial Accounting Standards Board (FASB) issued SFAS No. 154,
"Accounting Changes and Error Corrections" (SFAS No. 154), which replaces
Accounting Principles Board (APB) Opinion No. 20, "Accounting Changes," and
SFAS
No. 3, "Reporting Accounting Changes in Interim Financial Statements - An
Amendment of APB Opinion No. 28." SFAS No. 154 provides guidance on the
accounting for and reporting of accounting changes and error corrections, and
it
establishes retrospective application, or the latest practicable date, as the
required method for reporting a change in accounting principle and the reporting
of a correction of an error. SFAS No. 154 is effective for accounting changes
and corrections of errors made in fiscal years beginning after December 15,
2005. The Company adopted SFAS No. 154 in the first quarter of fiscal year
2007
and does not expect it to have a material impact on its consolidated results
of
operations and financial condition.
In
September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS
No. 157). SFAS No. 157 provides guidance for using fair value to measure assets
and liabilities. SFAS No. 157 addresses the requests from investors for expanded
disclosure about the extent to which companies measure assets and liabilities
at
fair value, the information used to measure fair value and the effect of fair
value measurements on earnings. SFAS No. 157 applies whenever other standards
require (or permit) assets or liabilities to be measured at fair value, and
does
not expand the use of fair value in any new circumstances. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007 and will be adopted by the Company in the first quarter of
fiscal year 2009. The Company is unable at this time to determine the effect
that its adoption of SFAS No. 157 will have on its consolidated results of
operations and financial condition.
In
July
2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty
in
Income Taxes, an interpretation of FASB Statement No. 109" (FIN 48). FIN 48
clarifies the accounting for uncertainty in income taxes by prescribing the
recognition threshold a tax position is required to meet before being recognized
in the financial statements. It also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. The cumulative effects, if any, of applying FIN
48
will be recorded as an adjustment to retained earnings as of the beginning
of
the period of adoption. FIN 48 is effective for fiscal years beginning after
December 15, 2006, and the Company is required to adopt it in the first quarter
of fiscal year 2008. The Company is currently evaluating the effect that the
adoption of FIN 48 will have on its consolidated results of operations and
financial condition and is not currently in a position to determine such
effects, if any.
F-12
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
3 — Summary of Significant Accounting Policies — Continued
Recent
Authoritative Pronouncements-Continued
In
September 2006, the Security and Exchange Commission (SEC) issued SAB No. 108,
"Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements" (SAB 108). SAB No. 108
provides guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the purpose of
a
materiality assessment. SAB No. 108 establishes an approach that requires
quantification of financial statement errors based on the effects of each on
a
company's balance sheet and statement of operations and the related financial
statement disclosures. Early application of the guidance in SAB 108 is
encouraged in any report for an interim period of the first fiscal year ending
after November 15, 2006, and will be adopted by the Company in the first quarter
of fiscal year 2007. The Company does not expect the adoption of SAB No. 108
to
have a material impact on its consolidated results of operations and financial
condition.
FSP
SFAS
123(R)-5 was issued on October 10, 2006. The FSP provides that instruments
that
were originally issued as employee compensation and then modified, and that
modification is made to the terms of the instrument solely to reflect an equity
restructuring that occurs when the holders are no longer employees, then no
change in the recognition or the measurement (due to a change in classification)
of those instruments will result if both of the following conditions are met:
(a). There is no increase in fair value of the award (or the ratio of intrinsic
value to the exercise price of the award is preserved, that is, the holder
is
made whole), or the antidilution provision is not added to the terms of the
award in contemplation of an equity restructuring; and (b). All holders of
the
same class of equity instruments (for example, stock options) are treated in
the
same manner. The provisions in this FSP shall be applied in the first reporting
period beginning after the date the FSP is posted to the FASB website. The
Company does not expect the adoption of FSP SFAS 123(R)-5 to have a material
impact on its consolidated results of operations and financial condition.
In
February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid
Financial Instruments, and Amendment of FASB No. 133 and 140” (SFAS No. 155),
which establishes the accounting for certain derivatives embedded in other
instruments. It simplifies accounting for certain hybrid financial instruments
by permitting fair value remeasurement for any hybrid instrument that contains
an embedded derivative, that otherwise would require bifurcation under SFAS
No.
133, as well as eliminating a restriction on the passive derivative instruments
that a qualifying special-purpose entity (“SPE”) may hold under SFAS No. 140.
This statement allows a public entity to irrevocably elect to initially, and
subsequently, measure a hybrid instrument that would be required to be separated
into a host contract and derivative in its entirety at fair value (with changes
in fair value recognized in earnings) so long as that instrument is not
designated as a hedging instrument pursuant to the statement. SFAS No. 140
previously prohibited a qualifying special-purpose beneficial interest, other
than another derivative financial instrument. The statement is effective for
fiscal years beginning after September 15, 2006, with early adoption permitted
as of the beginning of an entity’s fiscal year. Management believes the adoption
of this statement will have no immediate impact on the Company’s financial
condition or results of operations.
In
February 2007, the FASB issued Statement No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities, including an amendment of FASB
Statement No. 115" (FAS 159). FAS 159 permits companies to choose to measure
many financial instruments and certain other items at fair value and establishes
presentation and disclosure requirements designed to facilitate comparisons
between companies that choose different measurement attributes for similar
types
of assets and liabilities. The provisions of FAS 159 become effective as of
the
beginning of our 2009 fiscal year. We are currently evaluating the impact that
FAS 159 will have on our financial statements.
F-13
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
4 — Mineral Properties
At
December 31, 2007 and 2006, our mineral properties consisted of the
following:
|
MINERAL
PROPERTIES:
|
2007
|
2006
|
|||||
|
|
|
|
|||||
|
Placer
Gold Properties
|
$
|
100,000
|
$
|
100,000
|
|||
|
Big
Mike Copper Property
|
69,138
|
69,138
|
|||||
|
Plum
Gold Properties
|
1,360,699
|
1,360,699
|
|||||
|
Water
rights
|
90,000
|
90,000
|
|||||
|
Balance
|
$
|
1,619,837
|
$
|
1,619,837
|
|||
Placer
Gold Properties and Big Mike Copper Property
In
June
2003, we acquired GoldSpring, LLC (the Placer Gold properties) and Ecovat Copper
Nevada, LLC (the Big Mike Copper property). Total consideration paid for the
Placer Gold mineral properties and Big Mike Copper property was $100,000 cash
and the issuance of 90,000,000 shares of common stock to Ecovery’s 128
shareholders, valued at $119,138 (Ecovery’s book value for the Big Mike Copper
property), respectively.
We
are
required to pay a 2% net smelter royalty for gold production at the Placer
Gold
properties once the $4,650,000 20% net proceeds contingent production royalty
obligation has been satisfied.
In
September 2006, we entered into a ten year lease with a local company,
controlled by a former GoldSpring director, for 17 unpatended lode claims and
one placer claim covering a total of 310 arces in Pershing County Nevada that
comprise our Big Mike Copper property. The lease included an initial $50,000
payment to cover royalty payments due for the first two years. Additionally,
the
lessee must pay Goldspring $75,000 when a production permit is awarded, and
$125,000 when commercial mining commences. Additionally, the lessee agrees
to a
work expenditure of $300,000 for environmental and engineering matters in the
first thirty-six months of the lease During the term of the lease, Goldspring
will also receive a production royalty of between 3% and 5% of net returns
from
copper mining, dependent on the price of copper.
Plum
Gold Properties
We
acquired the Plum Mining Company, LLC (“Plum LLC”) in November of 2003 for a
total of $1,400,000, consisting of a cash payment of $200,000, 549,177
restricted common shares valued at $200,000, and a non-interest bearing
promissory note payable (See Note 5) for $1,000,000. The Plum LLC’s primary
assets were the Plum Gold Properties.
F-14
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
4 — Mineral Properties -Continued
Plum
Gold Properties-Continued
We
are
required to pay royalties to the two lessors of our Billie the Kid/Lucerne
project, totaling the greater of $1,000 per month or a percentage of the Net
Smelter Returns. The percentage varies based on the price of gold: 3% if gold
is
less than $400 per ounce, 4% if gold is in the $400’s per ounce, and 5% if gold
is $500 or greater per ounce.
Note
5 — Plant, Property and Equipment
At
December 31, 2007 and 2006, plant, property and equipment consisted of the
following (See Note 1):
|
|
2007
|
2006
|
|||||
|
Plant,
property and equipment at Plum Mine location
|
$
|
1,473,340
|
$
|
1,543,340
|
|||
|
Equipment,
corporate
|
-
|
18,195
|
|||||
|
Less
accumulated depreciation
|
(1,062,300
|
)
|
(803,393
|
)
|
|||
|
Balance
|
$
|
411,040
|
$
|
758,142
|
|||
Included
in plant, property and equipment at our Plum Mine location at December 31,
2007,
is equipment under capital lease of $156,292. Future minimum lease payments
for
the related obligation under capital lease are $42,459 for 2008 and $0 for
2009.
We recorded depreciation expense on equipment under capital lease totaling
$31,258 during the year ended December 31, 2007.
Note
6 — Reclamation Liability
The
Nevada Revised Statutes and regulations promulgated by the Nevada State
Environmental Commission and Division of Environmental Protection require a
surety bond to be posted for mining projects to assure that a site is left
safe,
stable, and capable of providing for a productive post-mining land use. Pursuant
to the approved Reclamation Plan for Billie the Kid, we posted a surety bond
in
the amount of $553,190, of which $377,000 was in the form of a cash deposit
and
the balance was secured from a surety agent.
We
have
accrued a long-term liability of $553,190 as of December 31, 2007, with regard
to our obligations to reclaim our Plum Mine facility based on our reclamation
plan submitted and approved by the Nevada State Environmental Commission and
Division of Environmental Protection. Costs of future expenditures for
environmental remediation are not discounted to their present value unless
subject to a contractually obligated fixed payment schedule. Such costs are
based on management’s current estimate of amounts expected to be incurred when
the remediation work is performed within current laws and regulations. It is
reasonably possible that, due to uncertainties associated with the application
of laws and regulations by regulatory authorities and changes in reclamation
or
remediation technology, the ultimate cost of reclamation and remediation could
change in the future. We periodically review accrued liabilities for such
reclamation and remediation costs as evidence becomes available indicating
that
our liabilities have potentially changed.
F-15
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
7 — Notes Payable — Mineral Property Purchases
We
have a
non-interest bearing note payable to the Brockbank Trust related to our purchase
of the Plum Mining property. The note does include, however, a clause for 5%
annual interest on all past due balances. The note was payable in ten quarterly
payments through June 2006. As of December 31, 2007 we still had a $250,000
note
balance due to the Brockbank Trust.
During
2005 we purchased certain mining claims that were near or contiguous to our
Plum
Gold Property (See Note 4). In connection with the purchase we issued a note
payable of $160,000. The note was payable in quarterly installments of $16,000
and is payable in its entirety on or before June 2008. We have not been making
schedule payments on this note due to some unresolved issues with the title
on
the property. Since we are in technical default on this loan, the entire
outstanding balance has been recorded as short-term notes payable. At December
31, 2007 the note balance was $147,200.
At
December 31, 2007 and 2006, our balance owing on mineral property notes payable
was as follows:
|
|
2007
|
2006
|
|||||
|
Balance
|
$
|
397,200
|
$
|
397,200
|
|||
|
Less
current portion
|
397,200
|
397,200
|
|||||
|
Non-current
portion
|
$
|
-
|
$
|
-
|
|||
Note
8 —Convertible Debentures and Notes Payable
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 11).
F-16
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
8 —Convertible Debentures and Notes Payable - Continued
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
March
31, 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. 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 March 31, 2007. The
debentures are subject to the following terms:
F-17
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
8 —Convertible Debentures and Notes Payable - Continued
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 is 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
(See Note 7) 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, 2006 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.
F-18
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
8 —Convertible Debentures and Notes Payable - Continued
2,200,000
Convertible Debenture Financing
On
August
23 - 24, 2006, the Company formally entered into an agreement with several
investors to loan $1,900,000 to the Company. In March 2007, the Company amended
the agreement increasing the loan amount to $2,200,000. The notes evidencing
the
loan bear interest at the rate of 12% per annum, payable monthly on the first
of
each month commencing October 1, 2006, along with 1/24 of the principal amount
of such notes on each repayment date and were issued between May 18, 2006 -
August 24, 2006, with the second quarter notes being treated as “bridge debt”
until the loan agreement was formally signed.. The notes are also convertible
into Common Stock at a 50% discount to market until a registration statement
registering the Common Stock underlying the notes is effective and at a 15%
discount to market thereafter. As additional consideration, the investors are
to
be issued a total of 20,000,000 warrants to purchase common stock at exercise
prices based upon the same formulas as for conversion of the amounts due under
the notes. The notes are secured by a lien on the assets of Goldspring, Inc.
and
a pledge of all of the interests in Plum Mine Special Purpose, LLC, which owns
the Plum Mine operation. In connection with this loan, the lender has agreed
to
acquire the existing mortgage on the Plum Mine property from the Brockbank
Trust
. To date, $2,170,000 of the $2,200,000 has been funded by the investors.
The
notes
issued are as follows:
|
|
Issued
date
|
Face
amount
|
|||||
|
Winfield
Debenture Payable
|
5/15/2006
|
$
|
300,000
|
||||
|
Winfield
Debenture Payable
|
6/21/2006
|
300,000
|
|||||
|
Winfield
Debenture Payable
|
8/23/2006
|
300,000
|
|||||
|
Longview
Debenture Payable
|
8/24/2006
|
300,000
|
|||||
|
Winfield
Debenture Payable
|
12/12/2006
|
100,000
|
|||||
|
Winfield
Debenture Payable
|
First
Quarter
2007
|
331,120
|
|||||
|
Winfield
Debenture Payable
|
Second
Quarter
2007
|
288,880
|
|||||
|
Longview
Debenture Payable
|
4/1/07
|
250,000
|
|||||
|
Total
|
$
|
2,170,000
|
|||||
Accordingly,
at December 31, 2006 and 2005, we classified the following convertible
debentures as current liabilities as follows:
|
|
2007
|
2006
|
|||||
|
Convertible
Debentures Payable-Investors
|
$
|
1,570,237
|
$
|
2,600,812
|
|||
|
Convertible
Debentures Payable- Mandatory Redemption payment
|
5,737,058
|
5,886,059
|
|||||
|
Convertible
Debentures Payable- Failure to Deliver Shares
|
90,944
|
356,348
|
|||||
|
Convertible
Notes Payable - 2006
|
2,170,000
|
1,300,000
|
|||||
|
Total
|
$
|
9,568,239
|
10,143,219
|
||||
F-19
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
9 —Promissory Notes Payable
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 (See Note 7). As of December 31, 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 (See Note 7)
and
the Winfield convertible debentures of March 2005.
The
notes
share a security interest with the Winfield notes issued in July 2004. As of
December 31, 2006 we had failed to make any monthly payments on the notes and
are in default.
Promissory
Notes Payable: December 2005 through March 2006 Financing
In
December of 2005, we borrowed $375,000 from Longview Fund L.P., a major
shareholder and $200,000 from MCF Corporation. The notes accrue interest at
16%
per annum, are uncollateralized and are payable including accrued interest
on or
before March 15, 2006. The Longview notes were amended extending the term of
the
loans to June 2007.
In
February 2006, we completed a financing transaction, which provided us with
$250,000 in funding. In consideration for the funding, we issued a promissory
note 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 March 2006, we completed an additional financing transaction, which provided
us with $150,000 in funding under the same terms and conditions as the February
2006 financing. In December 2006 the term on the note was extend until June
2007.
In
July
2007, we completed an additional financing transaction, which provided us with
$300,000 in funding. In consideration for the funding, we issued a promissory
note with a term of one hundred and twenty (120) days and an interest rate
of
sixteen percent (16%) per annum. The default interest rate on the note is
twenty-two percent (18%). The funds were used for working capital and general
corporate purposes.
F-20
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
9 —Promissory Notes Payable continued
On
October 9, 2005, we completed a financing transaction, which provided us with
$137,500 in funding. In consideration for the financing, we issued promissory
notes with a face value of $200,000, reflecting an original issue discount
of
thirty-one and a quarter (31.25%) percent. The term of the notes is one. The
note does not bear interest The funds were used for working capital and general
corporate purposes.
On
December 11, 2007, the Company formally entered into an agreement with several
investors to loan $1,000,000 to the Company. In consideration for the financing,
we issued promissory notes with a face value of $1,200,000, reflecting an
original discount of sixteen and seventeen hundreds (16.17%) percent. The notes
evidencing the loan bear interest at the rate of 4.9% per annum, payable on
or
prior to the one year anniversary of the respective loan date As of December
31,
2007, $600,000 of the $1,200,000 has been funded by the investors.
The
aggregate total of 2007 financing transactions was $1,970,000.
Accordingly,
at December 31, 2007 and 2006 we classified the following notes payable as
current liabilities as follows:
|
|
2007
|
2006
|
|||||
|
Promissory
Notes Payable-July 2005 Financing
|
$
|
1,200,000
|
$
|
1,200,000
|
|||
|
Promissory
Notes Payable-September 2005 Financing
|
300,000
|
300,000
|
|||||
|
Promissory
Notes Payable-December 2005 Financing
|
575,000
|
575,000
|
|||||
|
Promissory
Notes Payable-February 2006 Financing
|
250,000
|
250,000
|
|||||
|
Promissory
Notes Payable-March 2006 Financing
|
150,000
|
150,000
|
|||||
|
Promissory
Notes Payable-July 2007 Financing
|
300,000
|
-
|
|||||
|
Promissory
Notes Payable-October 2007 Financing
|
200,000
|
-
|
|||||
|
Promissory
Notes Payable-December 2007 Financing
|
600,000
|
-
|
|||||
|
Total
|
$
|
3,575,000
|
$
|
2,475,000
|
|||
Note
10 —Other Long-term Debt
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.
F-21
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
10 —Other Long-term Debt continuted
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 December 31, 2007 and 2006, we had the following amounts due
under the financings as follows:
|
|
2007
|
2006
|
|||||
|
Long-term
Debt-Current Plum Mine
|
$
|
250,000
|
$
|
250,000
|
|||
|
Long-term
Debt-Current Seller Note
|
147,200
|
147,200
|
|||||
|
Other
Long-term Debt-Current
|
11,600
|
9,758
|
|||||
|
Total
|
$
|
408,800
|
$
|
406,958
|
|||
|
|
2007
|
2006
|
|||||
|
Long-term
Debt-non current Plum Mine
|
$
|
-
|
$
|
-
|
|||
|
Long-term
Debt-non current Seller Note
|
-
|
-
|
|||||
|
Other
Long-term Debt -Non-current
|
11,612
|
23,336
|
|||||
|
Total
|
$
|
11,612
|
$
|
23,336
|
|||
Principal
payments on other long-term debt related to equipment financing for the next
four years are as follows:
|
2008
|
$
|
11,441
|
||
|
2009
|
$
|
10,977
|
||
|
2010
|
$
|
-
|
||
|
2011
and thereafter
|
$
|
-
|
||
|
Total
|
$
|
22,418
|
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%.
F-22
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
10 —Other Long-term Debt - Continued
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 December 31, 2007
and
2006 we classified the following notes payable as current liabilities as
follows:
|
|
2006
|
2005
|
|||||
|
Convertible
Notes Payable
|
$
|
9,568,239
|
$
|
10,143,219
|
|||
|
Promissory
notes
|
3,575,000
|
2,475,000
|
|||||
|
Total
|
$
|
13,143,239
|
$
|
12,618,219
|
|||
Note
11 — Income Taxes
The
provision (benefit) for income taxes from continued operations for the years
ended December 31, 2007 and 2006consist of the following:
|
|
2007
|
2006
|
|||||
|
Current:
|
|||||||
|
Federal
|
$
|
-
|
-
|
||||
|
Deferred:
|
|||||||
|
Federal
|
(1,500,000
|
)
|
(1,500,000
|
)
|
|||
|
|
|||||||
|
Increase
in valuation allowance
|
1,500,000
|
1,500,000
|
|||||
|
Benefit
for income taxes, net
|
$
|
-
|
-
|
||||
F-23
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
11 — Income Taxes continued
The
difference between income tax expense computed by applying the federal statutory
corporate tax rate and actual income tax expense is as follows:
|
|
December
31,
|
|||
|
|
2007
and 2006
|
|||
|
Statutory
federal income tax rate
|
35.0
|
%
|
||
|
Increase
in valuation allowance
|
(35.0
|
)%
|
||
|
Effective
tax rate
|
-
|
%
|
||
Deferred
income taxes result from temporary differences in the recognition of income
and
expenses for the financial reporting purposes and for tax purposes. The tax
effect of these temporary differences representing deferred tax asset and
liabilities result principally from the following:
|
|
December
31,
|
|||
|
|
2007
|
|||
|
Net
operating loss carry-forwards
|
$
|
(6,900,000
|
)
|
|
At
December 31, 2006 the Company has a net operating loss carry-forward of
approximately $27.9 millions that begin to expire in 2024 available to offset
future taxable income, may be subject to certain limitations under section
382
of the Internal Revenue Code of 1986, as amended, and other limitations under
state tax laws.
Note
12 — Stockholders’ Equity
Common
Stock issued for Convertible Debenture Principal and Interest
During
2007 the Company issued 898,776,970, 835,792,338 and 200,529,058 shares of
its
unrestricted common stock in connection with the conversion of $1,444,947,
$954,880 and $154,347 of debenture principal, interest and liquidated damages,
respectively.
March
2004 Offering
We
completed a private placement of securities transaction during March 2004.
In
connection with the offering, we received gross proceeds of $10 million from
a
group of accredited institutional and individual investors through the issuance
of 21,739,129 shares of unregistered restricted common stock at a price of
$0.46
per share. The investors also received two forms of warrants in this
transaction. The Green Shoe Warrants allowed the investor group to purchase
an
additional 10,869,575 shares of common stock under the same terms and conditions
at a price of $0.46 per share. The Green Shoe Warrants are exercisable for
a
period of 180 days from the effective date of the registration
statement.
F-24
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
12 — Stockholders’ Equity continued
The
series A warrants allow the investor group to purchase 10,869,575 shares of
common stock at an exercise price of $0.86 per share and are exercisable during
the four-year period ending March 2008. Subsequent to the completion of the
offering, we failed to meet certain provisions of the offering that required
us
to provide for an effective registration statement with the Securities and
Exchange Commission.
As
a
result, and effective November 30, 2004, we restructured our $10.0 million
private placement transaction. 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
27,800,000 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
Note 6).
We
exchanged the securities in reliance upon the exemptions provided by (a) Section
3(a)(9) of the Securities Act of 1933, as amended (the “Securities Act”) as
securities exchanged by the issuer with its existing security holders
exclusively where no commission or other remuneration is paid or given directly
or indirectly for soliciting such exchange; and (b) Section 4(2) of the
Securities Act as a transaction by an issuer not involving a public offering.
Stock
Purchase Warrants
In
connection with our November 30, 2004 restructuring agreement, we agreed to
issue (detachable) 50 Class B Stock Purchase Warrants (“the Warrants”) for each
one-hundred shares that the convertible notes could be converted into, assuming
they were converted immediately after closing of the restructuring agreement.
The Warrants are exercisable at $0.20 within four years of their issue date
and
are subject to registration rights. We estimated the fair value of the warrants
at the time of issuance as nil and have not reflected any discount on the
convertible notes relating to them.
Common
Stock Retired to Treasury
During
2006, 100,000 common shares of treasury stock were retired.
Common
Stock issued for Liquidated Damages
During
April of 2005 we issued 59,203,484 shares of our common stock to investors
in
connection with satisfying liquidated damages totaling $1,776,104 related to
a
registration statement filed to register shares of our common stock issued
in
our March private placement. In addition, during November 2005 we issued an
additional 35,103,534 shares of our common stock to investors in connection
with
satisfying liquidated damages totaling $1,053,106 pursuant to the terms and
conditions of the November 30, 2004 Subscription Agreement (See Note
9).
F-25
GOLDSPRING,
INC.
NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
For
the
years ended December 31, 2007 and 2006
Note
12 — Stockholders’ Equity - Continued
Common
Stock issued for Mining Properties
During
2005 we acquired mining claims near or contiguous to our Plum Mining Property
in
exchange for a cash payment of $10,000, a note payable of $100,000 and 3,000,000
restricted shares of our common stock valued at $150,000. We valued the shares
based upon our estimate of their market value at the time of
issuance.
During
October of 2005 the Company issued 444,444 shares of its restricted common
stock
to an individual as consideration for the purchase of an entity controlled
by
the individual owning property near our Plum Mining property. If we are unable
to consummate the transaction the shares will be retained the individual. We
valued the shares at $20,000 based on our estimate of the common stock’s fair
value at the time of issuance.
Note
13- Earnings Per Share
Basic
earnings per share is computed by dividing net income, after deducting preferred
stock dividends accumulated during the period, by the weighted average number
of
shares of common stock outstanding. Diluted earnings per share is computed
by
dividing net income, after deducting preferred stock dividends accumulated
during the period, by the weighted average number of shares of common stock
and
dilutive common stock equivalent shares outstanding. The amount of preferred
stock dividends is zero in all periods presented. For the years ended December
31, 2008 and December 31, 2007, there were approximately 2,059 million and
3,556
million, respectively, of common stock equivalent shares excluded from the
dilutive earnings per share calculation because they were anti-dilutive. The
following is a reconciliation of the number of shares used in the basic and
diluted computation of net income per share (in millions):
|
For
the Twelve Months
Ended
Dec. 31,
|
|
||||||
|
|
|
2008
|
|
2007
|
|||
|
Weighted
average number of common shares outstanding - basic
|
1,591
|
701
|
|||||
|
Dilution
from convertible debt, stock options and warrants
|
2,059
|
3,556
|
|||||
|
Weighted
average number of common shares outstanding - diluted
|
3,650
|
4,527
|
|||||
Note
14- Embedded Derivatives
“Other
-
embedded derivatives” totaling $906,989 at December 31, 2007 represents the net
debt discount resulting from the original determination of the fair value of
the
conversion feature (embedded derivative) included in the debt, net of periodic
amortizations of interest expense.
“Derivative
liability” totaling $776,385 at December 31, 2007 represents the fair value of
warrants and the conversion features (embedded derivatives).
Note
15 - Subsequent Events
On
January 17, 2008, the Company’s Board of Directors elected Robert T. Faber and
Scott Jolcover as directors of the Company to fill vacancies on the Board.
Mr.
Faber has served as the Company’s President and Chief Executive Officer since
September 2004 and Chief Financial Officer since June 2003. Mr. Jolcover served
as Manager of the Plum Mine prior to and after it was acquired by GoldSpring
in
November 2003. Since leaving GoldSpring in 2006, Mr. Jolcover has worked as
a
consultant. There was no arrangement or understanding pursuant to which Mr.
Faber and Mr. Jolcover were elected as directors, and there are no related
party
transactions between Mr. Faber or Mr. Jolcover and the Company.
Pursuant
to the terms of various financing instruments between Goldspring and some of
its
lenders have certain “favored nations” rights to either receive shares or have
certain note conversion exercise prices reduced so that the overall equity
issuance pricing is reduced to the same price as paid by any subsequent
purchasers of equity and/or convertible note. On February 20, 2008, Goldspring
sold 50,000,000 shares of its Common Stock at $0.01 per share purchase price.
In
lieu of triggering any and all “favored nations” rights, the lenders have agreed
to accept $.01 per share as the new maximum conversion price all convertible
notes owned by them.
F-26